**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
                1934**For
                the quarterly period ended April 1, 2007**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.**


(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 is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                accelerated filer
            o
            Accelerated
                filer
            o
            Non-accelerated
                filer
            x





Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).
            
            oYesxNo




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 15, 2007, there were 187,408,902 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:Condensed
                Consolidated Balance Sheets April 1, 2007 (Unaudited) and
                December 31, 2006
            1Condensed
                Consolidated Statements of Operations (Unaudited) Three Months ended
                April
                1, 2007 and April 2, 2006
            2Condensed
                Consolidated Statements of Cash Flow (Unaudited) Three Months ended
                April
                1, 2007 and April 2, 2006
            3Notes
                to Condensed Consolidated Financial Statements
            42.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            133.
            Quantitative
                and Qualitative Disclosures about Market Risk
            204.
            Controls
                and Procedures
            20PART
                II - OTHER INFORMATION2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            216.
            Exhibits
            21Signatures
            22








i





**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)**


**ASSETS****April
                    1,**
                
                **December
                    31,****2007**
                
                **2006****(Unaudited)**CURRENT
                    ASSETSCash
                
                $
                838
                
                $
                297Accounts
                    receivable, net of allowance for doubtful accounts of $464 and
                    $428,
                    respectively
                
                
                11,795
                
                
                13,275Inventories,
                    net
                
                
                8,171
                
                
                7,640Prepaid
                    expenses and other current assets
                
                
                713
                
                
                1,226Total
                    current assets
                
                
                21,517
                
                
                22,438PROPERTY
                    AND EQUIPMENT, net
                
                
                6,141
                
                
                6,320OTHER
                    ASSETSDeposits
                
                
                89
                
                
                90Debt
                    issue costs, net
                
                
                354
                
                
                2,017Other
                    intangibles, net
                
                
                2
                
                
                2Total
                    other assets
                
                
                445
                
                
                2,109**Total
                    Assets**
                
                $
                28,103
                
                $
                30,867**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**CURRENT
                    LIABILITIESRevolving
                    credit line, net of discount of $-0- and $438,
                    respectively
                
                $
                -
                
                $
                6,500Current
                    portion of long-term debt, net of discount of $130 and $-0-,
                    respectively
                
                
                2,886
                
                
                2,081Accounts
                    payable
                
                
                5,311
                
                
                7,237Accrued
                    expenses and other current liabilities
                
                
                2,358
                
                
                2,532Total
                    current liabilities
                
                
                10,555
                
                
                18,350LONG
                    TERM LIABILITIESLong-term
                    debt, net of discount of $-0- and $229, respectively
                
                
                23
                
                
                5,824Long-term
                    debt, Stockholder
                
                
                3,000
                
                
                3,000Total
                    long-term liabilities
                
                
                3,023
                
                
                8,824Total
                    liabilities
                
                
                13,578
                
                
                27,174COMMITMENTS
                    AND CONTINGENCIESSTOCKHOLDERS'
                    EQUITYPreferred
                    stock, no par value; 20,000,000 shares authorized; no shares
                    issued and
                    outstanding
                
                
                -
                
                
                -Common
                    stock, no par value; 300,000,000 shares authorized; 187,408,902
                    and
                    117,285,272 shares issued and outstanding, respectively
                
                
                21,864
                
                
                8,459Additional
                    paid in capital
                
                
                8,991
                
                
                8,961Deferred
                    compensation
                
                
                (61
                )
                
                (47
                )Accumulated
                    deficit
                
                
                (16,269
                )
                
                (13,680
                )Total
                    Stockholders' equity
                
                
                14,525
                
                
                3,693**Total
                    Liabilities and Stockholders' Equity**
                
                $
                28,103
                
                $
                30,867








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 1, 2007**
            ****
            **For
                the 3 months ended April 2, 2006**
            ********
            ****
            **(Unaudited)**
            ****
            **(Unaudited)****REVENUES**Product
                sales
            
            $
            5,226
            
            $
            5,160Service
                revenue
            
            
            10,920
            
            
            8,091Total
                revenues
            
            
            16,146
            
            
            13,251**COST
                OF REVENUES**Product
                sales
            
            
            4,038
            
            
            3,853Service
                revenue
            
            
            9,261
            
            
            6,905Total
                cost of revenues
            
            
            13,299
            
            
            10,758Gross
                Profit
            
            
            2,847
            
            
            2,493Selling,
                general and administrative expenses
            
            
            2,671
            
            
            2,313Operating income
            
            
            176
            
            
            180Other
                expenseLoss
                on debt extinguishment
            
            
            2,300
            
            
            -Interest
                expense
            
            
            465
            
            
            9662,765
            
            
            966**NET
                LOSS**
            
            $
            (2,589
            )
            $
            (786
            )Basic
                and diluted loss per common share
            
            $
            (0.02
            )
            $
            (0.01
            )Weighted
                average number of common shares
            
            
            170,679,851
            
            
            105,178,981







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 3months
                endedApril
                1,
            
            April
                2,2007
            
            2006**(Unaudited)**
            
            **(Unaudited)**OPERATING
                ACTIVITIESNet
                cash provided (utilized) by operating activities
            
            $
            (843
            )
            $
            237INVESTING
                ACTIVITIESAcquisition
                of property and equipment
            
            
            (53
            )
            
            (118
            )Proceeds
                from disposal of property and equipment
            
            
            -
            
            
            3Net
                cash utilized by investing activities
            
            
            (53
            )
            
            (115
            )FINANCING
                ACTIVITIESPayments
                on capital lease obligations
            
            
            (10
            )
            
            (3
            )Short
                term borrowings (repayments), net
            
            
            (6,938
            )
            
            388Repayment
                of long-term debt, note
            
            
            (4,040
            )
            
            (100
            )Proceeds
                from the issuance of shares and exercise of warrants
            
            
            12,500
            
            
            1Payment
                of stock issuance costs
            
            
            (75
            )
            
            -Net
                cash provided by financing activities
            
            
            1,437
            
            
            286**INCREASE
                IN CASH**
            
            
            541
            
            
            408Cash,
                beginning of year
            
            
            297
            
            
            23Cash,
                end of period
            
            $
            838
            
            $
            431SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            106
            
            $
            208








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




3





**MISCOR
      GROUP, LTD.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS IN THE PERIOD ENDED APRIL 1, 2007**





**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 1, 2007 and April 2, 2006,
      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 1, 2007 are not necessarily indicative
      of the results to be expected for the year ending December 31,
      2007.




Certain
      amounts from the prior year financial statements have been reclassified to
      conform to the current year presentation. Costs of $218 for the three months
      ended April 2, 2006 were reclassified from selling, general and administrative
      expenses to cost of revenues - service. This reclassification had no effect
      on
      net loss or stockholders’ equity.




**NOTE
      B - RECENT ACCOUNTING PRONOUNCEMENTS**




*FSP
      EITF 00-19-2*




In
      December 2006, the Financial Accounting Standards Board (“FASB”) issued Staff
      Position EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* (“FSP
      EITF 00-19-2”). FSP EITF 00-19-2 specifies that the contingent obligation to
      make future payments or otherwise transfer consideration under a registration
      payment arrangement, whether issued as a separate agreement or included as
      a
      provision of a financial instrument or other agreement, should be separately
      recognized and measured in accordance with FASB Statement No. 5, *Accounting
      for Contingencies* .
      FSP
      EITF 00-19-2 further clarifies that a financial instrument subject to a
      registration payment arrangement should be accounted for in accordance with
      applicable generally accepted accounting principles without regard to the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement. The Company elected to early adopt FSP EITF 00-19-2
      effective December 31, 2006 (see Note F).




*SFAS
      157*




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, *Fair
      Value Measurements* (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements. SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. The Company
      is
      currently evaluating the impact that SFAS 157 will have on its consolidated
      financial statements.




*FIN
      48*




In
      June
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an enterprise’s financial statements in accordance with FASB Statement No.
      109, *Accounting
      for Income Taxes* .
      FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 is effective for fiscal years beginning
      after
      December 15, 2006. The Company adopted this standard effective January 1, 2007.
      Adoption of this standard did not have a material impact on the Company’s
      consolidated financial position, results of operations or cash
      flows.







4





*SFAS
      155*




In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments — an Amendment of FASB Statements No.
      133 and 140* (“SFAS
      155”). SFAS 155 allows financial instruments that contain an embedded derivative
      and that otherwise would require bifurcation to be accounted for as a whole
      on a
      fair value basis, at the holder’s election. SFAS 155 also clarifies and amends
      certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is
      effective for all financial instruments acquired or issued in fiscal years
      beginning after September 15, 2006. Adoption of this standard did not have
      a
      material impact on the Company’s consolidated financial position, results of
      operations or cash flows.




**NOTE
      C - EARNINGS PER SHARE**




The
      Company accounts for loss per common share under the provisions of SFAS No.
      128, *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 April 1, 2007, the Company’s common stock equivalents,
      consisting of warrants to purchase 9,309,556 shares of common stock,
      subordinated debt convertible into 38,752,026 common shares, and options to
      purchase 1,580,000 shares of common stock issued to employees under the 2005
      Stock Option Plan, were not included in computing diluted loss per share because
      their effects were anti-dilutive. For the three months ended April 2, 2006,
      the
      Company’s common stock equivalents, consisting of warrants to purchase
      21,080,332 shares of common stock, senior and subordinated debt convertible
      into
      76,815,714 common shares, and options to purchase 500,000 shares of common
      stock
      issued to employees under the 2005 Stock Option Plan, were not included in
      computing diluted loss per share because their effects were anti-dilutive.
      Basic
      and diluted loss per share were the same for the three months ended April 1,
      2007 and April 2, 2006, respectively, as there were no potentially dilutive
      securities outstanding.




**NOTE
      D - INVENTORY**




Inventory
      consists of the following:




**April
                1,**
            
            **December
                31,****2007**
            
            **2006**Raw
                materials
            
            $
            2,486
            
            $
            2,861Work-in-process
            
            
            3,382
            
            
            2,761Finished
                goods
            
            
            2,710
            
            
            2,3308,578
            
            
            7,952Less:
                allowance for slow moving and obsolete inventories
            
            
            (407
            )
            
            (312
            )$
            8,171
            
            $
            7,640







5





**NOTE
      E - DEBT**




*Long-term
      debt*




Long-term
      debt consists of the following:


**April
                1,**
            
            **December
                31,****2007**
            
            **2006**Note
                payable to its stockholder, due December 2008, plus interest at prime
                rate
                less 1% (7.25% at April 1, 2007 and December 31, 2006, respectively)
                secured by a subordinated security interest in substantially all
                assets
                owned by the Company
            
            $
            3,000
            
            $
            3,000Long-term
                debt, debentures (net of discount of $130 and $229 at April 1, 2007
                and
                December 31, 2006, respectively) (see note below)
            
            
            2,850
            
            
            3,796Note
                payable to former employee in annual principal payments of $10, unsecured
                and without interest
            
            
            10
            
            
            20Revolving
                note payable in August 2008 (net of discount of $438 at December
                31, 2006)
                with interest payable monthly at 1% over the Wall Street Journal
                prime
                rate (9.25% at December 31, 2006) secured by substantially all assets
                owned by the Company paid off in January 2007 (see note
                below)
            
            
            -
            
            
            5,759Term
                note payable in monthly principal payments of $100 plus interest
                at 1%
                over the Wall Street Journal prime rate (9.25% at December 31, 2006)
                secured by substantially all assets owned by the Company paid off
                in
                January 2007 (see note below)
            
            
            -
            
            
            2,000Revolving
                note payable in May 2009 with interest payable monthly at 1.5% over
                the
                Wall Street Journal prime rate (9.75% at December 31, 2006) secured
                by
                substantially all assets owned by the Company paid off in January
                2007
                (see note below)
            
            
            -
            
            
            741Term
                note payable in monthly principal payments of $70 plus interest at
                1% over
                the Wall Street Journal prime rate (9.25% at December 31, 2006) secured
                by
                substantially all assets owned by the Company paid off in January
                2007
                (see note below)
            
            
            -
            
            
            2,030Capital
                lease obligations (see note below)
            
            
            49
            
            
            595,909
            
            
            17,405Less:
                current portion
            
            
            2,886
            
            
            8,581$
            3,023
            
            $
            8,824








6





**NOTE
      E - DEBT (CONTINUED)**




*Long-term
      debt, debentures*




In
      January 2005, the Company commenced a private offering (the “Debenture
      Offering”) of a maximum of $4,025 principal amount of subordinated secured
      convertible debentures. The Company issued the maximum $4,025 principal amount
      of debentures as of May 5, 2005. The debentures, which are payable on February
      28, 2008, bear interest at the rate of 6% per year, payable upon conversion
      or
      at redemption or maturity. Investors will receive interest in cash only if
      they
      elect not to convert their debentures. Each holder has the option any time
      prior
      to the redemption date to convert principal and accrued interest under the
      debentures into the number of shares of the Company’s common stock determined by
      dividing the principal amount by a fixed conversion price of $0.3404926. The
      debentures are secured by a second lien on substantially all of the Company’s
      assets, which is subordinate to the lien of the Company’s senior secured
      lender.




The
      Company reserved 11,821,108 shares of common stock for issuance upon conversion
      of the debentures. During the three months ended April 1, 2007, certain
      debenture holders converted $1,045 of the aggregate principal amount of the
      debentures into 3,069,079 shares of common stock.




If
      the
      number of the Company’s outstanding shares of common stock is increased because
      of a stock split or stock dividend, the conversion price will be proportionately
      reduced, and if the number is decreased because of a stock combination, the
      conversion price will be proportionately increased, except that any adjustment
      to the conversion price of less than $0.0001 is not required to be
      made.




Upon
      written notice, the Company may redeem any or all of the outstanding debentures
      prior to the maturity date at a redemption price, payable in cash, equal to
      100%
      of the principal amount redeemed, plus accrued and unpaid interest through
      the
      redemption date. Any notice to redeem must be given to all holders no less
      than
      30 days or more than 45 days prior to the date for redemption set forth in
      the
      notice. The loan agreements with the senior secured lender restrict the
      Company’s ability to exercise this redemption right.




Each
      purchaser of debentures received common stock purchase warrants for no
      additional consideration. Each warrant entitled its holder to purchase one
      share
      of common stock for a five year period at an exercise price of $0.001 per share.
      The Company has allocated warrants to purchase 4,255,601 shares of common stock
      among all purchasers of the debentures. The Company used the Black-Scholes
      valuation model in estimating the fair value of the common stock purchase
      warrants. The following assumptions were used for such estimates: no dividend
      yield, no expected volatility, risk-free interest rate of 3.3% and an expected
      life of the common stock purchase warrants of one year. The estimated fair
      value
      of these warrants is $836. This debt discount is amortized to interest expense
      over the term of the debentures. Interest expense was $49 and $107 for the
      three
      months ended April 1, 2007 and April 2, 2006, respectively. In addition, for
      the
      quarter ended April 1, 2007, $50 in debt discount was written off against common
      stock in conjunction with the conversion of $1,045 of the aggregate principal
      amount of the debentures. Net debt issue discount at April 1, 2007 related
      to
      this instrument was $130. As of April 1, 2007, warrants to purchase 3,948,986
      shares had been exercised.




The
      Company issued to its placement agent in the Debenture Offering, as compensation
      for its services, ten-year warrants to purchase 6,182,992 shares of the
      Company’s common stock at an exercise price of $0.001 per share. The Company
      used the Black-Scholes valuation model in estimating the fair value of common
      stock purchase warrants. The following assumptions were used for such estimates:
      no dividend yield, no expected volatility, risk-free interest rate of 3.3%
      and
      an expected life of the common stock purchase warrants of one year. The
      estimated fair value of the warrants issued to the placement agent was $1,546.
      As of April 1, 2007, warrants to purchase 6,157,992 shares had been
      exercised.




The
      Company also paid the placement agent a fee of 10% of the amount raised in
      the
      offerings, or $403. In addition, the Company issued to its securities counsel
      in
      the Debenture Offering, as compensation for its services, 50,000 shares of
      the
      Company’s common stock, the fair value of which was $12. The summation of these
      debt issue costs was $2,095. Interest expense was $131 and $290 for the three
      months ended April 1, 2007 and April 2, 2006, respectively. In addition, $137
      in
      debt issue costs was written off against common stock in conjunction with the
      conversion of $1,045 of the aggregate principal amount of the debentures for
      the
      quarter ended April 1, 2007. Net debt issue cost at April 1, 2007 related to
      these instruments was $354.







7




**NOTE
      E - DEBT (CONTINUED)**




*Senior
      Debt Financing*




On
      January 18, 2007 the Company paid off all senior debt financing, accrued
      interest and prepayment penalties of $9,921, $42, and $517, respectively, upon
      the issuance of 62,500,000 shares of its common stock at a price of $0.20 per
      share. The remaining proceeds of $2,020 were used to pay for related legal
      costs, for general working capital purposes and to reduce accounts payable.
      The
      Company recorded a loss on the extinguishment of debt of $2,300.




On
      March
      9, 2007, the Company obtained financing from MFB Financial in the form of a
      $5
      million revolving credit facility, secured by accounts receivable. Borrowings
      under the note will be used for capital expenditures and working capital
      purposes. Interest is payable monthly at 1⁄2% over prime, as published in the Wall
      Street Journal. The facility contains annual financial covenants, including
      minimum tangible net worth, current ratio and debt coverage ratio, and maximum
      debt to equity ratio. An event of default under the facility will occur if,
      among other things, the Company fails to make a required payment on time or
      when
      due, fails to keep the secured property insured, defaults under any other
      agreements with MFB Financial, is involved in any legal proceeding by a creditor
      for the collection of debt, becomes insolvent, or makes any misrepresentation
      in
      financial information provided to MFB Financial, or the Company does or fails
      to
      do something that causes MFB Financial to believe that it will have difficulty
      collecting the debt. At April 1, 2007 there were no amounts outstanding under
      the revolving credit agreement.




Aggregate
      maturities of long-term debt for the periods subsequent to April 1, 2007 on
      a
      calendar year basis are as follows:




**Year
                ending December 31,**2007
            
            $
            222008
            
            
            6,0062009
            
            
            11







Following
      is a summary of interest expense for the three months ended April 1, 2007 and
      April 2, 2006:




**Three
                months ended****April
                1,**
            
            **April
                2,****2007**
            
            **2006**Interest
                expense on principal
            
            $
            235
            
            $
            294Amortization
                of debt issue costs
            
            
            172
            
            
            482Amortization
                of debt discount -debentures and revolving notes payable
            
            
            58
            
            
            190Total
                interest expense
            
            $
            465
            
            $
            966







8





**NOTE
      F - STOCKHOLDERS’ EQUITY**




*Common
      Stock Issuance*




On
      January 18, 2007, the Company sold 50,000,000 shares of common stock to Tontine
      Capital Partners, L.P. and 12,500,000 shares of common stock to Tontine Capital
      Overseas Master Fund, L.P. for $0.20 per share or $12,500. Proceeds were used
      to
      cover related legal fees of approximately $75 and to retire all of the
      outstanding senior debt due to Laurus as of that date in the amount of
      approximately $10,000, including interest, plus approximately $500 in prepayment
      penalties. The Company used the balance of the proceeds for working capital
      and
      to reduce past due accounts payable.




The
      Company did not register the issuance of the shares of common stock to Tontine
      with the SEC under the Securities Act of 1933, in reliance on exemptions from
      the registration requirements of the Securities Act. The Company and Tontine
      entered into a registration rights agreement, dated January 18, 2007, pursuant
      to which the Company agreed to register for resale the shares issued to Tontine.
      The Company has not yet registered these shares.




Under
      the
      registration rights agreement, the Company agreed to use its reasonable best
      efforts to cause the registration statement to be declared effective under
      the
      Securities Act on or before January 18, 2008 and to keep the registration
      statement continuously effective until such time as the common stock is no
      longer deemed to be registrable securities. However, there are no specific
      penalty provisions in connection with the registration rights agreement and,
      therefore, the investors in the private placement are not entitled to receive
      any additional benefit if the registration does not occur.




*Equity
      Incentive Plans*




2005
      Stock Option Plan




On
      January 19, 2007, the Company granted stock options to certain executives and
      key employees to acquire 395,000 shares of the Company’s common stock at an
      exercise price of $0.215 per share 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 estimated fair value of the Company’s
      common stock was $0.215 per share. The fair value of the Company’s common stock
      was determined based upon the average of the high and low sale prices of the
      Company’s common stock on the date of grant.




The
      fair
      value of the options was estimated using the Black-Scholes valuation model
      and
      the following assumptions: expected term of 4 years, risk-free interest rate
      of
      4.78%, volatility of 41.21% and no dividend yield. The Company recorded
      compensation cost based on the grant date fair value of the award of 395,000
      shares at $0.215 per share. The total cost of the grant in the amount of $33
      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. The Company recorded compensation expense related to all stock options
      of $7 and $1 for the three months ended April 1, 2007 and April 2, 2006,
      respectively.




2005
      Restricted Stock Purchase Plan




On
      January 19, 2007, the Company issued offers to purchase 105,000 shares of common
      stock at a nominal price of $0.001 per share to certain key employees. The
      fair
      value of the restricted stock issued was estimated using the Black-Scholes
      valuation model and the following assumptions: expected term, representing
      the
      restriction period of 3 years, risk-free interest rate of 4.78%, volatility
      of
      41.21% and no dividend yield. The Company charged deferred compensation and
      credited additional paid-in capital in the amount of $22. 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. Compensation expense related to all restricted stock offers
      of $8 and $5 was recorded for the three months ended April 1, 2007 and April
      2,
      2006, respectively.







9





**NOTE
      G - RELATED PARTY TRANSACTIONS**




*Long-term
      debt, other*




The
      Company was indebted to the estate of a former employee for a note payable
      with
      a balance of $10 at April 1, 2007 (see Note E). The unsecured note is payable
      in
      annual principal installments of $10 and is non-interest bearing.




*Long-term
      debt, stockholder*




The
      Company was indebted to its Chief Executive Officer and stockholder for a note
      payable with a balance of $3,000 at April 1, 2007 (see Note E). Interest is
      payable monthly at prime less 1%. The loan matures on December 31, 2008, except
      that the Company can extend the maturity for five years upon 60 days prior
      written notice at an interest rate of prime plus 1%. Interest expense on the
      note was $54 and $49 for the three months ended April 1, 2007 and April 2,
      2006,
      respectively.




*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 $82 and $78 for
      the
      three months ended April 1, 2007 and April 2, 2006, respectively.




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 $38 for the three months ended April
      1,
      2007 and April 2, 2006, respectively.




In
      January 2007, the Company began leasing a new 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 1,
      2007.




**NOTE
      H - CONCENTRATIONS OF CREDIT RISK**




The
      Company grants credit, generally without collateral, to its customers, which
      are
      primarily in the steel, metal working, and scrap 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 1, 2007 and December 31, 2006, approximately 14% and 21%,
      respectively, of gross accounts receivable were due from entities in the steel,
      metal working and scrap industries, and 21% and 19%, respectively, of gross
      receivables were due from entities in the railroad industry. No single customer
      accounted for more than 10% of gross accounts receivable at April 1, 2007 and
      December 31, 2006. Additionally, no single customer accounted for more than
      10%
      of sales for the three months ended April 1, 2007 and April 2,
      2006.




**NOTE
      I - COMMITMENTS AND CONTINGENCIES**




*Collective
      bargaining agreements*




At
      April
      1, 2007 and December 31, 2006, approximately 37% of the Company’s employees were
      covered by collective bargaining agreements. One of the collective bargaining
      agreements expires in May 2007 representing 5% of the Company’s employees at
      April 1, 2007.




*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.







10





**NOTE
      J - FAIR VALUE OF FINANCIAL INSTRUMENTS**




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




*Cash,
      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 differs from the carrying amount due to favorable interest terms
      on debt with its Chief Executive Officer and stockholder. At April 1, 2007
      and
      December 31, 2006, the aggregate fair value of debt, with an aggregate carrying
      value of $5,909 and $17,405, respectively, is estimated at $6,614 and $20,633,
      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
      K - SEGMENT INFORMATION**




The
      Company reports segment information in accordance with SFAS No. 131, *Disclosures
      about Segments of an Enterprise* .
      Through
      December 31, 2006, the Company operated primarily in three segments, industrial
      services, electrical contracting services and engine components.




Effective
      January 1, 2007, the Company realigned its segment reporting and reduced the
      number of business segments from three to two. The former diesel engine
      components segment and substantially all of the former industrial services
      segment were combined into the repair, remanufacturing and manufacturing
      segment. The former electrical contracting segment and one location of the
      former industrial services segment, involved in the repair of electrical power
      distribution systems within industrial plants and commercial facilities, were
      combined to form the construction and engineering services segment.




The
      repair, remanufacturing and manufacturing segment is primarily engaged in
      providing maintenance and repair services to the electric motor industry,
      repairing, remanufacturing and manufacturing industrial lifting magnets for
      the
      steel and scrap industries and power assemblies, engine parts, and other
      components related to large diesel engines for the rail, utilities and offshore
      drilling industries. The construction and engineering services segment provides
      a wide range of electrical contracting services, mainly to industrial,
      commercial and institutional customers. The realignment was necessary to better
      serve the market and to reflect the revised manner in which the Company manages
      its business resources.




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.







11




Summarized
        financial information concerning the Company’s reportable segments as of and for
        the three months ended April 1, 2007 and April 2, 2006 is shown in the following
        tables:


**Repair,**
              
              **Construction**
              
              
              
              
              
              **April
                  1,****Remanufacturing**
              
              **&
                  Engineering**
              
              
              
              **Intersegment**
              
              **2007****2007**
              
              **&
                  Manufacturing**
              
              **Services**
              
              **Corporate**
              
              **Eliminations**
              
              **Consolidated**External
                  revenue:Product
                  sales
              
              $
              5,226
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              5,226Service
                  revenue
              
              
              6,905
              
              
              4,015
              
              
              -
              
              
              -
              
              
              10,920Intersegment
                  revenue:Product
                  sales
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Service
                  revenue
              
              
              -
              
              
              16
              
              
              -
              
              
              (16
              )
              
              -Depreciation
                  included in cost of revenues
              
              
              164
              
              
              32
              
              
              -
              
              
              -
              
              
              195Gross
                  profit
              
              
              2,232
              
              
              615
              
              
              -
              
              
              -
              
              
              2,847Other
                  depreciation & amortization
              
              
              10
              
              
              7
              
              
              20
              
              
              -
              
              
              37Interest
                  expense
              
              
              15
              
              
              -
              
              
              450
              
              
              -
              
              
              465Net
                  income (loss)
              
              
              609
              
              
              206
              
              
              (3,404
              )
              
              -
              
              
              (2,589
              )Total
                  assets
              
              
              20,459
              
              
              5,332
              
              
              2,312
              
              
              -
              
              
              28,103Capital
                  expenditures
              
              
              44
              
              
              1
              
              
              8
              
              
              -
              
              
              53
  **Repair,**
              
              **Construction**
              
              
              
              
              
              **April
                  2,****Remanufacturing**
              
              **&
                  Engineering**
              
              
              
              **Intersegment**
              
              **2006****2006**
              
              **&
                  Manufacturing**
              
              **Services**
              
              **Corporate**
              
              **Eliminations**
              
              **Consolidated**External
                  revenue:Product
                  sales
              
              $
              5,160
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              5,160Service
                  revenue
              
              
              5,307
              
              
              2,784
              
              
              -
              
              
              -
              
              
              8,091Intersegment
                  revenue:Product
                  sales
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Service
                  revenue
              
              
              -
              
              
              27
              
              
              -
              
              
              (27
              )
              
              -Depreciation
                  included in cost of revenues
              
              
              106
              
              
              35
              
              
              -
              
              
              -
              
              
              141Gross
                  profit
              
              
              2,114
              
              
              383
              
              
              -
              
              
              (4
              )
              
              2,493Other
                  depreciation & amortization
              
              
              7
              
              
              7
              
              
              12
              
              
              -
              
              
              26Interest
                  expense
              
              
              49
              
              
              -
              
              
              917
              
              
              -
              
              
              966Net
                  income (loss)
              
              
              769
              
              
              16
              
              
              (1,571
              )
              
              -
              
              
              (786
              )Total
                  assets
              
              
              18,610
              
              
              2,608
              
              
              4,188
              
              
              -
              
              
              25,406Capital
                  expenditures
              
              
              60
              
              
              45
              
              
              13
              
              
              -
              
              
              118
 
 **NOTE
          L - SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING
          ACTIVITIES**


SUPPLEMENTAL
        DISCLOSURES OF CASH FLOW INFORMATION:
  **Three
                  months ended****April
                  1, 2007**
              
              **April
                  2, 2006**Conversion
                  of subordinated debentures
              
              $
              979
              
              $
              -Issuance
                  of restricted stock
              
              
              22
              
              
              -


12







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




**Overview**




Through
      December 31, 2006, we operated in three segments: industrial services,
      electrical contracting services, and diesel engine components.




Effective
      January 1, 2007, we realigned our segment reporting and reduced the number
      of
      business segments from three to two. The former diesel engine components segment
      and substantially all of the former industrial services segment were combined
      into the repair, remanufacturing and manufacturing segment. The former
      electrical contracting segment and one location of the former industrial
      services segment involved in the repair of electrical power distribution systems
      within industrial plants and commercial facilities were combined to form the
      construction and engineering services segment.




The
      repair, remanufacturing and manufacturing segment is primarily engaged in
      providing maintenance and repair services to the electric motor industry,
      repairing, remanufacturing and manufacturing industrial lifting magnets for
      the
      steel and scrap industries, and power assemblies, engine parts, and other
      components related to large diesel engines for the rail, utilities and offshore
      drilling industries. The construction and engineering services segment provides
      a wide range of electrical contracting services, mainly to industrial,
      commercial and institutional customers. The realignment was necessary to better
      serve the market and to reflect the revised manner in which we manage our
      business resources.




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
      January 18, 2007, we sold 50,000,000 shares of common stock to Tontine Capital
      Partners, L.P. and 12,500,000 shares of common stock to Tontine Capital Overseas
      Master Fund, L.P. for $0.20 per share or $12.5 million. We used the proceeds
      to
      retire all of the outstanding senior debt due to our senior lender, Laurus
      Master Fund, Ltd., as of that date in the amount of approximately $10.0 million,
      including interest, plus approximately $0.5 million in prepayment penalties.
      We
      used the balance of the proceeds to pay related legal fees, for working capital
      and to reduce accounts payable.




On
      March
      9, 2007, we obtained financing from MFB Financial in the form of a $5 million
      revolving credit facility, secured by accounts receivable. We intend to use
      borrowings under the note for capital expenditures and working capital purposes.
      Interest is payable monthly at 1⁄2% over prime as published in the Wall Street
      Journal.




**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.




*Use
      of estimates.* The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and 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.







13





*Revenue
      recognition* .
      Revenues in our repair, remanufacturing and manufacturing segment consists
      primarily of product sales and service of industrial magnets, electric motors
      and diesel power assemblies. 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 historical experience. Our revenue recognition policies are
      in
      accordance with Staff Accounting Bulletins No. 101 and No. 104.




Revenues
      from Martell Electric, LLC’s electrical contracting business are recognized on
      the percentage-of-completion method, measured by the percentage of cost incurred
      to date to estimated total costs to complete for each contract. Costs incurred
      on electrical contracts in excess of customer billings are recorded as part
      of
      other current assets. Amounts billed to customers in excess of costs incurred
      on
      electrical contracts are recorded as part of other current
      liabilities.




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




*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 slow-moving 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 over
      the
      term of the senior debt financing, which is three years. Unamortized debt issue
      costs related to the senior debt financing were charged to loss on debt
      extinguishment in the three months ended April 1, 2007. We also capitalize
      and
      amortize costs incurred to secure subordinated debenture financing over the
      term
      of the subordinated debentures, which is three years. Unamortized costs related
      to subordinated debentures that were converted into common stock were written
      off against common stock in the three months ended April 1, 2007.




*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* .







14





*Stock-based
      compensation.* Stock-based
      compensation arrangements are accounted for in accordance with SFAS No. 123R, *Share-Based
      Payments* (revised
      2004). SFAS No. 123R revises SFAS No. 123, *Accounting
      for Stock-Based Compensation* and
      supersedes Accounting Principles Opinion 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.




*New
      Accounting Standards* .
      In
      December 2006, the Financial Accounting Standards Board (“ **FASB** ”)
      issued
      Staff Position EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* (“FSP
      EITF 00-19-2”). FSP EITF 00-19-2 specifies that the contingent obligation to
      make future payments or otherwise transfer consideration under a registration
      payment arrangement, whether issued as a separate agreement or included as
      a
      provision of a financial instrument or other agreement, should be separately
      recognized and measured in accordance with FASB Statement No. 5, *Accounting
      for Contingencies* .
      FSP
      EITF 00-19-2 further clarifies that a financial instrument subject to a
      registration payment arrangement should be accounted for in accordance with
      applicable generally accepted accounting principles without regard to the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement We elected to early adopt FSP EITF 00-19-2 effective
      December 31, 2006.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“ **SFAS
      157** ”).
      SFAS
      157 defines fair value, establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007
      and interim periods within those fiscal years. We are currently evaluating
      the
      impact that SFAS 157 will have on its consolidated financial
      statements.




In
      June
      2006, the FASB issued Interpretation No. 48 *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* (“ **FIN
      48** ”).
      FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement No. 109,
      Accounting for Income Taxes. This Interpretation prescribes a recognition
      threshold and measurement attribute for the financial statement recognition
      and
      measurement of a tax position taken or expected to be taken in a tax return.
      This Interpretation also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure, and
      transition. This Interpretation is effective for fiscal years beginning after
      December 15, 2006. We adopted this standard effective January 1, 2007. Adoption
      of this standard did not have a material impact on our consolidated financial
      position, results of operations or cash flows.




In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments — an Amendment of FASB Statements
      No. 133 and 140* (“ **SFAS
      155** ”).
      SFAS
      155 allows financial instruments that contain an embedded derivative and that
      otherwise would require bifurcation to be accounted for as a whole on a fair
      value basis, at the holder’s election. SFAS 155 also clarifies and amends
      certain other provisions of SFAS No. 133 and SFAS No. 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. We adopted this standard
      effective January 1, 2007. Adoption of this standard did not have a material
      impact on our consolidated financial position, results of operations or cash
      flows.




**Results
      of Operations**




***Three
      Months Ended April 1, 2007 Compared to Three Months Ended April 2,
      2006***




*Revenues* .
      Total
      revenues increased by $2.9 million or 22% to $16.1 million in 2007 from $13.2
      million in 2006. The increase in revenues resulted from increases in repair,
      remanufacturing and manufacturing segment revenue of $1.7 million or 16% and
      construction and engineering services segment revenues of $1.2 million or 43%.




The
      increase in repair, remanufacturing and manufacturing segment revenue resulted
      from an increase in revenue of motors, magnets and other industrial products
      and
      services of $1.1 million or 14% due to our May 2006 acquisition of E.T. Smith
      Services of Alabama, Inc. (“ **Smith
      Alabama** ”)
      and an
      increase in revenue of diesel engine components of $0.6 million or 23% due
      to
      increased market share. The increase in construction and engineering services
      revenue resulted from an increase in electrical contracting services of $1.0
      million or 40% due to continued market penetration and a strong local
      construction market, and an increase in power services of $0.2 million or
      66%.







15





To
      continue to grow our business segments at historical rates, we believe we must
      continue to make strategic business acquisitions. We make no assurance, however,
      that we will be able to identify, acquire and successfully integrate additional
      companies to achieve such growth. We expect our rates of revenue growth from
      existing operations in our construction and engineering services segment to
      slow
      relative to historical rates in 2007 and thereafter in light of our current
      market penetration and geographic markets. Revenues from our repair,
      remanufacturing and manufacturing segment should increase in 2007 to reflect
      a
      full year of sales from the operations acquired from Smith Alabama.




*Cost
      of Revenues* .
      Total
      cost of revenues in 2007 was $13.3 million or 82% of total revenues compared
      to
      $10.8 million or 81% of total revenues in 2006. The increase of $2.5 million
      in
      cost of revenues was due primarily to the overall increase in our total
      revenue.




*Gross
      Profit.* Total
      gross profit in 2007 was $2.8 million or 18% of total revenues compared to
      $2.5
      million or 19% of total revenues in 2006. The increase of $0.3 million was
      due
      to increased revenues. Gross profit as a percentage of total revenue is expected
      to increase as capacity utilization increases. However, gross profit, as a
      percentage of revenue, could increase or decrease if the sales mix between
      segments changes.




*Selling,
      General and Administrative Expenses* .
      Selling, general and administrative expenses increased $0.4 million to $2.7
      million in 2007 from $2.3 million in 2006. Selling expenses increased 22% to
      $1.1 million in 2007 from $0.9 million in 2006 primarily due to higher salaries
      and commissions related to the growth in total revenues. General and
      administrative expenses increased 14% to $1.6 million in 2007 from $1.4 million
      in 2006, primarily due to higher salaries and benefits to support the growth
      in
      revenues and professional fees related to costs associated with being a public
      company under federal securities laws.




*Loss
      on Debt Extinguishment.* We
      incurred a loss on extinguishment of debt of $2.3 million in the three months
      ended April 1, 2007 related to the payoff of all senior secured
      debt.




*Interest
      Expense and Other Income* .
      Interest expense decreased in 2007 to $0.5 million from $1.0 million in 2006
      as
      a result of the payoff of all senior secured debt and the conversion of a
      portion of the subordinated debentures. Interest on principal debt decreased
      to
      $0.2 million from $0.3 million. Interest related to the amortization of debt
      issue costs and debt discount costs on subordinated debentures and senior
      secured debt decreased to $0.2 million from $0.7 million.




*Provision
      for Income Taxes* .
      We have
      experienced net operating losses in each year since we commenced operations.
      We
      are uncertain as to whether we will be able to utilize these tax losses before
      they expire. Accordingly, we have provided a valuation allowance for the income
      tax benefits associated with these net future tax assets which primarily relates
      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
      Loss.* Net loss
      was $2.6 million and $0.8 million in 2007 and 2006, respectively. The increase
      in the net loss was due primarily to the loss on debt extinguishment offset
      in
      part by lower interest expense.




**Liquidity
      and Capital Resources**




At
      April
      1, 2007, we had $0.8 million of cash and approximately $11.0 million of working
      capital. Working capital increased approximately $6.9 million from approximately
      $4.1 million at December 31, 2006. The increase in working capital was due
      mainly to the sale of 62.5 million shares of our common stock in January 2007
      for $12.4 million, less the payoff of the revolving credit line and current
      portion of long term debt due to Laurus of $6.5 million and $2.0 million,
      respectively. Our total debt to equity ratio decreased from approximately 7.4:1
      to 0.9:1 from December 31, 2006 to April 1, 2007 due to the sale of common
      stock
      less the net loss incurred during the quarter ended April 1, 2007.







16





We
      have
      incurred operating losses since we began operations in 2000. The operating
      losses were due to start up costs, including start up costs associated with
      acquisitions, underutilized operating capacity and costs incurred to build
      a
      corporate infrastructure sufficient to support increasing sales from existing
      operations and acquisitions for the foreseeable future. We funded these
      accumulated operating losses, increases in working capital, contractual
      obligations, acquisitions and capital expenditures with investments and advances
      from our Chief Executive Officer and stockholder ($7.2 million), a private
      debt
      offering ($4.0 million), private equity offerings ($15.2 million), trade credit
      and bank loans.




Our
      net
      loss for the three months ended April 1, 2007 of $2.6 million included non-cash
      expenditures of depreciation and amortization of $0.2, loss on debt
      extinguishment of $1.8 million and amortization related to debt issue and debt
      discount costs of $0.2 million.




Net
      cash
      utilized by operating activities was $0.8 million for the three months ended
      April 1, 2007, and net cash provided by operating activities was $0.2 million
      for the three months ended April 2, 2006. For the three months ended April
      1,
      2007, net cash utilized by operations resulted from increases in inventory
      and
      decreases in accounts payable and accrued expenses of $0.5 million, $1.9 million
      and $0.1 million, respectively, offset in part by decreases in accounts
      receivable and prepaid expenses of $1.4 million and $0.5 million, respectively.
      Accounts receivable decreased due to improved collections of past due accounts.
      For the three months ended April 2, 2006, net cash provided by operating
      activities was due in part from decreases in accounts receivable and prepaid
      expenses totaling $0.2 million, while decreases in accounts payable were mostly
      offset by increases in accrued expenses and other current liabilities. Accounts
      receivable decreased due to improved collections and inventory did not
      materially change.




Accounts
      receivable and inventory may increase if sales increase. Several of our trade
      accounts payable have extended beyond the terms allowed by the applicable
      vendors. As a result, certain vendors have placed us on credit hold or cash
      in
      advance which has resulted in delays in receipt of necessary materials and
      parts. Disruptions of this nature have resulted in delayed shipments and service
      to our customers and may continue to result in such delays in the future. We
      do
      not believe that these delays have resulted in the loss of any material amount
      of sales orders, although future delays might have an adverse affect on our
      business. During the three months ended April 1, 2007 we paid approximately
      $2.0
      million of past due accounts payable with a portion of the proceeds from the
      sale of our stock to Tontine. We believe this will allow us to improve our
      vendor relations and improve the timeliness of the supply of materials and
      parts
      which will improve our ability to service our customers in a more timely
      fashion.




During
      the three months ended April 1, 2007 and April 2, 2006, net cash outflows from
      investing activities were $0.1 million and $0.1 million, respectively, and
      were
      comprised mostly of the acquisition of machinery and equipment.




We
      generated approximately $1.4 million from financing activities during the three
      months ended April 1, 2007, primarily from the sale of our common stock of
      approximately $12.4 million, less the payoff of all senior secured debt of
      approximately $11.0 million. We generated $0.3 million from financing activities
      during the three months ended April 2, 2006 with net short term borrowings
      under
      the revolving note of $0.4 million, partially reduced by the repayment of $0.1
      million on the term note.




We
      are
      undertaking various activities to improve our future cash flows. These
      activities include efforts to collect accounts receivable at a faster rate
      and
      to decrease inventory levels by improving controls over purchasing and more
      aggressive selling efforts. In that regard, we do not expect our accounts
      receivable to become more difficult or unlikely to collect, and we feel our
      inventory levels are consistent with anticipated future sales and not
      excessive.




From
      March through May of 2005, we issued $4.0 million aggregate principal amount
      of
      subordinated convertible debentures. The debentures originally were scheduled
      to
      mature on February 28, 2007; however, in April 2006, the debenture holders
      agreed to extend the maturity date to February 28, 2008. The debentures bear
      interest at a fixed annual rate of 6%, payable in cash upon redemption or at
      maturity if the holders do not elect to convert their debentures. Each debenture
      holder has the option to convert principal and accrued interest under the
      debentures into the number of shares of our common stock determined by dividing
      the principal amount by a fixed conversion price of $0.3404926, subject to
      certain anti-dilution adjustments.







17





During
      the three months ended April 1, 2007, debenture holders converted approximately
      $1 million of the aggregate principal amount of the subordinated debt. However,
      absent further exercise of the right of the debenture holders to convert out
      indebtedness into shares of our common stock, we will be obligated to make
      principal and accrued interest payments totaling approximately $3.5 million
      on
      February 28, 2008. We are uncertain whether we will generate sufficient funds
      from operations to make that entire payment. If not, then absent exercise of
      the
      debenture holders’ conversion rights, we will have to raise additional capital
      through debt or equity financing to pay off the indebtedness at its maturity.
      There is no assurance that we will successfully refinance the indebtedness
      on
      terms acceptable to us, or at all. If we are not successful, we would default
      under the debentures. To the extent that any debenture holder elects to convert
      principal and accrued interest into common stock, our obligation to repay the
      principal and accrued interest at maturity decreases accordingly.




If
      we
      default under the debentures, all unpaid amounts will accrue interest at a
      rate
      of 15% per year from the date of default until paid. Other remedies available
      to
      the debenture holders upon an event of default include the right to accelerate
      the maturity of all obligations, the right to foreclose on our assets securing
      the obligations, all rights of a secured creditor under applicable law, and
      other rights set forth in the debenture documents. As of April 1, 2007, these
      remedies were subject to and subordinate in right to the rights of our senior
      secured lender. The events of default under the debenture documents include
      failure to pay principal and interest when due, breach of any covenant under
      the
      debenture documents that continues unremedied for 10 days, certain events
      relating to bankruptcy, default under other indebtedness in a principal amount
      exceeding $200,000, a judgment in excess of $50,000 is levied against our
      assets, and other events described in the debenture documents.




The
      debentures contain restrictions on our ability to incur more indebtedness (other
      than trade debt), whether secured or unsecured, to redeem our capital stock,
      to
      issue preferred stock, and to pay dividends on any of our capital
      stock.




In
      August
      2005, we entered into a $10.0 million credit facility with Laurus Master Fund,
      Ltd. In May 2006, we entered into a second Security and Purchase Agreement
      with
      Laurus. In January 2007, we paid off all amounts due Laurus with proceeds from
      the Tontine equity financing described below.




On
      January 18, 2007, we sold 50,000,000 shares of common stock to Tontine Capital
      Partners, L.P. and 12,500,000 shares of common stock to Tontine Capital Overseas
      Master Fund, L.P. for $0.20 per share or $12.5 million. Proceeds were used
      to
      cover related legal fees of approximately $0.1 million and to retire all of
      the
      outstanding senior debt due to Laurus as of that date in the amount of
      approximately $10.0 million, including interest, plus approximately $0.5 million
      in prepayment penalties. We used the balance of the proceeds for working capital
      and to reduce past due accounts payable.




On
      March
      9, 2007, we obtained financing from MFB Financial in the form of a $5 million
      revolving credit facility, secured by accounts receivable. We intend to use
      borrowings under the note for capital expenditures and working capital purposes.
      Interest is payable monthly at 1⁄2% over prime as published in the Wall Street
      Journal. The facility contains annual financial covenants, including minimum
      tangible net worth, current ratio and debt coverage ratio, and maximum debt
      to
      equity ratio. An event of default under the facility will occur if , among
      other
      things, we fail to make a required payment on time or when due, we fail to
      keep
      the secured property insured, we default under any other agreements we have
      with
      MFB Financial, we are involved in any legal proceeding by a creditor for the
      collection of debt, we become insolvent, we make any misrepresentation in
      financial information we provide to MFB Financial, or we do or fail to do
      something that causes MFB Financial to believe that it will have difficulty
      collecting the debt. At April 1, 2007, there were no amounts outstanding under
      the revolving credit facility.







18





Following
      is a summary of fixed payments related to certain contractual obligations as
      of
      April 1, 2007 (amounts in thousands):




**As
                of April 1, 2007**:
            
            **Payments
                due by period**Less
                than
            
            
            
            
            
            More
                thanContractual
                Obligations
            
            Total
            
            1
                year
            
            1-3
                years
            
            3-5
                years
            
            5
                yearsLong-Term
                Debt
            
            $
            6,039
            
            $
            3,016
            
            $
            3,023
            
            $
            -
            
            $
            -Lease
                Obligations
            
            
            3,786
            
            
            979
            
            
            1,715
            
            
            857
            
            
            235Total
            
            $
            9,825
            
            $
            3,995
            
            $
            4,738
            
            $
            857
            
            $
            235





We
      believe that our existing working capital, cash provided by operations and
      our
      existing revolving credit facility with MFB Financial, under which we had all
      $5
      million available as of April 1, 2007, should be sufficient to fund our working
      capital needs, capital requirements and contractual obligations for at least
      the
      next 12 months. We will need, however, to raise additional debt or equity
      capital to fund any future business acquisitions and to refinance our
      subordinated convertible debentures when they mature in February 2008. As of
      April 1, 2007, we did not have any material commitments for capital
      expenditures.




Our
      future working capital needs and capital-expenditure requirements will depend
      on
      many factors, including our rate of revenue growth, the rate and size of future
      business acquisitions, the expansion of 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 financing or by entering into strategic
      relationships or making other 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 not be
      successful. Further, any additional capital we seek to raise might not be
      available on terms acceptable to us, or at all.




**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
      has 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, including those described in Item 1A, “Risk Factors,” of our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2006, that may cause
      our actual results to differ materially from those anticipated or implied in
      the
      forward-looking statements.







19


**ITEM
                  3.**
              **QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK**
 We
        are
        exposed to interest rate market risk with respect to our debt. Our total
        debt as
        of April 1, 2007 had a carrying value of approximately $5.9 million and a
        fair
        value of approximately $6.6 million. As of April 1, 2007, 51% of our total
        debt
        was subject to variable interest rates. As of April 1, 2007, the
        weighted-average interest rate of our debt was 6.62%. To the extent that
        we
        refinance our existing debt or incur additional debt outside of our currently
        existing arrangements, we will be subject to additional interest rate market
        risk, which could be substantial.




Our
      exposure to interest rate market risk with respect to cash is limited because
      our cash balances are maintained in a bank deposit account.




We
      are
      exposed to credit risk. Credit risk relates to the risk of loss resulting from
      the nonperformance by a customer of its contractual obligations. Our exposure
      generally relates to receivables and unbilled revenue for services provided.
      We
      maintain credit policies intended to minimize credit risk and actively monitor
      these policies.




Our
      exposure to foreign currency exchange rate risk is limited because substantially
      all of our transactions are conducted in United States dollars, and we do not
      believe that a change in any exchange rate of 10% would have a material impact
      on our consolidated results of operations or cash flows.






**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**




Our
      Chief
      Executive Officer and Chief Financial Officer, together with members of our
      management, evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act)
      as of the end of the period covered by this Quarterly Report on Form 10-Q (the
      “ **Evaluation
      Date** ”).
      Based
      on that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that, as of the Evaluation Date, our disclosure controls and
      procedures are effective to ensure that material information related to MISCOR
      and its consolidated subsidiaries required to be disclosed in the reports that
      we file or submit under the Securities Exchange Act of 1934 is made known to
      management on a timely basis.




There
      has
      been no change in our internal control over financial reporting during the
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.












20




**PART
      II - OTHER INFORMATION**







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




**Unregistered
      Sales of Equity Securities**




On
      January
      18, 2007, the Company sold 50,000,000 shares of common stock to Tontine Capital
      Partners, L.P. and 12,500,000 shares of common stock to Tontine Capital Overseas
      Master Fund, L.P. for $0.20 per share or $12.5 million. Proceeds were used
      to
      cover related legal fees of approximately $0.1 million and to retire all of
      the outstanding senior debt due to Laurus as of that date in the amount of
      approximately $10.0 million, including interest, plus approximately $0.5 million
      in prepayment penalties. The Company used the balance of the proceeds for
      working capital and to reduce past due accounts payable. The Company did not
      register the issuance of the shares of common stock to Tontine with the SEC
      under the Securities Act of 1933, in reliance on exemptions from the
      registration requirements of the Securities Act. The Company and Tontine entered
      into a registration rights agreement, dated January 18, 2007, pursuant to which
      the Company agreed to register for resale the shares issued to Tontine. The
      Company has not yet registered these shares.




**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 1, 2007,
      we
      have issued 13,856,978 shares upon the exercise of warrants, and we have
      received proceeds of $10,482 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 $0.4
      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.**
            
            **Description**10.1
            
            Commercial
                Lease effective January 1, 2007, between Martell Electric LLC and
                Martell
                Properties LLC (incorporated by reference to Exhibit 10.37 to the
                registrant’s Post-Effective Amendment No. 1 to Registration Statements on
                Form S-1 (Reg. No. 333-137940 and Reg. No. 333-129354))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








21





**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, 2007
            By:
            /s/Richard
                J. MullinRichard
                J. MullinChief
                Financial Officer(Signing
                on behalf of the registrant as Principal Financial
                Officer)







22