UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D. C. 20549
 
 FORM
10-Q
 
 x
              Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended March 30, 2008o
              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, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer  o
              Accelerated
      filer  oNon-accelerated
      filer  o (Do not check if
      a smaller reporting company)
              Smaller
      reporting company  x
 
 Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).
              
              o
      Yes   x
  No
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of May 9, 2008, there
were 11,716,959 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 March 30, 2008 (Unaudited) and
      December 31, 2007
              1Condensed
      Consolidated Statements of Operations (Unaudited) Three Months ended March
      30, 2008 and April 1, 2007
              2Condensed
      Consolidated Statements of Cash Flow (Unaudited) Three Months ended
      March  30, 2008 and April 1, 2007
              3Notes
      to Condensed Consolidated Financial Statements
              42.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              163.
              Quantitative
      and Qualitative Disclosures about Market Risk
              244T.
              Controls
      and Procedures
              24PART
      II - OTHER INFORMATION2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              264.
              Submission
      of Matters to a Vote of Security Holders
              266.
              Exhibits
              27Signatures
              29
 
  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)
  ASSETSMarch
      30,
              
              
              December
      31,2008
              
              
              2007(Unaudited)CURRENT
      ASSETSCash
              
              $
              938
              
              
              $
              2,807Accounts
      receivable, net of allowance for doubtful accounts of $727 and $669,
      respectively
              
              
              20,232
              
              
              
              17,233Inventories,
      net
              
              
              11,483
              
              
              
              10,884Prepaid
      expenses and other current assets
              
              
              2,937
              
              
              
              2,006Total
      current assets
              
              
              35,590
              
              
              
              32,930PROPERTY
      AND EQUIPMENT, net
              
              
              12,667
              
              
              
              10,125OTHER
      ASSETSDeposits
      and other assets
              
              
              337
              
              
              
              182Goodwill
              
              
              16,179
              
              
              
              8,003Debt
      issue costs, net
              
              
              42
              
              
              
              40Customer
      relationships, net
              
              
              7,473
              
              
              
              7,568Other
      intangible assets, net
              
              
              689
              
              
              
              699Total
      other assets
              
              
              24,720
              
              
              
              16,492Total
      Assets
              
              $
              72,977
              
              
              $
              59,547LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESRevolving
      credit line, net of discount of $142 and $-0-,
respectively
              
              $
              4,636
              
              
              $
              -Current
      portion of long-term debt, net of discount of $-0- and $15,
      respectively
              
              
              100
              
              
              
              3,036Accounts
      payable
              
              
              10,938
              
              
              
              7,530Accrued
      expenses and other current liabilities
              
              
              5,686
              
              
              
              4,558Total
      current liabilities
              
              
              21,360
              
              
              
              15,124LONG
      TERM LIABILITIESLong-term
      debt
              
              
              4,178
              
              
              
              4,195Long-term
      debt, Stockholder
              
              
              3,000
              
              
              
              3,000Total
      long-term liabilities
              
              
              7,178
              
              
              
              7,195Total
      liabilities
              
              
              28,538
              
              
              
              22,319Commitments
      and ContingenciesSTOCKHOLDERS'
      EQUITYPreferred
      stock, no par value; 800,000 shares authorized; no shares issued and
      outstanding
              
              
              -
              
              
              
              -Common
      stock, no par value; 12,000,000 shares authorized; 11,709,376 and
      11,129,012 shares issued and outstanding, respectively
              
              
              50,720
              
              
              
              43,967Additional
      paid in capital
              
              
              9,010
              
              
              
              9,019Deferred
      compensation
              
              
              (44
              )
              
              
              (55
              )Accumulated
      deficit
              
              
              (15,247
              )
              
              
              (15,703
              )Total
      Stockholders' equity
              
              
              44,439
              
              
              
              37,228Total
      Liabilities and Stockholders' Equity
              
              $
              72,977
              
              
              $
              59,547
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
   1
  MISCOR
      GROUP, LTD. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Amounts
      in thousands, except share and per share data)For
      the
              
              
              For
      the3
      months ended
              
              
              3
      months endedMarch
      30,
              
              
              April
      1,2008
              
              
              2007(Unaudited)
              
              
              (Unaudited)REVENUESProduct
      sales
              
              $
              6,221
              
              
              $
              5,226Service
      revenue
              
              
              23,499
              
              
              
              10,920Total
      revenues
              
              
              29,720
              
              
              
              16,146COST
      OF REVENUESProduct
      sales
              
              
              4,686
              
              
              
              4,038Service
      revenue
              
              
              20,291
              
              
              
              9,261Total
      cost of revenues
              
              
              24,977
              
              
              
              13,299Gross
      Profit
              
              
              4,743
              
              
              
              2,847Selling,
      general and administrative expenses
              
              
              3,998
              
              
              
              2,671Operating
      income
              
              
              745
              
              
              
              176Other
      expenseLoss
      on debt extinguishment
              
              
              -
              
              
              
              2,300Gain
      on sale of fixed assets
              
              
              (20
              )
              
              
              -Interest
      expense
              
              
              308
              
              
              
              465288
              
              
              
              2,765NET
      INCOME (LOSS)
              
              $
              457
              
              
              $
              (2,589
              )Basic
      and diluted earnings (loss) per share
              
              $
              0.04
              
              
              $
              (0.38
              )Weighted
      average shares outstanding:Basic
              
              
              11,397,411
              
              
              
              6,827,194Diluted
              
              
              12,719,065
              
              
              
              6,827,194
 
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  
  2
  MISCOR
      GROUP, LTD. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts
      in thousands, except share and per share data)For
      the 3 months endedMarch
      30,
              
              
              April
      1,2008
              
              
              2007(Unaudited)
              
              
              (Unaudited)OPERATING
      ACTIVITIESNet
      cash provided (utilized) by operating activities
              
              $
              1,197
              
              
              $
              (843
              )INVESTING
      ACTIVITIESAcquisition
      of business assets, net of cash acquired
              
              
              (7,078
              )
              
              
              -Acquisition
      of property and equipment
              
              
              (318
              )
              
              
              (53
              )Proceeds
      from disposal of property and equipment
              
              
              24
              
              
              
              -Net
      cash utilized by investing activities
              
              
              (7,372
              )
              
              
              (53
              )FINANCING
      ACTIVITIESPayments
      on capital lease obligations
              
              
              (17
              )
              
              
              (10
              )Short
      term borrowings, net
              
              
              4,626
              
              
              
              (6,938
              )Repayments
      of long-term debt
              
              
              (261
              )
              
              
              (4,040
              )Proceeds
      from the issuance of shares and exercise of warrants
              
              
              3
              
              
              
              12,500Debt
      issuance costs
              
              
              (45
              )
              
              
              -Payment
      of stock issuance costs
              
              
              -
              
              
              
              (75
              )Net
      cash provided by financing activities
              
              
              4,306
              
              
              
              1,437INCREASE
      (DECREASE) IN CASH
              
              
              (1,869
              )
              
              
              541Cash,
      beginning of period
              
              
              2,807
              
              
              
              297Cash,
      end of period
              
              $
              938
              
              
              $
              838SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
              
              $
              238
              
              
              $
              106
 
 
 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 MARCH 30, 2008
 (Amounts in
thousands, except share and per share data)
 NOTE
A - BASIS OF PRESENTATION
  The
unaudited interim consolidated financial statements of MISCOR Group, Ltd. (the
“Company”) as of and for the three months ended March 30, 2008 and April 1,
2007, 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 March 30, 2008 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2008.  Refer to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2007 for the most recent disclosure of the Company's
accounting policies.
  The
Company completed a 1 for 25 reverse stock split of its common stock effective
January 14, 2008. Accordingly, all shares, share prices and earnings (loss) per
share presented in the interim consolidated financial statements reflect the
effect of the reverse stock split.
   NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS
  SFAS 157
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(“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. In
February 2008, the FASB issued FASB Staff Position No. 157-2, which
deferred the effective date of SFAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) until
January 1, 2009. Accordingly, our adoption of this standard on January 1,
2008 was limited to financial assets and liabilities. The adoption of SFAS 157
did not have a material effect on our financial condition or results of
operations. The Company is still in the process of evaluating this standard with
respect to its effect on non-financial assets and liabilities and therefore has
not yet determined the impact that it will have on our financial statements upon
full adoption in 2009. Non-financial assets and liabilities for which we have
not applied the provisions of SFAS 157 include those measured at fair value in
impairment testing and those initially measured at fair value in a business
combination.
 
 SFAS 159
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115(“SFAS 159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Entities that elect
the fair value option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes
presentation and disclosure requirements to facilitate comparisons between
companies that choose different measurement attributes for similar assets and
liabilities. The adoption of SFAS 159 did not have an effect on our financial
condition or results of operations as we did not elect this fair value option,
nor is it expected to have a material impact on future periods as the election
of this option for our financial instruments is expected to be
limited.
  SFAS 141(R)
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations(“SFAS No. 141(R)”). In
SFAS No. 141(R), the FASB retained the fundamental requirements of
SFAS No. 141 to account for all business combinations using the
acquisition method (formerly the purchase method) and for an acquiring entity to
be identified in all business combinations. However, the new standard requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and
  4
  NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
  liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; requires
transaction costs to be expensed as incurred; and requires the acquirer to
disclose to investors and other users all of the information they need to
evaluate and understand the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for annual periods beginning
on or after December 15, 2008. Accordingly, any business combinations will
be recorded and disclosed following existing GAAP until January 1, 2009.
The Company expects that SFAS No. 141(R) will have an impact on its
consolidated financial statements when effective, but the nature and magnitude
of the specific effects will depend upon the nature, terms and size of the
acquisitions consummated after the effective date.
 
 SFAS 160
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. The Company does not expect the adoption of this
standard on January 1, 2009 to have a material impact on its consolidated
financial statements.
 
 SFAS 161
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”). SFAS No. 161 changes
the disclosure requirements for derivative instruments and hedging activities.
We will be required to provide enhanced disclosures about (a) how and why
derivative instruments are used, (b) how derivative instruments and related
hedged items are accounted for under Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities (“SFAS 133”), and its related interpretations, and (c) how
derivative instruments and related hedged items affects our financial position,
financial performance, and cash flows. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the impact of the
adoption of SFAS 160 on its consolidated financial statements.
  5
  NOTE
C - EARNINGS PER SHARE
  The
Company accounts for earnings/loss per common share under the provisions of SFAS
No. 128, Earnings Per
Share, which requires a dual presentation of basic and diluted
earnings/loss per common share. Basic earnings/loss per common share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the year. Diluted
earnings per common share is computed assuming the conversion of common stock
equivalents, when dilutive.
  Components
of basic and diluted earnings per share were as follows:
  Three
      Months EndedMarch
      30,2008Net
      income available for common stockholders used in basic
      earnings per share
              
              $
              457Interest
      on convertible debt
              
              
              122Net
      income available for common stockholders after assumed conversion of
      diluted securities
              
              $
              579Weighted
      average outstanding shares of common stock
              
              
              11,397,411Dilutive
      effect of  stock options and warrants
              
              
              121,654Dilutive
      effect of convertible debt
              
              
              1,200,000Weighted
      average outstanding shares of common stock and common stock
      equivalents
              
              
              12,719,065Earnings
      per share:Basic
              
              $
              0.04Diluted
              
              $
              0.04
 
  For the
three months ended March 30, 2008, the Company’s common stock equivalents,
consisting of subordinated debt convertible into 5,874 common shares, were
not included in computing diluted loss per share because their effects were
anti-dilutive. For the three months ended April 1, 2007, the Company’s common
stock equivalents, consisting of warrants to purchase 372,382 shares of common
stock, subordinated debt convertible into 1,550,081 common shares, and options
to purchase 63,200 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, as there were no potentially dilutive
securities outstanding.
   6
  NOTE
D - ACQUISITION
  On
January 16, 2008, the Company acquired 100% of the outstanding shares of common
stock of American Motive Power, Inc. (“AMP”) in a transaction accounted for
using the purchase method of accounting. Accordingly, the results of operations
are included in the Company’s consolidated financial statements from that date
forward. AMP is engaged in the business of repairing, remanufacturing, and
rebuilding locomotives and locomotive engines and providing related goods and
services to the railroad industry. The aggregate purchase price was $10,865
including $7,365 paid in cash at closing and 253,623 shares of MISCOR common
stock valued at $13.80 per share, or $3,500. The purchase price was allocated to
assets acquired and liabilities assumed based on their estimated fair value at
the date of acquisition. The excess purchase price over those fair values was
recorded as goodwill. The fair value assigned to assets acquired and liabilities
assumed are based on valuations using management’s estimates and assumptions as
of January 1, 2008, the effective date of the acquisition. The Company has
initiated an independent valuation of the property, plant and equipment and
intangible assets and will adjust long lived assets accordingly based on the
results of the valuation. The preliminary allocation of the purchase price is as
follows:
 
  Current
      assets
              
              $
              2,481Property,
      plant and equipment
              
              
              2,757Goodwill
              
              
              8,176Current
      liabilities
              
              
              (2,549
              )$
              10,865
 
  The
following table presents the unaudited results of operations of the Company as
if the acquisition had  been consummated as of January 1, 2007, and
includes certain proforma adjustments, including depreciation and amortization
on the assets acquired.
  Three
      months endedMarch
      30, 2008
              
              
              April
      1, 2007Revenues
              
              $
              29,684
              
              
              $
              16,965Net
      earnings (loss)
              
              $
              457
              
              
              $
              (2,958
              )Basic
      and diluted earnings (loss) per share
              
              $
              0.04
              
              
              $
              (0.38
              )
  
 NOTE
E - INVENTORY
  Inventory
consists of the following:
 
 March
      30,
              
              
              December
      31,2008
              
              
              2007Raw
      materials
              
              $
              6,317
              
              
              
              5,197Work-in-process
              
              
              4,671
              
              
              
              4,846Finished
      goods
              
              
              1,378
              
              
              
              1,60812,366
              
              
              
              11,651Less:
      allowance for slow moving and obsolete inventories
              
              
              (883
              )
              
              
              (767
              )$
              11,483
              
              
              $
              10,884
  
 NOTE F – REVOLVING CREDIT
LINE
  On
January 14, 2008, the Company entered into a credit facility with Wells Fargo
Bank, National Association (“Wells Fargo”).  The credit facility is
comprised of a $1,250 real estate term note and a $13,750 revolving
note.  On January 16, 2008, MISCOR borrowed $7,500 under the revolving
note and used the net proceeds of
  7
  NOTE F – REVOLVING CREDIT
LINE(CONTINUED)
  the loans
for working capital and to acquire all of the outstanding shares of common stock
of American Motive Power,
Inc. (Note B).  The original maturity date of the notes is January 1,
2011, at which time the notes will automatically renew for one-year periods
until terminated.  The notes are secured by (1) a first priority lien
on the assets of the Company; (2) a mortgage on certain real property; and (3)
the pledge of the equity interests in MISCOR’s subsidiaries.  The term
note bears interest at an annual rate equal to the rate of interest most
recently announced by Wells Fargo at its principal office as its prime rate (the
“Prime Rate”), subject to certain minimum annual interest
payments.  The revolving note bears interest at an annual rate of
either (i) the Prime Rate, or (ii) Wells Fargo’s LIBOR rate plus 2.8%, depending
on the nature of the advance.  Interest is payable monthly, in
arrears, under the revolving note beginning on February 1, 2008. Interest
expense for the three months ended April 1, 2008 was $79. The outstanding
balance on the revolving note was $4,776 at March 30, 2008. At March 30,
2008 there was $2.8 million available under the revolving credit line. The term
note requires monthly principal payments of $10, plus interest, beginning on the
first day of the month following receipt of the advance. No advances were
received under the term note as of March 30, 2008.
 
 The
provisions of the revolving note include a lock-box agreement and also allow
Wells Fargo, in its reasonable credit judgment, to assess additional reserves
against, or reduce the advance rate against accounts receivable used in the
borrowing base calculation. These provisions satisfy the requirements for
consideration of EITF Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that include both a
Subjective Acceleration Clause and a Lock-Box Arrangement(“EITF 95-22”).
Based on further analysis of the terms of the revolving note, there are certain
provisions that could potentially be interpreted as a subjective acceleration
clause. More specifically, Wells Fargo, in its reasonable credit judgment, can
assess additional reserves to the borrowing base calculation or reduce the
advance rate against accounts receivable to account for changes in the nature of
the Company’s business that alters the underlying value of the collateral. The
reserve requirements may result in an overadvance borrowing position that could
require an accelerated repayment of the overadvance portion. Since the inception
of the revolving note, Wells Fargo has not applied any additional reserves to
the borrowing base calculation. The Company does not anticipate any changes in
its business practices that would result in any material adjustments to the
borrowing base calculation. However, management cannot be certain that
additional reserves will not be assessed by Wells Fargo to the borrowing base
calculation. As a result, the Company classifies borrowings under the revolving
note as a short-term obligation.
 
 The
Company has promissory notes outstanding to BDeWees, Inc., XGen III, Ltd., and
John A. Martell, in the original principal amounts of $2,000, $2,000 and $3,000,
respectively, and secured convertible debentures issued to various investors
(together, the “Subordinated Indebtedness”) (Note G).  Subordination
agreements have been executed that subordinate the obligations of the Company
under the Subordinated Indebtedness to the Wells Fargo credit
facility.
 
 If the
Company defaults under its obligations to Wells Fargo, then the interest on the
outstanding principal balance of each note will increase by 3% until the default
is cured or waived.  Other remedies available to Wells Fargo upon an
event of default include the right to accelerate the maturity of all
obligations, the right to foreclose on the assets securing the obligations, all
rights of a secured creditor under applicable law, and other rights set forth in
the loan documents. There are certain financial covenants including minimum book
net worth and net income, maximum capital expenditures and debt service coverage
ratios. The Company was in compliance with all covenants at March 30,
2008.
 
 The
Company may prepay the term note at any time, subject to certain prepayment
penalties.  With respect to the revolving note, the Borrowers may
borrow, pay down and re-borrow under the note until the maturity
date.  The maximum aggregate principal amount that may be borrowed
under the revolving note is the lesser of (1) the sum of 40% of the Company’s
eligible construction related trade receivables up to $2,000 and 85% of certain
remaining eligible trade accounts receivable less any reserves established by
Wells Fargo from time to time and (2) $13,750 less any reserves established by
Wells Fargo (Note O).
 
 As part
of the financing, the Company paid debt issue costs of $45 and is amortizing
these costs to interest expense over the three year term of the
financing.  Interest expense was $3 for the three months ended March
30, 2008. Net debt issue cost at March 30, 2008 was $42. The Company also paid
fees to Wells Fargo as part of the financing in the amount of $150. These fees
were recorded as debt discount. The Company is accreting this
   8
  NOTE F – REVOLVING CREDIT
LINE(CONTINUED)
  debt
discount to interest expense over the term of the credit facility. Interest
expense was $10 for the three months ended March 30, 2008. Net debt discount at
March 30, 2008 related to this instrument was $142.
   NOTE
G - DEBT
  Long-term
debt
  Long-term
debt consists of the following:
  March
      30,
              
              
              December
      31,2008
              
              
              2007Note
      payable to its Stockholder, due December 2008, plus interest at prime rate
      less 1% (4.25% at March 30, 2008 and 6.25% at December 31, 2007,
      respectively) secured by a subordinated interest in substantially all
      assets owned by the Company
              
              $
              3,000
              
              
              $
              3,000Long-term
      debt, debentures (net of discount of $-0- and $15 at March 30, 2008 and
      December 31, 2007, respectively)
              
              
              50
              
              
              
              2,965Note
      payable to former employee in annual principal payments of
      $10,  unsecured and without interest, paid off March 7,
      2008
              
              
              -
              
              
              
              10Notes
      payable to former stockholders of 3-D Service, Ltd. due November 30, 2010,
      plus interest at prime rate (5.25% at March 30, 2008 and 7.25% at December
      31, 2007, respectively) secured by a subordinated interest in machinery
      and equipment of 3-D Service, Ltd.
              
              
              4,000
              
              
              
              4,000Note
      payable to bank in monthly installments of $3 through November 16, 2014,
      plus interest at 8% secured by a security interest in certain
      equipment
              
              
              191
              
              
              
              197Notes
      payable to bank in monthly principal payments of $1 through June 2009,
      without interest secured by certain vehicles, paid off in January
      2008
              
              
              -
              
              
              
              15Notes
      payable to bank in monthly principal payments of $1 through June 2009,
      without interest secured by certain vehicles
              
              
              15
              
              
              
              18Capital
      lease obligations
              
              
              22
              
              
              
              267,278
              
              
              
              10,231Less:
      current portion
              
              
              100
              
              
              
              3,036$
              7,178
              
              
              $
              7,195
 
  
  9
  NOTE
G - DEBT (CONTINUED)
  Note payable to
stockholder
  The
Company was indebted to its CEO for a note payable with a balance of $3,000 at
March 30, 2008 (see Note I).  Interest is payable monthly at prime
less 1%. The note is convertible into 1,200,000 shares of common stock at a
price of $2.50 per share. 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%.   It is the
Company’s intention to extend the maturity in the event the note is not
converted into shares of MISCOR common stock. Accordingly, the note has been
classified as long-term debt. Interest expense on the note was $42 and $54 for
the three months ended March 30, 2008 and April 1, 2007,
respectively.
  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 were payable on February
28, 2008, bore interest at the rate of 6% per year, which were payable upon
conversion, redemption or maturity.
  The
Company reserved 472,844 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 122,763 shares of common stock. During the three months ended March 30,
2008, certain debenture holders converted $2,690 of the aggregate principal
amount of debentures into 316,017 shares of common stock. As a result, $544
accrued interest was forfeited and written off against common stock in
conjunction with the conversion of $2,690 of the aggregate principal amount of
the debentures. In addition, the Company redeemed debentures in the amount of
$342, including interest of $52. At March 30, 2008 there was one debenture
outstanding for $50 (Note O).
  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 $0.025 per share.
The Company has allocated warrants to purchase 170,224 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 $15 and $49 for the three
months ended March 30, 2008 and April 1, 2007, respectively. In addition, for
the three months 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. As of March 30, 2008, warrants to
purchase 167,052 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 247,320 shares of the Company’s
common stock at an exercise price of $0.025 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 March
30, 2008, warrants to purchase 246,320 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, 2,000 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 $40 and $131 for the three
months ended March 30, 2008 and April 1, 2007, 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 in the three months ended April 1, 2007.
   10
  NOTE
G - 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 2,500,000 shares of its common stock at a price of $5.00 per
share for a total of $12,500. 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. Interest is payable monthly at 1⁄2% over the Wall Street
Journal prime rate.  Interest expense was $-0- for the three months
ended April 1, 2007. the revolving credit agreement was canceled in December
2007.
  Aggregate
maturities of long-term debt for the periods subsequent to March 30, 2008 on a
calendar year basis are as follows:
  Year ending December 31,2008
              
              $
              952009
              
              
              332010
              
              
              4,0272011
              
              
              292012
              
              
              31Thereafter
              
              
              3,063
  
 Following
is a summary of interest expense for the three months ended March 30, 2008 and
April 1, 2007:
  March
      30,2008
              
              
              April
      1,2007Interest
      expense on principal
              
              $
              239
              
              
              $
              235Amortization
      of debt issue costs
              
              
              46
              
              
              
              172Amortization
      of debt discount -debentures and revolving notes payable
              
              
              23
              
              
              
              58Total
      interest expense
              
              $
              308
              
              
              $
              465
 
 
 
  
   11
  NOTE
H - STOCKHOLDERS’ EQUITY
  Equity Incentive
Plans
  EmployeeStockPurchasePlan
 
 In
December 2006, the Corporation's Board of Directors and stockholders approved
the MISCOR Group, Ltd. Employee Stock Purchase Plan (the “ESPP”) under which
eligible employees may purchase the Company's common stock at a price per share
equal to 90% of the lower of the fair market value of the common stock at the
beginning or end of each offering period. Each offering period of the ESPP lasts
three months, with the first offering period commencing on April 1, 2007.
Participation in the offering may range from 2% to 8% of an employee's base
salary (not to exceed $5,000 annually or amounts otherwise allowed under Section
423 of the Internal Revenue Code). Participation may be terminated at any time
by the employee, and automatically ends on termination of employment with the
Company. A total of 640,000 shares of common stock have been reserved for
issuance under the ESPP. The common stock to satisfy the stock purchases under
the ESPP will be newly issued shares of common stock. No shares were issued
under the ESPP during the three months ended  March 30, 2008 and April
1, 2007.
 
 2005 Stock Option
Plan
  The
Company recorded compensation expense related to all stock options of $7 for the
three months ended March 30, 2008 and April 1, 2007, respectively.
  2005 Restricted Stock
Purchase Plan
  Compensation
expense related to all restricted stock offers of $10 and $8 was recorded for
the three months ended March 30, 2008 and April 1, 2007,
respectively.
   NOTE
I - RELATED PARTY TRANSACTIONS
  Long-term debt,
other
  The
Company was indebted to the estate of a former employee for an unsecured,
non-interest bearing note payable with a balance of $10 at December 31, 2007.
The Company paid off the note in March 2008.
  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 March 30, 2008 (see Note G). 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 $42 and $54 for the three months ended March 30, 2008 and April 1,
2007, respectively.
  The
Company was indebted to the former shareholders of 3-D, both of whom are
shareholders of MISCOR and one of whom is President of Magnetech Industrial
Services, Inc. (“MIS”), for notes payable with a balance of $2,000 each at March
30, 2008 (see Note F). Interest is payable monthly at prime. The loans mature on
November 30, 2010.
  Leases
  The
Company leases its South Bend, Indiana; Hammond, Indiana; Mobile, Alabama; and
Boardman, Ohio facilities from its Chief Executive Officer and stockholder.
Total rent expense under these agreements was approximately $83 and $82 for the
three months ended March 30, 2008 and April 1, 2007, 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 $39 and $38 for the three months ended
March 30, 2008 and April 1, 2007 respectively.
   12
  NOTE
I - RELATED PARTY TRANSACTIONS (CONTINUED)
  Leases
(continued)
  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 March 30, 2008 and April
1, 2007, respectively.
  In
November 2007, The Company began leasing a facility in Massillon, Ohio from a
partnership, one partner of which is an officer of MIS, under an agreement
expiring in November 2017. Rent expense under the lease was $135 for the three
months ended March 30, 2008.
 NOTE
J - CONCENTRATIONS OF CREDIT RISK
  The
Company grants credit, generally without collateral, to its customers, which are
primarily in the steel, metal working, 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 March 30, 2008 and December 31, 2007, approximately 14% of gross
accounts receivable were due from entities in the steel, metal working and scrap
industries, and 19% and 18%, 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 March 30, 2008 and December 31, 2007.
Additionally, no single customer accounted for more than 10% of sales for the
three months ended March 30, 2008 and April 1, 2007.
 NOTE
K - COMMITMENTS AND CONTINGENCIES
  Leases
  In
January 2008, as part of the AMP acquisition, the Company entered into a seven
year lease agreement with Dansville Properties, LLC, which is controlled by
AMP’s former majority shareholder.  Rent expense under the lease was
$80 for the three months ended March 30, 2008.
  Collective bargaining
agreements
  At March
30, 2008 and December 31, 2007, approximately 32% and 37%, respectively, of the
Company’s employees were covered by collective bargaining
agreements.
  Potential
lawsuits
  The
Company is involved in disputes or legal actions arising in the ordinary course
of business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company’s financial position or results of
operations.
 NOTE
L - FAIR VALUE OF FINANCIAL INSTRUMENTS
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument:
  Cash, 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.
   13
  NOTE
L - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
  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 March 30, 2008 and
December 31, 2007, the aggregate fair value of debt, with an aggregate carrying
value of $12,054 and $10,231, respectively, is estimated at $13,524 and $11,336,
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
M - SEGMENT INFORMATION
  The
Company reports segment information in accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise. The Company operates primarily in two segments: repair,
remanufacturing and manufacturing and construction and engineering
services.
  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, locomotives and locomotive engines for the rail
industry,  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 and mechanical contracting services, mainly to industrial,
commercial and institutional customers
  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.
   14
  NOTE
M – SEGMENT INFORMATION (CONTINUED)
  Summarized
financial information concerning the Company’s reportable segments as of and for
the three months ended March 30, 2008 and April 1, 2007 is shown in the
following tables:
  2008
              
              Repair,
      Remanufacturing &
      Manufacturing
              
              
              Construction
      & EngineeringServices
              
              
              Corporate
              
              
              IntersegmentEliminations
              
              
              March
      30, 2008 ConsolidatedExternal
      revenue:Product
      sales
              
              $
              6,221
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              6,221Service
      revenue
              
              
              14,987
              
              
              
              8,512
              
              
              
              -
              
              
              
              -
              
              
              
              23,499Intersegment
      revenue:Product
      sales
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Service
      revenue
              
              
              -
              
              
              
              13
              
              
              
              -
              
              
              
              (13
              )
              
              
              -Depreciation
      - cost of revenues
              
              
              431
              
              
              
              29
              
              
              
              -
              
              
              
              -
              
              
              
              460Gross
      profit
              
              
              3,724
              
              
              
              1,019
              
              
              
              -
              
              
              
              -
              
              
              
              4,743Other
      depreciation & amortization
              
              
              160
              
              
              
              5
              
              
              
              8
              
              
              
              -
              
              
              
              174Interest
      expense
              
              
              136
              
              
              
              -
              
              
              
              172
              
              
              
              -
              
              
              
              308Net
      income (loss)
              
              
              1,310
              
              
              
              504
              
              
              
              (1,357
              )
              
              
              -
              
              
              
              457Total
      assets
              
              
              59,440
              
              
              
              11,583
              
              
              
              1,955
              
              
              
              -
              
              
              
              72,977Capital
      expenditures
              
              
              267
              
              
              
              1
              
              
              
              50
              
              
              
              -
              
              
              
              318
 
 
 2007
              
              Repair,
      Remanufacturing &
      Manufacturing
              
              
              Construction
      & EngineeringServices
              
              
              Corporate
              
              
              IntersegmentEliminations
              
              
              April
      1, 2007 ConsolidatedExternal
      revenue:Product
      sales
              
              $
              5,226
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              5,226Service
      revenue
              
              
              6,905
              
              
              
              4,015
              
              
              
              -
              
              
              
              -
              
              
              
              10,920Intersegment
      revenue:Product
      sales
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Service
      revenue
              
              
              -
              
              
              
              16
              
              
              
              -
              
              
              
              (16
              )
              
              
              -Depreciation
      - cost of revenues
              
              
              163
              
              
              
              32
              
              
              
              -
              
              
              
              -
              
              
              
              195Gross
      profit
              
              
              2,232
              
              
              
              615
              
              
              
              -
              
              
              
              -
              
              
              
              2,847Other
      depreciation & amortization
              
              
              10
              
              
              
              7
              
              
              
              20
              
              
              
              -
              
              
              
              37Interest
      expense
              
              
              69
              
              
              
              -
              
              
              
              396
              
              
              
              -
              
              
              
              465Net
      income (loss)
              
              
              609
              
              
              
              206
              
              
              
              (3,404
              )
              
              
              -
              
              
              
              (2,589
              )Total
      assets
              
              
              20,459
              
              
              
              5,332
              
              
              
              2,312
              
              
              
              -
              
              
              
              28,103Capital
      expenditures
              
              
              44
              
              
              
              1
              
              
              
              8
              
              
              
              -
              
              
              
              53
 
 
  15
  
 NOTE
N - SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
  Three
      months endedMarch
      30,2008
              
              
              April
      1,2007Conversion
      of subordinated debentures
              
              $
              3,234
              
              
              $
              979Issuance
      of restricted stock
              
              
              -
              
              
              
              22Assumption
      of accounts payable and accrued liabilities in conjunction with asset
      acquisition
              
              
              2,549
              
              
              
              -Issuance
      of common stock in conjunction with acquisition
              
              
              3,500
              
              
              
              -Cashless
      exercise of warrants
              
              
              16
              
              
              
              -
 
 
 
 NOTE
O – SUBSEQUENT EVENTS
 
 Subordinated
Debentures
 
 In April 2008, the Company redeemed the
last remaining debenture for $59, including interest of $9 (Note G).
 
 Revolving line of
credit
 
 In April
2008, the Company and Wells Fargo amended the credited facility entered into in
January 2008. The amendment revised the formula for the maximum aggregate
principal amount that may be borrowed under the revolving note. Specifically,
the percentage of a portion of the Company’s eligible construction related trade
receivables resulting from time and material services and completed contracts
was increased from 40% to 85% and the related borrowings were removed from the
$2,000 limitation. The amendment also provided a three year term note in the
amount of $1,000, secured by substantially all of the machinery and equipment of
the Company. The note matures June 1, 2012 and is payable in monthly
installments of $21 plus interest at the bank’s prime rate beginning June 1,
2008.
    ITEM
      2.   MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  Overview
  We
operate in two segments: repair, remanufacturing and manufacturing, and
construction and engineering services.
  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,  locomotives and locomotive engines for
the rail industry 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.
  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 14, 2008, we entered into a credit facility with Wells Fargo Bank,
National Association (“Wells Fargo”).  The credit facility is
comprised of a $1,250,000 real estate term note and a $13,750,000 revolving
note.  On January 16, 2008, we borrowed $7,500,000 under the revolving
note and used the net proceeds of the loans
  16
  for
working capital and to acquire all of the outstanding shares of common stock of
American Motive Power, Inc. discussed below.  The original maturity
date of the notes is January 1, 2011, at which time the notes will automatically
renew for one-year periods until terminated.  The notes are secured by
(1) a first priority lien on the assets of the Company; (2) a mortgage on
certain real property; and (3) the pledge of the equity interests in MISCOR’s
subsidiaries.  The term note bears interest at an annual rate equal to
the rate of interest most recently announced by Wells Fargo at its principal
office as its prime rate (the “Prime Rate”), subject to certain minimum annual
interest payments.  The revolving note bears interest at an annual
rate of either (i) the Prime Rate, or (ii) Wells Fargo’s LIBOR rate plus 2.8%,
depending on the nature of the advance.  Interest is payable monthly,
in arrears, under the revolving note beginning on February 1,
2008.  The term note requires monthly principal payments of $10,000,
plus interest, beginning on the first day of the month following receipt of the
advance. The term note was funded in April 2008.
 
 On
January 14, 2008, we amended our Amended and Restated Articles of Incorporation
to effect a 1-for-25 reverse stock split of our issued and outstanding and
authorized but unissued shares of common stock (the “Reverse Stock Split”).
Pursuant to the Reverse Stock Split, each 25 shares of our common stock, whether
issued and outstanding, held by MISCOR as treasury stock, or authorized but
unissued, was combined into one share of common stock.  Any
shareholder who held a fractional share of common stock after giving effect to
the Reverse Stock Split received in cash, in lieu of such fractional share, an
amount equal to the product of (i) $0.566, which was the mean of the average of
the closing bid and ask prices of our common stock as quoted on the OTC Bulletin
Board for the five business days before the effective date of the Reverse Stock
Split, multiplied by (ii) 25, multiplied by (iii) the fractional share. As a
result of the Reverse Stock Split, the symbol assigned to MISCOR’s common stock
for quotation on the OTC Bulletin Board was changed from “MCGL” to “MIGL”. The
Reverse Stock Split was approved by our Board of Directors on November 30, 2007
and became effective on January 14, 2008 by the filing of articles of amendment
to our Amended and Restated Articles of Incorporation with the Indiana Secretary
of State. Under Indiana law, the Reverse Stock Split did not require
shareholder approval.
 
 On
January 16, 2008, we acquired 100% of the outstanding shares of common stock of
American Motive Power, Inc. (“AMP”). Accordingly, the results of operations are
included in the Company’s consolidated financial statements from that date
forward. AMP is engaged in the business of repairing, remanufacturing, and
rebuilding locomotives and locomotive engines and providing related goods and
services to the railroad industry.
 
 On
February 8, 2008, we amended our Amended and Restated Articles of Incorporation
to increase the number of authorized shares of common stock from 12,000,000 to
20,000,000 shares (the “Stock Increase”). The Stock Increase was approved by our
shareholders at a special meeting on February 7, 2008, and became effective on
February 8, 2008, by the filing of articles of amendment to our Amended and
Restated Articles of Incorporation with the Indiana Secretary of
State.
 
 In
February 2008, certain debenture holders exercised their options under the
debenture offering to convert $2,690 into 316,013 shares of our common stock at
a price of $8.512316 per share (see Note G). In accordance with the provisions
of the debenture offering, the debenture holders did not receive any payment of
accrued interest. In February 2008, we redeemed the remaining outstanding
debentures in the amount of $342 including interest of $52.
  
 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.
   17
  Revenue recognition. Revenues
in our repair, remanufacturing and manufacturing segment consist 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, Ideal
Consolidated, Inc.’s (“Ideal”) mechanical contracting business, and long term
contracts from the remanufacturing and rebuilding of locomotives and locomotive
engines at AMP are recognized on the percentage-of-completion method in
accordance with Statement of Position No. 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, measured by the
percentage of cost incurred to date to estimated total costs to complete for
each contract. Costs incurred on contracts in excess of customer billings are
recorded as part of other current assets. Amounts billed to customers in excess
of costs incurred on contracts are recorded as part of other current
liabilities.
  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.
  Goodwill and other intangible
assets.In accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, Goodwill and
Other Intangible Assets, intangible assets other than goodwill are
amortized over their useful lives, unless the useful lives are determined to be
indefinite.
  Goodwill
represents the excess cost of companies acquired over the fair value of their
net   assets at the dates of acquisition.  Goodwill,
which is not subject to amortization, is required to be tested for impairment,
at least annually, and written down when impaired.  In accordance with
SFAS No. 142, goodwill is tested for impairment using a two-step
process.  The first step is to identify a potential impairment and the
second step measures the amount of the impairment loss, if
any.  Goodwill is deemed to be impaired if the carrying amount of the
asset exceeds its estimated fair value.
  18
  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. We also capitalize and
amortize costs incurred to secure subordinated debenture financing over the term
of the subordinated debentures, which initially was two years. However, in April
2006, the debenture holders agreed to extend the maturity of the debentures from
February 28, 2007 to February 28, 2008. Beginning in April 2006, the unamortized
costs related to the debenture financing were amortized through the extended
maturity date.
  Warranty costs. We warrant
workmanship after the sale of our products. We record an accrual for warranty
costs based upon the historical level of warranty claims and our management’s
estimates of future costs.
  Income taxes. We account for
income taxes in accordance with SFAS No. 109, Accounting for Income Taxes
and FASB Interpretation No. 48.
  Stock-based compensation.Stock-based compensation arrangements are accounted for in accordance
with SFAS No. 123R, Share-Based Payments (revised
2004) (“SFAS 123R”). 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 September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement(“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. In February 2008, the FASB issued FASB Staff
Position No. 157-2, which deferred the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) until January 1, 2009. Accordingly, our adoption
of this standard on January 1, 2008 was limited to financial assets and
liabilities. The adoption of SFAS 157 did not have a material effect on our
financial condition or results of operations. We are still in the process of
evaluating this standard with respect to its effect on non-financial assets and
liabilities and therefore has not yet determined the impact that it will have on
our financial statements upon full adoption in 2009. Non-financial assets and
liabilities for which we have not applied the provisions of SFAS 157 include
those measured at fair value in impairment testing and those initially measured
at fair value in a business combination.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115(“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions. SFAS 159 also establishes presentation and disclosure requirements
to facilitate comparisons between companies that choose different measurement
attributes for similar assets and liabilities. The adoption of SFAS 159 did not
have an effect on our financial condition or results of operations as we did not
elect this fair value option, nor is it expected to have a material impact on
future periods as the election of this option for our financial instruments is
expected to be limited.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS No. 141(R)”). In SFAS No. 141(R), the FASB
retained the fundamental requirements of SFAS No. 141 to account for
all business combinations using the acquisition method (formerly the purchase
method) and for an acquiring entity to be identified in all business
combinations. However, the new standard requires the acquiring entity in a
business combination to recognize all (and only) the assets acquired
and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires transaction costs to be expensed as incurred;
and requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS No. 141(R) is effective for annual
periods beginning on or after December 15, 2008. Accordingly, any business
combinations will be recorded and disclosed following existing GAAP until
January 1, 2009. We expect that SFAS No. 141(R) will have an
impact on our consolidated financial statements
  19
  when
effective, but the nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions consummated after the effective
date.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. We do not expect the adoption of this standard on
January 1, 2009 to have a material impact on its consolidated financial
statements.
 
 In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”). SFAS No. 161 changes
the disclosure requirements for derivative instruments and hedging activities.
We will be required to provide enhanced disclosures about (a) how and why
derivative instruments are used, (b) how derivative instruments and related
hedged items are accounted for under Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities (“SFAS 133”), and its related interpretations, and (c) how
derivative instruments and related hedged items affects our financial position,
financial performance, and cash flows. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. We are currently evaluating the impact of the adoption
of SFAS 160 on our consolidated financial statements.
  
 Results
of Operations
  Three
Months Ended March 30, 2008 Compared to Three Months Ended April 1,
2007
  Revenues. Total revenues
increased by $13.5 million or 83% to $29.7 million in 2008 from $16.2 million in
2007. The increase in revenues resulted from increases in repair,
remanufacturing and manufacturing segment revenue of $9.0 million or 74% and
construction and engineering services segment revenues of $4.5 million or
112%.
  The
increase in repair, remanufacturing and manufacturing segment revenue resulted
from an increase in revenue from sales of motors, magnets and other industrial
products and services of $5.5 million or 61% as a result of the 3-D acquisition
in November 2007, increases in revenue of diesel engine components of $.6
million or 21% and sales from the acquisition of AMP in January 2008 of $2.9
million.
  The
increase in construction and engineering services revenue resulted from
increases in electrical contracting revenues of $1.8 million, increases in power
distribution systems revenues of $.4 million and sales from the acquisition of
Ideal in October 2007 of $2.2 million.
  Cost of Revenues. Total cost
of revenues in 2008 was $25.0 million or 84% of total revenues compared to $13.3
million or 82% of total revenues in 2007. The increase of $11.7 million in cost
of revenues was due primarily to the overall increase in our total
revenues.
  Gross Profit. Total gross
profit in 2008 was $4.7 million or 16% of total revenues compared to $2.9
million or 18% of total revenues in 2007. The increase in gross profit of $1.8
million was due to the overall increase in total revenues. The decrease in gross
profit of 2% as a percentage of total revenues from 18% to 16% was due to
decreases in gross profit of 1.0% and 3.3% in the repair, remanufacture and
manufacture segment and construction and engineering services segment,
respectively.
  The
decrease in gross profit in the repair, remanufacture and manufacture segment
resulted from unabsorbed overhead at AMP due to initial overcapacity, which was
partially offset by improved gross profit from motors, magnets and diesel engine
components. Gross profit as a percentage of total revenues in the construction
and engineering services segment decreased due to lower gross profit from
mechanical contracting services and a decline in gross profit from power
distribution systems revenues.
   20
  Selling, General and Administrative
Expenses. Selling, general and administrative expenses were $4.0 million
in 2008 compared to $2.7 million in 2007. Selling expenses increased 40% to $1.4
million in 2008 from $1.0 million in 2007 primarily due to higher salaries,
fringe benefits and commissions related to the 83% growth in total revenues.
General and administrative expenses increased $0.9 million, or 53%, to $2.6
million in 2008 from $1.7 million in 2007 due to the acquisitions of Ideal, 3-D
and AMP.
  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 the Laurus senior secured
debt.
  Interest Expense. Interest
expense decreased in 2008 to $0.3 million from $0.5 million in 2007 as a result
of lower amortization of debt issue costs and debt discount in 2008 related to
the convertible debentures. Interest on principal debt was the substantially the
same in 2008 and 2007.
  Provision for Income Taxes.
Through 2007, we 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 Income/Loss. Net income
in 2008 was $0.5 million compared to a net loss of $2.6 million in 2007. The
$3.1 million improvement was due to the loss on debt extinguishment recorded in
2007 and the increase in operating income from increased sales in
2008.
   Liquidity
and Capital Resources
  At March
30, 2008, we had $0.9 million of cash and approximately $14.1 million of working
capital.   Working capital decreased approximately $3.7 million
from approximately $17.8 million at December 31, 2007. The decrease in working
capital was due mainly to cash consideration paid for the acquisition of AMP in
January 2008 of $7.4 million, less payment and redemption of the convertible
debentures of $2.9 million. Our total debt to equity ratio increased slightly
from approximately .6:1 to .65:1 from December 31, 2007 to March 30,
2008.
  Through
December 31, 2007, we 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 ($35.2 million),
trade credit and bank loans.
  We
recorded net income of $0.5 million for the three months ended March 30, 2008.
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 million and loss
on debt extinguishment of $2.3 million.
  Net cash
provided by operating activities was $1.2 million for the three months ended
March 30, 2008, and net cash utilized by operating activities was $0.8 million
for the three months ended April 1, 2007. For the three months ended March 30,
2008, net cash provided by operations resulted from net income of $0.5 million,
and depreciation and amortization of $0.7 million.  For the three
months ended April 1, 2007, net cash utilized by operating activities was due to
the net loss of $2.6 million and changes in working capital of $0.5 million,
less depreciation and amortization of $2.3 million.
   21
  Accounts
receivable and inventory may increase if sales increase. Certain 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. Further, in January 2008 we acquired 100% of the common stock of AMP for
$7.4 million in cash and $3.5 million in common stock. AMP had incurred
operating losses from inception in 2005 through 2007 and may continue to incur
losses and utilize cash in 2008. This may result in the increase in past due
accounts payable and further 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 March 30, 2008 and April 1, 2007, net cash utilized in
investing activities was $7.4 million and $0.1 million, respectively. In 2008,
net cash utilized consisted of the acquisition of AMP of $7.1 million, net of
cash acquired, and capital expenditures of $0.3 million. In 2007 net cash
utilized in investing activities consisted of capital expenditures.
  We
generated approximately $4.3 million from financing activities during the three
months ended March 30, 2008, primarily from borrowings under the Wells Fargo
credit facility. 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 due to Laurus of approximately $11.0 million.
 
 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 bore
interest at a fixed annual rate of 6%, payable in cash upon redemption or at
maturity if the holders did not elect to convert their debentures. Each
debenture holder had 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 $8.5123, subject to
certain anti-dilution adjustments.
  During
the three months ended March 30, 2008 and April 1, 2007, debenture holders
converted approximately $2.7 million and $1.0 million, respectively, of the
aggregate principal amount of the subordinated debt. As of March 30, 2008 there
was $50,000 in outstanding convertible debentures which were redeemed in full
with interest in April 2008.
  In August
2005, we entered into a $10.0 million credit facility with Laurus. In May 2006,
we entered into an additional $3.7 million credit facility 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 2,000,000 shares of common stock to Tontine Capital
Partners, L.P. (“TCP”) and 500,000 shares of common stock to Tontine Capital
Overseas Master Fund, L.P. (“TCOMF”, and collectively with TCP, “Tontine”) for
$5.00 per share or $12.5 million (amounts stated after giving effect to the
Reverse Stock Split). Proceeds were used 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 used the
borrowings under the note for capital expenditures, working capital purposes and
the acquisition of Ideal. The revolving credit facility was paid off in full in
December 2007 with proceeds from the November 30, 2007 equity financing
described below.
   22
  On
November 30, 2007, we sold 2,666,667 shares of common stock to TCP and 666,666
shares of common stock to TCOMF for $6.00 per share or $20.0 million (amounts
stated after giving effect to the Reverse Stock Split). Proceeds were used to
fund the acquisition of 3-D for $16.7 million and to retire all amounts due to
our senior lender under a revolving credit facility as of that date in the
amount of $2.02 million including interest of $5,000. We used the balance of the
proceeds for working capital.
  On
January 14, 2008, we entered into a credit facility with Wells Fargo. The
credit facility is comprised of a $1.25 million real estate term note and a
$13.75 million revolving note. On January 16, 2008, we borrowed $7.5
million under the revolving note and used the net proceeds of the loans for
working capital and to acquire all of the outstanding shares of common stock of
AMP.
  The
original maturity date of the notes is January 1, 2011, at which time the notes
will automatically renew for one-year periods until terminated.  The
notes are secured by (1) a first priority lien on our assets; (2) a mortgage on
certain real property; and (3) the pledge of the equity interests in our
subsidiaries. The term note bears interest at an annual rate equal to the
rate of interest most recently announced by Wells Fargo at its principal office
as its prime rate (the “Prime Rate”), subject to certain minimum annual interest
payments. The revolving note bears interest at an annual rate of either (i)
the Prime Rate, or (ii) Wells Fargo’s LIBOR rate plus 2.8%, depending on the
nature of the advance.  Interest is payable monthly, in arrears, under
the revolving note beginning on February 1, 2008.  The term note
requires monthly principal payments of $10,000, plus interest, beginning on the
first day of the month following receipt of the advance. The $1.25 million real
estate term note was funded in April 2008.
  We have
promissory notes outstanding to BDeWees, Inc., XGen III, Ltd., and John A.
Martell in the original principal amounts of $2.0 million, $2.0 million and $3.0
million, respectively (together, the “Subordinated Indebtedness”). Subordination
agreements have been executed that subordinate our obligations under the
Subordinated Indebtedness to the Wells Fargo credit facility.
  If we
default under our obligations to Wells Fargo, then the interest on the
outstanding principal balance of each note will increase by 3% until the default
is cured or waived.  Other remedies available to Wells Fargo upon an
event of default include the right to accelerate the maturity of all
obligations, the right to foreclose on the assets securing the obligations, all
rights of a secured creditor under applicable law, and other rights set forth in
the loan documents.
  We may
prepay the term note at any time, subject to certain prepayment
penalties.  With respect to the revolving note, we may borrow, pay
down and re-borrow under the note until the maturity date.  The
maximum aggregate principal amount that may be borrowed under the revolving note
is the lesser of (1) the sum of 40% of our eligible construction related trade
receivables up to $2 million and 85% of certain remaining eligible trade
accounts receivable less any reserves established by Wells Fargo from time to
time and (2) $13.75 million less any reserves established by Wells
Fargo.
  In April
2008, we amended the Wells Fargo credit facility entered into in January 2008.
The amendment revised the formula for the maximum aggregate principal amount
that may be borrowed under the revolving note. Specifically, the percentage of a
portion of the Company’s eligible construction related trade receivables
resulting from time and material services and completed contracts was increased
from 40% to 85% and the related borrowings were removed from the $2 million
limitation. The amendment also provided a three year term note in the amount of
$1 million, secured by substantially all of the machinery and equipment of the
Company. The note matures June 1, 2012 and is payable in monthly installments of
$21,000 plus interest at the bank’s prime rate beginning June 1,
2008.
  We
believe that our existing working capital, cash provided by operations and our
existing credit facility with Wells Fargo, under which we had all $2.8 million
available as of March 30, 2008, should be sufficient to fund our working capital
needs, capital requirements and contractual obligations for at least the next 12
months. We also believe that we will continue to improve relationships with our
vendors and ensure a more steady supply of parts and materials. We may, however,
need to raise additional debt or equity capital to fund certain future business
acquisitions. As of March 30, 2008, we did not have any material commitments for
capital expenditures.
   23
  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, that may cause actual results to differ materially from those
indicated in the forward-looking statements, due to, among other things, factors
identified in this report, including those identified in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007.
   ITEM
      3.   QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Not
Applicable.
   ITEM
      4T.   CONTROLS
      AND PROCEDURES
  Evaluation
of Effectiveness of Disclosure Controls and Procedures
  Our
disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to
ensure that information we are required to disclose in our reports filed under
the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded,
processed, summarized and reported within the time periods specified in the
rules of the Securities and Exchange Commission. Our disclosure controls and
procedures also are designed to ensure that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
  In order
to monitor compliance with this system of controls, our Board of Directors,
which performs the audit committee function for the company, oversees
management’s discharge of its financial reporting responsibilities. The Board of
Directors meets regularly with MISCOR’s independent registered public accounting
firm, Asher & Company, Ltd., and representatives of management to review
accounting, auditing, internal control, and financial reporting matters. The
Board of Directors is responsible for the engagement of our independent
registered public accounting firm.
   24
  Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures in effect as of March 30, 2008. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of March 30, 2008, our disclosure controls and procedures
were effective to provide reasonable assurance that material information
relating to MISCOR and its consolidated subsidiaries required to be included in
our Exchange Act reports, including this Quarterly Report on Form 10-Q, is
recorded, processed, summarized, and reported as required, and is made known to
management, including the Chief Executive Officer and Chief Financial Officer,
on a timely basis.
   Changes
in Internal Control Over Financial Reporting
  There
were no changes in our internal control over financial reporting that occurred
during the quarter ended March 30, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  25
  PART
II - OTHER INFORMATION
  ITEM
      2.   UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Unregistered Sales of Equity
Securities
  On
February 15, 2008 the Company issued 253,623 shares of common stock to Lawrence
Mehlenbacher in connection with the Company’s acquisition of AMP at a price of
$13.80 per share or $3.5 million. The Company did not register the issued shares
of common stock with the SEC under the Securities Act of 1933, as amended (the
“Securities Act”), in reliance on the exemption from the registration
requirements provided by Section 4(2) of the Securities Act, relating to offers
of securities by an issuer not involving any public offering, and Rule 506 of
Regulation D promulgated under the Securities Act.
  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 March 30, 2008, we
have issued 15,357,310 shares upon the exercise of warrants, and we have
received proceeds of $131,514 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 $0.7
million and have received no offering proceeds other than the proceeds received
upon the exercise of warrants.
   ITEM
      4.   SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
  The
Company held a special meeting of shareholders on February 7, 2008. At this
meeting, the Company’s shareholders voted on a proposal to approve an amendment
to the Company’s Amended and Restated Articles of Incorporation to increase the
number of authorized shares of common stock from 12,000,000 to 20,000,000. The
Company’s shareholders approved the proposal by the following
votes:
  Number
      of VotesFor
              
              Withheld
              
              Against8,585,832
              
              2,534,718
              
              -0-
 
  26
   ITEM
      6.   EXHIBITS
  The
following documents are included or incorporated by reference in this Quarterly
Report on Form 10-Q:
  Exhibit
      No.
              
              Description2.1*
              
              AMP
      Stock Purchase Agreement dated January 16, 2008, among MISCOR Group, Ltd.,
      Lawrence Mehlenbacher, Joseph Fearon, Thomas Coll, Richard Rizzieri, and
      Gary Walsh (incorporated by reference to Exhibit 2.1 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)3.1a
              
              Amended
      and Restated Articles of Incorporation of the registrant (incorporated by
      reference to Exhibit 3.1 to the registrant’s Registration Statement on
      Form S-1 (Reg No. 333-129354))3.1b
              
              Articles
      of Amendment to the registrant’s Amended and Restated Articles of
      Incorporation, effective January 14, 2008 (incorporated by reference to
      Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed by the
      registrant on January 14, 2008)3.1c
              
              Articles
      of Amendment to the registrant’s Amended and Restated Articles of
      Incorporation, effective February 8, 2008 (incorporated by reference to
      Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed by the
      registrant on February 13, 2008)4.1
              
              Specimen
      certificate of common stock (incorporated by reference to Exhibit 4.1 to
      the registrant’s Annual Report on Form 10-K filed by the registrant on
      March 31, 2008)10.1a@
              
              2005
      Restricted Stock Purchase Plan of the registrant (incorporated by
      reference to Exhibit 10.20 to the registrant’s Registration Statement on
      Form S-1 (Reg. No. 333-129354))10.1b@
              
              Amendment
      to the MISCOR 2005 Restricted Stock Purchase Plan, effective February 7,
      2008 (incorporated by reference to Exhibit 10.1 to the registrant’s
      Current Report on Form 8-K filed by the registrant on February 13,
      2008)10.2*
              
              Credit
      and Security Agreement dated January 14, 2008, among Wells Fargo Bank, the
      registrant and certain subsidiaries of the registrant identified therein
      (incorporated by reference to Exhibit 10.1 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)10.3
              
              Revolving
      Note dated January 14, 2008, among Wells Fargo Bank, the registrant and
      certain subsidiaries of the registrant identified therein (incorporated by
      reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.4
              
              Real
      Estate Note dated January 14, 2008, among Wells Fargo Bank, the registrant
      and certain subsidiaries of the registrant identified therein
      (incorporated by reference to Exhibit 10.3 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)10.5
              
              Real
      Estate Mortgage, Security Agreement and Assignment of Rents and Leases
      dated January 14, 2008, between Wells Fargo Bank and Magnetech Industrial
      Services, Inc. (incorporated by reference to Exhibit 10.4 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      18, 2008)10.6
              
              Collateral
      Pledge Agreement dated January 14, 2008, between Wells Fargo Bank and the
      registrant (incorporated by reference to Exhibit 10.5 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 18,
      2008)10.7
              
              Patent
      and Trademark Security Agreement dated January 14, 2008, between Wells
      Fargo Bank and 3-D Service, Ltd. (incorporated by reference to Exhibit
      10.6 to the registrant’s Current Report on Form 8-K filed by the
      registrant on January 18, 2008)10.8
              
              Patent
      and Trademark Security Agreement dated January 14, 2008, between Wells
      Fargo Bank and Magnetech Industrial Services, Inc. (incorporated by
      reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.9
              
              Standby
      Letter of Credit Agreement dated January 14, 2008, among Wells Fargo Bank,
      the registrant and certain subsidiaries of the registrant identified
      therein (incorporated by reference to Exhibit 10.8 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 18,
      2008)10.10
              
              Subordination
      Agreement between Wells Fargo Bank and John A. Martell (incorporated by
      reference to Exhibit 10.9 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.11
              
              Subordination
      Agreement between Wells Fargo Bank and Strasbourger, Pearson, Tulcin,
      Wolffe, Inc. (incorporated by reference to Exhibit 10.10 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      18, 2008)
   27
 
 Exhibit
      No.
              
              Description10.12
              
              Subordination
      Agreement among Wells Fargo Bank, BDeWees, Inc., and XGen III, Ltd.
      (incorporated by reference to Exhibit 10.11 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)10.13
              
              Lease
      Agreement dated January 16, 2008, between Dansville Properties, LLC and
      American Motive Power, Inc. (incorporated by reference to Exhibit 10.1 to
      the registrant’s Current Report on Form 8-K filed by the registrant on
      January 23, 2008)10.14
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Lawrence Mehlenbacher (incorporated by reference to Exhibit 10.2 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.15
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Richard Rizzieri (incorporated by reference to Exhibit 10.3 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.16
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Thomas Coll (incorporated by reference to Exhibit 10.4 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)10.17
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Gary Walsh (incorporated by reference to Exhibit 10.5 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)10.18
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Joseph Fearon (incorporated by reference to Exhibit 10.6 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.19
              
              Mutual
      Services Agreement dated January 16, 2008, among American Motive Power,
      Inc., LMC Power Systems, Inc., LMC Industrial Contractors, Inc., and
      Dansville Properties, LLC (incorporated by reference to Exhibit 10.7 to
      the registrant’s Current Report on Form 8-K filed by the registrant on
      January 23, 2008)10.20
              
              Prior
      Contract Termination Agreement dated January 16, 2008, among Lawrence
      Mehlenbacher, Joseph Fearon, Thomas Coll, Richard Rizzieri, Gary Walsh,
      LMC Industrial Contractors, Inc., LMC Power Systems, Inc., Dansville
      Properties, LLC and American Motive Power, Inc. (incorporated by reference
      to Exhibit 10.8 to the registrant’s Current Report on Form 8-K filed by
      the registrant on January 23, 2008)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
 
 *
              MISCOR has omitted schedules and
      similar attachments to the subject agreement pursuant to Item 601(b) of
      Regulation S-K. MISCOR will furnish a copy of any omitted schedule or
      similar attachment to the Commission upon
  request.
 @
              Denotes
      a management contract or compensatory
plan.
 
  28
  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
      14, 2008
              By:
              /s/
      Richard
      J. MullinRichard
      J. MullinChief
      Financial Officer(Signing
      on behalf of the registrant as Principal Financial
  Officer)
 
  29
  EXHIBIT
INDEX
 
 Exhibit
      No.
              
              Description2.1*
              
              AMP
      Stock Purchase Agreement dated January 16, 2008, among MISCOR Group, Ltd.,
      Lawrence Mehlenbacher, Joseph Fearon, Thomas Coll, Richard Rizzieri, and
      Gary Walsh (incorporated by reference to Exhibit 2.1 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)3.1a
              
              Amended
      and Restated Articles of Incorporation of the registrant (incorporated by
      reference to Exhibit 3.1 to the registrant’s Registration Statement on
      Form S-1 (Reg No. 333-129354))3.1b
              
              Articles
      of Amendment to the registrant’s Amended and Restated Articles of
      Incorporation, effective January 14, 2008 (incorporated by reference to
      Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed by the
      registrant on January 14, 2008)3.1c
              
              Articles
      of Amendment to the registrant’s Amended and Restated Articles of
      Incorporation, effective February 8, 2008 (incorporated by reference to
      Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed by the
      registrant on February 13, 2008)4.1
              
              Specimen
      certificate of common stock (incorporated by reference to Exhibit 4.1 to
      the registrant’s Annual Report on Form 10-K filed by the registrant on
      March 31, 2008)10.1a@
              
              2005
      Restricted Stock Purchase Plan of the registrant (incorporated by
      reference to Exhibit 10.20 to the registrant’s Registration Statement on
      Form S-1 (Reg. No. 333-129354))10.1b@
              
              Amendment
      to the MISCOR 2005 Restricted Stock Purchase Plan, effective February 7,
      2008 (incorporated by reference to Exhibit 10.1 to the registrant’s
      Current Report on Form 8-K filed by the registrant on February 13,
      2008)10.2*
              
              Credit
      and Security Agreement dated January 14, 2008, among Wells Fargo Bank, the
      registrant and certain subsidiaries of the registrant identified therein
      (incorporated by reference to Exhibit 10.1 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)10.3
              
              Revolving
      Note dated January 14, 2008, among Wells Fargo Bank, the registrant and
      certain subsidiaries of the registrant identified therein (incorporated by
      reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.4
              
              Real
      Estate Note dated January 14, 2008, among Wells Fargo Bank, the registrant
      and certain subsidiaries of the registrant identified therein
      (incorporated by reference to Exhibit 10.3 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)10.5
              
              Real
      Estate Mortgage, Security Agreement and Assignment of Rents and Leases
      dated January 14, 2008, between Wells Fargo Bank and Magnetech Industrial
      Services, Inc. (incorporated by reference to Exhibit 10.4 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      18, 2008)10.6
              
              Collateral
      Pledge Agreement dated January 14, 2008, between Wells Fargo Bank and the
      registrant (incorporated by reference to Exhibit 10.5 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 18,
      2008)10.7
              
              Patent
      and Trademark Security Agreement dated January 14, 2008, between Wells
      Fargo Bank and 3-D Service, Ltd. (incorporated by reference to Exhibit
      10.6 to the registrant’s Current Report on Form 8-K filed by the
      registrant on January 18, 2008)10.8
              
              Patent
      and Trademark Security Agreement dated January 14, 2008, between Wells
      Fargo Bank and Magnetech Industrial Services, Inc. (incorporated by
      reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.9
              
              Standby
      Letter of Credit Agreement dated January 14, 2008, among Wells Fargo Bank,
      the registrant and certain subsidiaries of the registrant identified
      therein (incorporated by reference to Exhibit 10.8 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 18,
      2008)10.10
              
              Subordination
      Agreement between Wells Fargo Bank and John A. Martell (incorporated by
      reference to Exhibit 10.9 to the registrant’s Current Report on Form 8-K
      filed by the registrant on January 18, 2008)10.11
              
              Subordination
      Agreement between Wells Fargo Bank and Strasbourger, Pearson, Tulcin,
      Wolffe, Inc. (incorporated by reference to Exhibit 10.10 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      18, 2008)10.12
              
              Subordination
      Agreement among Wells Fargo Bank, BDeWees, Inc., and XGen III, Ltd.
      (incorporated by reference to Exhibit 10.11 to the registrant’s Current
      Report on Form 8-K filed by the registrant on January 18,
      2008)
   30
 
 Exhibit
      No.
              
              Description10.13
              
              Lease
      Agreement dated January 16, 2008, between Dansville Properties, LLC and
      American Motive Power, Inc. (incorporated by reference to Exhibit 10.1 to
      the registrant’s Current Report on Form 8-K filed by the registrant on
      January 23, 2008)10.14
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Lawrence Mehlenbacher (incorporated by reference to Exhibit 10.2 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.15
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Richard Rizzieri (incorporated by reference to Exhibit 10.3 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.16
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Thomas Coll (incorporated by reference to Exhibit 10.4 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)10.17
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Gary Walsh (incorporated by reference to Exhibit 10.5 to the registrant’s
      Current Report on Form 8-K filed by the registrant on January 23,
      2008)10.18
              
              Non-Compete
      Agreement dated January 16, 2008, between American Motive Power, Inc., and
      Joseph Fearon (incorporated by reference to Exhibit 10.6 to the
      registrant’s Current Report on Form 8-K filed by the registrant on January
      23, 2008)10.19
              
              Mutual
      Services Agreement dated January 16, 2008, among American Motive Power,
      Inc., LMC Power Systems, Inc., LMC Industrial Contractors, Inc., and
      Dansville Properties, LLC (incorporated by reference to Exhibit 10.7 to
      the registrant’s Current Report on Form 8-K filed by the registrant on
      January 23, 2008)10.20
              
              Prior
      Contract Termination Agreement dated January 16, 2008, among Lawrence
      Mehlenbacher, Joseph Fearon, Thomas Coll, Richard Rizzieri, Gary Walsh,
      LMC Industrial Contractors, Inc., LMC Power Systems, Inc., Dansville
      Properties, LLC and American Motive Power, Inc. (incorporated by reference
      to Exhibit 10.8 to the registrant’s Current Report on Form 8-K filed by
      the registrant on January 23, 2008)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
 
 *
              MISCOR has omitted schedules and
      similar attachments to the subject agreement pursuant to Item 601(b) of
      Regulation S-3K. MISCOR will furnish a copy of any omitted schedule or
      similar attachment to the Commission upon
  request.
 @
              Denotes
      a management contract or compensatory
plan.
      31