**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**





**FORM
      10-Q**





x
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**For
                the quarterly period ended September 30, 2007**o
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934




Commission
      file number: **000-52380**





**MISCOR
      GROUP, LTD.**


(Exact
      name of registrant as specified in its charter)





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








**1125
      South Walnut Street**


**South
      Bend, Indiana 46619**


(Address
      of principal executive offices/zip code)





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






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




x Yes   o No






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




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





Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).
            
            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 November 2, 2007, there
      were 188,488,472 shares outstanding of the issuer’s Common Stock, without par
      value**.










**MISCOR
      GROUP, LTD.**





**INDEX
      TO FORM 10-Q**





Item
                Number
            
            Page
                NumberPART
                I - FINANCIAL INFORMATION1.
            Financial
                Statements:Condensed
                Consolidated Balance Sheets September 30, 2007 (Unaudited) and
                December 31, 2006
            1Condensed
                Consolidated Statements of Operations (Unaudited) Three and Nine
                Months
                ended September 30, 2007 and October 1, 2006
            2Condensed
                Consolidated Statements of Cash Flow (Unaudited) Nine Months ended
                September 30, 2007 and October 1, 2006
            3Notes
                to Condensed Consolidated Financial Statements
            42.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            173.
            Quantitative
                and Qualitative Disclosures about Market Risk
            254.
            Controls
                and Procedures
            25PART
                II - OTHER INFORMATION2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            266.
            Exhibits
            26Signatures
            27








**PART
        I - FINANCIAL INFORMATION**
 
  **ITEM
          1.FINANCIAL STATEMENTS**




**MISCOR
                GROUP, LTD. AND SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED BALANCE SHEETS**
              **(Amounts
                in thousands, except share and per share data)****ASSETS****September
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****(Unaudited)**CURRENT
                ASSETSCash
            
            $
            283
            
            
            $
            297Accounts
                receivable, net of allowance for doubtful accounts of $472 and $428,
                respectively
            
            
            12,753
            
            
            
            13,275Inventories,
                net
            
            
            9,456
            
            
            
            7,640Prepaid
                expenses and other current assets
            
            
            1,314
            
            
            
            1,226Total
                current assets
            
            
            23,806
            
            
            
            22,438PROPERTY
                AND EQUIPMENT, net
            
            
            5,998
            
            
            
            6,320OTHER
                ASSETSDeposits
            
            
            102
            
            
            
            90Debt
                issue costs, net
            
            
            145
            
            
            
            2,017Other
                intangibles ,net
            
            
            2
            
            
            
            2Total
                other assets
            
            
            249
            
            
            
            2,109**Total
                Assets**
            
            $
            30,053
            
            
            $
            30,867




**LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIESRevolving
                credit line, net of discount of $-0- and $438,
                respectively
            
            $
            750
            
            
            $
            6,500Current
                portion of long-term debt, net of discount of $53 and $-0-,
                respectively
            
            
            2,952
            
            
            
            2,081Accounts
                payable
            
            
            5,743
            
            
            
            7,237Accrued
                expenses and other current liabilities
            
            
            2,706
            
            
            
            2,532Total
                current liabilities
            
            
            12,151
            
            
            
            18,350LONG
                TERM LIABILITIESLong-term
                debt, net of discount of $-0- and $229, respectively
            
            
            15
            
            
            
            5,824Long-term
                debt, Stockholder
            
            
            3,000
            
            
            
            3,000Total
                long-term liabilities
            
            
            3,015
            
            
            
            8,824Total
                liabilities
            
            
            15,166
            
            
            
            27,174COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITYPreferred
                stock, no par value; 20,000,000 shares authorized; no shares issued
                and
                outstanding
            
            
            –
            
            
            
            –Common
                stock, no par value; 300,000,000 shares authorized; 188,488,472 and
                117,285,272 shares issued and outstanding, respectively
            
            
            21,930
            
            
            
            8,459Additional
                paid in capital
            
            
            8,995
            
            
            
            8,961Deferred
                compensation
            
            
            (45
            )
            
            
            (47
            )Accumulated
                deficit
            
            
            (15,993
            )
            
            
            (13,680
            )Total
                Stockholders' equity
            
            
            14,887
            
            
            
            3,693**Total
                Liabilities and Stockholders' Equity**
            
            $
            30,053
            
            
            $
            30,867





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




1





**MISCOR
                GROUP, LTD. AND SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS**
              **(Amounts
                in thousands, except share and per share data)****For
                  the 3**
                **months
                  ended**
                **September
                  30, 2007**
            
            
            **For
                  the 3**
                **months****ended**
                **October
                  1, 2006**
            
            
            **For
                  the 9**
                **months
                  ended**
                **September
                  30, 2007**
            
            
            **For
                  the 9**
                **months
                  ended**
                **October
                  1, 2006****(Unaudited)**
            
            
            **(Unaudited)**
            
            
            **(Unaudited)**
            
            
            **(Unaudited)****REVENUES**Product
                sales
            
            $
            6,092
            
            
            $
            4,187
            
            
            $
            17,115
            
            
            $
            14,118Service
                revenue
            
            
            11,578
            
            
            
            11,350
            
            
            
            33,465
            
            
            
            29,156Total
                revenues
            
            
            17,670
            
            
            
            15,537
            
            
            
            50,580
            
            
            
            43,274**COST
                OF REVENUES**Product
                sales
            
            
            4,399
            
            
            
            3,188
            
            
            
            12,476
            
            
            
            10,769Service
                revenue
            
            
            10,289
            
            
            
            9,187
            
            
            
            29,363
            
            
            
            24,004Total
                cost of revenues
            
            
            14,688
            
            
            
            12,375
            
            
            
            41,839
            
            
            
            34,773Gross
                Profit
            
            
            2,982
            
            
            
            3,162
            
            
            
            8,741
            
            
            
            8,501Selling,
                general and administrative expenses
            
            
            2,661
            
            
            
            2,600
            
            
            
            7,781
            
            
            
            7,283Operating
                income
            
            
            321
            
            
            
            562
            
            
            
            960
            
            
            
            1,218Other
                expenseLoss
                on warrant liability
            
            
            -
            
            
            
            984
            
            
            
            -
            
            
            
            1,810Loss
                on debt extinguishment
            
            
            -
            
            
            
            -
            
            
            
            2,300
            
            
            
            -Interest
                expense
            
            
            257
            
            
            
            783
            
            
            
            972
            
            
            
            2,521257
            
            
            
            1,767
            
            
            
            3,272
            
            
            
            4,331**NET
                INCOME (LOSS)**
            
            $
            64
            
            
            $
            (1,205
            )
            
            $
            (2,312
            )
            
            $
            (3,113
            )Basic
                and diluted earnings (loss) per share
            
            $
            -
            
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.03
            )Weighted
                average shares outstanding:Basic
            
            
            188,161,253
            
            
            
            108,108,389
            
            
            
            182,083,663
            
            
            
            106,621,866Diluted
            
            
            227,357,780
            
            
            
            108,108,389
            
            
            
            182,083,663
            
            
            
            106,621,866





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







2





**MISCOR
                GROUP, LTD. AND SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS**
              **(Amounts
                in thousands, except share and per share data)****For
                  the 9 months ended**
            ********
            ****
            **September
                30,**
              **2007**
            ****
            ****
            **October
                1,**
              **2006****(Unaudited)**
            
            
            **(Unaudited)**OPERATING
                ACTIVITIESNet
                cash provided (utilized) by operating activities
            
            $
            (1,885
            )
            
            $
            1,787INVESTING
                ACTIVITIESAcquisition
                of business assets
            
            
            -
            
            
            
            (3,569
            )Acquisition
                of property and equipment
            
            
            (367
            )
            
            
            (278
            )Proceeds
                from disposal of property and equipment
            
            
            3
            
            
            
            11Net
                cash utilized by investing activities
            
            
            (364
            )
            
            
            (3,836
            )FINANCING
                ACTIVITIESPayments
                on capital lease obligations
            
            
            (29
            )
            
            
            (11
            )Short
                term borrowings, net
            
            
            (6,188
            )
            
            
            1,145Borrowings
                (repayments) of long-term debt
            
            
            (4,040
            )
            
            
            1,390Proceeds
                from the issuance of shares and exercise of warrants
            
            
            12,567
            
            
            
            83Debt
                issuance costs
            
            
            -
            
            
            
            (156
            )Payment
                of stock issuance costs
            
            
            (75
            )
            
            
            -Net
                cash provided by financing activities
            
            
            2,235
            
            
            
            2,451**INCREASE
                (DECREASE) IN CASH**
            
            
            (14
            )
            
            
            402Cash,
                beginning of period
            
            
            297
            
            
            
            23Cash,
                end of period
            
            $
            283
            
            
            $
            425SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the period for:Interest
            
            $
            238
            
            
            $
            760





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







3


**MISCOR
      GROUP, LTD.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      AND NINE MONTHS IN THE PERIOD ENDED SEPTEMBER 30, 2007**





**NOTE
      A - BASIS OF PRESENTATION**




The
      unaudited interim consolidated financial statements of MISCOR Group, Ltd. (the
      “Company”) as of and for the three and nine months ended September 30, 2007 and
      October 1, 2006, have been prepared in accordance with generally accepted
      accounting principles for interim information and the rules and regulations
      of
      the Securities and Exchange Commission for interim financial information.
      Accordingly, they do not contain all of the information and footnotes required
      by generally accepted accounting principles for complete financial statements.
      However, in the opinion of the Company’s management, all adjustments, consisting
      of normal, recurring adjustments, considered necessary for a fair statement
      have
      been included. The results for the three and nine months ended September 30,
      2007 are not necessarily indicative of the results to be expected for the year
      ending December 31, 2007.




Certain
      amounts from the prior year financial statements have been reclassified to
      conform to the current year presentation.  Costs of $177 and $589,
      respectively, for the three and nine months ended October 1, 2006 were
      reclassified from selling, general and administrative expenses to cost of
      revenues – service.  This reclassification had no effect on net loss
      or stockholders’ equity.




**NOTE
      B - RECENT ACCOUNTING PRONOUNCEMENTS**




*FSP
      EITF 00-19-2*




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




*SFAS
      157 and SFAS 159*




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS 157”). SFAS 157
      defines fair value, establishes a framework for measuring fair value and expands
      disclosures about fair value measurements. In February 2007, the FASB issued
      SFAS 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 assets at fair value and
      to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused
      by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions.SFAS
      157 and SFAS 159 are effective for financial statements issued for fiscal years
      beginning after November 15, 2007 and interim periods within those fiscal years.
      The Company is currently evaluating the impact that SFAS 157 and SFAS 159 will
      have on its consolidated financial statements.









4


**NOTE
      B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)**




*FIN
      48*




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




*SFAS
      155*




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




**NOTE
      C - EARNINGS PER SHARE**




The
      Company accounts for 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 loss per common share is computed assuming the conversion of
      common stock equivalents, when dilutive.




Components
      of basic and diluted earnings (loss) per share were as follows:




5







**Three
                Months
                Ended**
            ****
            ****
            **Nine
                Months
                Ended**
            ********
            ****
            **September
                30,**
            ****
            ****
            **October
                1,**
            ****
            ****
            **September
                30,**
            ****
            ****
            **October
                1,**
            ********
            ****
            **2007**
            ****
            ****
            **2006**
            ****
            ****
            **2007**
            ****
            ****
            **2006**Net
                income (loss) available for common stockholders used in basic earnings
                (loss) per share (A)
            
            $
            64
            
            
            $
            (1,205
            )
            
            $
            (2,312
            )
            
            $
            (3,113
            )Interest
                on convertible debt
            
            
            242
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                income (loss) available for common stockholders after assumed conversion
                of diluted securities (B)
            
            $
            306
            
            
            $
            (1,205
            )
            
            $
            (2,312
            )
            
            $
            (3,113
            )Weighted
                average outstanding shares of common stock (C)
            
            
            188,161,253
            
            
            
            108,108,389
            
            
            
            182,083,663
            
            
            
            106,621,866Dilutive
                effect of  stock options and warrants
            
            
            444,501
            
            
            
            -
            
            
            
            -
            
            
            
            -Dilutive
                effect of convertible debt
            
            
            38,752,026
            
            
            
            -
            
            
            
            -
            
            
            
            -Weighted
                average outstanding shares of common stock and common stock equivalents
                (D)
            
            
            227,357,780
            
            
            
            108,108,389
            
            
            
            182,083,663
            
            
            
            106,621,866Earnings
                (loss) per share:Basic (A/C)
            
            $
            -
            
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.03
            )Diluted (B/D)
            
            $
            -
            
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.03
            )





For
      the
      nine months ended September 30, 2007, the Company’s common stock equivalents,
      consisting of warrants to purchase 8,161,542 shares of common stock,
      subordinated debt convertible into 38,752,026 common shares, and options to
      purchase 1,475,000 shares of common stock issued to employees under the 2005
      Stock Option Plan, were not included in computing diluted loss per share because
      their effects were anti-dilutive. For the three and nine months ended October
      1,
      2006, the Company’s common stock equivalents, consisting of warrants to purchase
      14,369,213 shares of common stock, senior and subordinated debt convertible
      into
      71,421,830 common shares, and options to purchase 1,185,000 shares of common
      stock issued to employees under the 2005 Stock Option Plan, were not included
      in
      computing diluted loss per share because their effects were anti-dilutive.
      Basic
      and diluted loss per share were the same for the nine months ended September
      30,
      2007 and the three and nine months ended October 1, 2006, respectively, as
      there
      were no potentially dilutive securities outstanding.








**NOTE
      D - INVENTORY**




Inventory
      consists of the following:




**September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006**Raw
                materials
            
            $
            3,129
            
            
            $
            2,861Work-in-process
            
            
            4,361
            
            
            
            2,761Finished
                goods
            
            
            2,468
            
            
            
            2,3309,957
            
            
            
            7,952Less:
                allowance for slow moving and obsolete inventories
            
            
            (502
            )
            
            
            (312
            )$
            9,456
            
            
            $
            7,640







6


**NOTE
      E - DEBT**




*Long-term
      debt*




Long-term
      debt consists of the following:




**September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006**Note
                payable to its Stockholder, due December 2008, plus interest at prime
                rate
                less 1% (6.75% at September 30, 2007 and December 31, 2006, 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 $53 and $229 at September 30,
                2007
                and December 31, 2006, respectively)
            
            
            2,927
            
            
            
            3,796Note
                payable to former employee in annual principal payments of
                $10,  unsecured and without interest, due March 7,
                2008
            
            
            10
            
            
            
            20Revolving
                note payable in August 2008 (net of discount of $438 at December
                31, 2006)
                with interest payable monthly at 1% over the Wall Street Journal
                prime
                rate (9.25%  at December 31, 2006) secured by substantially all
                assets owned by the Company paid off in January 2007
            
            
            -
            
            
            
            5,759Term
                note payable in monthly principal payments of $100 plus interest
                at 1%
                over the Wall Street Journal prime rate (9.25% at December 31, 2006)
                secured by substantially all assets owned by the Company paid off
                in
                January 2007
            
            
            -
            
            
            
            2,000Revolving
                note payable in May 2009  with interest payable monthly at 1.5%
                over the Wall Street Journal prime rate (9.75%  at December 31,
                2006) secured by substantially all assets owned by the Company paid
                off in
                January 2007
            
            
            -
            
            
            
            741Term
                note payable in monthly principal payments of $70 plus interest at
                1% over
                the Wall Street Journal prime rate (9.25% at December 31, 2006) secured
                by
                substantially all assets owned by the Company paid off in January
                2007
            
            
            -
            
            
            
            2,030Capital
                lease obligations
            
            
            30
            
            
            
            595,967
            
            
            
            17,405Less:
                current portion
            
            
            2,952
            
            
            
            8,581$
            3,015
            
            
            $
            8,824





7


**NOTE
      E - DEBT (CONTINUED)**




*Long-term
      debt, debentures*




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




The
      Company reserved 11,821,108 shares of common stock for issuance upon conversion
      of the debentures. During the three months ended September 30, 2007, no
      debentures were converted into shares of common stock.  During the
      nine months ended September 30, 2007, certain debenture holders converted $1,045
      of the aggregate principal amount of the debentures into 3,069,079 shares of
      common stock.




If
      the
      number of the Company’s outstanding shares of common stock is increased because
      of a stock split or stock dividend, the conversion price will be proportionately
      reduced, and if the number is decreased because of a stock combination, the
      conversion price will be proportionately increased, except that any adjustment
      to the conversion price of less than $0.0001 is not required to be
      made.  Upon written notice, the Company may redeem any or all of the
      outstanding debentures prior to the maturity date at a redemption price, payable
      in cash, equal to 100% of the principal amount redeemed, plus accrued and unpaid
      interest through the redemption date. Any notice to redeem must be given to
      all
      holders no less than 30 days or more than 45 days prior to the date for
      redemption set forth in the notice. The loan agreements with the senior secured
      lender restrict the Company’s ability to exercise this redemption
      right.




Each
      purchaser of debentures received common stock purchase warrants for no
      additional consideration. Each warrant entitled its holder to purchase one
      share
      of common stock for a five year period at an exercise price of $0.001 per share.
      The Company has allocated warrants to purchase 4,255,601 shares of common stock
      among all purchasers of the debentures. The Company used the Black-Scholes
      valuation model in estimating the fair value of the common stock purchase
      warrants. The following assumptions were used for such estimates: no dividend
      yield, no expected volatility, risk-free interest rate of 3.3% and an expected
      life of the common stock purchase warrants of one year. The estimated fair
      value
      of these warrants is $836. This debt discount is amortized to interest expense
      over the term of the debentures. Interest expense was $38 and $133 for the
      three
      months ended, and $134 and $455 for the nine months ended September 30, 2007
      and
      October 1, 2006, respectively. In addition, for the nine months ended September
      30, 2007, $50 in debt discount was written off against common stock in
      conjunction with the conversion of $1,045 of the aggregate principal amount
      of
      the debentures. Net debt issue discount at September 30, 2007 related to this
      instrument was $53. As of September 30, 2007, warrants to purchase 3,948,986
      shares had been exercised.




The
      Company issued to its placement agent in the Debenture Offering, as compensation
      for its services, ten-year warrants to purchase 6,182,992 shares of the
      Company’s common stock at an exercise price of $0.001 per share. The Company
      used the Black-Scholes valuation model in estimating the fair value of common
      stock purchase warrants. The following assumptions were used for such estimates:
      no dividend yield, no expected volatility, risk-free interest rate of 3.3%
      and
      an expected life of the common stock purchase warrants of one year. The
      estimated fair value of the warrants issued to the placement agent was $1,546.
      As of September 30, 2007, warrants to purchase 6,157,992 shares had been
      exercised.




8


**NOTE
      E - DEBT (CONTINUED)**




The
      Company also paid the placement agent a fee of 10% of the amount raised in
      the
      offerings, or $403. In addition, the Company issued to its securities counsel
      in
      the Debenture Offering, as compensation for its services, 50,000 shares of
      the
      Company’s common stock, the fair value of which was $12. The summation of these
      debt issue costs was $2,095. Interest expense was $105 and $344 for the three
      months ended, and $382 and $1,152 for the nine months ended September 30, 2007
      and October 1, 2006, respectively.  In addition, $137 in debt issue
      costs was written off against common stock in conjunction with the conversion
      of
      $1,045 of the aggregate principal amount of the debentures in the nine months
      ended September 30, 2007. Net debt issue cost at September 30, 2007 related
      to
      these instruments was $145.




*Senior
      Debt Financing*




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




On
      March
      9, 2007, the Company obtained financing from MFB Financial in the form of a
      $5
      million revolving credit facility, secured by accounts receivable. Borrowings
      under the note will be used for capital expenditures and working capital
      purposes. Interest is payable monthly at 1⁄2% over prime, as published in the Wall
      Street Journal. The facility contains annual financial covenants, including
      minimum tangible net worth, current ratio and debt coverage ratio, and maximum
      debt to equity ratio. An event of default under the facility will occur if,
      among other things, the Company fails to make a required payment on time or
      when
      due, fails to keep the secured property insured, defaults under any other
      agreements with MFB Financial, is involved in any legal proceeding by a creditor
      for the collection of debt, becomes insolvent, or makes any misrepresentation
      in
      financial information provided to MFB Financial, or the Company does or fails
      to
      do something that causes MFB Financial to believe that it will have difficulty
      collecting the debt. At September 30, 2007, there was $750 outstanding under
      the
      revolving credit agreement.  Interest is payable monthly at 1⁄2% over
      the Wall Street Journal prime rate (8.25% at September 30,
      2007).  Interest expense was $15 and $23 for the three and nine months
      ended September 30, 2007.




Aggregate
      maturities of long-term debt for the periods subsequent to September 30, 2007
      on
      a calendar year basis are as follows:




**Year
                ending December 31,**2007
            
            $
            42008
            
            
            6,0052009
            
            
            11





9


**NOTE
      E - DEBT (CONTINUED)**




Following
      is a summary of interest expense for the three and nine months ended September
      30, 2007 and October 1, 2006:




**Three
                months
                ended**
            
            
            **Nine
                months
                ended****September
                30,**
            
            
            **October
                1,**
            
            
            **September
                30,**
            
            
            **October
                1,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Interest
                expense on principal
            
            $
            114
            
            
            $
            306
            
            
            $
            456
            
            
            $
            914Amortization
                of debt issue costs
            
            
            105
            
            
            
            344
            
            
            
            382
            
            
            
            1,152Amortization
                of debt discount - debentures and revolving notes payable
            
            
            38
            
            
            
            133
            
            
            
            134
            
            
            
            455Total
                interest expense
            
            $
            257
            
            
            $
            783
            
            
            $
            972
            
            
            $
            2,521







**NOTE
      F - STOCKHOLDERS’ EQUITY**




*Common
      Stock Issuance*




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




The
      Company did not register the issuance of the shares of common stock to Tontine
      with the SEC under the Securities Act of 1933, as amended (the “Securities
      Act”), in reliance on exemptions from the registration requirements of the
      Securities Act. The Company and Tontine entered into a registration rights
      agreement, dated January 18, 2007, pursuant to which the Company agreed to
      register for resale the shares issued to Tontine. The Company filed a
      registration statement on Form S-1 with the Securities and Exchange Commission
      (“SEC”) on July 13, 2007, covering the shares issued to Tontine.  This
      registration statement has not yet been declared effective by the
      SEC.




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




*Equity
      Incentive Plans*




2005
      Stock Option Plan




On
      January 19, 2007, the Company granted stock options to certain executives and
      key employees to acquire 395,000 shares of the Company’s common stock at an
      exercise price of $0.215 per share under the 2005 Stock Option
      Plan.  These options, which expire in five years, are exercisable in
      25% cumulative increments on and after the first four anniversaries of their
      grant date. At the time of issuance of the stock options, the estimated fair
      value of the Company’s common stock was $0.215 per share. The fair value of the
      Company’s common stock was determined based upon the average of the high and low
      sale prices of the Company’s common stock on the date of grant.




10


**NOTE
      F - STOCKHOLDERS’ EQUITY (CONTINUED)**




The
      fair
      value of the options was estimated using the Black-Scholes valuation model
      and
      the following assumptions:  expected term of 4 years, risk-free
      interest rate of 4.78%, volatility of 41.21% and no dividend
      yield.  The Company recorded compensation cost based on the grant date
      fair value of the award of 395,000 shares at $0.215 per share. The total cost
      of
      the grant in the amount of $33 will be recognized over the four year period
      during which the employees are required to provide services in exchange for
      the
      award - the requisite service period.




The
      Company recorded compensation expense related to all stock options of $5 and
      $10
      for the three months ended, and $20 and $12 for the nine months ended September
      30, 2007 and October 1, 2006, respectively.




2005
      Restricted Stock Purchase Plan




On
      January 19, 2007, the Company issued offers to purchase 105,000 shares of common
      stock at a nominal price of $0.001 per share to certain key
      employees.  The fair value of the restricted stock issued was
      estimated using the Black-Scholes valuation model and the following
      assumptions:  expected term, representing the restriction period of 3
      years, risk-free interest rate of 4.78%, volatility of 41.21% and no dividend
      yield. The Company charged deferred compensation and credited additional paid-in
      capital in the amount of $22.  The issuance of the restricted stock
      was intended to lock-up key employees for a three year period.  As a
      result, the Company is recording compensation expense over the three year
      restriction period. Compensation expense related to all restricted stock offers
      of $8 and $6 was recorded for the three months ended, and $24 and $16 for the
      nine months ended September 30, 2007 and October 1, 2006,
      respectively.




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 16,000,000 shares of common stock have been reserved
        for
        issuance under the ESPP. The common stock to satisfy the stock purchases
        under
        the ESPP will be newly issued shares of common stock. During the three and
        nine
        months ended September 30, 2007, 99,088 and 142,718 shares were purchased
        under
        the ESPP. As of September 30, 2007 there were 15,857,282 shares available
        for
        future offerings. The Company recorded compensation expense of $18 and $20
        for
        the three and nine months ended September 30, 2007.
   11




**NOTE
      G - RELATED PARTY TRANSACTIONS**




*Long-term
      debt, other*




The
      Company was indebted to the estate of a former employee for a note payable
      with
      a balance of $10 at September 30, 2007 (see Note E). The unsecured note is
      payable in annual principal installments of $10 and is non-interest
      bearing.




*Long-term
      debt, stockholder*




The
      Company was indebted to its Chief Executive Officer and stockholder for a note
      payable with a balance of $3,000 at September 30, 2007 (see Note E). Interest
      is
      payable monthly at prime less 1%. The loan matures on December 31, 2008, except
      that the Company can extend the maturity for five years upon 60 days prior
      written notice at an interest rate of prime plus 1%. Interest expense on the
      note was $54 and $54 for the three months ended, and $163 and $155 for the
      nine
      months ended September 30, 2007 and October 1, 2006, respectively.




*Leases*




The
      Company leases its South Bend, Indiana; Hammond, Indiana; Mobile, Alabama;
      and
      Boardman, Ohio facilities from its Chief Executive Officer and stockholder.
      Total rent expense under these agreements was approximately $83 and $82 for
      the
      three months ended, and $247 and $244 for the nine months ended September 30,
      2007 and October 1, 2006, respectively.




The
      Company leases its Hagerstown, Maryland facility from a partnership of which
      an
      officer of the Company’s subsidiary, HK Engine Components, LLC, is a partner.
      Rent expense under this agreement was $38 and $38 for the three months ended,
      and $115 and $113 for the nine months ended September 30, 2007 and October
      1,
      2006 respectively.




In
      January 2007, the Company began leasing a new facility in South Bend for the
      electrical contracting business from a limited liability company owned by the
      adult children of its Chief Executive Officer and stockholder. Rent expense
      under this agreement was $22 and $67 for the three and nine months ended
      September 30, 2007 and October 1, 2006, respectively.




**NOTE
      H - CONCENTRATIONS OF CREDIT RISK**




The
      Company grants credit, generally without collateral, to its customers, which
      are
      primarily in the steel, metal working, and scrap industries. Consequently,
      the
      Company is subject to potential credit risk related to changes in economic
      conditions within those industries. However, management believes that its
      billing and collection policies are adequate to minimize the potential credit
      risk. At September 30, 2007 and December 31, 2006, approximately 19% and 21%,
      respectively, of gross accounts receivable were due from entities in the steel,
      metal working and scrap industries, and 22% and 19%, respectively, of gross
      receivables were due from entities in the railroad industry. No single customer
      accounted for more than 10% of gross accounts receivable at September 30, 2007
      and December 31, 2006. Additionally, no single customer accounted for more
      than
      10% of sales for the three and nine months ended September 30, 2007 and October
      1, 2006.




**NOTE
      I - COMMITMENTS AND CONTINGENCIES**




*Collective
      bargaining agreements*




At
      September 30, 2007 and December 31, 2006, approximately 37% 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.




12


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




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




*Cash,
      accounts receivable, accounts payable and accrued expenses*




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




*Debt*




The
      fair
      value of debt differs from the carrying amount due to favorable interest terms
      on debt with its Chief Executive Officer and stockholder. At September 30,
      2007
      and December 31, 2006, the aggregate fair value of debt, with an aggregate
      carrying value of $6,719 and $17,405, respectively, is estimated at $7,156
      and
      $20,633, respectively, and is based on the estimated future cash flows
      discounted at terms at which the Company estimates it could borrow such funds
      from unrelated parties.




**NOTE
      K - SEGMENT INFORMATION**




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




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




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




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




13


**NOTE
      K – SEGMENT INFORMATION (CONTINUED)**




Summarized
      financial information concerning the Company’s reportable segments as of and for
      the three and nine months ended September 30, 2007 and October 1, 2006 is shown
      in the following tables:




**2007**
            
            **Repair,
                Manfacturing &Remanufacturing**
            
            
            **Construction
&
                EngineeringServices**
            
            
            **Corporate**
            
            
            **IntersegmentEliminations**
            
            
            **Three
                Months Sept. 30, 2007Consolidated**External
                revenue:Product
                sales
            
            $
            6,092
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            6,092Service
                revenue
            
            
            7,521
            
            
            
            4,057
            
            
            
            -
            
            
            
            -
            
            
            
            11,578Intersegment
                revenue:
            
            
            
            
            
            
            
            
            
            
            
            -Product
                sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Service
                revenue
            
            
            -
            
            
            
            27
            
            
            
            -
            
            
            
            (27
            )
            
            
            -Depreciation
                included in cost of revenues
            
            
            169
            
            
            
            31
            
            
            
            -
            
            
            
            -
            
            
            
            200Gross
                profit
            
            
            2,661
            
            
            
            321
            
            
            
            -
            
            
            
            -
            
            
            
            2,982Other
                depreciation & amortization
            
            
            4
            
            
            
            7
            
            
            
            11
            
            
            
            -
            
            
            
            22Interest
                expense
            
            
            54
            
            
            
            -
            
            
            
            203
            
            
            
            -
            
            
            
            257Net
                income (loss)
            
            
            1,122
            
            
            
            (39
            )
            
            
            (1,019
            )
            
            
            -
            
            
            
            64Total
                assets
            
            
            22,533
            
            
            
            5,988
            
            
            
            1,532
            
            
            
            -
            
            
            
            30,053Capital
                expenditures
            
            
            160
            
            
            
            4
            
            
            
            15
            
            
            
            -
            
            
            
            179










**2006**
            
            **Repair,
                Manfacturing &Remanufacturing**
            
            
            **Construction
&
                EngineeringServices**
            
            
            **Corporate**
            
            
            **IntersegmentEliminations**
            
            
            **Three
                Months Oct. 1, 2006Consolidated**External
                revenue:Product
                sales
            
            $
            4,187
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,187Service
                revenue
            
            
            6,617
            
            
            
            4,733
            
            
            
            -
            
            
            
            -
            
            
            
            11,350Intersegment
                revenue:
            
            
            
            
            
            
            
            
            
            
            
            -Product
                sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Service
                revenue
            
            
            -
            
            
            
            43
            
            
            
            -
            
            
            
            (43
            )
            
            
            -Depreciation
                included in cost of revenues
            
            
            152
            
            
            
            39
            
            
            
            -
            
            
            
            -
            
            
            
            191Gross
                profit
            
            
            2,304
            
            
            
            866
            
            
            
            -
            
            
            
            (8
            )
            
            
            3,162Other
                depreciation & amortization
            
            
            7
            
            
            
            9
            
            
            
            22
            
            
            
            -
            
            
            
            38Interest
                expense
            
            
            145
            
            
            
            -
            
            
            
            638
            
            
            
            -
            
            
            
            783Net
                income (loss)
            
            
            608
            
            
            
            480
            
            
            
            (2,293
            )
            
            
            -
            
            
            
            (1,205
            )Total
                assets
            
            
            20,857
            
            
            
            3,627
            
            
            
            4,052
            
            
            
            -
            
            
            
            28,536Capital
                expenditures
            
            
            73
            
            
            
            4
            
            
            
            3
            
            
            
            -
            
            
            
            80


14





**NOTE
      K – SEGMENT INFORMATION (CONTINUED)**




**2007**
            
            **Repair,
                Manfacturing &Remanufacturing**
            
            
            **Construction
&
                EngineeringServices**
            
            
            **Corporate**
            
            
            **IntersegmentEliminations**
            
            
            **Nine
                Months Sept. 30, 2007Consolidated**External
                revenue:Product
                sales
            
            $
            17,115
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            17,115Service
                revenue
            
            
            20,777
            
            
            
            12,688
            
            
            
            -
            
            
            
            -
            
            
            
            33,465Intersegment
                revenue:Product
                sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Service
                revenue
            
            
            -
            
            
            
            72
            
            
            
            -
            
            
            
            (72
            )
            
            
            -Depreciation
                included in cost of revenues
            
            
            527
            
            
            
            92
            
            
            
            -
            
            
            
            -
            
            
            
            619Gross
                profit
            
            
            7,306
            
            
            
            1,435
            
            
            
            -
            
            
            
            -
            
            
            
            8,741Other
                depreciation & amortization
            
            
            20
            
            
            
            20
            
            
            
            29
            
            
            
            -
            
            
            
            69Interest
                expense
            
            
            178
            
            
            
            -
            
            
            
            794
            
            
            
            -
            
            
            
            972Net
                income (loss)
            
            
            2,720
            
            
            
            293
            
            
            
            (5,325
            )
            
            
            -
            
            
            
            (2,312
            )Total
                assets
            
            
            22,533
            
            
            
            5,988
            
            
            
            1,532
            
            
            
            -
            
            
            
            30,053Capital
                expenditures
            
            
            245
            
            
            
            88
            
            
            
            34
            
            
            
            -
            
            
            
            367







**2006**
            
            **Repair,
                Manfacturing &Remanufacturing**
            
            
            **Construction
&
                EngineeringServices**
            
            
            **Corporate**
            
            
            **IntersegmentEliminations**
            
            
            **Nine
                Months Oct. 1, 2006Consolidated**External
                revenue:Product
                sales
            
            $
            14,118
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            14,118Service
                revenue
            
            
            17,970
            
            
            
            11,186
            
            
            
            -
            
            
            
            -
            
            
            
            29,156Intersegment
                revenue:Product
                sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Service
                revenue
            
            
            -
            
            
            
            104
            
            
            
            -
            
            
            
            (104
            )
            
            
            -Depreciation
                included in cost of revenues
            
            
            392
            
            
            
            111
            
            
            
            -
            
            
            
            -
            
            
            
            503Gross
                profit
            
            
            6,696
            
            
            
            1,823
            
            
            
            -
            
            
            
            (18
            )
            
            
            8,501Other
                depreciation & amortization
            
            
            25
            
            
            
            23
            
            
            
            47
            
            
            
            -
            
            
            
            95Interest
                expense
            
            
            272
            
            
            
            -
            
            
            
            2,249
            
            
            
            -
            
            
            
            2,521Net
                income (loss)
            
            
            2,167
            
            
            
            667
            
            
            
            (5,947
            )
            
            
            -
            
            
            
            (3,113
            )Total
                assets
            
            
            20,857
            
            
            
            3,627
            
            
            
            4,052
            
            
            
            -
            
            
            
            28,536Capital
                expenditures
            
            
            2,754
            
            
            
            107
            
            
            
            30
            
            
            
            -
            
            
            
            2,891





**NOTE
      L - SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING
      ACTIVITIES**




**Three
                months
                ended**
            
            
            **Nine
                months
                ended****Sept.
                30,**
            
            
            **Oct.
                1,**
            
            
            **Sept.
                30,**
            
            
            **Oct.
                1,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Conversion
                of subordinated debentures
            
            $
            -
            
            
            $
            -
            
            
            $
            979
            
            
            $
            -Issuance
                of restricted stock
            
            
            -
            
            
            
            -
            
            
            
            22
            
            
            
            -Assumption
                of accounts payable and accrued liabilities in conjunction with asset
                acquisition
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            384Conversion
                of revolving note to common stock
            
            
            -
            
            
            
            729
            
            
            
            -
            
            
            
            729








15





**NOTE
      M – SUBSEQUENT EVENT**





On
      October 19, 2007 the Company acquired 100% of the outstanding shares of Ideal
      Consolidated, Inc. (“Ideal”) under a Stock Purchase Agreement for $952 paid at
      closing. The Company funded the acquisition with borrowings from its senior
      debt
      financing. Ideal is a provider of mechanical contracting services, including
      plumbing, HVAC and industrial piping and provides maintenance services for
      mechanical systems.








16




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




**Overview**




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




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




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




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




**Recent
      Developments**




On
      January 18, 2007, we sold 50,000,000 shares of common stock to Tontine Capital
      Partners, L.P. (“TCP”) and 12,500,000 shares of common stock to Tontine Capital
      Overseas Master Fund, L.P. (“TCOMF”) for $0.20 per share or $12.5 million. We
      used the proceeds to retire all of the outstanding senior debt due to our senior
      lender, Laurus Master Fund, Ltd. (“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 to pay related
      legal fees, for working capital and to reduce accounts payable.




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




On
      October 19, 2007 the Company acquired 100% of the outstanding shares of Ideal
      Consolidated, Inc. (“Ideal”) under a Stock Purchase Agreement for $952 paid at
      closing. The acquisition was funded with borrowings from our senior debt
      financing. Ideal is a provider of mechanical contracting services, including
      plumbing, HVAC and industrial piping and provides maintenance services for
      mechanical systems. The financial results of Ideal will be included in the
      construction and engineering services segment.





17


**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.




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




Revenues
      from Martell Electric, LLC’s electrical contracting business are recognized on
      the percentage-of-completion method 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
      electrical contracts in excess of customer billings are recorded as part of
      other current assets. Amounts billed to customers in excess of costs incurred
      on
      electrical contracts are recorded as part of other current
      liabilities.




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




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




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







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





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




*Debt
      issue costs.*We capitalize and amortize costs incurred to secure senior
      debt financing over the term of the senior debt financing, which is three years.
      Unamortized debt issue costs related to the senior debt financing were charged
      to loss on debt extinguishment in the nine months ended September 30, 2007.
      We
      also capitalize and amortize costs incurred to secure subordinated debenture
      financing over the term of the subordinated debentures, which is three years.
      Unamortized costs related to subordinated debentures that were converted into
      common stock were written off against common stock in the nine months ended
      September 30, 2007.




18


*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*.




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




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*
      (“**SFAS 157**”). SFAS 157 defines fair value, establishes a
      framework for measuring fair value and expands disclosures about fair value
      measurements. In February 2007, the FASB issued SFAS 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 assets at fair value and
      to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused
      by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions.SFAS
      157 and SFAS 159 are effective for financial statements issued for fiscal years
      beginning after November 15, 2007 and interim periods within those fiscal years.
      We are currently evaluating the impact that SFAS 157 and SFAS 159 will have
      on
      our consolidated financial statements.




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




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




19


**Results
      of Operations**




***Three
      Months Ended September 30, 2007 Compared to Three Months Ended October 1,
      2006***




*Revenues*.
      Total revenues increased by $2.2 million or 14% to $17.7 million in 2007 from
      $15.5 million in 2006. The increase in revenues resulted from increases in
      repair, remanufacturing and manufacturing segment revenue of $2.8 million or
      26%
      offset by a decrease in construction and engineering services segment revenues
      of $.7 million or 14%.




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 $1.6 million or 19% and an increase in revenue of
      diesel engine components of $1.2 million or 50% due to increased market share.
      The decrease in construction and engineering services revenue resulted
      substantially from a decrease in revenues from power distribution systems.
      Electrical contracting revenues were the same in 2007 and 2006.




To
      continue to grow our business segments at historical rates, we believe we must
      continue to make strategic business acquisitions. We make no assurance, however,
      that we will be able to identify, acquire and successfully integrate additional
      companies to achieve such growth. We expect our rates of revenue growth from
      existing operations in our construction and engineering services segment to
      slow
      relative to historical rates in 2007 and thereafter in light of our current
      market penetration and geographic markets. Revenues from our repair,
      remanufacturing and manufacturing segment should increase in 2007 to reflect
      a
      full year of sales from the operations acquired in May 2006 from E.T. Smith
      Services of Alabama, Inc. (“**Smith Alabama**”), and from the
      growth in market share of diesel engine components.




*Cost
      of Revenues*. Total cost of revenues in 2007 was $14.7 million or 83% of
      total revenues compared to $12.4 million or 80% of total revenues in 2006.
      The
      increase of $2.3 million in cost of revenues was due primarily to the overall
      increase in our total revenue.




*Gross
      Profit.* Total gross profit in 2007 was $3.0 million or 17% of total
      revenues compared to $3.2 million or 20% of total revenues in 2006. The decrease
      in gross profit of $0.2 million and 3% as a percentage of total revenues was
      due
      to a decline in profitability in the electrical contracting services segment
      related to a few large contracts. Gross profit as a percentage of total revenue
      is expected to increase as capacity utilization increases. However, gross
      profit, as a percentage of revenue, could increase or decrease if the sales
      mix
      between segments changes.




*Selling,
      General and Administrative Expenses*. Selling, general and administrative
      expenses were $2.7 million in 2007 compared to $2.6 million in 2006. Selling
      expenses increased 10% to $1.1 million in 2007 from $1.0 million in 2006
      primarily due to higher salaries, fringe benefits and commissions related to
      the
      growth in total revenues. General and administrative expenses were $1.6 million
      in 2007 and 2006.




*Loss
      on Warrant Liability.*In accordance with EITF 00-19 and EITF 05-4, we
      incurred a loss on warrant liability of $984 in 2006, related to the issuance
      of
      warrants as part of financing transactions in August 2005 and May 2006 with
      our
      former senior secured lender, Laurus Master Fund, Ltd.
      (“**Laurus**”). The warrant liability was reclassified to equity at
      December 31, 2006 upon the Company’s adoption of FSP EITF 00-19-2. Accordingly,
      there was no gain or loss on warrant liability for the three months ended
      September 30, 2007.




*Interest
      Expense and Other Income*. Interest expense decreased in 2007 to $0.3
      million from $0.8 million in 2006 as a result of the payoff of all senior
      secured debt and the conversion of a portion of the subordinated debentures
      in
      January 2007. Interest on principal debt decreased to $0.1 million from $0.3
      million. Interest related to the amortization of debt issue costs and debt
      discount costs on subordinated debentures and senior secured debt decreased
      to
      $0.1 million from $0.5 million.




*Provision
      for Income Taxes*. We have experienced net operating losses in each year
      since we commenced operations. We are uncertain as to whether we will be able
      to
      utilize these tax losses before they expire. Accordingly, we have provided
      a
      valuation allowance for the income tax benefits associated with these net future
      tax assets which primarily relates to cumulative net operating losses, until
      such time profitability is reasonably assured and it becomes more likely than
      not that we will be able to utilize such tax benefits.




20


*Net
      Income/Loss.* Net income in 2007 was $0.1 million compared to a net loss of
      $1.2 million in 2006. The $1.3 million improvement was due to the loss on
      warrant liability recorded in 2006 and the decrease in interest expense in
      2007.




***Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended October 1,
      2006***




*Revenues*.
      Total revenues increased by $7.3 million or 17% to $50.6 million in 2007 from
      $43.3 million in 2006. The increase in revenues resulted from increases in
      repair, remanufacturing and manufacturing segment revenue of $5.8 million or
      18%
      and construction and engineering services segment revenues of $1.5 million
      or
      13%.




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 $2.9 million or 12% due to our May 2006 acquisition
      of
      certain assets of Smith Alabama and an increase in revenue from sales of diesel
      engine components of $2.9 million or 38% due to increased market share. The
      increase in construction and engineering services revenue resulted from an
      increase in electrical contracting services of $2.0 million or 22% due to
      continued market penetration and a strong local construction market, offset
      by a
      decrease in power services of $0.5 million or 25%.




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




*Cost
      of Revenues*. Total cost of revenues in 2007 was $41.8 million or 83% of
      total revenues compared to $34.8 million or 80% of total revenues in 2006.
      The
      increase of $7.0 million in cost of revenues was due primarily to the overall
      increase in our total revenue.




*Gross
      Profit.* Total gross profit in 2007 was $8.7 million or 17% of total
      revenues compared to $8.5 million or 20% of total revenues in 2006. The increase
      of $0.2 million was due to increased revenues. The decrease in gross profit
      as a
      percentage of total revenues was due to lower margins in revenues from motors
      and magnets, and electrical contracting services, partially offset by higher
      margins in diesel engine components revenue. Gross profit as a percentage of
      total revenue is expected to increase as capacity utilization increases.
      However, gross profit, as a percentage of revenue, could increase or decrease
      if
      the sales mix between segments changes.




*Selling,
      General and Administrative Expenses*. Selling, general and administrative
      expenses increased $0.5 million or 7% to $7.8 million in 2007 from $7.3 million
      in 2006. Selling expenses increased 14% to $3.2 million in 2007 from $2.8
      million in 2006 primarily due to higher salaries, commissions and travel
      expenses attributable to the growth in total revenues. General and
      administrative expenses were $4.6 million in 2007 compared to $4.5 million
      in
      2006.




*Loss
      on Warrant Liability.*In accordance with EITF 00-19 and EITF 05-4, we
      incurred a loss on warrant liability of $1.8 million in 2006, related to the
      issuance of warrants as part of the Laurus financings in August 2005 and May
      2006. The warrant liability was reclassified to equity at December 31, 2006
      upon
      the Company’s adoption of FSP EITF 00-19-2. Accordingly, there was no gain or
      loss on warrant liability for the nine months ended September 30,
      2007.




*Loss
      on Debt Extinguishment.* We incurred a loss on extinguishment of debt of
      $2.3 million in the nine months ended September 30, 2007 related to the payoff
      of all Laurus senior secured debt in January 2007.




*Interest
      Expense and Other Income*. Interest expense decreased in 2007 to $1.0
      million from $2.5 million in 2006 as a result of the payoff of all Laurus senior
      secured debt and the conversion of a portion of the subordinated debentures.
      Interest on principal debt decreased to $0.5 million from $0.9 million. Interest
      related to the amortization of debt issue costs and debt discount costs on
      subordinated debentures and senior secured debt decreased to $0.5 million from
      $1.6 million.




21


*Provision
      for Income Taxes*. We have experienced net operating losses in each year
      since we commenced operations. We are uncertain as to whether we will be able
      to
      utilize these tax losses before they expire. Accordingly, we have provided
      a
      valuation allowance for the income tax benefits associated with these net future
      tax assets which primarily relates to cumulative net operating losses, until
      such time profitability is reasonably assured and it becomes more likely than
      not that we will be able to utilize such tax benefits.




*Net
      Loss.* Net loss was $2.3 million and $3.1 million in 2007 and 2006,
      respectively. The decrease in the net loss was due primarily to decreases in
      the
      loss on warrant liability and interest expense recorded in 2006, offset in
      part
      by the loss on debt extinguishment in 2007.




**Liquidity
      and Capital Resources**




At
      September 30, 2007, we had $0.3 million of cash and approximately $11.7 million
      of working capital.   Working capital increased approximately
      $7.6 million from approximately $4.1 million at December 31, 2006. The increase
      in working capital was due mainly to the sale of 62.5 million shares of our
      common stock in January 2007 for $12.4 million, less the payoff of the revolving
      credit line and current portion of long term debt due to Laurus of $6.5 million
      and $2.0 million, respectively. Our total debt to equity ratio decreased from
      approximately 7.4:1 to 1:1 from December 31, 2006 to September 30, 2007 due
      to
      the sale of common stock and corresponding pay off of debt, less the net loss
      incurred during the nine months ended September 30, 2007.




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




Our
      net
      loss for the nine months ended September 30, 2007 of $2.3 million included
      non-cash charges of depreciation and amortization of $0.7 million and loss
      on
      debt extinguishment of $2.3 million. Our net loss for the nine months ended
      October 1, 2006 of $3.1 million included non-cash expenditures of depreciation
      and amortization of $0.6 million, loss on warrant liability of $1.8 million,
      and
      amortization of debt issue and debt discount costs of $1.6 million.




Net
      cash
      utilized by operating activities was $1.9 million for the nine months ended
      September 30, 2007, and net cash provided by operating activities was $1.8
      million for the nine months ended October 1, 2006. For the nine months ended
      September 30, 2007, net cash utilized by operations resulted from increases
      in
      inventory and decreases in accounts payable of $1.8 million and $1.5 million,
      respectively, offset in part by decreases in accounts receivable of $0.4
      million. Accounts receivable decreased due to improved collections of past
      due
      accounts. For the nine months ended October 1, 2006, net cash provided by
      operating activities was due in part to increases in accrued expenses and other
      current liabilities of $0.7 million and decreases in inventories of $0.4
      million, less increases in accounts receivable of $0.6 million.




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. 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 nine months ended September 30, 2007 we paid approximately
      $2.0 million of past due accounts payable with a portion of the proceeds from
      the sale of our common stock to Tontine. We believe this will allow us to
      improve our vendor relations and improve the timeliness of the supply of
      materials and parts which will improve our ability to service our customers
      in a
      more timely fashion.




22


During
      the nine months ended September 30, 2007 and October 1, 2006, net cash outflows
      from investing activities were $0.4 million and $3.8 million, respectively.
      In
      2007, outflows were primarily due to the acquisition of machinery and equipment.
      In 2006, net cash outflows were primarily due to the acquisition of certain
      assets of Smith Alabama for $3.6 million and other machinery and equipment
      for
      $0.3 million.




We
      generated approximately $2.2 million from financing activities during the nine
      months ended September 30, 2007, primarily from advances on our revolving line
      of credit of $0.8 million and the sale of approximately $12.4 million of our
      common stock, less the payoff of all senior secured debt of approximately $11.0
      million. We generated $2.5 million from financing activities during the nine
      months ended October 1, 2006 primarily due to financing from Laurus of $3.4
      million the proceeds of which were used for the acquisition of certain assets
      of
      Smith Alabama, less payments of notes payable and long term debt.




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




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




During
      the nine months ended September 30, 2007, debenture holders converted
      approximately $1.0 million of the aggregate principal amount of the subordinated
      debt. However, absent further exercise of the right of the debenture holders
      to
      convert out indebtedness into shares of our common stock, we will be obligated
      to make principal and accrued interest payments totaling approximately $3.5
      million on February 28, 2008. We are uncertain whether we will generate
      sufficient funds from operations to make that entire payment. If not, then
      absent exercise of the debenture holders’ conversion rights, we will have to
      raise additional capital through debt or equity financing to pay off the
      indebtedness at its maturity. There is no assurance that we will successfully
      refinance the indebtedness on terms acceptable to us, or at all. If we are
      not
      successful, we would default under the debentures. To the extent that any
      debenture holder elects to convert principal and accrued interest into common
      stock, our obligation to repay the principal and accrued interest at maturity
      decreases accordingly.




If
      we
      default under the debentures, all unpaid amounts will accrue interest at a
      rate
      of 15% per year from the date of default until paid. Other remedies available
      to
      the debenture holders upon an event of default include the right to accelerate
      the maturity of all obligations, the right to foreclose on our assets securing
      the obligations, all rights of a secured creditor under applicable law, and
      other rights set forth in the debenture documents. As of September 30, 2007,
      these remedies were subject to and subordinate in right to the rights of our
      senior secured lender. The events of default under the debenture documents
      include failure to pay principal and interest when due, breach of any covenant
      under the debenture documents that continues unremedied for 10 days, certain
      events relating to bankruptcy, default under other indebtedness in a principal
      amount exceeding $200,000, a judgment in excess of $50,000 is levied against
      our
      assets, and other events described in the debenture documents.




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




In
      August
      2005, we entered into a $10.0 million credit facility with Laurus. 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.




23


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




On
      March
      9, 2007, we obtained financing from MFB Financial in the form of a $5 million
      revolving credit facility, secured by accounts receivable. We intend to use
      borrowings under the note for capital expenditures and working capital purposes.
      Interest is payable monthly at 1⁄2% over prime as published in the Wall Street
      Journal. The facility contains annual financial covenants, including minimum
      tangible net worth, current ratio and debt coverage ratio, and maximum debt
      to
      equity ratio. An event of default under the facility will occur if , among
      other
      things, we fail to make a required payment on time or when due, we fail to
      keep
      the secured property insured, we default under any other agreements we have
      with
      MFB Financial, we are involved in any legal proceeding by a creditor for the
      collection of debt, we become insolvent, we make any misrepresentation in
      financial information we provide to MFB Financial, or we do or fail to do
      something that causes MFB Financial to believe that it will have difficulty
      collecting the debt. At September 30, 2007, there was $0.75 million outstanding
      under the revolving credit facility.




Following
      is a summary of fixed payments related to certain contractual obligations as
      of
      September 30, 2007 (amounts in thousands):




**As
                of September 30, 2007**:
            **Payments
                due by period**Less
                than
            
            
            
            
            
            More
                thanContractual
                Obligations
            Total
            
            1
                year
            
            1-3
                years
            
            3-5
                years
            
            5
                yearsLong-Term
                Debt
            
            $
            6,020
            
            
            $
            3,005
            
            
            $
            3,015
            
            
            $
            -
            
            
            
            $
            -Lease
                Obligations
            
            
            3,392
            
            
            
            1,045
            
            
            
            1,580
            
            
            
            493
            
            
            
            
            274Total
            
            $
            9,412
            
            
            $
            4,050
            
            
            $
            4,595
            
            
            $
            493
            
            
            
            $
            274





We
      believe that our existing working capital, cash provided by operations and
      our
      existing revolving credit facility with MFB Financial, under which we had $4.25
      million available as of September 30, 2007, should be sufficient to fund our
      working capital needs, capital requirements and contractual obligations for
      at
      least the next 12 months. We will need, however, to raise additional debt or
      equity capital to fund any future business acquisitions and to refinance our
      subordinated convertible debentures when they mature in February
      2008.  As of September 30, 2007, we did not have any material
      commitments for capital expenditures.




Our
      future working capital needs and capital-expenditure requirements will depend
      on
      many factors, including our rate of revenue growth, the rate and size of future
      business acquisitions, the expansion of our marketing and sales activities,
      and
      the rate of development of new products and services. To the extent that funds
      from the sources described above are not sufficient to finance our future
      activities, we will need to improve future cash flows and/or raise additional
      capital through debt or equity financing or by entering into strategic
      relationships or making other arrangements. Any effort to improve cash flows,
      whether by increasing sales, reducing operating costs, collecting accounts
      receivable at a faster rate, reducing inventory and other means, may not be
      successful. Further, any additional capital we seek to raise might not be
      available on terms acceptable to us, or at all.




24


**Discussion
      of Forward-Looking Statements**




Certain
      matters described in the foregoing “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations,” as well as other statements
      contained in this Quarterly Report on Form 10-Q are forward-looking statements,
      which include any statement that is not an historical fact, such as statements
      regarding our future operations, future financial position, business strategy,
      plans and objectives. Without limiting the generality of the foregoing, words
      such as “may,” “intend,” “expect,” “believe,” “anticipate,” “could,” “estimate”
or “plan” or the negative variations of those words or comparable terminology
      are intended to identify forward-looking statements. A “safe harbor” for
      forward-looking statements is provided by the Private Securities Litigation
      Reform Act of 1995 (Reform Act of 1995). The Reform Act of 1995 was adopted
      to
      encourage such forward-looking statements without the threat of litigation,
      provided those statements are identified as forward-looking and are accompanied
      by meaningful cautionary statements identifying important factors that could
      cause the actual results to differ materially from those projected in the
      statement.




Management
      has based the forward-looking statements largely on its current expectations
      and
      perspectives about future events and financial trends that management believes
      may affect our financial condition, results of operations, business strategies,
      short-term and long-term business objectives, and financial needs. These
      forward-looking statements are subject to a number of risks, uncertainties
      and
      assumptions, including those identified in this report and described in Item
      1A,
“Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2006, that may cause our actual results to differ materially from
      those anticipated or implied in the forward-looking statements.






**ITEM
        3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**




We
      are
      exposed to interest rate market risk with respect to our debt. Our total debt
      as
      of September 30, 2007 had a carrying value of approximately $6.7 million and
      a
      fair value of approximately $7.2 million. As of September 30, 2007, 55% of
      our
      total debt was subject to variable interest rates. As of September 30, 2007,
      the
      weighted-average interest rate of our debt was 6.85%. To the extent that we
      refinance our existing debt or incur additional debt outside of our currently
      existing arrangements, we will be subject to additional interest rate market
      risk, which could be substantial.




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




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




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






**ITEM
        4.   CONTROLS AND PROCEDURES**




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




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




25


**PART
        II - OTHER INFORMATION**


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




**Unregistered
      Sales of Equity Securities**




On
      January 18, 2007, the Company sold 50,000,000 shares of common stock to TCP
      and
      12,500,000 shares of common stock to TCOMF for $0.20 per share or $12.5 million.
      Proceeds were used to cover related legal fees of approximately $0.1 million
      and
      to retire all of the outstanding senior debt due to Laurus as of that date
      in
      the amount of approximately $10.0 million, including interest, plus
      approximately $0.5 million in prepayment penalties. The Company used the balance
      of the proceeds for working capital and to reduce past due accounts payable.
      The
      Company did not register the shares of common stock issued to Tontine with
      the
      SEC under the Securities Act in reliance on exemptions from the registration
      requirements of the Securities Act. The Company and Tontine entered into a
      registration rights agreement, dated January 18, 2007, pursuant to which the
      Company agreed to register for resale the shares issued to Tontine. The Company
      filed a registration statement on Form S-1 with the SEC on July 13, 2007,
      covering the shares issued to Tontine.  This registration statement
      has not yet been declared effective by the SEC.




**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 September 30,
      2007,
      we have issued 15,004,992 shares upon the exercise of warrants, and we have
      received proceeds of $88,787 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 $0.6
      million and have received no offering proceeds other than the proceeds received
      upon the exercise of warrants.






**ITEM
        6.   EXHIBITS**




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




**Exhibit
                No.**
            
            **Description**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





26


**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.**November
                8, 2007
            By:
            /s/
                Richard J.
                MullinRichard
                J. MullinChief
                Financial Officer(Signing
                on behalf of the registrant as Principal Financial
                Officer)





27


**EXHIBIT
      INDEX**





**Exhibit
                No.**
            
            **Description**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