The information in this Management's Discussion & Analysis should be read in conjunction with the accompanying financial statements, the related Notes to Consolidated Financial Statements and the Five-Year Summary of Financial Data. Forward-looking statements in this Management's Discussion and Analysis are qualified by the cautionary statement preceding Item 1 of this Form 10-K.

Overview

During 2004, we refocused our sales efforts on high technology products that are less likely to migrate to offshore suppliers due to proprietary technology content, governmental restriction or volume considerations. Since then we have continued to expand our business adding new customers and new markets. Our customer base is stronger and more diverse than ever. We continue to expand in areas we view as important for our continued growth. IEC is ISO-9001:2000 registered, and an NSA approved supplier under the COMSEC standard. Both IEC and Wire and Cable, our cable harness and interconnect business, are AS9100 certified to service the military and commercial aerospace market sector and ISO13485 certified to service the medical market sector. We have identified and gained entry into advantageous markets by leveraging our ability to provide products of the highest quality and reliability, including significantly complex, low-run volume assemblies. Currently, the markets we serve include military, governmental agencies, aerospace, communications, medical, computing and a variety of industrial sectors. During fiscal 2009 our backlog remained solid, an excellent result given the commercial turbulence of the last year. We closed the year with backlog of $41.4 million as compared to a fiscal 2008 closing backlog of $43.9 million. Backlog consists of two categories; orders, and firm forecasted commitments. We also receive orders during the quarter, to ship in the same period, that do not appear in our backlog information. Substantially, the entire current backlog is expected to be shipped within our current fiscal year. Variations in the magnitude and duration of contracts received by us, and customer delivery requirements may result in fluctuations in backlog from period to period. We continue to improve our internal bench strength and skills, our reliability testing capabilities and our machinery and equipment infrastructure to optimize production performance and effectively manage the steady growth in volume and complexity that we are experiencing. Despite the recessionary outlook for the economy, based upon cautiously optimistic comments from our customers in the military and aerospace sectors, we expect continued growth in both revenue and profitability throughout fiscal 2010.

Analysis of Operations

Sales (dollars in millions)

For Year Ended September 30, 2009 2008 2007

Net sales $ 67.8 $ 51.1 $ 40.9

IEC continues to experience strong top-line growth. Revenue has increased 33% over 2008 and 66% over the sales achieved in 2007. While the current fiscal year included twelve months of Wire and Cable revenues compared to four months in the previous fiscal year, the Company also enjoyed healthy organic growth in its core business. This significant growth has been fueled by the expansion of product offerings and by market segment diversification as discussed above. Because of our execution, our customers have rewarded us with ongoing programs and additional business. The ongoing programs have become a stable core of our operation. The most significant revenue growth in recent years has occurred for IEC in the aerospace, medical and industrial market sectors.

Gross Profit   (dollars in thousands and as a % of Net Sales)

For Year Ended September 30,            2009          2008        2007

Gross profit                         $    10,826     $ 6,217     $ 3,877

Gross profit percent                        16.0 %      12.2 %       9.5 %

IEC continues to show an increasing Gross Profit measured as a percentage of Net Sales. Versus the prior year, fiscal 2009 gross profit as a percentage of net sales improved over 2008 by 3.8%. Since fiscal 2007, the Company has increased its gross profit as a percentage of net sales by 6.5%. This trend of significant increase, at a materially higher revenue level, further demonstrates the strength of our Company. This improvement in gross margin was expected and was discussed in the 2007 year end SEC filing. In fiscal 2007 IEC transitioned from low volume prototype work to new programs with larger production volumes. The associated learning curves for new employees and for new products affected our efficiency and therefore our profitability. In fiscal 2008 and 2009 labor efficiency improved through effective training of production employees, investments in capital equipment that served to modernize some processes, and through further implementation of continuous improvement and lean manufacturing principles. Our workforce has expanded in size and in capability. Our continued increases in productivity and improvements in execution have resulted in further penetration into profitable market sectors.

Selling and Administrative Expense   (dollars in thousands and as a % of Net Sales)

For Year Ended September 30,                                2009            2008          2007

Selling and administrative expense                       $    6,007       $   3,825     $   2,892

Selling and administrative expense percent                      8.9 %           7.5 %         7.1 %

Selling and administrative expenses as a percentage of sales increased to 8.9% in fiscal 2009. Fiscal 2009 included twelve months of Wire and Cable SG&A costs as compared to fiscal 2008 which included only four months of Wire and Cable SG&A costs. This accounts for $618 of the increase in SG&A costs. Incremental costs were also incurred in fiscal 2009 to strengthen our sales and marketing team. Sales commissions, advertising, public relations and travel costs were higher as would be expected with incremental sales efforts and our efforts to expand into newer markets. Additionally, costs were incurred to improve our information systems and technology infrastructure. We also have accrued for plant-wide performance-based incentives which includes a provision for the next segment of Mr. Gilbert's contractual incentives.

Other Income and Expense   (dollars in millions)

For Year Ended September 30,      2009      2008      2007

Interest and financing expense   $  0.4     $ 0.5     $ 0.4
Other (income)/expense           $ (0.3 )   $ 0.3     $   -

Interest and financing expense was reduced in 2009. Favorable interest rates and reduced debt levels resulted in lower financing costs. The Company has consistently remained ahead of schedule with respect to the reduction of debt associated with its acquisition of the Wire and Cable business. From fiscal year end 2008 to fiscal year end 2009 the Company's debt was reduced by $2.3 million. Total cash available to reduce debt was offset by $1.8 million of capital investments and $2.0 million of payments to suppliers to capture discounts.

We had "Other income" of $0.3 million during fiscal 2009 versus $0.3 million of "Other expense" in fiscal 2008. Other Income for the current year is comprised mainly of a refund of sales tax, penalties and accrued interest from the State of Alabama and the City of Arab, Alabama in settlement of a long standing dispute over a previous sales tax assessment. Additionally, we received a rebate on utilities associated with our recent capital project to reduce electricity usage for plant lighting.

Income Taxes (dollars in thousands)

For Year Ended September 30, 2009 2008 2007

Effective tax (benefit) $ (238 ) $ (8,843 ) $ (372 )

Our 2009 tax benefit included a $1.9 million reversal of the valuation allowance against our deferred tax asset. Our 2008 tax benefit included an $8.9 million reversal of the valuation allowance against our deferred tax asset. (See Note #4 in Notes to Consolidated Financial Statements)

Liquidity and Capital Resources

Cash Flow provided by (used in) operating activities was $3.0 million for the fiscal year ended September 30, 2009 compared to $0.1 million for fiscal 2008. The principal reason for this variance of $2.9 million versus prior year is the improvement in Net Income Before Tax. Improved cash inflows from collections on customer receivables was offset by cash used to reduced payables and capture vendor discounts which was a benefit to earnings.

Cash Flow provided by (used in) investing activities was ($1.8) million for the fiscal year end versus ($4.4) million for fiscal 2008. The prior year's investing activities included the cash investment in Wire and Cable. During fiscal 2009 we invested ($1.8) million in new production equipment to improve efficiency and capacity.

Cash Flow provided by (used in) financing activities was a use of ($1.2) million in fiscal 2009 versus a net source of cash of $4.4 million in fiscal 2008. In fiscal 2009 we reduced our term debt and our revolving debt by an aggregate total of $2.2 million. We also borrowed $0.8 million on our capital financing line of credit. The prior year included the funding from our new credit facility which enabled the acquisition of Wire and Cable.

At September 30, 2009 we had a $3.9 million balance under our revolving credit facility. The maximum borrowing limit under our revolving credit facility is limited to the lesser of (i) $9.0 million or (ii) an amount equal to the sum of 85% of the receivables borrowing base and 35% of the inventory borrowing base. On September 30, 2009, the remaining availability under the collateralized portion of our line of credit was $5.1 million. We believe that our liquidity is adequate to cover operating requirements for the next 12 months.

The Company entered into a $14.2 million senior secured loan agreement (Credit Agreement) and Sale Leaseback agreement with Manufacturers and Traders Trust Company (M&T Bank) on May 30, 2008. The following is a summary of the Credit and Sale Leaseback agreements:

† A revolving credit facility up to $9.0 million, available for direct borrowings. The facility is based on a borrowing base formula equal to the sum of 85% of eligible receivables and 35% of eligible inventory. As of September 30, 2009, outstanding loans under the revolving credit facility were $3.9 million. The credit facility matures on May 30, 2013. Interest on the revolver is either prime or a stated rate over LIBOR, whichever is lower based on certain ratios. On September 30, 2009 the interest rate on our revolving line balance was 1.75%.

† A $1.7 million term loan amortized equally over 60 months beginning July 2008. IEC's interest rate is fixed at 6.7%. The outstanding balance at September 30, 2009 was $0.8 million. One year prior, at September 30, 2008, the outstanding balance of our term loan was $1.1 million.

† An available $1.5 million equipment line of credit. The capital credit facility is amortized equally over 60 months and matures on May 30, 2013. Interest on the equipment line is either prime or a stated rate over LIBOR, whichever is lower based on certain ratios at the time of borrowing. Using this capital credit line the Company was able to secure additional interest rate subsidies from New York State's Linked Deposit Program and has used a total of $0.8 million of the $1.5 million available line as of September 30, 2009. New equipment was purchased to continue driving our increased operating efficiencies. For the year ended September 30, 2009 the weighted average interest rate on capital financing was 3.08%. The outstanding balance at September 30, 2009 was $0.7 million.

† A $2.0 million Sale Leaseback of the Company's fixed assets amortized equally over 60 months beginning June 27, 2008. Annual payments are fixed and are $388,800 per year with a total for the five years of $1.9 million. Assets sold had a cost of $15.6 million inclusive of $1.2 million of assets purchased during the nine months ended June 27, 2008, and an accumulated depreciation of $13.6 million. A minimal loss will be amortized over the five year period of the lease. At September 30, 2009 our remaining unpaid balance for the lease was $1.5 million compared to $1.8 million at September 30, 2008.

† All loans and the Sale-Leaseback are secured by a security interest in the assets of the Company and Wire and Cable; a pledge of all the Company's equity interest in Wire and Cable, a negative pledge on the Company's real property and a guaranty by Wire and Cable.

In connection with the acquisition of Wire and Cable and the payment of the purchase price to the sellers, a portion of the purchase price was paid in the form of promissory notes (the "Seller Notes") in the aggregate principal amount of $3.9 million with interest at the rate of 4% per annum. The remaining balance at September 30, 2009 is $2.2 million.

The Company's financing agreements contain various affirmative and negative covenants concerning the ratio of "EBITDARS" (Earnings Before Interest, Taxes, Depreciation, Amortization, Rent Expense under the Sale Leaseback and Stock Option Expense) to total debt and to fixed charges. These are calculated on a twelve month rolling basis. The Company must also maintain a minimum EBITDARS level of $350,000 per individual quarter. The Company was compliant with these covenants as of September 30, 2009. The table below provides details on the Company's performance relative to each of the three covenants as of September 30, 2009:

           Covenant                      Requirement        Actual Performance

         ? Minimum quarterly EBITDARS   ?    $ 350,000     $          1,641,000
         ? Fixed Charge Coverage        ?          1.1 x                   3.03 x
         ? Total Debt to EBITDARS       <         3.75 x                   1.56 x

If evaluated on an annual basis rather than quarterly, the Company's performance with respect to the "Minimum EBITDARS Covenant" was $5,902,000 versus a four-quarter aggregate required minimum of $1,400,000.

Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for us include revenue recognition, provisions for doubtful accounts, provisions for inventory obsolescence, impairment of long-lived assets, accounting for legal contingencies and accounting for income taxes.

FASB ASC 605-10 (Prior Authoritative Literature: Staff Accounting Bulletin No.101, "Revenue Recognition in Financial Statements."). Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded.

FASB ASC 360-10 (Prior Authoritative Literature: Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets), requires that we evaluate our long-lived assets for financial impairment on a regular basis. We evaluate the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values.

FASB ASC 450-10 (Prior Authoritative Literature: Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies"), requires that when, from time to time, we are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty, an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.

Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations.

FASB ASC 740 (Prior Authoritative Literature: Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes"), establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could impact our financial position or our results of operations.

Impact of Inflation

To date, the impact of inflation has been minimal due to the fact that we have been able to adjust many of our bids to reflect most inflationary increases in costs; however it is not clear this will continue and in turn could affect our margins.

RECENTLY ISSUED ACCOUNTING STANDARDS

FASB ASC 805 (Prior Authoritative Literature: Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 141(R), "Business Combinations"), establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB ASC 805 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company is currently evaluating the impact of FASB ASC 805 but does not expect it to have a material effect on its consolidated financial statements.

FASB ASC 810-10-65 (Prior Authoritative Literature: Financial Accounting Standards Board Statement of Financial Accounting Standard ("SFAS") No. 160, "Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51"), establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. FASB ASC 810-10-65 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company is currently evaluating the impact of FASB ASC 810-10-65 but does not expect it to have a material effect on its consolidated financial statements.

FASB ASC 855-10 (Prior Authoritative Literature: Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No.165, "Subsequent Events"), establishes requirements for subsequent events. FASB ASC 855-10 is effective for interim or annual periods ending after June 15, 2009. The Company is required to adopt this standard in the current period. Adoption of FASB ASC 855 did not have a significant effect on the Company's consolidated financial statements.