The information in this Management's Discussion and Analysis should be read in conjunction with the accompanying consolidated financial statements and notes.

Forward-Looking Statements: This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934, and are made in reliance upon the protections provided by such Acts for forward-looking statements. These forward-looking statements (such as when we describe what we "believe," "expect," "intend," or "anticipate" will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied by these statements.

The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those views expressed or implied in our forward-looking statements: business conditions and growth or contraction in our customers' industries, the electronic manufacturing services industry and the general economy; variability of operating results; our dependence on a limited number of major customers; the potential consolidation of our customer base; availability of component supplies; dependence on certain industries; variability of customer requirements; uncertainties as to availability and timing of governmental funding for our customers; our ability to assimilate acquired businesses and to achieve the anticipated benefits of such acquisitions; unforeseen product failures and the potential product liability claims that may be associated with such failures; the availability of capital and other economic, business and competitive factors affecting our customers, our industry and business generally; failure or breach of our information technology systems; natural disasters; and other factors that we may not have currently identified or quantified.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. New risks and uncertainties arise from time to time and we cannot predict those events or how they may affect us. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained elsewhere in this report and in any documents incorporated herein by reference. In particular, you should consider the Risk Factors identified in Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

Overview

Since 2004, we have focused our efforts on developing relationships with customers who manufacture advanced technology products and who are unlikely to utilize offshore suppliers due to the proprietary nature of their products, governmental restrictions or volume considerations. We have continued to expand our business by adding new customers and markets, and our customer base is stronger and more diverse as a result. We proactively invest in areas we view as important for our continued growth. IEC is ISO 9001:2008 certified. Four of our units (IEC and Wire and Cable in Newark, NY; Albuquerque in NM; and SCB in Bell Gardens, CA) are AS9100 certified to serve the military and commercial aerospace market sector, and are ITAR registered. In addition, the Company's locations in Newark, NY and Albuquerque, NM are Nadcap accredited for electronics manufacturing to support the most stringent quality requirements of the aerospace industry and the Newark, NY location is ISO 13485 certified to serve the medical market sector. Our Newark, NY location is also an NSA approved supplier under the COMSEC standard and its environmental systems are ISO 14001:2004 certified. DRTL is ISO 17025 accredited, which is the international standard covering testing and calibration laboratories. Albuquerque and SCB also perform work per NASA-STD-8739 and J-STD-001ES space standards.

We evaluate emerging technologies on an ongoing basis to maintain a technology roadmap so that relevant processes and advances in new equipment are available to our customers when commercial and design factors warrant. The current generation of interconnection technologies includes chip-scale packaging and ball-grid-array ("BGA") assembly techniques. We have placed millions of plastic and ceramic BGA's since 1994. Future advances will be directed by our Technology Center, which combines Prototype and Pilot Build Services with the capabilities of our Advanced Materials Technology Laboratory and our Design Engineering Group.

The technical expertise of our experienced workforce enables us to build some of the most advanced electronic, wire & cable, and precision metal systems sought by original equipment manufacturers ("OEMs").

Three Month Results



A summary of selected income statement amounts for the three months ended
follows:



                                                       Three Months Ended
                                                  December 28,       December 30,
              Income Statement Data                       2012               2011
                                                           (thousands)

     Net sales                                  $       32,989     $       33,859
     Gross profit                                        4,704              5,487
     Selling and administrative expenses                 4,046              4,533
     Interest and financing expense                        279                353
     Other income                                            -               (902 )
     Income before provision for income taxes              379              1,503
     Provision for income taxes                            140                555
     Net income                                 $          239     $          948

Revenue decreased in the first quarter of fiscal 2013 by 2.6% as compared to the first quarter of the prior fiscal year. Aggregate revenue decreases in the medical, industrial and communications & other market sectors of $8.3 million were partially offset by increased revenue in the military & aerospace market sector of $7.4 million. Revenue for the medical market sector decreased $2.5 million primarily due to decreased demand from a customer due to completion of a recall program partially offset by an increase in demand from another customer for an ongoing program. Revenue for the industrial market sector decreased $3.5 million primarily due to delayed demand from one of our customers and a strategic decision by another customer to dual source product to mitigate risk. Revenue for the communications and other market sector also decreased by $2.3 million primarily due to decreased demand from two customers, one of which is now producing a component part in house. Military & aerospace revenue increased $7.4 million due primarily to revenue related to new programs from existing customers, revenue from a new customer and releases in military funding. These increases were partially offset by a $1.0 million decrease in revenue from one of our aerospace customers that discontinued outsourcing a product to us and began to manufacture it in house as a result of its available capacity due to decreased demand by its end customer.

Our first fiscal quarter gross profit decreased $0.8 million to 14.3% of sales from 16.2% of sales in the first quarter of the prior fiscal year. Lower sales volume and unfavorable changes in product mix at some locations was partially offset by higher sales volume and favorable changes in product mix at others. Lower than anticipated sales volumes at some locations reduced leverage on fixed overhead costs. In addition, we anticipated higher revenue volumes and incurred higher indirect labor as a result.

Selling and administrative ("S&A") expense decreased $0.5 million to 12.3% of revenue in the first fiscal quarter of 2013, as compared to 13.4% in the same quarter of the prior fiscal year. $0.2 million of the decrease is severance to our former CFO in the first quarter of the prior fiscal year. The remainder of the decrease is due to lower payroll related costs, including bonus due to lower sales volumes.

Interest expense decreased to $279 thousand in the first fiscal quarter from $353 thousand in the same quarter of the prior fiscal year. The decrease is the result of reductions in our term debt and interest rates, partially offset by an increase in average revolving debt. Average borrowings in the most recent fiscal quarter were lower than the first quarter of the prior fiscal year due to the repayment of term loans partially offset by increased revolving debt. The weighted average interest rate on IEC's debt was 0.73% lower than in the first quarter of the prior fiscal year. Detailed information regarding our borrowings, including a summary of modifications in the Fourth Amended and Restated Credit Facility Agreement, is provided in Note 7 - Credit Facilities to the consolidated financial statements included in this Quarterly Report.

IEC utilizes the other income/expense category of the income statement for non-operating items such as acquisition costs and various gains and losses. There was no other income/expense for the first quarter of the current fiscal year. In the first quarter of the prior fiscal year, $0.9 million of additional income was recorded related to a reduction in contingent consideration.

A lower provision for income taxes in the first fiscal quarter of 2013 results mainly from a decrease in pretax income as compared to the first quarter of the prior fiscal year.

With respect to tax payments, in the near term IEC expects to be sheltered by sizable net operating loss ("NOL") carryforwards for federal and New York state income tax purposes. At the end of fiscal 2012, the carryforwards amounted to approximately $11.9 million and $24.9 million for federal and New York State, respectively. The carryforwards expire in varying amounts between 2020 and 2025 unless utilized prior to these dates. It is estimated that the federal and state NOLs will produce future tax benefits totaling $4.5 million.

Liquidity and Capital Resources

Cash flow from operations, before considering changes in IEC's working capital accounts, amounted to $1.6 million in the three months ended December 28, 2012, compared to $1.8 million in three months ended December 30, 2011. The decrease was driven by a $0.7 million decrease in net income, as well as a $0.5 million lower add-back for deferred taxes. The decrease in cash flow from operations was partially offset by the absence of an add-back related to contingent consideration. The net change in current asset and liability accounts used $4.3 million of cash in the fiscal quarter ended December 28, 2012, compared to generating $0.7 million of cash for the fiscal quarter ended December 30, 2011. This is due to decreases in accounts receivable and accounts payable and an increase in inventory resulting from lower sales volume.

Investing activities utilized $1.2 million of cash flow in each of the fiscal quarters ended December 28, 2012 and December 30, 2011. Cash was used to purchase equipment to enhance productivity and facilitate growth.

For the three months ended December 28, 2012, bank funding of the revolving credit facility represented the majority of cash generated from financing activities. Cash was also used to pay term loans, mortgage loans and the revolving credit facility. During the quarter ended December 28, 2012, the Company's net borrowings were $4.0 million, and for the quarter ended December 30, 2011, we repaid $1.3 million.

As of December 28, 2012, borrowings under the revolving credit facility ("Revolver") amounted to $12.3 million, and the maximum available was $20.0 million. Borrowings on the Revolver in the first quarter were due to funding working capital changes discussed above. The Company believes that its liquidity is sufficient to satisfy anticipated operating requirements during the next twelve months.

The Company's primary borrowing arrangement as of December 28, 2012 was provided in the Third Amended and Restated Credit Facility Agreement ("2010 Credit Agreement") entered into with Manufacturers and Traders Trust Company ("M&T") in December 2010, as amended and supplemented thereafter. Key provisions are more particularly described in Note 7 - Credit Facilities to the consolidated financial statements contained in this Quarterly Report. They define a borrowing base and describe various affirmative and negative covenants, including financial covenants. On January 18, 2013, the Company and M&T entered into a Fourth Amended and Restated Credit Facility Agreement ("2013 Credit Agreement"), key provisions of which also are described in Note 7 - Credit Facilities to the consolidated financial statements contained in this Quarterly Report. The terms of the 2013 Credit Agreement provide that measurement of financial covenants will not occur until the end of the fiscal quarter ending in March 2013. Such financial covenants remain unchanged from those contained in the 2010 Credit Agreement, and include (i) a minimum level of quarterly EBITDARS, (ii) a ratio of debt to twelve-month EBITDARS that is below a specified limit, and (iii) a minimum fixed charge coverage ratio. EBITDARS is defined as earnings before interest, taxes, depreciation, amortization, rent expense and non-cash stock compensation.

Off-Balance Sheet Arrangements

IEC is not a party to any material off-balance sheet arrangements.

Application of Critical Accounting Policies

Our application of critical accounting policies are disclosed in our 2012 Annual Report on Form 10-K filed for the fiscal year ended September 30, 2012. During the quarter ended December 28, 2012 there have been no material changes to these policies.

Recently Issued Accounting Standards

See Note 1. Our Business and Summary of Significant Accounting Policies to our consolidated financial statements included in this Quarterly Report for further information concerning recently issued accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a result of its financing activities, the Company is exposed to changes in interest rates that may adversely affect operating results. As of December 28, 2012, the Company had $31.6 million of debt, comprised of $31.1 million with variable interest rates and $0.5 million with fixed rates. Interest rates on variable loans are based on London interbank offered rate ("Libor") and currently adjust daily, causing interest on such loans to vary from period to period. A sensitivity analysis as of December 28, 2012 indicates that a one-percentage point increase or decrease in interest rates, which represents more than a 10% change, would increase or decrease the Company's annual interest expense by approximately $311 thousand. As more fully described in Note 7 - Credit Facilities to the consolidated financial statement included in this Quarterly Report, after giving effect to the 2013 Credit Agreement and the Swap Transaction on January 18, 2013, the Company had $31.2 million of debt outstanding and had increased the portion of debt with effectively fixed rates of interest from $0.5 million to $24.4 million.

The Company is exposed to credit risk to the extent of non-performance by M&T under the 2013 Credit Agreement and the Swap Transaction. The bank's credit rating (reaffirmed A- by Fitch in December 2012) is monitored by the Company, and IEC expects that M&T will perform in accordance with the terms of the 2013 Agreement and the Swap Transaction.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

IEC's management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c) under the Securities Exchange Act of 1934 ("Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 28, 2012, the Company's disclosure controls and procedures were effective.

Changes in internal control over financial reporting

During the three months ended December 28, 2012, there were no changes in our internal controls that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the effectiveness of control systems

IEC's management does not expect that our disclosure controls and internal controls will prevent all errors and fraud. Because of inherent limitations in any such control system (e.g. faulty judgments, human error, information technology system error, or intentional circumvention), there can be no assurance that the objectives of a control system will be met under all circumstances. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The benefits of a control system also must be considered relative to the costs of the system and management's judgments regarding the likelihood of potential events. In summary, there can be no assurance that any control system will succeed in achieving its goals under all possible future conditions, and as a result of these inherent limitations, misstatements due to error or fraud may occur and may or may not be detected.