10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2020

or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________

Commission File Number 001-34376

IEC ELECTRONICS CORP.

(Exact name of registrant as specified in its charter)

Delaware	13-3458955
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

105 Norton Street, Newark, New York 14513

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: 315-331-7742

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IEC	Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [x]

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.

Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x	Smaller reporting company x
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the

Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

Yes ☐ No x

At March 27, 2020, the last business day of the registrant’s second quarter for the fiscal year ended September 30, 2020, the aggregate market value of the shares of common stock held by non-affiliates of the registrant was $66,722,319 (based on the closing price of the registrant’s common stock on the Nasdaq Global Market on such date). Shares of common stock held by each executive officer and director and by each person and entity who beneficially owns more than 10% of the outstanding common stock have been excluded in that such person or entity may be deemed to be an affiliate for purposes of this calculation. Such exclusion should not be deemed a determination or admission by the registrant that such individuals or entities are, in fact, affiliates of the registrant.

As of November 10, 2020, there were 10,503,083 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of IEC Electronics Corp.’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III Items 10, 11, 12, 13 and 14 of this Form 10-K.

TABLE OF CONTENTS 

		Page
PART I
Item 1.	BUSINESS	6
Item 1A.	RISK FACTORS	11
Item 1B.	UNRESOLVED STAFF COMMENTS	21
Item 2.	PROPERTIES	22
Item 3.	LEGAL PROCEEDINGS	22
Item 4.	MINE SAFETY DISCLOSURES	22
	INFORMATION ABOUT OUR EXECUTIVE OFFICERS	22
PART II
Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES	23
Item 6.	SELECTED FINANCIAL DATA	24
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	30
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	57
Item 9A.	CONTROLS AND PROCEDURES	57
Item 9B.	OTHER INFORMATION	58
PART III
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	59
Item 11.	EXECUTIVE COMPENSATION	59
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	59
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	59
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	59
PART IV
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	60
	SIGNATURES	63

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this report to “IEC,” the “Company,” “we,” “our,” or “us” mean IEC Electronics Corp. and its subsidiaries except where the context otherwise requires. This Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (“Form 10-K”) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These forward-looking 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 materially different from any future results, performance or achievements expressed or implied by these forward-looking 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: the continued impact of the COVID-19 pandemic on our business, including our supply chain, workforce and customer demand; business conditions and growth or contraction in our customers’ industries, the electronic manufacturing services industry and the general economy; our ability to control our material, labor and other costs; our dependence on a limited number of major customers and suppliers; uncertainties as to availability and timing of governmental funding for our customers; the impact of government regulations, including U.S. Food and Drug Administration (the “FDA”) regulations; unforeseen product failures and the potential product liability claims that may be associated with such failures; technological, engineering and other start-up issues related to new programs and products; variability and timing of customer requirements; the potential consolidation of our customer base; availability of component supplies; dependence on certain industries; the ability to realize the full value of our backlog; the types and mix of sales to our customers; litigation and governmental investigations; intellectual property litigation; variability of our operating results; our ability to maintain effective internal controls over financial reporting; 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; and natural disasters. Any one or more of such risks and uncertainties could have a material adverse effect on us or the value of our common stock. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections elsewhere in this Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements included in this Form 10-K are made only as of the date indicated or as of the date of this Form 10-K. We do not undertake any obligation to, and may not, publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or which we hereafter become aware of, except as required by law. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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PART I

ITEM 1.    BUSINESS

Overview

IEC Electronics Corp. (“IEC,” “we,” “our,” “us,” or the “Company”) conducts business directly, as well as through its subsidiaries, IEC Electronics Corp-Albuquerque (“Albuquerque”), and IEC Analysis & Testing Laboratory, LLC (“ATL”). Our former subsidiary, IEC California Holdings, Inc., was dissolved as of September 18, 2019.

We are a premier provider of electronic manufacturing services (“EMS”) to advanced technology companies that produce life-saving and mission critical products for the medical, industrial, aerospace and defense sectors. We specialize in delivering technical solutions for the custom manufacturing, product configuration, and verification testing of highly engineered complex products that require a sophisticated level of manufacturing to ensure quality and performance.

Within the EMS sector, we have unique capabilities which allow our customers to rely on us to solve their complex challenges, minimize their supply chain risk and deliver full system solutions for their supply chain. These capabilities include, among others:

•Our engineering services include the design, development, and fabrication of customized stress testing platforms to simulate a product’s end application, such as thermal cycling and vibration, in order to ensure reliable performance and avoid catastrophic failure when the product is placed in service.

•Our vertical manufacturing model offers customers the ability to simplify their supply chain by utilizing a single supplier for their critical components including complex printed circuit board assembly (“PCBA”), precision metalworking, and interconnect solutions. This service model allows us to control the cost, lead time, and quality of these critical components which are then integrated into full system assemblies and minimizes our customers’ supply chain risk.

•We provide direct order fulfillment services for our customers by integrating with their configuration management process to obtain their customer orders, customize the product to the specific requirements, functionally test the product and provide verification data, and direct ship to their end customer in order to reduce time, cost, and complexity within our customer’s supply chain.

•We believe we are the only EMS provider with an on-site laboratory that has been approved by the Defense Logistics Agency (“DLA”) for their Qualified Testing Supplier List (“QTSL”) program which deems the site suitable to conduct various QTSL and military testing standards including counterfeit component analysis and environmental testing to qualify a part fit for use. In addition, this advanced laboratory is utilized for complex design analysis and manufacturing process development to solve challenges and accelerate our customers’ time to market.

We are a 100% U.S. manufacturer which attracts customers who are unlikely to utilize offshore suppliers due to the proprietary nature of their products, governmental restrictions or volume considerations. Our locations include:

•Newark, New York - Located approximately one hour east of Rochester, New York, our Newark location is our corporate headquarters and is our largest manufacturing location providing complex circuit board manufacturing, interconnect solutions, and system-level assemblies along with an on-site material analysis laboratory for advanced manufacturing process development.

•Rochester, New York - Focuses on precision metalworking services including complex metal chassis and assemblies.

•Albuquerque, New Mexico - Specializes in the aerospace and defense markets with complex circuit board and system-level assemblies along with a state of the art analysis and testing laboratory which conducts root cause failure analysis, reliability, inspection and authenticity testing.

We excel at complex, highly engineered products that require sophisticated manufacturing support where quality and reliability are of paramount importance. With our customers at the center of everything we do, we have created a high-intensity, rapid response culture capable of reacting and adapting to their ever-changing needs. Our customer-centric approach offers a high degree of flexibility while simultaneously complying with rigorous quality and on-time delivery standards.

We proactively invest in areas we view as important for our continued long-term growth. All of our locations are ISO 9001:2015 certified and ITAR registered. We are Nadcap accredited and AS9100D certified at our Newark and Albuquerque locations to support the stringent quality requirements of the aerospace industry. Our Newark location is ISO 13485 certified to serve the medical sector and is an approved supplier by the National Security Agency (“NSA”) under the COMSEC standard regarding communications security. Our analysis and testing laboratory in Albuquerque is ISO 17025 accredited, an IPC-approved Validation Services Qualified Test Laboratory, and we believe is the only on-site EMS laboratory that has been approved by the DLA for their QTSL program which deems the site suitable to conduct various QTSL and military testing

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standards including counterfeit component analysis and environmental testing to qualify a part fit for use. Albuquerque also performs work per NASA-STD-8739 and J-STD-001ES space standards.

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

Organization

IEC Electronics Corp., a Delaware corporation, is the successor by merger in 1990 to IEC Electronics Corp., a New York corporation, which was originally organized in 1966. Our executive offices are located at 105 Norton Street, Newark, New York 14513. Our telephone number is 315-331-7742, and our Internet address is www.iec-electronics.com. We have not incorporated by reference into this report the information included, or that can be accessed through, our website and you should not consider it to be part of this report.

The Electronics Manufacturing Services Industry

The EMS industry specializes in providing the program management, technical support and manufacturing expertise required to take a product from the early design and prototype stages through volume production and distribution. Primarily as a response to rapid technological change and increased competition in the electronics industry, OEMs have recognized that by utilizing EMS providers, such as IEC, they can improve their competitive position, realize an improved return on investment and concentrate on their core competencies such as research, product design and development and marketing. In addition, EMS providers allow OEMs to bring new products to market more rapidly and to adjust more quickly to fluctuations in product demand; avoid additional investment in plant, equipment and personnel; reduce inventory and other overhead costs; and determine known unit costs over the life of a contract. Many OEMs now consider EMS providers valued partners in executing their business and manufacturing strategy.

OEMs increasingly require EMS providers to provide complete turn-key manufacturing and material handling services rather than working on a consignment basis in which the OEM supplies all materials and the EMS provider supplies labor. Turn-key contracts involve design, manufacturing and engineering support, the procurement of all materials, sophisticated in-circuit and functional testing, and distribution.

IEC’s Strategy

IEC is focused on providing services for life-saving and mission critical products in the medical, industrial, aerospace and defense sectors that require a sophisticated level of manufacturing support. We offer our customers a full range of manufacturing services, combined with advanced scientific technical support to ensure their products perform for the critical applications for which they are intended. The ability to solve our customers’ technical challenges, meet their stringent quality requirements, and integrate seamlessly within their supply chain, is the value add that IEC brings.

We often engage with our customers in the early stages of product or program design, work with customers to evaluate the manufacturability and testability of their products, with the objective of enhancing quality and reducing the overall cost of ownership for our customers. Due to the highly regulated environment for many of our customers, they are seeking a long-term partnership throughout the life-cycle of their product.

We are a certified small business with advanced technical capabilities. This allows us to focus on our customer’s needs and deliver solutions in a responsive manner to accelerate their time to market.

Competition

The EMS industry is highly fragmented and characterized by intense competition. We believe that the principal competitive factors in the EMS market include: technology capabilities, quality and range of services, past performance, design, cost, responsiveness and flexibility. We specialize in the custom manufacture of life-saving and mission critical products that require complex circuit boards and system-level assemblies; a wide array of cable and wire harness assemblies capable of withstanding extreme environments; and precision metal components.

We are certified to serve the military and commercial aerospace sector as well as the medical sector and we hold various accreditations. We believe we excel where quality and reliability are of paramount importance and when low-to-medium volume, high-mix production is the norm. We utilize state-of-the-art, automated circuit board assembly equipment together with a full complement of high-reliability manufacturing stress testing methods. Our customer-centric approach offers a high degree of flexibility while simultaneously complying with rigorous quality and on-time delivery standards.

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We compete against numerous foreign and domestic companies in addition to the internal capabilities of some of our customers. Some of our competitors include Sparton Corporation, Benchmark Electronics, Inc., Plexus Corp. and Ducommun Incorporated. We may face new competitors in the future as the outsourcing industry evolves and existing or new-to-market companies develop capabilities similar to ours.

Products and Services

We manufacture a wide range of assemblies that are incorporated into many different products, such as aerospace and defense systems, medical devices, industrial equipment and transportation products. Our products are distributed to and through OEMs. We support multiple divisions and product lines for many of our customers and frequently manufacture successive generations of products. In some cases, we are the sole EMS contract manufacturer for the customer site or division.

Materials Management

We generally procure materials to meet specific contract requirements and are often protected by contract terms that call for reimbursement to us in the event a contract is terminated by the customer. Whether purchased by us or supplied by a customer, materials are tracked and controlled by our internal systems throughout the manufacturing process.

Availability of Components

Our revenues are principally derived from turn-key services that involve the acquisition of raw and component materials, often from a limited number of suppliers, to be manufactured in accordance with each customer’s specifications. While we believe we are well positioned with supplier relationships and procurement expertise, potential shortages of components in the world market could have a material adverse effect on our revenue levels or operating efficiencies.

Suppliers

Although we depend on a limited number of key suppliers, as a result of strategic relationships we have established with them, the Company frequently benefits from one or more of the following enhancements: reduced lead-times; competitive pricing; favorable payment terms; and preference during periods of limited supply. We have preferred supplier partnership agreements in place to support our business generally and to ensure access to custom commodities, such as printed circuit boards.

For the fiscal year ended September 30, 2020 (“fiscal 2020”), IEC obtained 22% of the materials used in production from two vendors, Avnet, Inc. and Arrow Electronics Inc. If either of these vendors were to cease supplying us with materials for any reason, we would be forced to find alternative sources of supply. A change in suppliers could cause a delay in availability of products and a possible loss of sales, which could adversely affect operating results.

Marketing and Sales

We utilize a direct sales force as well as a nationwide network of manufacturer’s representatives. Through this hybrid sales approach, we execute a focused sales strategy targeting those customers whose product profiles are aligned with our core areas of expertise. For example, we focus on customers that are developing complex, advanced technology products for a wide array of market sectors ranging from satellite communications to medical, military and ruggedized industrial products.

Typically, the demand profiles associated with these customers are in the low-to-moderate volume range with high variability in required quantities and product mix. These customers’ products often employ emerging technologies that require concentrated engineering and manufacturing support from product development through prototyping and on to volume manufacturing, which can result in significant lead times before full production and are difficult to forecast. As a result of the specialized services required, such customers rarely rely on an outsourcing model that focuses primarily on minimizing costs.

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To reduce risk, the Company seeks a balanced distribution of business across industry sectors, as indicated in the table that follows. This can fluctuate based on end customer demands.

	Years Ended
Percent of Sales by Sector	September 30, 2020	September 30, 2019
Aerospace and Defense	60%	60%
Medical	26%	22%
Industrial	14%	18%
	100%	100%

Two individual customers in the aerospace and defense sector, ViaSat Inc., at 27%, and L3Harris Technologies, Inc. at 11%, represented 10% or more of sales in fiscal 2020. One customer in the medical sector, Baxter International, Inc. at 17%, represented 10% or more in sales in fiscal 2020. In the fiscal year ended September 30, 2019 (“fiscal 2019”), one individual customer in the aerospace and defense sector, ViaSat Inc., at 23% represented 10% or more of sales.

Two individual customers represented 10% or more of receivables at September 30, 2020. One customer is in the aerospace and defense sector and the other is in the medical sector, and together they accounted for 30% of the outstanding balances at September 30, 2020. Two individual customers represented 10% or more of receivables at September 30, 2019. Both customers were in the aerospace and defense sector, and together accounted for 38% of the outstanding balances at September 30, 2019.

Backlog

Our backlog at the end of fiscal 2020 was $194.5 million, which is 8.2% lower than $212.0 million at the end of fiscal 2019. Backlog consists of two categories: purchase orders and firm forecasted commitments. In addition to fulfilling orders and commitments contained in quarter-end backlog reports, we also receive and ship orders within each quarter that do not appear in the period end backlog reports. Variations in the magnitude and duration of contracts as well as customer delivery requirements may result in fluctuations in backlog from period to period. Approximately $180.2 million of our backlog at September 30, 2020, an increase of 19.1%, is expected to be shipped within the fiscal year ending September 30, 2021 (“fiscal 2021”), with the remainder expected to ship in future years. This compares to $151.3 million that was expected to be shipped within 12 months from year-end as of September 30, 2019, with the remainder at such time that was expected to be shipped greater than 12 months from the prior year-end.

Governmental Regulation

Our operations are subject to certain United States government regulations that control the export and import of defense-related articles and services, as well as federal, state and local regulatory requirements relating to environmental protection, waste management, and employee health and safety matters. We believe that our business is operated in substantial compliance with all applicable laws and governmental regulations. While current costs of compliance, including compliance with environmental laws, are not material, our expenses could increase if new laws, regulations or requirements were to be introduced. Some of our medical and other customers are highly regulated. Any failure to comply by customers, related to products we produce for them, can delay or disrupt their orders from us.

Employees

Employees are our single greatest resource. Our total employees numbered 860, all of which are full time employees, at September 30, 2020. Some of our full-time employees are temporary employees. We make a concerted effort to engage our employees in initiatives that improve our business and provide opportunities for growth, and we believe that our employee relations are good. We have access to a large and technically qualified workforce in close proximity to our operating locations in Rochester, NY and Albuquerque, NM.

Expansion of Newark, New York Manufacturing Operations

In February 2018, we announced that we will open a new state-of-the-art manufacturing facility in Newark, NY funded in part by the State of New York. The new 150,000 square foot facility is located in the Silver Hill Technology Park and allowed us to design, from the ground up, a state-of-the-art, advanced technology facility to support our operations. As part of this expansion, we intend to move our administrative offices to this location.

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COVID-19 Pandemic

The COVID-19 pandemic continues to disrupt supply chains and affect production and sales across a range of industries. The extent of the impact of the COVID-19 pandemic on our supply chain, workforce, customer demand, operations and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.

In accordance with the Department of Defense guidance issued in March 2020, designating the Defense Industrial Base as a critical infrastructure workforce, our production facilities have continued to operate in support of essential products and services required to meet national security commitments to the U.S. government and the U.S. military.

Please see Item 1A. Risk Factors in this report for additional information regarding certain risks associated with the COVID-19 pandemic.

Supply Chain

The COVID-19 pandemic presents a level of uncertainty around the availability of raw material components in future periods. During March 2020, we were aware of some component manufacturers that were required to shut down temporarily, as a result of COVID-19 related illnesses impacting their employee populations or to comply with government mandates. Due to the lifesaving and mission critical nature of the products we support, many of our suppliers and the related programs are given certain priority ratings, which helped to ensure the required supply of material continued.

We are continually assessing potential supply chain impacts and working with our distribution partners to identify existing, on hand stock that we can access. We are also working with our customer base to determine their interest in participating in inventory pre-purchase arrangements, which would be funded through additional customer deposits.

Workforce

The safety and well-being of our employees has been, and continues to be, our top priority, especially during the COVID-19 pandemic. Although we are deemed an essential business based on the lifesaving and mission critical products we support, and we remain fully operational, we chose early on to ask our non-essential employees to work from home in order to reduce the employee density in our facilities. As circumstances have allowed and in accordance with applicable guidelines, we have assigned non-essential employees into two groups, working alternating weeks in the office to maintain social distancing. In support of those working on site, we have taken numerous actions to help provide for a safe work environment and allow for appropriate social distancing, where possible. Some examples of the actions we have taken include, but are not limited to, the following:

•Adjusted shift start and end times to limit the number of people entering and exiting our facilities simultaneously;

•Adjusted break and lunch times to reduce the number of people in common areas;

•Designated stairwells and walkways as one-way to ensure employees are not passing each other in tight quarters; and

•Implemented additional cleaning protocols to ensure work surfaces, high touch areas and common spaces are routinely cleaned and disinfected in accordance with guidelines from the Centers for Disease Control and Prevention.

We have also developed contingency plans in the event that one of our employees tests positive for COVID-19. We expect to continue to enhance our practices to remain aligned with state and federal guidelines.

Customer Demand

Due to the nature of the lifesaving and mission critical products that we support, the majority of our customers are also deemed to be essential businesses and remain operational. At a macro level, we have seen increases in demand from some of our existing customers, especially those in the medical sector. However, certain customers have requested that a portion of their demand be moved out to future periods beyond fiscal 2021. To date, these requests represent a small percentage of our current backlog and we do not expect to see a material impact from these requests. We continue to work in partnership with our customers to continually assess any potential impacts from the pandemic and opportunities to mitigate risk.

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Item 1A.    RISK FACTORS

Risks Related to the COVID-19 Pandemic

Our business, results of operations and financial condition may be adversely impacted by the recent “COVID-19” pandemic.

The COVID-19 pandemic has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how the pandemic impacts our customers, employees, supply chain, and distribution network. While the COVID-19 pandemic did not have a material adverse effect on our reported results for fiscal 2020, we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows. Project disengagements and delays and decreases in customer demand in response to the pandemic, could adversely impact our business and results of operations. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

The impact of the COVID-19 pandemic may also exacerbate the other risks discussed in this Item 1A, "Risk Factors", any of which could have a material effect on us. This situation continues to change rapidly and additional impacts may arise that we are not aware of currently.

The COVID-19 pandemic, or similar health epidemics, could negatively impact our supply chain thereby adversely affecting our business.

We depend on a limited number of suppliers for components that are critical to our manufacturing processes. The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on manufacturing and the movement of employees in many regions of the country and in regions worldwide. As a result of the pandemic and the measures designed to contain the spread of the virus, our suppliers may not have the materials, capacity, or capability to supply our components according to our schedule and specifications. Any reduction in production capacity or capacity at our suppliers may reduce or even halt the supply of goods and necessary components for many of our customers’ products, which could result in product shortages and an increase in our inventory of unfinished products. Further, there may be logistics issues, including our ability and our supply chain’s ability to quickly ramp up production, and transportation demands that may cause further delays. If our suppliers’ operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. While the disruptions and restrictions on the ability to travel, quarantines, and any temporary closures of the facilities of our suppliers, as well as general limitations on movement are expected to be temporary, the duration of the production and supply chain disruption, and related financial impact, cannot be estimated at this time. Should the production and distribution closures continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.

The COVID-19 pandemic may significantly disrupt our workforce and internal operations.

The COVID-19 pandemic may significantly disrupt our workforce, including our ability to hire and onboard employees, if a significant percentage of our employees or any potential hires are unable to work due to illness, quarantines, government

actions, facility closures in response to the pandemic, fear of acquiring COVID-19 while performing essential business functions, or as a result of changes to unemployment insurance where unemployed workers can receive benefits in excess of what would be offered for working for us. While we remain fully operational at this time, we cannot guarantee that we will be able to adequately staff our operations when needed, particularly as the COVID-19 pandemic progresses, which may strain our existing personnel, increase costs, and negatively impact our operations. As a result, our internal operations may experience disruptions. The pandemic may create additional challenges in attracting and retaining quality employees in the future. In addition, COVID-19 related-illness could impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs. We cannot predict the extent to which the COVID-19 pandemic may disrupt our workforce and internal operations.

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We have taken certain precautions due to the COVID-19 pandemic that could harm our business.

In response to the COVID-19 pandemic, we have taken measures intended to protect the health and well-being of our employees, customers and our communities, which could negatively impact our business. These measures include temporarily requiring certain employees to work remotely, restricted employee travel, increasing the frequency and extent of cleaning and disinfecting facilities, developing social distancing plans, and cancelling in-person meetings, events and conferences. The health of our workforce, customers and others is of primary concern and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and others. In addition, our management team has, and will likely continue to, spend significant time, attention and resources monitoring the COVID-19 pandemic and seeking to manage its effects on our business and workforce. The extent to which the pandemic and our precautionary measures may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

The COVID-19 pandemic may decrease demand for our services and any such decrease in demand would adversely affect our backlog, revenues and results of operations.

The COVID-19 pandemic is creating uncertainty in the markets we serve and the duration, scope or impact of the outbreak cannot be predicted. While we have experienced some increase in demand from the medical and aerospace & defense sectors, we may face decreased demand in these or other sectors in the future. Demand for our services may be affected by changes in demand from our customers as a result of the pandemic, including any heightened emphasis on shorter lead times which places increased demands on our capacity and may result in increased costs, or the ordering of smaller quantities which prevents us from acquiring component materials in larger volumes at lower costs. In addition, the COVID-19 pandemic may require customers to make unexpected changes to their product offerings which may adversely affect our business and operating results. Any material modifications, delays, payment defaults or cancellations on underlying contracts relating to the COVID-19 pandemic could reduce the amount of backlog currently reported and, consequently, could inhibit the conversion of that backlog into revenues. In addition, worsening overall market conditions could result in further reductions of backlog, which will impact our financial performance. While the pandemic is expected to affect customer demand, it is difficult to predict such changes at this time and the impact that such changes will have on our revenues and operating margins. There can be no assurance that we will be successful in implementing effective strategies to counter any changes in demand. Any decrease in demand or disruption to our business resulting from the COVID-19 pandemic would adversely affect our revenues and results of operations.

We may be unable to meet the demands of our customers, including those in the aerospace & defense and medical sectors, as expected which may adversely and materially affect our business, results of operations and financial conditions.

During fiscal 2020, the aerospace & defense sector represented 60% of our business and the medical sector represented 26% of our business. Due to the nature of the lifesaving and mission critical products provided by these markets, many of our customers in these sectors are deemed to be essential businesses. In response to the pandemic and the increased demand for aerospace & defense, medical and lifesaving products, we experienced increases in demand from existing customers in the aerospace & defense and medical sectors. This demand has increased at the same time our supply chain has begun to face limitations, which may result in a shortage of supply, increased costs, and delays, requiring us in certain instances to pass through expenses or otherwise increase prices. Customers may reject any attempts to pass through expenses or increase pricing which would negatively impact our business. Further, if we are unable to ramp up our production, hire and onboard sufficient staff to meet the increased demand, or if we are otherwise unable to timely meet the demand from our customers, our business and results of operations will be negatively affected. The realization of our backlog is affected by our performance and the late completion of a project may result in decreased revenues derived from those projects. In addition, the increase in demand we are currently experiencing from the medical sector as a result of the COVID-19 pandemic may not continue after the pandemic subsides. Moreover, the increase in demand may result in decreased demand for such products after the COVID-19 pandemic subsides because there may be a large surplus of such medical products after the pandemic subsides.

Business and Operational Risks

We depend on a relatively small number of customers, the loss of one or more of whom may have a material adverse effect on our operating results.

A relatively small number of customers are responsible for a significant portion of our net sales. During fiscal 2020 and fiscal 2019, our five largest customers accounted for 68% and 51% of net sales, respectively. The percentage of our sales to our major customers may fluctuate from period to period, and our principal customers may also vary from year to year. Significant reduction in sales to any of our major customers, or the loss of a major customer, could have a material adverse effect on our results of operations and financial condition.

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We rely on the continued growth and financial stability of our customers, including our major customers. Adverse changes in the end markets they serve can reduce demand from our customers in those markets and/or make customers in these end markets more price sensitive. Further, mergers or restructuring among our customers, or their end customers, could increase concentration or reduce total demand as the combined entities reevaluate their business and consolidate their suppliers. Future developments, particularly in those end markets that account for more significant portions of our revenues, could harm our business and our results of operations.

Because of this concentration in our customer base, we have significant amounts of trade accounts receivable from some of our customers. If one or more of our customers experiences financial difficulty and is unable to provide timely payment for the services provided, our operating results and financial condition could be adversely affected.

In addition, consolidation among our customers could intensify this concentration and adversely affect our business. In the event of consolidation among our customers, depending on which organization controls the supply chain function following the consolidation, we may not be retained as a preferred or approved supplier. In addition, product duplication could result in the termination of a product line that we currently support. While there is potential for increasing our position with the combined customer, our revenues could decrease if we are not retained as a continuing supplier. Even if we are retained as a supplier, we may also face the risk of increased pricing pressure from the combined customer because of its increased market share.

We participate in the electronics industry, which historically produces technologically advanced products with short life cycles.

Factors affecting the electronics industry in general could seriously harm our customers and, as a result, us. These factors may include, but may not be limited to:

•the inability of our customers to adapt to rapidly changing technology and evolving industry standards, which result in short product life cycles;

•the inability of our customers to develop and market their products, some of which are new and untested;

•increased competition among our customers and their competitors, including downward pressure on pricing;

•the potential that our customers’ products may become obsolete, or the failure of our customers’ products to gain anticipated commercial acceptance; and

•periods of significantly decreased demand in our customers’ markets.

Because a significant portion of our business is defense-related, reductions or delays in U.S. defense spending may have a material adverse effect on our revenues.

During fiscal 2020 and fiscal 2019, our sales to customers serving the aerospace and defense industries approximated 60% of our sales in both years. Because these products and services are ultimately sold to the U.S. government by our customers, these sales are affected by, among other things, the federal budget process, which is driven by numerous factors beyond our control, including geopolitical, macroeconomic and political conditions. The contracts between our direct customers and their government customers are subject to political and budgetary constraints and processes, changes in short-range and long-range strategic plans, the timing of contract awards, the congressional budget authorization and appropriation processes, the government’s ability to terminate contracts for convenience or for default, as well as other risks such as contractor suspension or debarment in the event of certain violations of legal and regulatory requirements.

While we believe that our customers’ programs are well aligned with national defense and other priorities, shifts in domestic and international spending and tax policy, changes in security, defense and intelligence priorities, the affordability of our products and services, general economic conditions and developments, and other factors may affect a decision to fund or the level of funding for existing or proposed programs. An impasse in federal budget decision-making could lead to substantial delays or reductions in federal spending. As a result, U.S. government funding for certain of our customers has been and could continue to be reduced, delayed or eliminated, which could significantly impact these customers’ demand for our products and services and if so this could have a material adverse effect on our business, results of operations and cash flows.

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We are subject to extensive regulation and audit by the Defense Contract Audit Agency.

The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for U.S. government contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Such audits and reviews could result in adjustments to our contract costs and profitability. We cannot ensure the outcome of any future audits and adjustments may be required to reduce net sales or profits upon completion and final negotiation of audits. If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. government. Any such outcome could have a material adverse effect on our financial results.

Our business could be negatively impacted by economic slowdowns in the medical sector.

The medical sector represented approximately 26% and 22% of our sales during fiscal 2020 and fiscal 2019, respectively. Medical device industries are intensely competitive and heavily regulated. Medical businesses must operate within an evolving regulatory and risk environment, with ongoing pricing and cost pressures, and adoption of new business models driven by scientific and technological advances. Any significant change in production rates or any restructuring by customers in this sector would likely have a material effect on our results of operations. There is no assurance that our customers will continue to buy products from us at current levels, that we will retain any or all of our existing customers or that we will be able to form new relationships with customers upon the loss of one or more of our existing customers in this market. Any material reduction in sales, consolidation or slowdowns in the medical sector could have a negative impact on our business and financial results.

Global economic and financial market conditions may have a material adverse effect on our results of operations and financial condition.

Current global economic and financial market conditions, including the onset of a global economic recession, may have a material adverse effect on our results of operations and financial condition. These conditions may also materially impact our customers and suppliers. Economic and financial market conditions that adversely affect our customers may cause them to terminate or delay existing purchase orders or to reduce the volume of products they purchase from us in the future. We may be owed significant balances from customers that operate in cyclical industries and under leveraged conditions that could impair their ability to pay amounts owed to us on a timely basis. Failure to collect a significant portion of those receivables could have a material adverse effect on our results of operations and financial condition.

Similarly, adverse changes in credit terms extended to us by our suppliers, such as shortening the required payment period for outstanding accounts payable or reducing the maximum amount of trade credit available to us could significantly affect our liquidity and thereby have a material adverse effect on our results of operations and financial condition.

If we are unable to successfully anticipate changing economic and financial market conditions, we may be unable to effectively plan for and respond to those changes, and this could have a material adverse effect on our operating results.

Tariffs imposed by the U.S. and those imposed in response by other countries, as well as rapidly changing trade relations, could have a material adverse effect on our business and results of operations.

Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S. The U.S. has imposed tariffs on imports from several countries, including China, Canada and the European Union. In response, China, Canada and the European Union have proposed or implemented their own tariffs on certain products and product components, including components we use, impacting our supply chain and increasing our costs of doing business. Although the majority of our customers allow us to recover tariffs, if we are unable to recover these costs, our profit margins may be negatively impacted. Continued diminished trade relations between the U.S. and other countries, including potential reductions in trade with China and others, as well as the continued escalation of tariffs, could have a material adverse effect on our financial performance and results of operations.

A failure of our information technology systems, including the implementation of our new enterprise resource planning system, could have a material adverse effect on our business.

A failure or prolonged interruption in our information technology systems, some of which are aging, or difficulties encountered in upgrading our systems or implementing new systems, that compromises our ability to meet our customers’ needs, or impairs our ability to record, process and report accurate information could have a material adverse effect on our financial condition.

We are in the process of implementing a financial reporting system, Epicor ERP Software (“Epicor”), as part of a multi-year plan to integrate and upgrade our systems and processes. Epicor will assist with the collection, storage, management and

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interpretation of data from our business activities to support future growth and to integrate significant processes. Enterprise resource planning (“ERP”) system implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes. As part of the Epicor implementation, certain changes to our processes and procedures have and will continue to occur. These changes will result in changes to our internal control over financial reporting. While Epicor is designed to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolve.

Our ERP system is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements. ERP system implementations also require the transformation of business and financial processes in order to reap the benefits of the ERP system; any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations. Any disruptions, delays or deficiencies in the design and implementation of a new ERP system could adversely affect our ability to process orders, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be further impacted.

Products we manufacture may contain defects in workmanship, which could result in reduced demand for our services and product liability claims against us.

We manufacture highly complex products to our customers’ specifications, often within tight tolerance ranges, and such products may contain design or manufacturing errors or defects. Defects in the products we manufacture, whether caused by customer design, workmanship, component failure, the use of component suppliers’ products or services, or other error, may result in delayed shipments to customers or reduced or canceled customer orders, adversely affecting our reputation and may result in product liability claims against us. Even if customers or component suppliers are responsible for the defects, they may be unwilling or unable to assume responsibility for costs associated with product failure, which could adversely affect our reputation, customer relationships, and results of operations.

We may not be able to maintain the engineering, technological and manufacturing capabilities required by our customers in the future.

The markets for our manufacturing and engineering services are characterized by rapidly changing technology and evolving process development. The continued success of our business will depend upon our ability to:

•hire and retain qualified engineering and technical personnel;

•maintain and enhance our technological leadership; and

•develop and market manufacturing services that meet changing customer needs.

Although we believe that our operations provide the assembly and testing technologies, equipment and processes that are currently required by our customers, there is no certainty that we will develop the capabilities required by our customers in the future. The emergence of new technology, industry standards or customer requirements may render our equipment, inventory or processes obsolete or noncompetitive; or we may have to acquire new assembly and testing technologies and equipment to remain competitive. The acquisition and implementation of new technologies and equipment may require significant expense or capital investment that could adversely affect our operating results, as could our failure to anticipate and adapt to our customers’ changing technological requirements.

Failure to attract and retain key personnel and other skilled employees could have a material adverse effect on our business.

Our continued success depends to a large extent on our ability to recruit, train, and retain skilled employees, particularly executive management and technical employees. The competition for these individuals is significant. Accordingly, the loss of the services of certain of these key employees or an inability to attract or retain qualified employees could negatively impact us.

Further, any new acquisitions or developments by us will require the hiring of significant additional workforce to support operations at such properties. Any shortage of skilled labor in the areas of these operations could result in our having insufficient personnel to expand production and fully utilize capacity at our new or developed properties, which could adversely affect our financial condition and results of operations. As a result of our acquisitions and developments, we may be more susceptible to labor shortages than our competitors.

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Increases in minimum wage could increase the cost of our labor and have a material adverse effect on our financial results.

We have a substantial number of hourly employees who are paid wage rates at or above the applicable federal or state minimum wage. From time to time, federal and state governments have increased and will consider increases in the minimum wage. Several states in which we operate have enacted increases in the minimum wage and legislation to increase the minimum wage may be enacted in the future in states in which we operate. As federal or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly employees in order to remain competitive. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition and results of operations.

Our operating results may fluctuate from period to period.

Our annual and quarterly operating results may fluctuate significantly depending on various factors, many of which are beyond our control. These factors may include, but are not necessarily limited to:

•adverse changes in general economic conditions;

•natural disasters that may impede our operations, the operation of our customers’ business, or availability of manufacturing inputs from our suppliers;

•the level and timing of customer orders and the accuracy of customer forecasts;

•the capacity utilization of our manufacturing facilities and associated fixed costs;

•price competition;

•market acceptance of our customers’ products;

•business conditions in our customers’ end markets;

•our level of experience in manufacturing a particular product;

•changes in the mix of sales to our customers;

•variations in efficiencies achieved in managing inventories and property, plant and equipment;

•fluctuations in cost and availability of materials;

•timing of expenditures in anticipation of future orders;

•changes in cost and availability of labor and components;

•our effectiveness in managing the high reliability manufacturing process required by our customers; and

•failure or external breach of our information technology systems.

The EMS industry is affected by the United States and global economies, both of which are influenced by world events. An economic slowdown, particularly in the industries we serve, may result in our customers reducing their forecasts or delaying orders. The demand for our services could weaken, which in turn could substantially influence our sales, capacity utilization, margins and financial results.

If we experience deficiencies in our internal control over financial reporting and procedures, it could have a material adverse effect on our business and on our investors’ confidence in our reported financial information, and there is no guarantee that our internal control over financial reporting and procedures will not fail in the future.

Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and to detect and prevent fraud. We have been and may be required in the future to expend funds and resources in order to rectify identified deficiencies in our internal controls. Our disclosure controls and internal control over financial reporting may not prevent all errors or all instances of fraud. Because of the inherent limitations in control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our business have been detected. 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. 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. If there is a failure in any of our internal controls and procedures, we could face investigation or enforcement actions by the SEC and other governmental and regulatory bodies, litigation, loss of reputation and investor confidence, the inability to acquire capital, and other material adverse effects on our finances and business operations.

The agreements governing our debt contain various covenants that may constrain the operation of our business, and our failure to comply with these covenants may have a material adverse effect on our financial condition.

The agreements and instruments governing our secured bank credit facility (the “Credit Facility”) with Manufacturers and Traders Trust Company (“M&T Bank”) and other existing debt contain various covenants that, among other things, require us

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to comply with certain financial covenants including maintenance of a fixed charge coverage ratio. The agreements and instruments governing the Credit Facility require financial and other reporting, contain limitations on revolving loan borrowings and restrict or limit our ability to take certain corporate actions.

The Credit Facility is secured by a general security agreement covering the assets of the Company and its subsidiaries, a pledge of the Company’s equity interest in its subsidiaries, a negative pledge on the Company’s real property, and a guarantee by the Company’s subsidiaries, all of which restrict use of these assets to support other financial instruments.

To the extent we are required to seek waivers and/or amendments, we may experience increased borrowing costs. If we are not in compliance with all of our debt covenants, and if M&T Bank chooses to exercise its remedies, M&T Bank could accelerate our primary indebtedness which could cause cross-defaults with respect to other obligations, causing a material adverse effect on our financial condition including, our inability to obtain replacement financing or continue operations. Our ability to comply with covenants contained in our Credit Facility and other existing debt may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

We are subject to ongoing compliance obligations in connection with an administrative order and our failure to comply with those obligations could adversely affect our business and the liquidity of our common stock.

In June 2016, we consented to the entry of a settled administrative order by the SEC (the “Administrative Order”), pursuant to which, among other things, we agreed to cease-and-desist from committing or causing any violations or future violations of certain provisions of the Securities Exchange Act of 1934, as amended, and certain rules thereunder. If we are found to be in violation of the Administrative Order, we may be subject to additional enforcement actions or lawsuits that could lead to added penalties and consequences which may be more severe than if we were not subject to the Administrative Order. The costs of such actions and of defending lawsuits could be significant and exceed the amount of our available insurance coverage. Governmental scrutiny, pending or future investigations by regulators or law enforcement agencies or legal proceedings involving us or our affiliates could adversely affect our business and results of operations.

Start-up costs and inefficiencies related to new or transferred programs can have a material adverse effect on our operating results and may not be recoverable.

Our long-term success depends in part upon our ability to support our customers as they bring new products and programs to market, or transfer programs to us. Often these products and programs have technological issues and require, or our customers desire, engineering and other changes and innovations in order to facilitate full-scale production and end-user acceptance. Although some of these programs, particularly in the defense and space industries, once mature, will likely profitably extend over many years and will be difficult to transfer to our competitors, we may have to make significant upfront investments in them that may be recovered only over the longer term. These investments may have a significant impact on our profitability in nearer term periods. Moreover, start-up costs, including the management of labor and equipment resources in connection with establishing new programs and new customer relationships, and difficulties in estimating required resources and the timing of those resources in advance of production, can adversely affect our operating results. If new programs or customer relationships are terminated or delayed, this could have a material adverse effect on our operating results, particularly in the near term, as we may not recoup those start-up costs or quickly replace anticipated new program revenues.

Some of our customers may have regulatory issues that adversely affect our operating results.

Some of our larger customers are in heavily regulated industries, such as health care. If they encounter issues with their regulators related to products we manufacture for them, there may be long delays in resolving those issues or the issues may not be resolved at all, which would adversely affect our operating results.

We may not realize the full value of our backlog, which may result in lower than expected revenue.

At the end of fiscal 2020, our backlog was $194.5 million. We may never realize all of the revenue included in our present backlog. In addition, there can be no assurance that our backlog will result in actual revenue in any particular period due to the receipt, timing, and amount of revenue under contracts included in backlog being subject to various contingencies, many of which are beyond our control. Even if our revenue included in our backlog is realized, there can be no guarantee that the revenue realization will result in a profit. A failure to realize any or all of the revenue included in our present backlog could result in a material adverse effect on our business and results of operations.

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Most of the customers in our industry do not commit to long-term production schedules, which can make it difficult for us to schedule production.

Customers may cancel their orders, change production quantities or delay production for any number of reasons that are beyond our ability to foresee or control. Although we are always seeking new opportunities, we may not be able to replace any deferred, reduced or canceled orders. Cancellations, reductions or delays by a significant customer or by a group of customers could adversely affect our operating results and working capital levels. Such cancellations, reductions or delays have occurred and may occur again. The volume and timing of sales to our customers may vary due to:

•variation in demand for our customers’ products in their end markets;

•actions taken by our customers to manage their inventory;

•product design changes by our customers; or

•changes in our customers’ manufacturing strategy.

Due in part to these factors, most of our customers do not commit to firm, long-term production schedules. Therefore, we make significant judgments based on our estimates of customer requirements, including:

•deciding on the levels of business that we will seek;

•production schedules;

•component procurement commitments;

•equipment requirements;

•personnel needs; and

•other resource requirements.

Increased competition may result in decreased demand or reduced prices for our products and services.

The EMS industry is highly fragmented and characterized by intense competition. Additionally, consolidation in the electronic industry could result in an increasing number of very large electronics companies offering products similar to ours in multiple sectors of the EMS industry. We may be operating at a cost disadvantage compared to larger EMS providers who have greater direct buying power from component suppliers, distributors and raw material suppliers or who have lower cost structures as a result of other efficiencies of scale or their geographic location. As a result, other EMS providers with significant purchasing and marketing power may have a competitive advantage. Our manufacturing processes are generally not subject to significant proprietary protection, and companies with greater resources or a greater market presence may enter our market or increase their competition with us. We also expect our competitors to continue to improve the performance of their current products or services, to reduce the prices of their products or services and to introduce new products or services that may offer greater performance and improved pricing. Any of these factors may cause a decline in our sales, loss of market acceptance for our products or services, profit margin compression, or loss of market share.

We depend on a limited number of suppliers for components that are critical to our manufacturing processes. A shortage of these components or an increase in their price could interrupt our operations and adversely affect our operating results.

For fiscal 2020, IEC obtained 22% of the materials used in production from two vendors Avnet, Inc. and Arrow Electronics, Inc. If our vendors were to cease supplying us with materials for any reason, we would be forced to find alternative sources of supply. A change in suppliers could cause a delay in availability of products and a possible loss of sales, which could adversely affect operating results.

Much of our net revenue is derived from turn-key manufacturing for which we provide the materials specified by our customers. Some of our customer agreements permit periodic adjustments to pricing based on increases or decreases in component prices and other factors. However, we typically bear the risk of component price increases that occur between any such re-pricing dates or, if such re-pricing is not permitted during the balance of the term of a particular customer agreement. As a result, some component price increases may have a material adverse effect on our operating results, if we cannot increase prices enough to offset increased costs or if increased prices lead to canceled orders.

Many of the products we manufacture require one or more components that are available from a limited number of suppliers. In response to supply shortages, some of these components are from time to time subject to allocation limits. In some cases, supply shortages or delayed deliveries could substantially curtail production of those assemblies requiring a limited-supply component, which could contribute to an increase in our inventory levels, and could delay shipments to customers and the associated revenue of all products using that component. Component shortages have been prevalent in our industry, and such shortages may recur. An increase in economic activity could result in shortages if manufacturers of components do not adequately anticipate increased order volume or if they have excessively reduced their production capabilities. World events,

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armed conflict, governmental regulation, embargoes and changes in trade relations, natural disaster, and epidemics could also affect our supply chain, leading to an inability to obtain sufficient components on a timely basis.

In addition, due to the specialized nature of some components and our customers’ product specifications, we may be required to use sole-source suppliers for certain components. Such suppliers may encounter financial or operational difficulties that could cause delays in or the curtailment of component deliveries.

Our turn-key manufacturing services involve inventory risk.

Our turn-key manufacturing services described above involve a greater investment in inventory and a corresponding increase in risk as compared to consignment services, for which the customer provides all materials. For example, in our turn-key operations, we must frequently order parts and supplies in minimum lot sizes that may be larger than the quantity of product ultimately needed for our customers. Customers’ cancellation or reduction of orders could result in additional expense to us. If we are not reimbursed for excess inventory ordered to meet customer forecasts, we may accumulate excess inventory and/or incur return charges imposed by suppliers. In addition, component price increases and inventory obsolescence associated with turn-key orders could adversely affect our operating results.

Furthermore, we provide inventory management programs for some of our customers under which we are required to hold and manage finished goods inventories. Such inventory management programs may lead to higher finished goods inventory levels, reduced inventory turns and increased financial exposure. In cases where customers have contractual obligations to purchase managed inventories from us, we remain subject to the risk of enforcing the obligation.

Security breaches and other disruptions, both physical and virtual, could compromise our information, harm customer relationships and expose us to liability, which would cause our business and reputation to suffer.

We have access to, create and store sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our employees. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. As certain of our employees work remotely in accordance with government mandates related to the ongoing pandemic, we face heightened cyber-security risks related to unauthorized system access, aggressive social engineering tactics, and attacks on our information technology systems used to conduct our business. For example, during the fourth quarter of fiscal 2020, we were subject to a cyber incident which, individually and in the aggregate, did not result in a material impact to our operations or financial condition. While we have taken preventative measures to mitigate this risk, we can provide no assurance that we will not be the subject of similar cyberattacks in the future. Cybersecurity breaches, system disruptions and failures may interrupt or delay our ability to provide services to our customers and expose our business and our customers to harm. Any such breach could compromise our networks and the information stored there could be improperly accessed, disclosed, lost or stolen. Any such access, disclosure or other loss of information could disrupt our operations and the services we provide to customers, damage our reputation or our customer relationships, impair our ability to record, process and report accurate information to our stockholders and the SEC, or result in legal claims or proceedings, any of which could adversely affect our business, financial condition, revenues and competitive position. We carry cyber insurance to minimize the potential impact that a security breach may have on our financial condition or results of operations; however, liabilities incurred in connection with a security breach could exceed the limit that our insurer will pay or reimburse, in which case we would bear these fees and costs directly.

Our manufacturing processes and services may result in exposure to intellectual property infringement and other claims.

Providing manufacturing services can expose us to potential claims that products, designs or manufacturing processes we use infringe third party intellectual property rights. Even though many of our manufacturing services contracts generally require our customers to indemnify us for infringement claims relating to their products, including associated product specifications and designs, a particular customer may not, or may not have the resources to, assume responsibility for such claims. In addition, we may be responsible for claims that our manufacturing processes or components used in manufacturing infringe third party intellectual property rights. Infringement claims could subject us to significant liability for damages, potential injunctive action, or hamper our normal operations such as by interfering with the availability of components and, regardless of merits, could be time-consuming and expensive to resolve, and could have a material adverse effect on our results of operations and financial position. In the event of such a claim, we may be required to spend a significant amount of money to develop non-infringing alternatives or obtain and maintain licenses. We may not be successful in developing such alternatives or obtaining and maintaining such a license on reasonable terms or at all. Our customers may be required to or decide to discontinue products which are alleged to be infringing rather than face continued costs of defending the infringement claims, and such discontinuance may result in a significant decrease in our business.

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A failure to comply with customer-driven policies and standards, including those related to social responsibility and conflict minerals, could adversely affect our business and reputation.

In addition to government regulations and industry standards, our customers may require us to comply with their own social responsibility, conflict minerals, quality or other business policies or standards, which may be more restrictive than current laws and regulations as well as our pre-existing policies, before they commence, or continue, doing business with us. Such policies or standards may be customer-driven, established by the industry sectors in which we operate or imposed by third party organizations, such as the SEC’s conflict mineral rules.

Our compliance with these policies, standards and third party certification requirements could be costly, and our failure to comply could adversely affect our operations, customer relationships, reputation and profitability. In addition, our adoption of these standards could adversely affect our cost competitiveness, ability to provide customers with required service levels and ability to attract and retain employees in jurisdictions where these standards vary from prevailing local customs and practices.

If we are unable to maintain satisfactory capacity utilization rates, our results of operations and financial condition would be adversely affected.

Given the high fixed costs of our operations, decreases in capacity utilization rates can have a significant effect on our business. Accordingly, our ability to maintain or enhance gross margins continues to depend, in part, on maintaining satisfactory capacity utilization rates. In turn, our ability to maintain satisfactory capacity utilization depends on the demand for our products, the volume of orders we receive, and our ability to offer products that meet our customers’ requirements at competitive prices. If current or future production capacity fails to match current or future customer demands, our facilities would be underutilized, our sales may not fully cover our fixed overhead expenses, and we would be less likely to achieve anticipated gross margins. If forecasts and assumptions used to support the implied fair value of goodwill or realizability of our long-lived assets including intangible assets change, we may incur significant impairment charges, which would adversely affect our results of operations and financial condition, as we have experienced.

In addition, we generally schedule our production facilities at less than full capacity to retain our ability to respond to unexpected additional quick-turn orders. However, if these orders are not received, we may forego some production and could experience continued excess capacity. If we conclude that we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities and lay off some of our employees. Closures or lay-offs could result in our recording restructuring charges such as severance and other exit costs, and asset impairments.

If our customers choose to provide manufacturing services in-house or overseas, our results of operations could suffer.

Our business has benefited from OEMs deciding to outsource their EMS needs to us. Our future revenue growth depends, in part, on new outsourcing opportunities from OEMs. Current and prospective customers continuously evaluate our performance against other providers, including off-shore procurement opportunities. They also evaluate the potential benefits of manufacturing these products themselves. To the extent that outsourcing opportunities are not available either due to OEM decisions to produce these products themselves or to use other domestic or foreign providers, this could have a material adverse effect on our financial results and prospects.

We may experience disruptions to our business as a result of the relocation of our headquarters and a significant portion of our operations.

We expect to open a new state-of-the-art manufacturing facility, including our headquarters and a significant portion of our operations, in Newark, New York. The process of moving our operations to a new facility is not part of our typical day-to-day operations and may be complex. This relocation process could cause significant disruption to our operations and productivity. We can give no assurance that the relocation will be completed as planned or within the anticipated timeframe. Additionally, the relocation may involve significant costs and the expected benefits of the relocation may not be fully realized due to any associated disruption to our operations and personnel.

Acquired properties and development may subject us to unanticipated liabilities.

Properties that we have acquired, or those we may acquire in the future, may subject us to unanticipated liabilities for which we would have no recourse, or only limited recourse, to the former owners of such facilities, including the discovery of structural or other latent defects in the property. As a result, if a third party claim for liability were asserted against us based upon ownership of an acquired facility, we might be required to pay significant sums to settle it, which could adversely affect our financial results and cash flow. Unknown liabilities relating to acquired facilities could include, among other things, (i) liabilities for clean-up of undisclosed environmental contamination, (ii) claims by vendors or other persons arising on account of actions or omissions of the former owners of the facilities, and (iii) liabilities incurred in the ordinary course of business.

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Further, acquiring properties that are not yet fully developed or need substantial renovation, rehabilitation or redevelopment poses additional risks, including delays or cost overruns due to a variety of factors including, material or labor shortages, difficulties in obtaining necessary permits and authorizations, and unanticipated changes in scope of the project due to unforeseen structural or environmental issues. Any failure to complete a redevelopment project in a timely manner and within budget could have a material adverse effect upon our business, results of operation and financial condition.

Demand estimates for investments in new properties or development may not result in the benefits we anticipate from these investments.

Substantial capital investments are made in connection with acquisitions and development of our properties to increase our capacity. If we overestimate demand, we may not realize the benefit we anticipate from these investments. Overestimates in customer demand could result in excess capacity at our properties, which would result in increased fixed costs relative to the revenue we generate, which could adversely affect our results of operations.

Failure to comply with current and future governmental regulations related to defense, health and safety and the environment could impair our operations or cause us to incur significant expense.

We are subject to a variety of United States government regulations that control the export and import of defense-related articles and services, as well as federal, state and local regulatory requirements relating to employee occupational health and safety, and environmental and waste management regulations relating to the use, storage, discharge and disposal of hazardous materials used in our manufacturing process. To date, the cost to us of such compliance has not had a material impact on our business, financial condition or results of operations. However, violations may occur in the future as a result of human error, equipment failure or other causes. Further, we cannot predict the nature, scope or effect of environmental legislation or regulatory requirements that could be imposed in the future, or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by us and could have a material adverse effect on our business, financial condition and results of operations. If we fail to comply with any present or future regulations, we could be subject to future liabilities or the suspension of production which could have a material adverse effect on our results of operations. While we are not currently aware of any violations, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant compliance-related expenses.

We may face heightened liability risks specific to our medical device business as a result of additional healthcare regulatory related compliance requirements and the potential severe consequences that could result from manufacturing defects or malfunctions (e.g., death or serious injury) of the medical devices we manufacture, design or test.

As a manufacturer and designer of medical devices for our customers, we have compliance requirements in addition to those relating to other areas of our business. We are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) and current Good Manufacturing Practices (“cGMP”) requirements, which require manufacturers of medical devices to adhere to certain regulations and to implement design and process manufacturing controls, quality control, labeling, handling and documentation procedures. The FDA, through periodic inspections and product field monitoring, continually reviews and rigorously monitors compliance with these QSR requirements and other applicable regulatory requirements. If any FDA inspection reveals noncompliance, and we do not address the FDA’s concerns to its satisfaction, the FDA may take action against us, including issuing a form noting the FDA’s inspection observations, a notice of violation or a warning letter, imposing fines, bringing an action against us and our officers, requiring a recall of the products we manufactured for our customers, issuing an import detention on products entering the U.S. from an offshore facility or temporarily halting operations at or shutting down a manufacturing facility. If any of these were to occur, our reputation and business could suffer.

In addition, any defects or malfunctions in medical devices we manufacture or in our manufacturing processes and facilities may result in liability claims against us, expose us to liability to pay for the recall or remanufacture of a product, or otherwise adversely affect product sales or our reputation. The magnitude of such claims could be particularly severe as defects in medical devices could cause severe harm or injuries, including death, to users of these products and others.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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Item 2. PROPERTIES

We own or lease properties in three locations that together house our administrative offices (“AO”), engineering (“E”), manufacturing (“M”), warehouse (“W”) and distribution (“D”) functions, as follows:

Location	Principal Use	Building SF	Owned/Leased	Lease Expiration
Newark, New York (1)	AO,E,M,W,D	235,000	Owned	N/A
Rochester, New York	AO,M,W,D	47,000	Leased	5/31/2033
	AO,M,W,D (2)	86,000	Owned	N/A
Albuquerque, New Mexico	AO,E,M,W,D	72,000	Leased	9/30/2031

(1)Please see the disclosure regarding the expansion of our operations in Newark, NY below and under “Expansion of Newark, New York Manufacturing Operations” in Part I, Item 1 of this report.

(2)Please see the disclosure regarding our recent acquisition of the Jetview property in Rochester, NY under “Note 15—Subsequent Events.” We anticipate that when operational this property will be principally used for administrative offices, manufacturing, warehouse and distribution functions.

Our properties are generally in good condition and are suitable for their intended purposes.

On December 10, 2018, the Company, entered into a Lease (the “Lease”), with 1000 Silver Hill LV LLC, a New York limited liability company (the “Landlord”), for certain property located in Newark, New York, that will include a new state-of-the art manufacturing facility and administrative offices having approximately 153,000 square feet (the “Property”). Pursuant to the Lease, the Company will lease the Property for an initial term of 15 years with one renewal option of 10 years. The lease will not commence until we take control of the building, which is anticipated to be during fiscal 2021.

In October 2020, the Company acquired an approximately 86,000 square foot industrial and office building and certain equipment located at 50 Jetview Drive, Rochester, New York for a purchase price of $5,250,000, exclusive of closing costs. The Company financed a portion of the purchase price for this property with a mortgage loan from M&T Bank.

Item 3. LEGAL PROCEEDINGS

From time to time, we may be involved in legal actions in the ordinary course of our business, but management does not believe that any such proceedings individually or in the aggregate, will have a material effect on our consolidated financial statements.

Item 4.   MINE SAFETY DISCLOSURES

Not Applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Our executive officers at September 30, 2020 were as follows:

Name:	Age:	Title:
Jeffrey T. Schlarbaum	54	President and Chief Executive Officer
Thomas L. Barbato	51	Senior Vice President and Chief Financial Officer

Jeffrey T. Schlarbaum, age 54, has served as a director and as our President and Chief Executive Officer since February 2015. From February 2013 to June 2013 and from June 2014 to February 2015, Mr. Schlarbaum pursued personal interests. From June 2013 to June 2014, Mr. Schlarbaum served as Chief Operations Officer for LaserMax, Inc., a manufacturer of laser gun sights for law enforcement and the shooting sports community. From October 2010 to February 2013, Mr. Schlarbaum served as our President. Prior to that, Mr. Schlarbaum served as our Executive Vice President and President of Contract Manufacturing from October 2008 to October 2010, Executive Vice President from November 2006 to October 2008 and Vice President, Sales & Marketing from May 2004 to November 2006. Prior to joining us, Mr. Schlarbaum served in senior management roles with various contract manufacturing companies. Since July 2017, Mr. Schlarbaum also serves as a director and member of the audit committee of Lakeland Industries, Inc.

Thomas L. Barbato, age 51, has served as our Senior Vice President and Chief Financial Officer since September 2018.

Prior to joining us, Mr. Barbato held various positions with Xerox Corporation, an American global corporation that sells print and digital document solutions, and document technology products, most recently serving as Vice President of Finance, North America Operations, Pricing and Contracting Center of Excellence, from January 2017 to September 2018; Vice President of Finance and Chief Financial Officer, Xerox Large Enterprise Operations (LEO) U.S., from March 2014 to December 2016;

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Vice President of Finance Transformation and Director, Xerox Business Services, from April 2013 to March 2014; and Finance Director, Acquisition Operations Office from April 2010 to April 2013. Prior to joining Xerox Corporation in 1995, Mr. Barbato was a senior auditor with Deloitte & Touche, LLP in Rochester, New York.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market Information

Our common stock trades on the Nasdaq Global Market under the symbol “IEC”.

(b) Holders

As of November 10, 2020, there were approximately 177 holders of record of IEC’s common stock. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.

(c) Dividends

Our Credit Facility includes certain restrictions on paying cash dividends as more fully described in Note 6—Credit Facilities to the Consolidated Financial Statements. We have never paid any cash dividends and have no current plans to pay any dividends in the foreseeable future.

(d) Recent sales of Unregistered Securities

None.

(e) Repurchases of IEC Securities

We did not repurchase any shares during the fourth quarter of the fiscal year ended September 30, 2020. Furthermore, certain covenants in our credit agreement with M&T Bank limit our ability to repurchase shares of our common stock.

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Item 6. SELECTED FINANCIAL DATA

		Years Ended September 30,
		2020			2019			2018			2017			2016
(amounts in thousands, except per share data)								(a)
Net sales		$	182,714		$	156,981		$	116,922		$	96,455		$	127,010
Gross profit		24,120			21,644			14,157			11,257			20,287
Operating profit		10,134			7,568			2,719			1,060			6,248
Income before income taxes		8,696			5,923			1,573			143			4,856
Provision/(benefit) for income taxes		1,943			1,176			(8,837)			62			70
Net income		$	6,753		$	4,747		$	10,410		$	81		$	4,786
Gross margin as % of sales		13.2		%	13.8		%	12.1		%	11.7		%	16.0		%
Operating profit as % of sales		5.5		%	4.8		%	2.3		%	1.1		%	4.9		%
Diluted net income per common share:		$	0.63		$	0.45		$	1.01		$	0.01		$	0.47
Working capital		$	38,448		$	40,915		$	20,748		$	17,194		$	19,772
Total assets		122,964			110,832			90,448			52,447			50,397
Long-term debt (excluding current portion)		21,476			28,910			16,002			14,023			16,732
Long-term finance lease obligation		6,616			6,685			7,027			5,362			—
Stockholders’ equity		39,155			31,240			25,376			14,429			13,864
(a)	Fiscal year 2018 was impacted by the income tax benefit recorded to release the majority of the valuation allowance against the net deferred income tax assets.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements (“Financial Statements”), the related Notes and the five-year summary of Selected Financial Data. References to “Notes” in this report are references to the Notes to the Consolidated Financial Statements unless otherwise specified. Forward-looking statements in this Management’s Discussion and Analysis are qualified by the cautionary statement preceding Item 1 of this Form 10-K and the risk factors identified in Item 1A.

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Results of Operations

Fiscal Years Ended September 30, 2020 and 2019

A summary of selected income statement amounts during the fiscal years ended September 30, 2020 and 2019 is as follows:

	Years Ended
Income Statement Data	September 30, 2020		September 30, 2019
(in thousands)
Net sales	$	182,714	$	156,981
Gross profit	24,120		21,644
Selling and administrative expenses	13,986		14,076
Interest expense	1,438		1,645
Income before income taxes	8,696		5,923
Provision for income taxes	1,943		1,176
Net income	$	6,753	$	4,747

A summary of sales, according to the market sector within which IEC’s customers operate, follows:

	Years Ended
Percent of Sales by Sector	September 30, 2020	September 30, 2019
Aerospace and Defense	60%	60%
Medical	26%	22%
Industrial	14%	18%
	100%	100%

Revenue increased 16.4%, or $25.7 million, during fiscal 2020 as compared to the prior fiscal year. The increase was driven by increases in sales in the aerospace and defense sector of $14.4 million and in the medical sector of $14.1 million, partially offset by decreases in the industrial sector of $2.8 million.

Various increases and decreases for our aerospace and defense customers resulted in a net increase in sales of $14.4 million for fiscal 2020 compared to fiscal 2019. Programs frequently fluctuate in demand or end and are replaced by new programs. Aggregate increases in sales in fiscal 2020 due to net increases in customer demand was $7.1 million. We also experienced an increase in sales of $14.0 million from production ramp ups. However, these increases were partially offset by ending customer relationships, contracts reaching the end of their term and other customer delays, which caused a decrease in sales of $6.7 million during fiscal 2020.

The net increase of $14.1 million in sales in the medical sector was primarily due to programs ramping up of $17.5 million. The remaining changes were the result of net increases in customer demand of $4.0 million, partially offset by programs ending with various customers of $7.4 million.

The net decrease in sales for the industrial market sector of $2.8 million was due to $1.9 million of products on hold at two customers and net decreases in customer demand of $0.3 million. The remaining decrease of $0.6 million was the result of programs ending for two customers.

Due to the Chapter 11 bankruptcy filing of a customer, we incurred a $1.0 million pre-tax non-cash charge during fiscal 2020, related to the increase in our excess and obsolete inventory reserve. The customer communicated to its vendors to “cease providing all products” under its court-supervised process. No portion of the impairment charge is anticipated to result in future cash expenditures. We intend to preserve all rights and pursue available legal remedies to recover any losses suffered as a result of the customer’s Chapter 11 bankruptcy filing. These charges impacted our financial results reported under accounting principles generally accepted in the United States of America (“GAAP”). Net income in fiscal 2020 was $6.8 million, and, adjusted for the $1.0 million pre-tax impact from the one-time inventory reserve, adjusted net income was $7.5 million. Information regarding this non-GAAP measure and a reconciliation of net income to adjusted net income is provided below under “Non-GAAP Financial Measures.”

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Gross profit was $24.1 million in fiscal 2020 and increased by $2.5 million compared to $21.6 million in fiscal 2019. Gross profit represented 13.2% and 13.8% of sales in fiscal 2020 and fiscal 2019, respectively. The customer bankruptcy filing had the most significant impact on gross profit, in addition to customer mix. Excluding the non-cash charge related to the customer's Chapter 11 bankruptcy filing, our adjusted gross margin would have been 13.7% of sales. Information regarding this non-GAAP measure and a reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin are provided below under “Non-GAAP Financial Measures.”

Selling and administrative expenses decreased slightly and represented 7.7% of sales in fiscal 2020, compared to 9.0% of sales in the prior fiscal year. The decrease is due to professional fees, offset by higher employee related costs.

Interest expense decreased by $0.2 million in fiscal 2020 compared to the prior fiscal year. The weighted average interest rate on our debt was 1.34% lower during fiscal 2020 than the prior fiscal year. Our average outstanding debt balances increased by $1.7 million in fiscal 2020 compared to fiscal 2019 because of higher balances on our revolving credit facility. Cash paid for interest on credit facility debt was approximately $1.3 million for fiscal 2020 and fiscal 2019. Detailed information regarding our borrowings is provided in Note 6—Credit Facilities.

As of September 30, 2020, our deferred tax assets were primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and New York state tax credit carryforwards. A valuation allowance of $1.4 million was recorded against our gross deferred tax asset balance as of September 30, 2020, and 2019.

We have federal NOLs for income tax purposes of approximately $15.2 million at September 30, 2020, expiring in tax year 2034. We also have an additional state NOL available of $0.1 million in one jurisdiction in which we file.

Non-GAAP Financial Measures

In addition to reporting net income, gross profit and gross margin, U.S. GAAP measures, we present adjusted net income, adjusted gross profit and adjusted gross margin, which are non-GAAP measures, to reflect the impact of a one-time inventory reserve related to a customer’s bankruptcy. We believe these non-GAAP measures are important measures of our performance because they allow management, investors and others to evaluate and compare our performance from period to period by removing the impact of the one-time inventory reserve related to a customer's bankruptcy. Adjusted net income, adjusted gross profit and adjusted gross margin are not measures of financial performance under GAAP and are not calculated through the application of GAAP. As such, they should not be considered as a substitute for the GAAP measures of net income, gross profit and gross margin and therefore, should not be used in isolation of, but in conjunction with, the GAAP measures. These non-GAAP measures may produce results that vary from the GAAP measures and may not be comparable to a similarly titled non-GAAP measure used by other companies.

	Twelve Months Ended
	September 30, 2020
Reconciliation to adjusted gross profit:
Gross profit	$	24,120
Non-cash charge (1)	987
Adjusted gross profit	$	25,107
Reconciliation to adjusted gross margin:
Gross margin	13.2		%
Non-cash charge (1)	0.5		%
Adjusted gross margin	13.7		%
Reconciliation to adjusted net income:
Net income	$	6,753
Non-cash charge (1)	987
Income tax effect (2)	(207)
Adjusted net income	$	7,533

(1) A non-cash charge related to the increase in our excess and obsolete inventory reserve due to the Chapter 11 bankruptcy filing of a customer of IEC.

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(2) The income tax effect related to the non-cash charge was calculated using an effective tax rate of 21%.

Liquidity and Capital Resources (Fiscal Years Ended September 30, 2020 and 2019)

Capital Resources

As of September 30, 2020, there was $4.4 million of outstanding capital expenditure commitments for manufacturing equipment and manufacturing facilities. We generally fund capital expenditures with cash flow from operations, our revolving credit facility and our equipment line advances. Based on our current expectations, we believe that our projected cash flows provided by operations and potential borrowings under the revolving credit facility and equipment line advances, are sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months.

Our cash management system provides for the funding of the disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks in excess of the bank balance create a book overdraft.

Summary of Cash Flows

A summary of selected cash flow amounts for the fiscal years ended follows:

	Years Ended
Cash Flow Data	September 30, 2020		September 30, 2019
(in thousands)
Cash, beginning of year	$	—	$	—
Net cash flow provided by/(used in):
Operating activities	15,020		(10,456)
Investing activities	(6,268)		(2,098)
Financing activities	(8,440)		12,554
Net cash increase for the year	312		—
Cash, end of year	$	312	$	—

Operating activities

Cash flows provided by operations, before considering changes in working capital, were $14.4 million in fiscal 2020 and $9.5 million in fiscal 2019. Net income of $6.8 million in fiscal 2020 was higher compared to net income of $4.7 million in fiscal 2019.

Working capital provided cash flows of $0.6 million and used cash flows of $20.0 million in fiscal 2020 and fiscal 2019, respectively. The change in working capital in fiscal 2020 was primarily due to an increase in accounts payable of $5.3 million and an increase in customer deposits of $6.6 million, partially offset by an increase in accounts receivable of $2.9 million and an increase in inventories of $8.4 million. Increases in accounts receivable were primarily due to the timing of revenue in the fourth quarter of fiscal 2020. The accounts payable increase in fiscal 2020 was due to timing of purchases. In both fiscal 2020 and fiscal 2019, the increase in inventory and customer deposits was due to securing materials for future production.

Investing activities

Cash flows used by investing activities were $6.3 million for fiscal 2020 and $2.1 million for fiscal 2019. Cash flows used in fiscal 2020 consisted of purchases of equipment, including equipment for our new manufacturing facility. Cash flows used in fiscal 2019 consisted of purchases of equipment.

Financing activities

Cash flows used in financing activities were $8.4 million in fiscal 2020 and provided cash of $12.6 million for fiscal 2019. During fiscal 2020, net borrowings under all credit facilities were $8.8 million, with $6.7 million of net borrowings under the Revolver, as defined below, repayments of $3.9 million for term debt and $1.8 million of new borrowings from the master lease. During fiscal 2019, net borrowings under all credit facilities were $12.8 million, with $13.7 million of net borrowings under the Revolver, as defined below, repayments of $1.2 million for term debt, and $0.4 million of new borrowings related to equipment line advances.

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Credit Facilities

At September 30, 2020, borrowings outstanding under the revolving credit facility (the “Revolver”) under the Sixth Amended and Restated Credit Facility Agreement dated as of June 4, 2020 (the “Credit Facility”) which replaced the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (the “Prior Credit Facility, as amended”) amounted to $20.0 million, and the upper limit was $39.4 million. We believe that our liquidity is sufficient to satisfy anticipated operating requirements during the next twelve months.

The Credit Facility contains various affirmative and negative covenants including financial covenants. As of September 30, 2020, we had to maintain a minimum fixed charge coverage ratio (“Fixed Charge Coverage Ratio”). The Fixed Charge Coverage Ratio compares (i) EBITDAS minus unfinanced capital expenditures minus tax expense, to (ii) the sum of interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio is measured for the trailing twelve months ended September 30, 2020. The Credit Facility also provides for customary events of default, subject in certain cases to customary cure periods, in which events, the outstanding balance and any unpaid interest would become due and payable.

Pursuant to the Credit Facility, the Fixed Charge Coverage Ratio covenant of a minimum of 1.10 was the only covenant in effect at September 30, 2020. The Fixed Charge Coverage Ratio was calculated as 2.32 at September 30, 2020. The Company was in compliance with the financial debt covenant at September 30, 2020.

Detailed information regarding our borrowings is provided in Note 6—Credit Facilities.

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as presented in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). In preparing financial statements, management is required to (i) determine the manner in which accounting principles are applied and (ii) make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. A discussion of our critical accounting policies follows.

Revenue recognition: Revenue is derived primarily from the sale of electronics components that are built to customer specifications. In compliance with “Revenue from Contracts with Customers” (“ASC 606”), for revenue recognized over time, we use an input measure to determine progress towards completion. Under this method, sales and gross profit are recognized as work is performed generally based on the relationship between the actual costs incurred and the total estimated costs at completion. If we have an enforceable right to payment for work completed to date, with a recapture of costs incurred plus an applicable margin, and the goods do not have an alternative future use once the manufacturing process has commenced, then we record an unbilled revenue associated with non-cancellable customer orders. Similarly, we record an unbilled revenue related to our work-in-process inventory (“WIP inventory”) when the manufacturing process has commenced and there is a non-cancellable customer purchase order.

We record unbilled contract revenue for revenue related to our WIP inventory when the manufacturing process has commenced and there is a non-cancellable customer purchase order. We use direct manufacturing labor inputs to estimate the percentage of completion in satisfying its performance obligation associated with WIP inventory. If assumptions change related to the estimate of the performance obligation associated with WIP inventory, this could have a material impact on the revenue and corresponding margin recognized.

Inventory reserves: FASB ASC 330-10-35 (Inventory) requires us to reduce the carrying value of inventory when there is evidence that the utility of goods will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels or other causes. Inventory balances are generally reduced to the lower of cost or net realizable value by establishing offsetting balance sheet reserves.

Recently Issued Accounting Standards

Information with respect to recently issued accounting standards is provided in Note 1—Our Business and Summary of Significant Accounting Policies.

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Item 7A.    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. The Company actively monitors its exposure to interest rate risk and from time to time may use derivative financial instruments to manage the impact of this risk. The Company may use derivatives only for the purpose of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the interest rate nor does the Company use derivatives instruments where it does not have underlying exposure. The Company did not have any derivative financial instruments at September 30, 2020 or September 30, 2019.

At September 30, 2020, the Company had $21.7 million of debt, all with variable interest rates. Interest rates on variable loans are currently based on the London interbank offered rate (“LIBOR”) and include an alternate benchmark rate when LIBOR is discontinued. The credit facilities are more fully described in Note 6—Credit Facilities. Interest rates based on LIBOR currently adjust daily, causing interest on such loans to vary from period to period. A sensitivity analysis as of September 30, 2020, indicates that a one-percentage point increase or decrease in our variable interest rates, which represents more than a 10% change, would increase or decrease the Company’s annual interest expense by approximately $0.2 million.

The Company is exposed to credit risk to the extent of non-performance by M&T Bank under the Credit Facility. M&T Bank’s credit rating is monitored by the Company, and IEC expects that M&T Bank will perform in accordance with the terms of the Credit Facility.

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Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements are included in this Item 8 on the pages indicated below:

	Page
Report of Independent Registered Public Accounting Firm	31
Consolidated Balance Sheets as of September 30, 2020 and 2019	32
Consolidated Statements of Operations for the years ended September 30, 2020 and 2019	33
Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2020 and 2019	34
Consolidated Statements of Cash Flows for the years ended September 30, 2020 and 2019	35
Notes to Consolidated Financial Statements	36

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of IEC Electronics Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of IEC Electronics Corp. and subsidiaries (the "Company") as of September 30, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Rochester, New York

November 20, 2020

We have served as the Company's auditor since fiscal 2017.

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IEC ELECTRONICS CORP.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2020 and 2019

(in thousands, except share and per share data)

	September 30, 2020		September 30, 2019
ASSETS
Current assets:
Cash	$	312	$	—
Accounts receivable, net of allowance	30,361		27,618
Unbilled contract revenue	8,773		9,529
Inventories	51,374		44,267
Federal income tax receivable	—		517
Other current assets	1,757		1,454
Total current assets	92,577		83,385
Property, plant and equipment, net	23,587		19,433
Deferred income taxes	4,840		7,154
Operating lease right-of-use assets, net of accumulated amortization	260		—
Other long-term assets	1,700		860
Total assets	$	122,964	$	110,832
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	1,371
Current portion of operating lease obligation	61		—
Current portion of finance lease obligation	436		338
Accounts payable	29,733		23,690
Accrued payroll and related expenses	3,659		3,174
Other accrued expenses	457		668
Customer deposits	19,783		13,229
Total current liabilities	54,129		42,470
Long-term debt	21,476		28,910
Long-term operating lease obligation	184		—
Long-term finance lease obligation	6,616		6,685
Other long-term liabilities	1,404		1,527
Total liabilities	83,809		79,592
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value:	—		—
500,000 shares authorized; none issued or outstanding
Common stock, $0.01 par value:
Authorized 50,000,000 shares
Issued: 11,556,214 and 11,394,036 shares, respectively
Outstanding: 10,500,726 and 10,338,548 shares, respectively	105		103
Additional paid-in capital	49,161		48,001
Accumulated deficit	(8,522)		(15,275)
Treasury stock, at cost: 1,055,488 shares	(1,589)		(1,589)
Total stockholders’ equity	39,155		31,240
Total liabilities and stockholders’ equity	$	122,964	$	110,832

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

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IEC ELECTRONICS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED SEPTEMBER 30, 2020 and 2019

(in thousands, except share and per share data)

	Years Ended
	September 30, 2020		September 30, 2019
Net sales	$	182,714	$	156,981
Cost of sales	158,594		135,337
Gross profit	24,120		21,644
Selling and administrative expenses	13,986		14,076
Operating profit	10,134		7,568
Interest expense	1,438		1,645
Income before income taxes	8,696		5,923
Provision for income taxes	1,943		1,176
Net income	$	6,753	$	4,747
Net income per common share:
Basic	$	0.65	$	0.46
Diluted	$	0.63	$	0.45
Weighted average number of shares outstanding:
Basic	10,417,445		10,306,947
Diluted	10,727,438		10,518,126

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

33

IEC ELECTRONICS CORP.

CONSOLIDATED STATEMENTS of CHANGES in STOCKHOLDERS’ EQUITY

YEARS ENDED SEPTEMBER 30, 2020 and 2019

(in thousands, except share data)

	Number of Shares Outstanding	Common Stock, par $0.01		Additional Paid-In Capital		Accumulated Deficit		Treasury Stock, at cost		Total Stockholders’ Equity
Balances, September 30, 2018	10,248,905	$	102	$	47,326	$	(20,463)	$	(1,589)	$	25,376
Impact of adoption of ASC 606, net of taxes	—	—		—		441		—		441
Net income	—	—		—		4,747		—		4,747
Stock-based compensation	—	—		567		—		—		567
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes	51,872	1		(53)		—		—		(52)
Exercise of stock options, net of shares surrendered	26,707	—		101		—		—		101
Employee stock plan purchases	11,064	—		60		—		—		60
Balances, September 30, 2019	10,338,548	$	103	$	48,001	$	(15,275)	$	(1,589)	$	31,240
Net income	—	—		—		6,753		—		6,753
Stock-based compensation	—	—		739		—		—		739
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes	46,695	—		(98)		—		—		(98)
Exercise of stock options, net of shares surrendered	100,500	1		433		—		—		434
Employee stock plan purchases	14,983	1		86		—		—		87
Balances, September 30, 2020	10,500,726	$	105	$	49,161	$	(8,522)	$	(1,589)	$	39,155

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

34

IEC ELECTRONICS CORP.

CONSOLIDATED STATEMENTS of CASH FLOWS

YEARS ENDED SEPTEMBER 30, 2020 and 2019

(in thousands)

	Years Ended
	September 30, 2020		September 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,753	$	4,747
Non-cash adjustments:
Stock-based compensation	739		567
Depreciation and amortization	3,332		2,832
Change in reserve for doubtful accounts	114		(14)
Change in excess/obsolete inventory reserve	1,268		(81)
Deferred tax expense	2,314		1,577
Amortization of deferred gain on sale of leaseback	(114)		(114)
Changes in assets and liabilities:
Accounts receivable	(2,857)		(2,436)
Unbilled contract revenue	756		(5,196)
Inventories	(8,375)		(13,828)
Federal income tax receivable	517		(517)
Other current assets	(303)		293
Other long-term assets	(856)		(434)
Accounts payable	5,251		(2,670)
Change in book overdraft position	(332)		(2,329)
Accrued expenses	274		1,588
Customer deposits	6,554		5,634
Net change in lease right-of-use assets and liabilities	(15)		—
Other long-term liabilities	—		(75)
Net cash flows provided by/(used in) operating activities	15,020		(10,456)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(6,268)		(2,118)
Proceeds from disposal of property, plant and equipment	—		20
Net cash flows used in investing activities	(6,268)		(2,098)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from revolving line of credit	76,038		81,225
Repayments of revolving line of credit	(82,724)		(67,575)
Borrowings under other loan agreements	1,782		391
Repayments under other loan agreements	(3,904)		(1,231)
Payments under finance lease	(387)		(310)
Proceeds received from lease financing obligation	416		—
Debt issuance costs	(84)		(55)
Proceeds from exercise of stock options	434		101
Proceeds from employee stock plan purchases	87		60
Cash paid for employee taxes upon vesting of restricted stock	(98)		(53)
Restricted (non-vested) stock grants, net of forfeitures	—		1
Net cash flows (used in)/provided by financing activities	(8,440)		12,554
Net cash increase for the year	312		—
Cash, beginning of year	—		—
Cash, end of year	$	312	$	—
Supplemental cash flow information:
Interest paid	$	1,351	$	1,623
Income taxes paid	147		7
Non-cash transactions:
Property, plant and equipment purchased with extended payment terms	$	1,124	$	—

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

35

IEC ELECTRONICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 and 2019

NOTE 1—OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business

IEC Electronics Corp. ( “IEC,” “we” or the “Company”) provides electronic manufacturing services (“EMS”) to advanced technology companies that produce life-saving and mission critical products for the medical, industrial, aerospace and defense sectors. The Company specializes in delivering technical solutions for the custom manufacture of complex full system assemblies by providing on-site analytical testing laboratories, custom design and test engineering services combined with a broad array of manufacturing services encompassing electronics, interconnect solutions, and precision metalworking. As a full service EMS provider, IEC holds all appropriate certifications for the market sectors it supports including ISO 9001:2015, AS9100D, and ISO 13485, and we are Nadcap accredited. IEC is headquartered in Newark, NY and also has operations in Rochester, NY and Albuquerque, NM. Additional information about IEC can be found on its web site at www.iec-electronics.com. The contents of this web site are not incorporated by reference into this annual report.

Generally Accepted Accounting Principles

IEC’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Fiscal Calendar

The Company’s fiscal year ends on September 30 and the first three quarters generally end on the Friday closest to the last day of the calendar quarter. For the fiscal year ended September 30, 2020 (“fiscal 2020”), the fiscal quarters ended on December 27, 2019, March 27, 2020 and June 26, 2020. For the fiscal year ended September 30, 2019 (“fiscal 2019”), the fiscal quarters ended on December 28, 2018, March 29, 2019 and June 28, 2019.

Consolidation

The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries: IEC Electronics Corp-Albuquerque (“Albuquerque”); IEC Analysis & Testing Laboratory, LLC (“ATL”); and, for fiscal 2019, IEC California Holdings, Inc., which was dissolved as of September 18, 2019. All intercompany transactions and accounts are eliminated in consolidation.

Cash

The Company’s cash represents deposit accounts with Manufacturers and Traders Trust Company (“M&T Bank”), a banking corporation headquartered in Buffalo, NY. The Company’s cash management system provides for the funding of the disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks in excess of the bank balance create a book overdraft. Book overdrafts are presented in accounts payable in the consolidated balance sheets. There were no book overdrafts as of September 30, 2020. Book overdrafts were $0.3 million as of September 30, 2019. Changes in the book overdrafts are presented within net cash flows provided by/(used in) operating activities within the consolidated statements of cash flows.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value under the first-in, first-out method. The Company regularly assesses slow-moving, excess and obsolete inventory and maintains balance sheet reserves in amounts required to reduce the recorded value of inventory to the lower of cost or net realizable value.

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Property, Plant and Equipment

Property, plant and equipment (“PP&E”) are stated at cost and are depreciated over various estimated useful lives using the straight-line method. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. At the time of retirement or other disposition of PP&E, cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded in earnings.

Depreciable lives generally used for PP&E are presented in the table below. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement. 

PP&E Lives	Estimated Useful Lives
	(years)
Land improvements	10
Buildings and improvements	5 to 40
Machinery and equipment	3 to 10
Furniture and fixtures	3 to 7
Software	3 to 10

Reviewing Long-Lived Assets for Potential Impairment

ASC 360 (Property, Plant and Equipment) requires the Company to test long-lived assets (PP&E and definite lived assets) for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable. If carrying value exceeds undiscounted future cash flows attributable to an asset, it is considered impaired and the excess of carrying value over fair value must be charged to earnings. No impairment charges were recorded by IEC for long-lived assets during fiscal 2020 and fiscal 2019. 

Legal Contingencies

When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, ASC 450 (Contingencies) requires the Company to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.

When it is considered probable that a loss has been incurred but the amount of loss cannot be estimated, disclosure but not accrual of the probable loss is required. Disclosure of a loss contingency is also required when it is reasonably possible, but not probable, that a loss has been incurred. 

Legal Expense Accrual

The Company records legal expenses as they are incurred, based on invoices received or estimates provided by legal counsel. Future estimated legal expenses are not recorded until incurred.

Customer Deposits

Customer deposits represent amounts invoiced to customers for which the revenue has not yet been earned and therefore represent a commitment for the Company to deliver goods or services in the future. Deposits are generally short-term in nature and are recognized as revenue when earned.

Fair Value Measurements

Under ASC 825 (Financial Instruments), the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value. The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and borrowings. IEC believes that recorded value approximates fair value for all cash, accounts receivable, accounts payable, accrued liabilities and borrowings.

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ASC 820 (Fair Value Measurements and Disclosures) defines fair value, establishes a framework for measurement, and prescribes related disclosures. ASC 820 defines fair value as the price that would be received upon sale of an asset or would be paid to transfer a liability in an orderly transaction. Inputs used to measure fair value are categorized under the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data.

Level 3: Model-derived valuations in which one or more significant inputs are unobservable.

The Company deems a transfer between levels of the fair value hierarchy to have occurred at the beginning of the reporting period. There were no such transfers during fiscal 2020 or fiscal 2019.

Stock-Based Compensation

ASC 718 (Stock Compensation) requires that compensation expense be recognized for equity awards based on fair value as of the date of grant. For stock options, the Company uses the Black-Scholes pricing model to estimate grant date fair value. Costs associated with stock awards are recorded over requisite service periods, generally the vesting period. If vesting is contingent on the achievement of performance objectives, fair value is accrued over the period the objectives are expected to be achieved only if it is considered probable that the objectives will be achieved. The Company also has an employee stock purchase plan (“ESPP”) that provides for the purchase of Company common stock at a discounted stock purchase price.

Income Taxes and Deferred Taxes

ASC 740 (Income Taxes) requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns, but not in both. Deferred tax assets are also established for tax benefits associated with tax loss and tax credit carryforwards. Such deferred tax balances reflect tax rates that are scheduled to be in effect, based on currently enacted legislation, in the years the book/tax differences reverse and tax loss and tax credit carryforwards are expected to be realized. An allowance is established for any deferred tax asset for which realization is not likely.

ASC 740 also prescribes the manner in which a company measures, recognizes, presents, and discloses in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained following examination by taxing authorities, based on technical merits of the position. The Company believes that it has no material uncertain tax positions.

Any interest incurred is reported as interest expense. Any penalties incurred are reported as tax expense. The Company’s income tax filings are subject to audit by various tax jurisdictions and current open years are for fiscal year ended September 30, 2015 through fiscal 2020. 

Dividends

IEC does not pay dividends on its common stock as it is the Company’s current policy to retain earnings for use in the business. Furthermore, the Company’s Sixth Amended and Restated Credit Facility Agreement with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in Note 6—Credit Facilities. 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Significant items subject to such estimates include: excess and obsolete inventory reserve, warranty reserves, the valuation of deferred income tax assets and revenue recognition related to the accounts for over time contracts. Actual results may differ from management’s estimates.

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Statements of Cash Flows

The Company presents operating cash flows using the indirect method of reporting under which non-cash income and expense items are removed from net income. 

Segments

The Company’s results of operations for fiscal 2020 and fiscal 2019 represent a single operating and reporting segment, referred to as contract manufacturing within the EMS industry. The Company strategically directs production between its various manufacturing facilities based on a number of considerations to best meet its customers’ requirements. The Company shares resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. The Company’s operations as a whole reflect the level at which the business is managed and how the Company’s chief operating decision maker assesses performance internally.

Leases

At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating lease or a finance lease. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.

The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:

•Periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and

•Periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. Lease components provide the Company with the right to use an identified asset, which consist of real estate properties and equipment. Non-lease components consist primarily of maintenance services.

As an implicit discount rate is not readily available in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of twelve months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other current liabilities and other long-term liabilities, respectively.

A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by the Company to implement the lease and lease incentives. ROU assets are classified as other long-term assets, on the Company’s condensed consolidated balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment, and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record the impairment loss in its condensed consolidated statements of operations. The Company did not recognize an impairment loss during the fiscal year ended September 30, 2020.

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price Index). The Company did not incur variable lease payments during the fiscal year ended September 30, 2020.

Recently Adopted Accounting Standards

FASB Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842) was issued in February 2016. The guidance was effective for the Company beginning with the first quarter of fiscal 2020. As a result of this adoption, the following accounting policies were implemented or changed.

The Company elected the optional transition method to initially apply the new lease standard at the adoption date and not adjust its comparative period consolidated financial statements. The Company has elected the package of three practical expedients, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient in determining lease term or impairment of

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ROU assets. In addition, the Company has elected a short-term lease exemption policy that permits the Company to not apply the recognition requirements of the new lease standard to leases with a term of 12 months or less. The Company has also elected an accounting policy to not separate lease and non-lease components for certain classes of leases.

Adoption of Topic 842 resulted in recognition of additional net lease assets of approximately $0.3 million and net lease liabilities of approximately $0.3 million as of October 1, 2019 based on the present value of remaining minimum rental payments and corresponding ROU assets based upon the operating lease liabilities. The adoption did not impact our beginning stockholders’ equity for fiscal 2020 and did not have a material impact on the consolidated statements of operations or cash flows.

Recently Issued Accounting Updates

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03 “Codification Improvements to Financial Instruments.” This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (“CECL”) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to determine their impact on the Company's consolidated financial statements.

NOTE 2—REVENUE RECOGNITION

ASC 606: Revenue from Contracts with Customers

Satisfaction of Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Many of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company primarily provides contract manufacturing services to its customers. The customer provides a design, the Company procures materials and manufactures to that design and ships the product to the customer. Revenue is derived primarily from the manufacturing of these electronics components that are built to customer specifications.

The Company's performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for 51.0% and 51.2% of the Company's revenue for the fiscal years ended September 30, 2020 and September 30, 2019, respectively. Revenue on these contracts is recognized when obligations under the terms of the customer contract are satisfied; generally this occurs with the transfer of control upon shipment. If there is no enforceable right to payment for work completed to date, or the Company does not recapture costs incurred plus an applicable margin, then the Company records revenue upon shipment to the customer.

Revenue from goods and services transferred to customers over time accounted for 49.0% and 48.8% of the Company's revenue for the fiscal years ended September 30, 2020 and September 30, 2019, respectively. For revenue recognized over time, the Company uses an input measure to determine progress towards completion. Under this method, sales and gross profit are

40

recognized as work is performed generally based on the relationship between the actual costs incurred and the total estimated costs at completion. If the Company has an enforceable right to payment for work completed to date, with a recapture of costs incurred plus an applicable margin, and the goods do not have an alternative future use once the manufacturing process has commenced, then the Company records an unbilled revenue associated with non-cancellable customer orders.

The Company derives revenue from engineering and design services. Service revenue is generally recognized once the service has been rendered. For material management arrangements, revenue is generally recognized as services are rendered. Under such arrangements, some or all of the following services may be provided: design, bid, procurement, testing, storage or other activities relating to materials the customer expects to incorporate into products that it manufactures. Value-added support services revenue, including material management and repair work revenue, amounted to less than 3% of total revenue in each of the fiscal years ended September 30, 2020 and September 30, 2019.

Returns and Discounts

The Company does not offer its customers a right of return. Rather, the Company warrants that each unit received by the customer will meet the agreed upon technical and quality specifications and requirements. Only when the delivered units do not meet these requirements can the customer return the non-compliant units as a corrective action under the warranty. The remedy offered to the customer is repair of the returned units or replacement if repair is not viable. Accordingly, the Company records a warranty reserve and any warranty activities are not considered to be a separate performance obligation. Historically, warranty reserves have not been material.

Provisions for discounts, allowances, estimated returns and other adjustments are recorded in the period the related sales are recognized.

Shipping and Handling Costs

Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in net sales in the accompanying consolidated statements of operations. Shipping and handling costs incurred by the Company for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying consolidated statements of operations.

Contract Assets

Contract assets consist of unbilled contract amounts resulting from sales under contracts when the revenue recognized exceeds the amount billed to the customer.

Practical Expedients and Exemptions

The Company generally expenses incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are recorded in selling and administrative expense in the consolidated statements of operations.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Disaggregated Revenue

The table below shows net sales from contracts with customers by market sector. See additional information regarding market sectors in Note 10—Market Sectors and Major Customers.

	Years Ended
	September 30, 2020						September 30, 2019
	Point in Time		Over Time		Net Sales		Point in Time		Over Time		Net Sales
(in thousands)
Aerospace & Defense	$	56,454	$	53,174	$	109,628	$	42,625	$	51,564	$	94,189
Medical	15,826		31,680		47,506		18,115		16,421		34,536
Industrial	20,877		4,703		25,580		19,597		8,659		28,256
	$	93,157	$	89,557	$	182,714	$	80,337	$	76,644	$	156,981

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Customer Deposits

Customer deposits are recorded when cash payments are received or due in advance of revenue recognition from contracts with customers. The timing of revenue recognition may differ from the timing of billings to customers. The changes in customer deposits from the Company's custom manufacturing services are as follows:

	Years Ended
Customer Deposits	September 30, 2020		September 30, 2019
(in thousands)
Beginning balance	$	13,229	$	7,595
Recognition of deferred revenue	(17,807)		(10,799)
Deferral of revenue	24,361		16,433
Ending balance	$	19,783	$	13,229

Sales Outside the United States

For each of the fiscal years ended September 30, 2020 and September 30, 2019, less than 3% of net sales were shipped to locations outside the United States.

NOTE 3—ALLOWANCE FOR DOUBTFUL ACCOUNTS

A summary of activity in the allowance for doubtful accounts during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Allowance for Doubtful Accounts	September 30, 2020		September 30, 2019
(in thousands)
Allowance, beginning of period	$	71	$	85
Increase (decrease) in provision for doubtful accounts	114		(14)
Write-offs	—		—
Allowance, end of period	$	185	$	71

NOTE 4—INVENTORIES

A summary of inventory by category at period end follows:

Inventories	September 30, 2020		September 30, 2019
(in thousands)
Raw materials	$	32,904	$	25,393
Work-in-process	15,009		15,928
Finished goods	3,461		2,946
Total inventories	$	51,374	$	44,267

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NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET

A summary of property, plant and equipment and accumulated depreciation at period end follows:

Property, Plant and Equipment	September 30, 2020		September 30, 2019
(in thousands)
Land and improvements	$	788	$	788
Buildings and improvements	7,430		7,411
Building under capital lease	7,750		7,750
Machinery and equipment	34,095		31,708
Furniture and fixtures	8,113		8,047
Software	5,215		5,215
Construction in progress	6,079		1,173
Total property, plant and equipment, at cost	69,470		62,092
Accumulated depreciation	(45,883)		(42,659)
Property, plant and equipment, net	$	23,587	$	19,433

Depreciation expense during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Depreciation Expense	September 30, 2020		September 30, 2019
(in thousands)
Depreciation expense	$	3,238	$	2,775

NOTE 6—CREDIT FACILITIES

A summary of borrowings at period end follows:   

	Fixed/		September 30, 2020				September 30, 2019
	Variable	Maturity			Interest				Interest
Debt	Rate	Date	Balance		Rate		Balance		Rate
(in thousands)
M&T credit facilities:
Revolving Credit Facility	v	6/4/2023	$	19,960	2.75	%	$	26,646	4.31	%
Master Lease	v	6/4/2023	1,782		3.00		—		—
Term Loan B	v	5/5/2022	—		—		2,779		4.59
Equipment Line Term Note	v	Various	—		—		1,125		4.56
Total debt, gross			21,742				30,550
Unamortized debt issuance costs			(266)				(269)
Total debt, net			21,476				30,281
Less: current portion			—				(1,371)
Long-term debt			$	21,476			$	28,910

M&T Bank Credit Facilities

Effective as of June 4, 2020, the Company and M&T Bank entered into the Sixth Amended and Restated Credit Facility Agreement (the “Credit Facility”) which replaced the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (collectively, the “Prior Credit Facility, as amended”).

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Pursuant to the Credit Facility, the Company increased its revolving credit facility to an aggregate principal amount of $45.0 million and added provisions that allow the Company, subject to certain requirements, to request further increases, in minimum amounts of $5.0 million, up to $55.0 million. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Term Loan B and Equipment Line Term Note. The Credit Facility also amended the financial covenant, Fixed Charge Coverage Ratio, and set a Minimum Fixed Charge Coverage Ratio. In addition, the Credit Facility modified the definition of Applicable Margin used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and modified the definition of Permitted Acquisitions. The Credit Facility also established a LIBOR floor of 1% and included an alternate benchmark rate when LIBOR is discontinued. During the fiscal year ended September 30, 2020, the Company paid fees of approximately $84 thousand related to this Credit Facility.

Also as of June 4, 2020, the Company and M&T Bank entered into a master equipment lease (the “Master Lease”) for a lease line of up to $10.0 million in lease value of equipment to the Company. The Master Lease contains terms and provisions customary for transactions of this type, including obligations relating to the use, operation and maintenance of the equipment. The Master Lease also contains customary events of default, including nonpayment of amounts due under the lease and assignments for the benefit of creditors, bankruptcy or insolvency. In the event that an event of default occurs, M&T Bank may exercise one or more remedies specified in the Master Lease. At the conclusion of the lease term, the Company will have the right to purchase the equipment under the Master Lease. The Master Lease will renew automatically for additional 12-month terms until the Company provides M&T Bank with notice of non-renewal.

The Credit Facility is secured by a general security agreement covering the assets of the Company and its subsidiaries, a pledge of the Company’s equity interest in its subsidiaries, a negative pledge on the Company’s real property, and a guarantee by the Company’s subsidiaries, all of which restrict use of these assets to support other financial instruments.

Individual debt facilities provided under the Credit Facility as of September 30, 2020, and Prior Credit Facility, as amended, as of September 30, 2019, are described below:

a)Revolving Credit Facility (“Revolver”): At September 30, 2020, up to $45.0 million was available pursuant to the Credit Facility through June 4, 2023. At September 30, 2019, up to $35.0 million was available through May 5, 2022 under the Prior Credit Facility, as amended. The maximum amount the Company may borrow is determined based on a borrowing base calculation described below.

b)Master Lease: At September 30, 2020, we had drawn down $1.8 million pursuant to the $10.0 million Master Lease that was entered into as of June 4, 2020.

c)Term Loan B: As of September 30, 2019, $14.0 million was borrowed on January 18, 2013. Principal was being repaid in 120 equal monthly installments of $117 thousand. As part of an amendment to the Prior Credit Facility, as amended, the principal was modified from $8.0 million to $6.0 million and principal was being repaid in equal monthly installments of $71 thousand plus a balloon payment of $0.6 million. The maturity date of the loan was May 5, 2022. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Term Loan B and no amounts remained outstanding as of September 30, 2020.

d)Equipment Line Term Note: On March 18, 2019, $0.3 million was converted from an Equipment Line Advance, principal was being repaid in 36 equal monthly installments of $9 thousand and was set to mature on March 18, 2022. On May 6, 2019, $0.4 million was converted from an Equipment Line Advance, principal was being repaid in 36 equal monthly installments of $11 thousand and was set to mature on May 6, 2022. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Equipment Line Term Note and no amounts remained outstanding as of September 30, 2020.

Borrowing Base

At September 30, 2020, under the Credit Facility, the maximum amount the Company can borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus (ii) up to 90% of eligible investment grade accounts plus (iii) a percentage of eligible inventories (up to a cap of $30.0 million). At September 30, 2019, under the Prior Credit Facility, as amended, the maximum amount the Company could borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus a percentage of eligible inventories (up to a cap of $30.0 million) or (ii) $35.0 million.

At September 30, 2020, the upper limit on Revolver borrowings was $39.4 million, and $19.4 million was available. At September 30, 2019, the upper limit on Revolver borrowings was $35.0 million with $8.4 million available. Average Revolver balances amounted to $24.4 million and $21.4 million during the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

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Interest Rates

Under the Credit Facility, variable rate debt accrues interest at LIBOR plus the applicable marginal interest rate that fluctuates based on the Company’s Fixed Charge Coverage Ratio, as defined below. At September 30, 2020, the applicable marginal interest rate was 1.75% for the Revolver. At September 30, 2019, the applicable marginal interest rate was 2.25% for the Revolver and 2.50% for Term Loan B and Equipment Line Advances. Changes to applicable margins and unused fees resulting from the Fixed Charge Coverage Ratio, as defined below, generally become effective mid-way through the subsequent quarter.

The Company incurs quarterly unused commitment fees ranging from 0.250% to 0.375% of the excess of $45.0 million over average borrowings under the Revolver. Fees incurred amounted to $32 thousand and $20 thousand during the fiscal years ended September 30, 2020 and September 30, 2019, respectively. The fee percentage varies based on the Company’s Fixed Charge Coverage Ratio, as defined below.

Financial Covenants

The Credit Facility contains various affirmative and negative covenants including financial covenants. As of September 30, 2020, the Company had to maintain a minimum fixed charge coverage ratio (“Fixed Charge Coverage Ratio”). The Fixed Charge Coverage Ratio compares (i) EBITDAS minus unfinanced capital expenditures minus income tax expense, to (ii) the sum of interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, income taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio was measured for a trailing twelve months ended September 30, 2020 as a minimum of 1.10 times. The Fixed Charge Coverage Ratio was the only covenant in effect at September 30, 2020. The Credit Facility also provides for customary events of default, subject in certain cases to customary cure periods, in which the outstanding balance and any unpaid interest would become due and payable.

The Company was in compliance with the financial debt covenant at September 30, 2020.

Contractual Principal Payments

A summary of contractual principal payments under IEC’s borrowings at September 30, 2020 for the next three years taking into consideration the Credit Facility is as follows:

Debt Repayment Schedule	Contractual Principal Payments
(in thousands)
Twelve months ending September 30,
2021	$	—
2022	—
2023	21,742
	$	21,742

NOTE 7—WARRANTY RESERVES

IEC generally warrants its products and workmanship for up to twelve months from date of sale. As an offset to warranty claims, the Company is sometimes able to obtain reimbursement from suppliers for warranty-related costs or losses. Based on historical warranty claims experience and in consideration of sales trends, a reserve is maintained for estimated future warranty costs to be incurred on products and services sold through the balance sheet date. The warranty reserve is included in other accrued expenses on the consolidated balance sheets.

A summary of additions to and charges against IEC’s warranty reserves during the period follows: 

	Years Ended
Warranty Reserve	September 30, 2020		September 30, 2019
(in thousands)
Reserve, beginning of period	$	165	$	173
Provision	(14)		116
Warranty costs	(51)		(124)
Reserve, end of period	$	100	$	165

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NOTE 8—STOCK-BASED COMPENSATION

The 2019 Stock Incentive Plan (the “2019 Plan”) was approved by the Company’s stockholders at the March 2019 Annual Meeting. The 2019 Plan replaced the 2010 Omnibus Incentive Compensation Plan (“2010 Plan”) that was approved by the Company’s stockholders at the January 2011 Annual Meeting. The 2019 Plan, like the 2010 Plan, is administered by the Compensation Committee of the Board of Directors and provides for the following types of awards: incentive stock options, nonqualified options, stock appreciation rights, restricted shares, restricted stock units, performance compensation awards, cash incentive awards, director stock and other equity-based and equity-related awards. Awards are generally granted to certain members of management and employees, as well as directors. The Company also has an ESPP, adopted in 2011, that provides for the purchase of Company common stock at a discounted stock purchase price. Under the 2019 Plan, 840,360 shares of common stock, plus any shares that are subject to awards granted under the 2010 Plan that expire, are forfeited or canceled without the issuance of shares (other than shares used to pay the exercise price of a stock option under the 2010 Plan and shares used to cover the tax withholding of the award under the 2010 Plan) may be issued over a term of ten years. Under the ESPP, 150,000 shares of common stock may be issued over a term of ten years.

Stock-based compensation expense totaled $0.7 million and $0.6 million for the fiscal years ended September 30, 2020 and 2019, respectively.

At September 30, 2020, there were 603,869 shares of common stock remaining available to be issued under the 2019 Plan and 74,718 shares of common stock remaining available to be issued under the ESPP.

Expenses relating to stock options that comply with certain U.S. income tax rules are neither deductible by the Company nor taxable to the employee. Further information regarding awards granted under the 2010 Plan, 2019 Plan and ESPP is provided below.

Stock Options

When options are granted, IEC estimates fair value using the Black-Scholes option pricing model and recognizes the computed value as compensation cost over the vesting period, which is typically four years. The contractual term of options granted under the 2010 Plan and 2019 Plan is generally seven years. The volatility rate is based on the historical volatility of IEC’s common stock.

Assumptions used in the Black-Scholes model and the estimated value of options granted during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Valuation of Options	September 30, 2020			September 30, 2019
Assumptions for Black-Scholes:
Risk-free interest rate	0.46		%	1.64		%
Expected term in years	5.5			5.5
Volatility	40		%	37		%
Expected annual dividends	none			none
Value of options granted:
Number of options granted	47,500			70,000
Weighted average fair value per share	$	2.77		$	2.40
Fair value of options granted (000s)	$	132		$	168

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A summary of stock option activity, together with other related data, follows:

	Years Ended
	September 30, 2020			September 30, 2019
Stock Options	Number of Options	Wgtd.  Avg. Exercise Price		Number of Options	Wgtd.  Avg. Exercise Price
Outstanding, beginning of period	743,145	$	4.54	737,145	$	4.33
Granted	47,500	6.00		70,000	6.40
Exercised	(100,500)	4.32		(34,000)	4.46
Forfeited	(15,000)	3.92		(24,250)	3.70
Expired	(5,000)	6.91		(5,750)	4.06
Outstanding, end of period	670,145	$	4.67	743,145	$	4.54
For options expected to vest
Number expected to vest	662,160	$	4.66	733,068	$	4.52
Weighted average remaining life, in years	3.3			3.5
Intrinsic value (000s)		$	2,656		$	1,757
For exercisable options
Number exercisable	506,145	$	4.31	566,146	$	4.22
Weighted average remaining life, in years	2.1			2.5
Intrinsic value (000s)		$	2,198		$	1,521
For non-exercisable options
Expense not yet recognized (000s)		$	339		$	329
Weighted average years to be recognized	2.8			3.3
For options exercised
Intrinsic value (000s)		$	444		$	77

Restricted (Non-vested) Stock

Certain holders of IEC restricted stock have voting and dividend rights as of the date of grant, and, until vested, the shares may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically four or five years (three years in the case of directors), holders have all the rights and privileges of any other common stockholder of the Company. The fair value of a share of restricted stock is its market value on the date of grant, and that value is recognized as stock compensation expense over the vesting period. 

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A summary of restricted stock activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted (Non-vested) Stock	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	82,707	$	5.25	103,233	$	4.08
Granted	24,850	5.03		32,385	7.09
Vested	(44,482)	4.80		(51,511)	4.09
Forfeited	(13,250)	6.09		(1,400)	4.13
Outstanding, end of period	49,825	$	5.32	82,707	$	5.25
For non-vested shares
Expense not yet recognized (000s)		$	229		$	328
Weighted average remaining years for vesting		1.5			2.0
For shares vested
Aggregate fair value on vesting dates (000s)		$	317		$	346

Stock Issued to Board Members

In addition to annual grants of restricted stock, included in the table above, board members may elect to have their meeting fees paid in the form of shares of the Company’s common stock. The Company has not paid any meeting fees in stock since May 21, 2013. 

Restricted Stock Units

Holders of IEC restricted stock units do not have voting and dividend rights as of the date of grant, and, until vested, the unit may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically three years, holders will receive shares of the Company’s common stock and have all the rights and privileges of any other common stockholder of the Company. The fair value of a restricted stock unit is the market value of the underlying shares of the Company’s stock on the date of grant and that value is recognized as stock compensation expense over the vesting period. 

A summary of restricted stock unit activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted Stock Units	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	153,186	$	5.36	170,492	$	3.96
Granted	50,556	9.19		63,011	7.09
Vested	(17,015)	3.58		(12,258)	4.64
Forfeited	—	—		(68,059)	3.58
Outstanding, end of period	186,727	$	6.56	153,186	$	5.36
For non-vested shares
Expense not yet recognized (000s)		$	762		$	659
Weighted average remaining years for vesting		1.8			2.2
For shares vested
Aggregate fair value on vesting dates (000s)		$	86		$	—

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NOTE 9—INCOME TAXES

Provision for income taxes during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Income Tax Provision	September 30, 2020		September 30, 2019
(in thousands)
Current tax:
State	$	146	$	116
Federal	(517)		(517)
Deferred tax:
State	(49)		17
Federal	2,340		1,471
Valuation allowance	23		89
Provision for income taxes	$	1,943	$	1,176

Differences between the federal statutory rate and IEC’s effective tax rates for fiscal 2020 and fiscal 2019 are explained by the following reconciliation.

	Years Ended
Taxes as Percent of Pretax Income	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
Increase in valuation allowance	0.3		1.5
Deferred tax adjustment	—		0.5
State income taxes, net of federal benefit	2.8		1.8
Stock-based compensation	(0.5)		0.3
Research and development credit	(1.4)		(5.4)
Non-deductible expenses	0.1		0.2
Income tax provision as percent of pretax income	22.3	%	19.9	%

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The following table displays deferred tax assets by category:

	As of
Deferred Tax Assets/(Liabilities)	September 30, 2020		September 30, 2019
(in thousands)
Deferred tax assets/(liabilities):
Federal and state net operating loss carryforward	$	3,194	$	4,945
Alternative minimum tax credit carryforward	—		517
Depreciation and fixed assets	(213)		268
New York State investment tax and other credits	1,419		1,396
Inventories	876		476
Deferred gain on sale-leaseback	466		452
Research and development credit	440		319
Section 481(a) adjustment	(64)		(96)
Other	141		273
Total deferred tax asset before allowance	6,259		8,550
Valuation allowance	(1,419)		(1,396)
Deferred tax assets, net	$	4,840	$	7,154

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company has assessed the provisions of the CARES Act and determined that there were no material tax impacts to the consolidated financial statements for the fiscal year ended September 30, 2020.

The CARES Act includes a provision which accelerates the refund of alternative minimum tax (“AMT”) credits to allow a full utilization or refund of the remaining credits beginning in tax year 2019, with the option to elect to claim the refund in tax year 2018. In the prior fiscal year, as the Company expected to have net operating loss carryforward to offset its 2019 taxable income in full, the AMT credit was expected to be refundable in full. As such, the Company elected to claim the remaining AMT refund in full in the 2018 tax year and thus reclassified the remaining portion of its AMT credit from deferred income tax to federal income tax receivable in the consolidated balance sheet. As of September 30, 2020, the refund has been received in full and thus the federal income tax receivable balance is zero.

As of September 30, 2020, the Company’s deferred tax assets were primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and New York State tax credit carryforwards. A valuation allowance of $1.4 million was recorded against the Company's gross deferred tax asset balance as of September 30, 2020 and 2019.

IEC has federal NOLs for income tax purposes of approximately $15.2 million at September 30, 2020, expiring in tax year 2034. The Company also has an additional state NOL available of $0.1 million in one jurisdiction in which it files.

New York state corporate tax reform has resulted in the reduction of the business income base rate for qualified manufacturers in New York State to 0% beginning in fiscal 2016 for IEC. At September 30, 2020, the Company has $1.4 million of New York State investment tax and other credit carryforwards, expiring in various years through 2032. The credits cannot be utilized unless the New York state tax rate is no longer 0%, and as such, the Company has recorded a valuation allowance against the full amount of these credit carryforwards (net of the federal benefit).

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NOTE 10—MARKET SECTORS AND MAJOR CUSTOMERS

A summary of sales, according to the market sector within which IEC’s customers operate, follows: 

	Years Ended
Percent of Sales by Sector	September 30, 2020	September 30, 2019
Aerospace and Defense	60%	60%
Medical	26%	22%
Industrial	14%	18%
	100%	100%

Three individual customers represented 10% or more of sales for the fiscal year ended September 30, 2020. Two customers were in the aerospace and defense sector and totaled 27% and 11% of sales, respectively. The third customer was in the medical sector and represented 17% of sales. In the prior fiscal year, one individual customer represented 10% or more of sales, this customer was in the aerospace and defense sector and totaled 23% of sales.

Two individual customers represented 10% or more of receivables and accounted for 30% of outstanding balances at September 30, 2020. At September 30, 2019, two individual customers represented 10% or more of receivables and accounted for 38% of such outstanding balances.

Credit risk associated with individual customers is periodically evaluated by analyzing the entity’s financial condition and payment history. Customers generally are not required to post collateral.

NOTE 11—COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be involved in legal actions in the ordinary course of its business, but management does not believe that any such proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s consolidated financial statements.

NOTE 12—LEASES

Operating Leases

IEC has a lease portfolio that consists of operating leases for equipment, and has remaining terms from less than one year to up to approximately five years, with contractual terms expiring from 2020 to 2024. None of these leases contain residual value guarantees, substantial restrictions, or covenants.

Supplemental balance sheet information related to the Company’s operating leases were as follows:

	September 30, 2020
Weighted average remaining lease term for operating leases (in years)	3.8
Weighted average discount rate for operating leases	5.47	%

Finance Leases

IEC's lease portfolio also consists of finance leases for equipment and real estate, and has remaining terms of five years up to approximately thirteen years, with contractual terms expiring in 2024 through 2033.

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Supplemental balance sheet information related to the Company’s finance leases were as follows:

	September 30, 2020
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)	$	6,329
Weighted average remaining lease term for finance leases (in years)	11.3
Weighted average discount rate for finance leases	4.83%

Lease Expense

The components of lease expense, recorded in cost of sales, selling and administrative expenses and interest expense in the consolidated statements of operations, during the fiscal year ended September 30, 2020 were as follows:

		Year ended
Lease Expense	Classification	September 30, 2020
(in thousands)
Operating lease expense
Fixed payment operating lease expense ¹	Cost of sales	$	184
Fixed payment operating lease expense	Selling and administrative expenses	32
Variable payment operating lease expense		—
Finance lease expense
Depreciation of ROU assets	Cost of sales	534
Interest	Interest expense	347
Total lease expense		$	1,097

1 Includes short-term leases which are not material.

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases during the fiscal year ended September 30, 2020 were as follows:

	Year ended
Supplemental Cash Flow	September 30, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease ROU assets	$	83
Interest paid on finance leases	346
Financing cash flows from finance leases	—
Lease liabilities arising from obtaining ROU assets:
Operating leases	$	53

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Contractual Lease Payments

A summary of operating lease payments for the next five years follows:

Operating Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	73
2022	73
2023	71
2024	55
2025 and thereafter	—
Total operating lease payments	272
Less: amounts representing interest	(27)
Total operating lease obligation	$	245

A summary of finance lease payments for the next five years follows:

Finance Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	768
2022	781
2023	795
2024	809
2025 and thereafter	6,117
Total finance lease payments	9,270
Less: amounts representing interest	(2,218)
Total finance lease obligation	$	7,052

The Company also entered into a master lease arrangement for certain equipment and leasehold improvements to be located at the new facility in Newark, NY and received financing of $1.8 million during the fiscal year ended September 30, 2020 which is included in property, plant and equipment as construction in progress and as a long-term debt section of the consolidated balance sheet. As of September 30, 2020, the Company has an outstanding lease agreement that has not yet commenced for certain property located in Newark, New York that will include a new manufacturing facility and administrative offices. The facility lease is expected to commence in early fiscal 2021 when construction of the asset is complete.

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Disclosures Related to Periods Prior to Adoption of the New Lease Standard

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and under the previous lease accounting standard, the maturities of lease liabilities at September 30, 2019 were as follows:

Capital Lease Payment Schedule	Contractual Payments
(in thousands)
Twelve months ending September 30,
2020	$	673
2021	686
2022	700
2023	714
2024 and thereafter	6,720
Total capital lease payments	9,493
Less: amounts representing interest	(2,470)
Present value of minimum lease payment	$	7,023

NOTE 13—NET INCOME PER SHARE

The Company applies the two-class method to calculate and present net income per share. Certain of the Company's restricted (non-vested) share awards contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing net income per share pursuant to the two-class method. Under the two-class method, net earnings are reduced by the amount of dividends declared (whether paid or unpaid) and the remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends.

Basic earnings per common share are calculated by dividing income available to common stockholders by the weighted average number of shares outstanding during each period. Diluted net earnings per common share add to the denominator incremental shares resulting from the assumed exercise of all potentially dilutive stock options, as well as unvested restricted stock and restricted stock units. Options, restricted stock and restricted stock units are primarily held by directors, officers and certain employees.

The Company uses the two-class method to calculate net income per share as both classes share the same rights in dividends. Therefore, basic and diluted earnings per share (“EPS”) are the same for both classes of ordinary shares.

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A summary of shares used in the EPS calculations follows (in thousands except share and per share data):

	Years Ended
Net Income Per Share	September 30, 2020		September 30, 2019
Basic net income per share:
Net income	$	6,753	$	4,747
Less: Income attributable to non-vested shares	32		38
Net income available to common stockholders	$	6,721	$	4,709
Weighted average common shares outstanding	10,417,445		10,306,947
Basic net income per share	$	0.65	$	0.46
Diluted net income per share:
Net income	$	6,753	$	4,747
Shares used in computing basic net income per share	10,417,445		10,306,947
Dilutive effect of non-vested shares and options	309,993		211,179
Shares used in computing diluted net income per share	10,727,438		10,518,126
Diluted net income per share	$	0.63	$	0.45

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the net income per share calculations.

	Years Ended
	September 30, 2020	September 30, 2019
Anti-dilutive shares excluded	1,202	61,475

NOTE 14—QUARTERLY FINANCIAL DATA (UNAUDITED)

The accompanying unaudited financial information for the three month periods specified below have been prepared in accordance with GAAP for interim financial information. In the opinion of management, all adjustments required for a fair presentation of the information have been made.

Note that quarterly amounts are rounded separately and as a result the sum of the quarterly amounts may not equal the computed amount for the full year.

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	Net Sales		Gross Profit		Net Income		Basic Earnings Per Share		Diluted Earnings Per Share
(Unaudited; in thousands, except per share data)
Fiscal Quarters
Fourth 2020	$	46,446	$	6,737	$	1,927	$	0.18	$	0.18
Third 2020	47,364		6,642		2,114		0.20		0.20
Second 2020	44,171		5,503		1,523		0.15		0.14
First 2020	44,734		5,239		1,189		0.11		0.11
Fourth 2019	$	43,922	$	6,394	$	1,794	$	0.17	$	0.17
Third 2019	40,324		5,605		1,211		0.12		0.11
Second 2019	37,294		4,586		670		0.06		0.06
First 2019	35,441		5,059		1,072		0.10		0.10

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NOTE 15—SUBSEQUENT EVENTS

On September 15, 2020, the Company announced that it had entered into a Purchase and Sale Agreement dated as of August 28, 2020 (the “Agreement”), pursuant to which the Company agreed to acquire an approximately 86,000 square foot industrial and office building and certain equipment located in Rochester, New York (the “Property”) from Rochester Drug Co-Operative, Inc. for a purchase price of $5.3 million, exclusive of closing costs. The Company financed a portion of the purchase price for the Property with a mortgage loan from M&T Bank. The Agreement contains customary representations and warranties and customary indemnification provisions for transactions of this type. The closing occurred in October 2020.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

Conclusion regarding the effectiveness of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2020, the end of the period covered by this Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:

i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and asset dispositions of the Company;

ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on financial statements.

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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting, as of September 30, 2020, based on the framework entitled “Internal Controls - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our internal control over financial reporting was effective as of September 30, 2020.

57

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because the Securities and Exchange Commission’s rules regarding such attestations do not apply to non-accelerated filers.

Changes in internal control over financial reporting

The Company is in the process of implementing a financial reporting system, Epicor ERP Software (“Epicor”), as part of a multi-year plan to integrate and upgrade our systems and processes. During the fiscal year ended September 30, 2020, the Company began implementation of Epicor by converting one legacy ERP system to Epicor. The implementation of Epicor is occurring in phases and is expected to be fully completed after fiscal 2021. 

As part of the Epicor implementation, certain changes to our processes and procedures have and will continue to occur. These changes will result in changes to our internal control over financial reporting. While Epicor is designed to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolve.

During the quarter ended September 30, 2020, there have been no other changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.     OTHER INFORMATION

None.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference from the captions entitled “Proposal 1 - Election of Directors - Nominees for Election as Directors” and “Proposal 1 - Election of Directors - Corporate Governance and Board Matters” contained in our definitive proxy statement for the 2021 Annual Meeting of Stockholders to be filed within 120 days after the September 30, 2020 fiscal year end (the “2021 Proxy Statement”).

The information regarding our Executive Officers is found in Part I of this Form 10-K. 

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference from the captions entitled “Compensation of Named Executive Officers” and “Director Compensation” contained in the 2021 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference from the captions entitled “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management” and “Equity Compensation Plan Information” contained in the 2021 Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference from the captions “Certain Relationships and Related Person Transactions,” “Proposal 1 - Election of Directors - Nominees for Election as Directors” and “Proposal 1 - Election of Directors - Corporate Governance and Board Matters” contained in the 2021 Proxy Statement.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference from the caption “Proposal 2 - Ratification of the Selection of the Company’s Independent Registered Public Accounting Firm for Fiscal 2021” contained in the 2021 Proxy Statement. 

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PART IV

Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Form 10-K:

Financial Statements

Reference is made to Item 8, “Financial Statements and Supplementary Data” of Part II of this Form 10-K. No financial statement schedules are required to be filed by Item 8 of Part II of this Form 10-K.

Exhibits

Exhibit No.	Title
3.1	Amended and Restated Certificate of Incorporation of DFT Holdings Corp. (incorporated herein by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-1, Registration No. 33-56498)
3.2	Certificate of Ownership and Merger merging IEC Electronics Corp. into DFT Holdings Corp. (incorporated herein by reference from Exhibit 3.5 to the Company’s Registration Statement on Form S-1, Registration No. 33-56498)
3.3	Certificate of Amendment of the Certificate of Incorporation of IEC Electronics Corp. (incorporated herein by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 1998)
3.4	Certificate of Designation of Series A Junior Participating Preferred Stock of IEC Electronics Corp. (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed August 1, 2014)
3.5	Certificate of Amendment of Certificate of Designation of Series A Preferred Stock of IEC Electronics Corp. (incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K/A filed August 1, 2014)
3.6	Certificate of Elimination of Series A Junior Participating Preferred Stock (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2015)
3.7	By-laws, as amended through December 7, 2018 of IEC Electronics Corp (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 13, 2018)
4.1	Description of IEC Electronics Corp.'s Securities (incorporated herein by reference from Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2019 filed on November 22, 2019)
10.1	Sixth Amended and Restated Credit Facility Agreement as of June 4, 2020 between IEC Electronics Corp. and Manufacturers and Traders Trust Company (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2020)
10.2#	Consent and First Amendment to Sixth Amended and Restated Credit Facility Agreement dated as of September 30, 2020
10.3	Master Equipment Lease as of June 4, 2020 between IEC Electronics Corp. and Manufacturers and Traders Trust Company (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2020)
10.4	First Amendment to the Master Equipment Lease as of June 4, 2020 between IEC Electronics Corp. and Manufacturers and Traders Trust Company (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2020)
10.5	Lease Agreement dated as of November 18, 2016 by and between Store Capital Acquisitions, LLC and IEC Electronics Corp. - Albuquerque (incorporated herein by reference from Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2016)
10.6	Securities and Exchange Commission Administrative Order (Release No. 34-78017) issued as of June 8, 2016 (incorporated herein by reference from Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2016)
10.7*	Form of Indemnification Agreement between IEC Electronics Corp. and its directors and executive officers (incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2015)
10.8*	IEC Electronics Corp. 2010 Omnibus Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2011)
10.9*	Form of Incentive Stock Option Agreement pursuant to the 2010 Omnibus Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2012)

60

10.10*	Form of Employee Restricted Stock Award Agreement pursuant to the 2010 Omnibus Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2012)
10.11*	Form of Director Restricted Stock Award Agreement pursuant to the 2010 Omnibus Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2012)
10.12*	IEC Electronics Corp. Form of Restricted Share Award Agreement Pursuant to 2010 Omnibus Incentive Plan (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2018)
10.13*	IEC Electronics Corp. Form of Director Restricted Share Award Agreement Pursuant to 2010 Omnibus Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2018)
10.14*	Employee Stock Purchase Plan (incorporated herein by reference from Appendix A to the Company’s Proxy Statement on Schedule 14A filed on December 22, 2011)
10.15*	Employee Stock Purchase Plan Amendment 1 (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2014)
10.16*	Employment Agreement dated as of March 20, 2015 between IEC Electronics Corp. and Jeffrey T. Schlarbaum (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2015)
10.17*	Sign-on Option Award Agreement (Inducement Grant) between IEC Electronics Corp. and Jeffrey T. Schlarbaum (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2015)
10.18*	Sign-on Option Award Agreement (Pursuant to 2010 Omnibus Incentive Compensation Plan) between IEC Electronics Corp. and Jeffrey T. Schlarbaum (incorporated herein by reference from Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2015)
10.19*	IEC Electronics Corp. Management Deferred Compensation Plan, as amended (incorporated herein by reference from Exhibit 10.43 to the Company’s Annual Report on Form 10-K/A for the year ended September 30, 2014)
10.20*	IEC Electronics Corp. Board of Directors Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2009)
10.21*	Employment Agreement dated as of September 4, 2018 between IEC Electronics Corp. and Thomas L. Barbato (incorporated herein by reference from Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2018)
10.22*	IEC Electronics Corp. 2019 Stock Incentive Plan (incorporated herein by reference from Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on January 24, 2019)
10.23*	Form of Restricted Stock Award Agreement pursuant to the 2019 Stock Incentive Plan (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019)
10.24*	Form of Incentive Stock Option Award Agreement pursuant to the 2019 Stock Incentive Plan (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019)
10.25*	Form of Director Restricted Stock Award Agreement pursuant to the 2019 Stock Incentive Plan (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019)
10.26*	Form of Restricted Stock Unit Award Agreement (Time Vesting) pursuant to the 2019 Stock Incentive Plan (incorporated herein by reference from Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019)
10.27*	Form of Performance Restricted Stock Unit Award Agreement pursuant to the 2019 Stock Incentive Plan (incorporated herein by reference from Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019)
10.28	Lease dated as of December 10, 2018 between 1000 Silver Hill LV LLC and IEC Electronics Corp. (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 13, 2018)
10.29#	Purchase and Sale Agreement dated as of August 28, 2020 between IEC Electronics Corp. and Rochester Drug Co-Operative, Inc.
21.1#	Subsidiaries of IEC Electronics Corp.
23.1#	Consent of Independent Registered Public Accounting Firm
31.1#	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

61

101# The following items from this Annual Report on Form 10-K formatted in Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Income Statements, (iii) Consolidated Statements of Changes in Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

# Filed herewith.

62

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		IEC Electronics Corp.
		(Registrant)
Dated: November 20, 2020	By:	/s/ Jeffrey T. Schlarbaum
		Jeffrey T. Schlarbaum
		President and Chief Executive Officer
		(Principal Executive Officer)

63

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Jeffrey T. Schlarbaum	President and Chief Executive Officer
Jeffrey T. Schlarbaum	(Principal Executive Officer and Director)	November 20, 2020
/s/ Thomas L. Barbato	Senior Vice President and Chief Financial Officer	November 20, 2020
Thomas L. Barbato	(Principal Financial and Accounting Officer)
/s/ Keith M. Butler	Director	November 20, 2020
Keith M. Butler
/s/ Charles P. Hadeed	Director	November 20, 2020
Charles P. Hadeed
/s/ Andrew M. Laurence	Director	November 20, 2020
Andrew M. Laurence
/s/ Jeremy R. Nowak	Chairman of the Board	November 20, 2020
Jeremy R. Nowak
/s/ Michael Osborne	Director	November 20, 2020
Michael Osborne

64

EX-10.2

Exhibit 10.2

CONSENT AND FIRST AMENDMENT TO

SIXTH AMENDED AND RESTATED CREDIT FACILITY AGREEMENT

THIS CONSENT AND FIRST AMENDMENT TO SIXTH AMENDED AND RESTATED CREDIT FACILITY AGREEMENT (this “Amendment”) is made effective as of the 30th day of September, 2020 (the “Amendment Date”) by and between IEC ELECTRONICS CORP., a corporation formed under the laws of the State of Delaware (“Borrower”) and MANUFACTURERS AND TRADERS TRUST COMPANY (“Lender”).

W I T N E S S E T H:

WHEREAS, the parties hereto are parties to a Sixth Amended and Restated Credit Facility Agreement dated as of June 4, 2020 (as amended, and as the same may be further amended, modified, supplemented or restated from time to time, the “Credit Agreement”);

WHEREAS, Borrower has purchased new real estate located in Rochester, New York (the “Jetview Purchase”);

WHEREAS, Borrower has requested that Lender consent to the Jetview Purchase and make certain amendments to the Credit Agreement, and the Lender has agreed to provide such consent and to make certain amendments to the Credit Agreement, all on the terms and conditions herein set forth.

NOW, THEREFORE, for due consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

    1.    DEFINITIONS. All capitalized terms used herein and not defined shall have the meaning given such terms in the Credit Agreement.

    2.    CONSENT. The Bank does hereby consent to the Jetview Purchase and to the use of proceeds of the Revolving Credit Loans therefor; provided, that each of the conditions set forth in Section 5 of this Amendment shall first have been satisfied.

3.AMENDMENTS. Effective as of the date of this Amendment:

    (A)     Section 1.1 of the Credit Agreement is hereby amended by amending and restating the following definition in its entirety to read as follows:

““Unfinanced Capital Expenditures” means all Capital Expenditures other than (i) Capital Expenditures financed by the Lender (but excluding for this definition any Capital Expenditures financed with the proceeds of a Revolving Credit Loan), (ii) Capital Expenditures financed with Debt (other than the Loans) permitted under this Agreement or Debt to which the Lender consents in writing, (iii) any Capital Expenditure to the extent financed with proceeds received in cash with grants from any Governmental Authority and (iv) the 50 Jetview Purchase.”

4848-9549-4090.4

(B) Section 1.1 of the Credit Agreement is hereby amended by adding the following definition thereto:

““50 Jetview Purchase” means the Borrower’s purchase of the real estate located at 50 Jetview Drive, Rochester, NY 14624 pursuant to a certain Purchase and Sale Agreement dated August 28, 2020 by and among Borrower and Rochester Drug Co-Operative, Inc., and all related transactions, documents and agreements.”

(C)    Section 6.13 of the Credit Agreement is hereby amended by adding the following as clause (c) thereunder, immediately following clause (b) thereof:

        “(c)    If any material assets (including any real property or improvements thereto or any interest therein) are acquired by any Credit Party after the Closing Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien under the Security Agreement upon acquisition thereof), the Borrower will (i) notify the Lender thereof, and, if requested by the Lender, cause such assets to be subjected to a Lien securing the Obligations and (ii) take, and cause each applicable Credit Party to take, such actions as shall be necessary or reasonably requested by the Lender to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Credit Parties.”

4.Representations and Warranties. Borrower hereby makes the following representations and warranties to the Lender as of the Amendment Date, each of which shall survive the effectiveness of this Amendment and continue in effect as of the Amendment Date so long as any Obligations remain unpaid:

4.1    Authorization. Borrower has full power and authority to borrow under the Credit Agreement, as amended by this Amendment, and to execute, deliver and perform this Amendment and any documents delivered in connection with it and all other related documents and transactions, all of which have been duly authorized by all proper and necessary corporate action. The execution and delivery of this Amendment by Borrower will not violate the provisions of, or cause a default under, Borrower’s Organizational Documents, any law or any agreement to which Borrower is a party or by which it or its assets are bound.

4.2    Binding Effect. This Amendment has been duly executed and delivered by Borrower, and the Credit Agreement, as amended by this Amendment, is the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except to the extent that enforcement of any such obligations of the Borrower may be limited by bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors generally.

4.3    Consents; Governmental Approvals. Except as may be specifically identified in a written agreement to which Borrower and Lender are parties, no consent, approval or authorization of, or registration, declaration or filing with, any Governmental Authority or any other Person is required in connection with the valid execution, delivery or performance of this

Amendment or any other document executed and delivered by Borrower herewith or in connection with any other transactions contemplated hereby.

4.4    Representations and Warranties. The representations and warranties contained in the Credit Agreement, as amended by this Amendment, are true on and as of the Amendment Date with the same force and effect as if made on and as of the Amendment Date, except forthose representations and warranties that by their terms are made as of a specific date, which representations and warranties Borrower hereby remakes as of such date.

4.5    No Events of Default. No Default or Event of Default has occurred or is continuing.

4.6    No Material Misstatements. Neither this Amendment nor any document delivered to Lender by Borrower or any Credit Party to induce Lender to enter into this Amendment contains any untrue statement of a material fact or, taken as a whole with the other Loan Documents, omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

5.    CONDITIONS OF AMENDMENT. The Lender shall have no obligation to execute or deliver this Amendment until each of the following conditions shall have been satisfied:

5.1    Authorization. Borrower shall have taken all appropriate corporate action to authorize, and its directors, if and as required by Borrower’s Organizational Documents, shall have adopted resolutions authorizing the execution, delivery and performance of this Amendment and the taking of all other action contemplated by this Amendment, and Lender shall have been furnished with copies of all such corporate action, certified by an authorized officer of Borrower as being true and correct and in full force and effect without amendment on the Amendment Date, and such other corporate documents as Lender may request.

5.2    Consents. Borrower shall have delivered to Lender any and all consents, if any, necessary to permit the transactions contemplated by this Amendment.

5.3    Fees. Borrower shall have paid to the Lender all reasonable fees and disbursements of Lender’s counsel and all reasonable out-of-pocket expenses incurred by Lender, recording fees, search fees, charges and taxes in connection with this Amendment and all transactions contemplated hereby or made other arrangements with respect to such payment as are satisfactory to Lender; provided, that such payments may, alternatively, be provided post-closing to the extent consented to by Lender.

5.4    Deliveries. Borrower shall have delivered to Lender, each of the following documents, duly executed by the Borrower or as specified: (i) this Amendment, (ii) a copy of the Jetview Purchase documents, and (iii) such additional documents, consents, authorizations, insurance certificates, governmental consents and other instruments and agreements as Lender or its counsel may reasonably require (including for purposes of evidencing and/or facilitating Borrower’s and Lender’s compliance with all applicable laws and

regulations, including all “know your customer” rules in effect from time to time pursuant to the Bank Secrecy Act, USA PATRIOT Act and other applicable laws) and all documents, instruments and other legal matters in connection with the Loan Documents shall be reasonably satisfactory to Lender and its counsel.

5.5    Representations and Warranties. The representations and warranties set forth in this Amendment and in the Loan Documents shall be true, correct and complete on the Amendment Date, except those representations and warranties that by their terms are made as of a specific date, which representations and warranties Borrower hereby remakes as of such date.

5.6    No Event of Default. No Event of Default or Default shall have occurred and be continuing on the Amendment Date.

5.7    No Material Misstatements. Neither this Amendment nor any document delivered to Lender by or on behalf of Borrower to induce Lender to enter into this Amendment contains any untrue statement of a material fact or, taken as a whole with the other Loan Documents, omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

5.8    No Material Adverse Change. As of the Amendment Date, no Material Adverse Effect shall have occurred with respect to the Borrower and its Subsidiaries taken as a whole since September 30, 2019, including, without limitation, the Credit Parties’ ability to meet the projections delivered by the Borrower to the Lender prior to the Amendment Date.

5.9    No Litigation. As of the Amendment Date, except as set forth on Schedule 4.5 to the Credit Agreement, there shall not be any claim, action, suit, investigation, litigation, or legal proceeding pending or threatened in any court or before any arbitrator or governmental authority which relates to the legality, validity or enforceability of the Credit Agreement (as amended by this Amendment) or the transactions contemplated hereby or that, if adversely determined, is not adequately covered by insurance or would have a Material Adverse Effect on the Borrower or its Subsidiaries.

6.    MISCELLANEOUS.

6.1    Reaffirmation of Security Documents. As of the Amendment Date, Borrower hereby (a) acknowledges and reaffirms the execution and delivery of the Security Documents, (b) acknowledges, reaffirms and agrees that the security interests granted under the Security Documents continue in full force and effect as security for all indebtedness, obligations and liabilities under the Loan Documents, as may be amended from time to time, and (c) remakes the representations and warranties set forth in the Security Documents, except those representations and warranties that by their terms are made as of a specific date, which representations and warranties Borrower hereby remakes as of such date.

6.2    Entire Agreement; Binding Effect. The Credit Agreement, as amended by this Amendment, represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This Amendment supersedes all prior negotiations and

any course of dealing between the parties with respect to the subject matter hereof. This Amendment shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit of, and be enforceable by the Lender and its successors and assigns. The Credit Agreement, as amended hereby, is in full force and effect and, as so amended, is hereby ratified and reaffirmed in its entirety.

6.3    Severability. If any provision of this Amendment shall be determined by a court to be invalid, such provision shall be deemed modified to conform to the minimum requirements of applicable law.

6.4    Headings. The section headings inserted in this Amendment are provided for convenience of reference only and shall not be used in the construction or interpretation of this Amendment.

6.5    Counterparts. This Amendment may be executed by the parties hereto in separate counterparts (including those delivered by facsimile or other electronic means), each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same instrument.

[signature page follows]

[Consent and First Amendment to Sixth Amended and Restated Credit Facility Agreement]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed by their duly authorized officers as of the day and year first above written.

MANUFACTURERS AND TRADERS TRUST COMPANY

By:    /s/ Michael Pick    

Name:    Michael Pick

Title:    Vice President

IEC ELECTRONICS CORP.

By:    /s/ Thomas L. Barbato        

Name: Thomas L. Barbato

Title:    Chief Financial Officer 

EX-10.29

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), is made and entered into as of the 28th day of August, 2020 (the “Effective Date”), by and between IEC Electronics corp, a Delaware corporation with a mailing address of 105 Norton Street, Newark, New York 14464 (“Purchaser”) and ROCHESTER DRUG CO-OPERATIVE, INC., a New York cooperative corporation, with a mailing address of 50 Jet View Drive, Rochester, New York 14624 (“Seller”). The Seller and Purchaser are sometimes individually referred to herein as a “Party” and collectively as the “Parties.”

RECITALS:

A.    WHEREAS, Seller is the owner of that certain real property located at 50 Jetview Drive, Chili, New York, which is more particularly described on Exhibit A attached hereto (the “Land”).

B.    WHEREAS, Seller is currently the debtor in a voluntary case (the “Bankruptcy Case”) commenced under chapter 11 of the Bankruptcy Code (the “Bankruptcy Code”) pending before the United States Bankruptcy Court for the Western District of New York (the “Bankruptcy Court”) pursuant to which it intends to sell the Purchased Assets pursuant to sections 105 and 363 of the Bankruptcy Code;

C.    WHEREAS, Seller’s principal business is to warehouse, merchandise, and then distribute, drugs, pharmaceutical supplies, medical equipment and other merchandise commonly sold in drug stores, pharmacies, health and beauty stores, and durable medical equipment businesses; and

D.    WHEREAS, on the terms and subject to the conditions set forth in this Agreement, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Purchased Assets in a sale authorized by the Bankruptcy Court, free and clear of all Liens, Claims, Encumbrances and Interests, pursuant to sections 105 and 363 of the Bankruptcy Code.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser, intending to be legally bound, hereby agree as follows:

Article I

DEFINITIONS

For purposes of this Agreement (including any Exhibits or Schedules attached hereto), the following terms shall have the meanings indicated below, unless the context clearly requires otherwise:

“Affiliate”shall mean, with respect to a specified Person, any other Person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under

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common control with, the specified Person; provided that such Person shall be deemed an Affiliate for only so long as such control exists. For purposes of this definition, the term “control” includes, without limitation, the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Appurtenances” shall mean all right, title and interest of Seller, if any, in any street, road or avenue, open or proposed, in front of or adjoining the Land, or any part thereof, to the centerline thereof, together with all right, title and interest of Seller in or to the use of any easements or rights-of-way appurtenant to the Land, all tenements, hereditaments, privileges and appurtenances thereto belonging or in any way appertaining or relating thereto.

“Bankruptcy Case” shall have the meaning given to it in the Recitals to this Agreement.

“Bankruptcy Code” shall have the meaning given to it in the Recitals to this Agreement.

“Bankruptcy Court” shall have the meaning given to it in the Recitals to this Agreement.

“Bargain and Sale Deed” shall mean the deed to be delivered at Closing by the Seller to the Purchaser substantially in the form attached hereto as Exhibit B.

“Bidding Procedures”shall mean the bid procedures governing the process by which the sale of the Purchased Assets shall occur, which are attached to the Bidding Procedures Order as Exhibit 1 .

“Bidding Procedures Order”shall mean the order of the Bankruptcy Court approving the Bid Procedures entered by the Bankruptcy Court in the Bankruptcy Case.

“Bill of Sale” shall mean the bill of sale to be delivered at Closing by the Seller to the Purchaser in the form attached hereto as Exhibit C.

“Books and Records”means, collectively, all documents, lists and files relating or pertaining to the Purchased Assets.

“Business Day(s)” shall mean calendar days other than Saturdays, Sundays and days on which banking institutions in New York are authorized by Law to close.

“Claim” means any claim within the meaning of section 101(5) of the Bankruptcy Code.

“Contract” shall mean any agreement, contract, license, arrangement, commitment, promise, obligation, right, instrument, document or other similar understanding, whether written or oral, pertaining to the Seller and/or the Purchased Assets.

“Deferred Prosecution Agreement” means the April 22, 2019 Deferred Prosecution Agreement between the Seller and the Office of the United States Attorney for the Southern

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District of New York filed on April 23, 2019 in the United States District Court for the Southern District of New York, United States v. Rochester Drug Co-Operative, Inc., Case No. 19-CR-290.

“Encumbrance” means any claim, community or other marital property interest, condition, equitable interest and voting (in the case of any security or equity interest).

“Equipment” means all appliances, conveyor systems, robotics, racking, automation systems, office equipment and furniture, machinery, and/or personal property (collectively, the “Equipment”) owned by Seller that are actually located on the Improvements or the Real Property as of the Effective Date.

“Excluded Assets” shall mean all rights, benefits or property of Seller which are not Purchased Assets, including but not limited to those items set forth on Schedule 1 attached hereto and made a part hereof.

“Excluded Liabilities”shall mean, collectively, any and all Liabilities, Claims, Liens, Encumbrances, and Interests of the Seller of any kind or description.

“Final Order” shall mean an Order or judgment of the Bankruptcy Court or any other court of competent jurisdiction entered by the Clerk of the Bankruptcy Court or such other court on the docket in the Bankruptcy Case or the docket of such other court, which has not been modified, amended, reversed, vacated or stayed and as to which (i) the time to appeal, petition for certiorari, or move for a new trial, reargument or rehearing has expired and as to which no appeal, petition for certiorari or motion for a new trial, reargument or rehearing shall then be pending or (ii) if an appeal, writ of certiorari, new trial reargument or rehearing thereof has been sought, such Order or judgment of the Bankruptcy Court or other court of competent jurisdiction shall have been affirmed by the highest court to which such Order was appealed, or certiorari shall have been denied, or a new trial, reargument or rehearing shall have been denied or resulted in no modification of such Order, and the time to take any further appeal, petition for certiorari or move for a new trial, reargument or rehearing shall have expired, as a result of which such Order shall have become final in accordance with Rule 8002 of the Bankruptcy Rules; provided, that the possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules, may be filed relating to such Order, shall not cause such Order not to be a Final Order.

“Governmental Authorization”means any consent, approval, waiver, license, permit, certificate of authority, registration, franchise, right, Order or notice, qualification or similar right issued, granted, given, or required by or under the authority of any Governmental Body or pursuant to any Law.

“Governmental Body”means any federal, state, local, municipal, foreign or other governmental or quasi-governmental entity, department, agency, board, bureau, commission, administration, court or authority of any nature, including, but not limited to: (i) New York Department of Environmental Protection; (ii) New York Department of Labor and Workforce Development; (iii) Federal Drug Administration; (iv) United States Drug Enforcement

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Administration; and (v) the United States Attorney for the Southern District of New York, and any of their equivalent authorities or bodies in any foreign jurisdiction.

“Hazardous Substance” means any pollutants, contaminants, NORM and other radioactive materials, chemicals, petroleum, petroleum products, or hydrocarbons, asbestos or any asbestos-containing material, per- and polyfluoroalkyl substances, polychlorinated biphenyls or industrial, toxic or hazardous substances and any “contaminant,” “pollutant”, “hazardous waste,” “hazardous material”, “hazardous substance”, “extremely hazardous substance” or “toxic substance” or words of similar import under any applicable Law relating to the environment or human health and safety.

“Improvements” means all improvements located on the Land, together with all fixtures thereon and attached thereto.

“Interest” means any interest within the meaning of section 363(f) of the Bankruptcy Code, including any interest of a Governmental Body, and all other interests, pledges, security interests, rights of setoff, successor liabilities, conditions, obligations to allow participation, agreements or rights, rights asserted in litigation matters, competing rights of possession, obligations to lend, matters filed of record that relate to, evidence or secure an obligation of the Sellers (and all created expenses and charges) of any type under, among other things, any document, instrument, agreement, affidavit, matter filed of record, cause, or state or federal law, whether known or unknown, legal or equitable, and all liens, rights of offset, replacement liens, adequate protection liens, charges, obligations.

“Knowledge of Seller” or any other similar knowledge qualification means the knowledge of the officers of the Seller, after due inquiry (or knowledge one would have after due inquiry), including due inquiry of any other appropriate employees of Seller.

“Land” shall have the meaning given to it in the Recitals to this Agreement.

“Laws” means all federal, state and local laws, ordinances, rules, regulations, standards, and Orders.

“Leases” means all leases, subleases, licenses, concessions, options, extension letters, assignments, termination agreements, subordination agreements, nondisturbance agreements, estoppel certificates and other agreements, whether written or oral, and any amendments or supplements to any of the foregoing, related to the Purchased Assets including, but not limited to, that certain lease between James L. Robfogel to Sprint Spectrum L.P dated July 8, 1997 (the “Spectrum Lease”).

“Liability” means any liability or obligation of whatever kind or nature (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated and whether due or to become due).

“Lien” means any charge against or Interest in the Purchased Assets to secure payment of a debt or performance of an obligation (statutory or otherwise), deed of trust, transfer restriction

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under any shareholder or similar agreement, mortgage, pledge, security interest, security agreement, hypothecation, preference, priority, right of recovery, order of any Governmental Body, of any kind or nature (including (i) any conditional sale or other title retention agreement and any lease having substantially the same effect as any of the foregoing, (ii) any assignment or deposit arrangement in the nature of a security device, and (iii) any Leases; provided, however, that “Lien” shall not be deemed to include any license of intellectual property).

“Order” shall mean any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body.

“Permitted Exceptions” shall mean (i) any matters of record or “survey exceptions” which do not materially interfere with the use or ownership of the Purchased Assets, including, but not limited to, current taxes and assessments not yet delinquent and taxes and assessments for subsequent years; covenants, restrictions, reservations, rights, rights of way, easements and other matters of record; and any encroachments, (ii) all zoning ordinances or statutes and building, use and occupancy restrictions of public record, (iii) all public and private roads and easements and (iv) and those matters determined to be Permitted Exceptions as set forth in Section 10.3 herein.

“Person” shall mean any individual, corporation, Governmental Body, general or limited partnership, limited liability company, joint venture, estate, trust, association, or other legal organization.

“Proceeding” shall mean any action, demand, complaint, inquiry, suit, injunction, dispute, arbitration, audit, hearing, investigation, litigation, citation, notice of violation (or similar notice), or suit (whether civil or criminal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Person.

“Purchased Assets” means, except for the Excluded Assets, the Real Property and the Equipment, owned by Seller that are actually located on the Improvements or the Real Property as of the Effective Date as more particularly described on Exhibit A attached hereto. The foregoing is collectively hereinafter referred to as the “Purchased Assets.”

“Real Property” means the Land, the Improvements, and the Appurtenances.

“Representative”shall mean, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants and financial advisors.

“Sale Order” shall mean an Order of the Bankruptcy Court pursuant to the Bankruptcy Code approving this Agreement.

“Tax” and“Taxes”shall mean individually or collectively, as appropriate, any and all U.S. or non-U.S., federal, state, county, local, municipal or other taxes, charges, imposts, rates, fees, levies or other assessments.

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“Title Company” shall mean a nationally recognized title company to be selected by Purchaser.

“U.S. Civil Settlement” shall mean the settlement between the Seller and the United States pursuant to a Stipulation and Order of Settlement and Dismissal filed on April 23, 2019 in the United States District Court for the Southern District of New York, United States v. Rochester Drug Co-Operative, Inc., Case No. 19-cv-3568.

“WARN Act” means, collectively, the Worker Adjustment and Retraining Notification Act or any similar state or local law.

Article II

AGREEMENTS TO SELL AND PURCHASE; RELATED MATTERS

2.1    Agreement to Sell and Purchase the Purchased Assets. On the Closing Date, subject to the performance by the Parties of the terms and provisions of this Agreement and satisfaction of the terms and conditions set forth in the Sale Order, the Seller shall sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase, acquire and accept from Seller, the Purchased Assets, free and clear of all Liens, Claims, Encumbrances and Interests, except for the Permitted Exceptions.

2.2    Excluded Liabilities. Notwithstanding any document that may suggest otherwise, the Purchaser is not assuming and will have no obligation or responsibility to assume, perform, or discharge any of the Excluded Liabilities, all of which shall remain the sole responsibility and obligation of the Seller.

2.3    No Assigned Contracts or Leases. Notwithstanding any document that may suggest otherwise, the Purchaser is not assuming and will have no obligation to assume, perform, or discharge any Contracts or Leases, all of which shall remain the sole responsibility and obligation of the Seller. During the period from the Effective Date until the Closing Date, Seller shall not enter into any Lease without Purchaser’s prior written consent.

2.4    Competing Transactions; Bankruptcy Court Approval. This Agreement is subject to approval by the Bankruptcy Court and the consideration by Seller of higher or better competing bids for the Purchased Assets pursuant to the Bidding Procedures Order and the Bidding Procedures approved thereby (each, a “Competing Bid”). Until the transactions contemplated by this Agreement are consummated, Seller may perform any and all other acts related to seeking a Competing Bid as provided under the Bankruptcy Code, the Bidding Procedures Order or other applicable Law, including but not limited to supplying information relating to the Purchased Assets to prospective purchasers.

2.5    Maintenance and Repairs. During the period from the Effective Date until the Closing Date, Seller shall cause the Real Property to be maintained in substantially the same manner as prior to the Effective Date pursuant to Seller’s normal course of business. Seller shall not cause or make any new improvements, alterations, or demolition to the Real Property.

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Article III

PURCHASE PRICE

3.1    Purchase Price. The Purchase Price for the Purchased Assets shall be FIVE MILLION TWO HUNDRED FIFTY THOUSAND 00/100 Dollars ($5,250,000.00) (the “Purchase Price”), payable as follows:

3.2    Deposit. On the Effective Date, Purchaser deposited in escrow with the Title Company an earnest money deposit of Five Hundred Twenty Five Thousand Dollars ($525,000.00) (the “Good Faith Deposit”). The Good Faith Deposit shall be held and applied to the Purchase Price at Closing in accordance with the terms of this Agreement.

3.3    Balance. The balance of the Purchase Price shall be paid, plus or minus closing adjustments, as the case may be, in wire transferred funds of U.S. currency to the Title Company for disbursement to Seller at Closing in accordance with the terms of the Sale Order.

3.4    Tax Allocation of the Purchase Price. The Purchase Price shall be allocated among the Purchased Assets in accordance with the IRS Form 8594, Asset Acquisition Statement Under Section 1060 as agreed by the respective accountants of Purchaser and Seller prior to the Closing Date (the “Allocation”). The Allocation will be binding on Purchaser and Seller and their respective successors and assigns. The Seller and the Purchaser shall file their respective Tax returns in accordance with such allocation and shall not take any position inconsistent with the Allocation.

Article IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller makes no representations or warranties, express or implied, except those expressly contained or incorporated in this Agreement. All of the representations and warranties of Seller contained in this Agreement are made as of the Effective Date, then certified at the Closing pursuant to Section 7.1(a)(viii) and except as otherwise set forth herein, shall merge with the Deed and shall not survive the Closing. Subject to the foregoing, Seller represents and warrants unto Purchaser as of the Effective Date, as follows:

4.1    Organization. Seller is a cooperative corporation duly organized, lawfully and validly existing under the Laws of the State of New York and, pursuant and subject to the terms of the Final Sale Order, has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated hereby.

4.2    Power and Authority. All requisite action (corporate, trust, partnership or otherwise) has been taken by Seller in connection with entering into this Agreement, the documents and instruments referenced herein, and the consummation of the transaction contemplated hereby. No consent, authority, licensing, or approval of any partner, shareholder, trustee, trustor, beneficiary, creditor, investor, Governmental Body or regulatory authority or other Person is required for Seller to execute and deliver this Agreement and the instruments and documents referenced herein or consummate the transaction contemplated by this Agreement.

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The individual executing this Agreement and the instruments referenced herein on behalf of Seller and the partners of Seller, if any, have the legal power, right, and actual authority to bind Seller to the terms and conditions hereof and thereof.

4.3    Non-contravention. To Seller’s Knowledge, the execution and delivery by Seller of this Agreement or any of the documents or instruments referenced herein or the consummation of the transaction contemplated hereby, or compliance by Seller with any of the provisions hereof or thereof will not (i) conflict with, or result in any violation of or a default (with or without notice of lapse of time, or both) under, or give rise to a right of termination, amendment, acceleration or cancellation under any provision of, any contract or permit to which Seller is a party or by which the Seller is bound; (ii) violate any provision of the organizational documents of the Seller; (iii) violate in any material respect any Law or Order applicable to the Purchased Assets; (iv) result in the imposition of any Lien on the Purchased Assets.

4.4    Consents. Upon entry of the Sale Order, no Governmental Authorization or declaration, filing or registration with or any notification to any Governmental Body or regulatory authority or any other third Person is required in connection with the execution, delivery or performance by the Seller of this Agreement or the consummation by the Seller of the transactions contemplated hereby.

4.5    Foreign Person. Seller is not a “foreign person” as defined in §1445(f)(3) of the Internal Revenue Code and regulations promulgated thereunder, which Seller shall so certify at Closing.

4.6    Liens. At the Closing, Seller will own and convey the Purchased Assets free and clear of all Liens, Claims, Encumbrances and Interests other than the Permitted Exceptions, as provided in the Sale Order.

4.7    Contracts. To Seller’s Knowledge, Seller has not entered into any Contracts that will be binding upon Purchaser after the Closing. Each of the Contracts can and, at Purchaser’s option, will be terminated by Seller on or before the Closing Date. To Seller’s Knowledge, Seller has performed all of its obligations under each of the Contracts and no fact or circumstance has occurred which, by itself or with the passage of time or the giving of notice or both, would constitute a default by any party under any of the Contracts.

4.8    Leases. To Seller’s Knowledge, other than the Spectrum Lease and Leases, if any, there are no contracts, leases, options, rights of first refusal, or any similar rights affecting the Real Property. True, correct, and complete copies of the Leases have been delivered to Purchaser. To Seller’s Knowledge, the Leases are in good standing and in full force and effect in accordance with their respective terms and have not been modified, amended, terminated, renewed, or extended, except as set forth in the applicable Lease. To Seller’s Knowledge, none of the parties to any Lease is in default of any of its obligations thereunder and no event has occurred that, with the giving of notice or passage of time, or both, would constitute a default thereunder.

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4.9    Title. The Sale Order shall provide the transfer of the Purchased Assets, to the Purchaser, free and clear of all Liens, Claims, Encumbrances and Interests, other than Liens which will be divested from the Purchased Assets by the Sale Order and other that the Permitted Exceptions. Upon the completion of the transactions contemplated hereby, the Purchaser will be vested with good and marketable title to the Purchased Assets, free and clear of all Liens, Claims, Encumbrances and Interests other than the Permitted Exceptions, as provided in the Sale Order.

4.10    Complete Disclosure. No representation or warranty made by the Seller in this Agreement contains or will contain any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein and therein not misleading.

4.11    Insurance. Seller maintains and shall maintain insurance coverage for the Purchased Assets on substantially the same terms and conditions as on coverage on similar assets in Rochester, New York in full force and effect from the date hereof until the Closing Date and shall not take any action that would result in the insurance being terminated. Seller shall provide evidence of same to Purchaser within two (2) Business Days of the Effective Date.

4.12    Litigation and Proceedings. To Seller’s Knowledge, and except for matters listed on Seller’s bankruptcy schedules, and except for Claims or pleadings filed with the Bankruptcy Court, there is no legal, administrative or arbitration Proceeding, suit, action of any nature or Order, judgment, writ, injunction, award, or decree, claim, investigation or inquiry relating to any Purchased Assets or the transactions contemplated by this Agreement, pending or asserted against Seller, by or before any Governmental Body or by or on behalf of any Person. To Seller’s Knowledge, no written notice has been issued to the Seller with respect to any pending or contemplated changes in any applicable Law that may adversely affect the use, management, or operation of the Purchased Assets. Seller has not received (or has any actual knowledge of) any written notice or request from any insurance company or holder of any mortgage requesting the performance of any work or alteration in respect of any part of the Purchased Assets which has not been substantially completed. To Seller’s Knowledge, there is no Proceeding pending that challenges, or that is reasonably likely to have the effect of preventing, delaying, or rendering illegal any of the transactions contemplated by this Agreement.

4.13    Environmental Matters. Seller has not placed any, and to Seller’s Knowledge, there are no Hazardous Materials installed, stored in, or otherwise existing at, on, in, or under the Real Property in violation of any Environmental Laws. “Hazardous Materials” means “Hazardous Material,” “Hazardous Substance,” “Pollutant or Contaminant,” and “Petroleum” and “Natural Gas Liquids,” as those terms are defined or used in CERCLA, and any other substances regulated because of their effect or potential effect on public health and the environment, including PCBs, lead paint, asbestos, urea formaldehyde, radioactive materials, putrescible materials, and infectious materials. “Environmental Laws” means, without limitation, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response Compensation and Liability Act and other federal, state, county, municipal, and other

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local laws governing or relating to Hazardous Materials or the environment together with their implementing regulations, ordinances, and guidelines.

4.14    Tax Matters. As of the end of the day on the Closing Date there will not be, any liability for Taxes affecting the Purchased Assets for which the Purchaser will at any time have any liability for payment.

4.15    Survival. The representations and warranties of Seller set forth in this Article IV shall not survive the Closing.

Article V

REPRESENTATIONS AND WARRANTIES OF PURCHASER.

Purchaser represents and warrants unto Seller as follows:

5.1    Organization. Purchaser is a Delaware corporation duly organized, lawfully and validly existing under the Laws of the State of Delaware and has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated hereby.

5.2    Power and Authority. All requisite action (corporate, trust, partnership or otherwise) has been taken by Purchaser in connection with entering into this Agreement, the documents and instruments referenced herein, and the consummation of the transaction contemplated hereby. Upon the issuance of the Final Sale Order, no consent, authority, licensing or approval of any partner, shareholder, trustee, trustor, beneficiary, creditor, investor, Governmental Body or regulatory authority or other Person is required for Purchaser to execute and deliver this Agreement and the instruments and documents referenced herein or consummate the transaction contemplated by this Agreement. The individual executing this Agreement and the instruments referenced herein on behalf of Purchaser and the partners of Purchaser, if any, have the legal power, right, and actual authority to bind Purchaser to the terms and conditions hereof and thereof.

5.3    Non-contravention. Upon the issuance of the Final Sale Order, the execution and delivery by Purchaser of this Agreement or any of the documents or instruments referenced herein or the consummation of the transaction contemplated hereby, or compliance by Purchaser with any of the provisions hereof or thereof will not (i) violate any organizational documents of the Purchaser; or (ii) violate any Law or Order applicable to the Purchaser.

5.4    Consents. Other than the Final Sale Order, no approval, consent or authorization of, or declaration, filing or registration with or any notification to any Governmental Body, regulatory authority or any other third Person is required in connection with the execution, delivery or performance by the Purchaser of this Agreement or the consummation by the Purchaser of the transactions contemplated hereby.

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5.5    Sufficient Funds.    Purchaser will have as of the Closing, sufficient funds in cash in its possession to pay the cash portion of the Purchase Price as the same become due and payable under this Agreement.

5.6    Certain Relationships. Purchaser represents and warrants to Seller (i) that neither Purchaser nor any person or entity that directly or indirectly owns any interest in Purchaser nor any of its officers, directors or members is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the U.S. Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including, but not limited to, Executive Order 13224 (“Executive Order”) signed on September 24, 2001 and entitled “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”), or other governmental action, (ii) that Purchaser’s activities do not violate the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the regulations or orders promulgated thereunder (as amended from time to time, the “Money Laundering Act”), and (iii) that so long as this Agreement is in full force and effect, Purchaser shall comply with the Executive Order and with the Money Laundering Act.

5.7    Foreign Person. Purchaser is not a “foreign person” as defined in §1445(f)(3) of the Internal Revenue Code and the regulations promulgated thereunder.

Article VI

CONDITIONS TO CLOSING

6.1    Conditions to Obligations of Each Party. The respective obligations of each Party to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of the following conditions:

(a)    Proceedings; Orders. No Governmental Body of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) that (i) is in effect and (ii) has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting consummation of such transactions.

(b)    Sale Order. The Bankruptcy Court shall have entered the Final Sale Order in the form set forth herein with such changes as are mutually agreed to by the Seller and Purchaser, each in the exercise of its respective sole discretion.

(c)    Regulatory Approvals. Any required governmental licensing or regulatory approval or consent, if any, is obtained by Seller and/or Buyer.

6.2    Additional Conditions to Obligations of the Purchaser. The obligations of the Purchaser to effect the transactions contemplated hereby are subject to satisfaction or waiver of the following additional conditions:

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(a)    Representations and Warranties. The representations and warranties of the Seller set forth in this Agreement shall be true and correct as of the Effective Date and as of the Closing Date, as if made as of such time (except to the extent that such representations and warranties expressly speak as of another date, in which case such representations and warranties shall be true and correct as of such date).

(b)    Agreements and Covenants.The Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing.

(c)    Documents. All of the documents, instruments and agreements required to be executed and/or delivered by Seller on or prior to Closing pursuant to Section 7.1(a) of this Agreement shall have been executed by the parties thereto other than the Purchaser and delivered to the Purchaser.

(d)    Bulk Sales. Purchaser shall have complied with or waived the provisions of the New York Tax Law related to bulk sales or transfers. Seller shall fully cooperate with Purchaser in the filing of all documents necessary to obtain bulk sales tax clearance. If Purchaser receives of a Notice of Claim for possible sales and use taxes owed by Seller pursuant to New York Tax Law Section 1141(c) and rules and regulations promulgated thereunder, Seller shall be required to establish with Purchaser’s attorney an escrow as a precondition to Closing, at the option of Buyer, in an amount equal to the balance of the Purchase Price under this Agreement which is due at Closing. The escrow shall be held to fund the Seller’s liability for sales and use tax, with any surplus monies after payment of all such sales and use taxes owed by Seller to be refunded to Seller.

6.3    Additional Conditions to Obligations of the Seller. The obligations of the Seller to effect the transactions contemplated hereby are subject to satisfaction or waiver by the Seller of the following additional conditions:

(a)    Representations and Warranties. The representations and warranties of the Purchaser set forth in this Agreement shall be true and correct in all material respects as of the Closing Date, as if made as of such time (except to the extent that such representations and warranties expressly speak as of another date, in which case such representations and warranties shall be true and correct as of such date).

(b)    Agreements and Covenants. The Purchaser shall have performed and complied with all of its covenants hereunder in all material respects through the Closing.

(c)    Documents. All of the documents, instruments and agreements required to be executed and/or delivered by Purchaser on or prior to Closing pursuant to Section 7.1(b) of this Agreement shall have been executed by the parties thereto other than the Seller and delivered to the Seller.

Article VII

CLOSING; DELIVERIES AND ACTIONS TAKEN AT THE CLOSING.

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7.1    Closing Date. Purchaser and Seller shall close this transaction (the “Closing”) no later than the date that is fifteen (15) Business Days after the date that the Sale Order becomes a Final Sale Order (the “Closing Date”). The Closing shall be held via escrow and wire transfer through the offices of the Title Company.

(a)    Deliveries by the Seller at the Closing. At the Closing, Seller shall cause to be executed and delivered to the Title Company the following documents with respect to the Purchased Assets being conveyed:

(i)    a duly executed and acknowledged Bargain and Sale Deed (the “Deed”);

(ii)    two (2) counterparts of a closing statement setting forth all closing adjustments and prorations for the Purchased Assets to be prepared by the Title Company;

(iii)    a Non-Foreign Person Affidavit signed by Seller;

(iv)    an information for real estate 1099-S report filing form;

(v)    a certified copy of the final and non-appealable Sale Order of the Bankruptcy Court authorizing and approving the sale of the Purchased Assets to Purchaser free and clear of any and all Liens, Claims, Encumbrances and Interests except for the Permitted Exceptions pursuant to Sections 105 and 363 of the Bankruptcy Code which Sale Order has become a Final Order (the “Final Sale Order”). The Final Sale Order shall contain, among other terms, the following provisions:

(a)    that the terms and conditions of the sale of the Purchased Assets to Purchaser are approved;

(b)    that the sale of the Purchased Assets to Purchaser is free and clear of any and all Liens, Claims, Encumbrances and Interests, except for the Permitted Exceptions, of any kind or nature whatsoever, including, but not limited to, any obligations or requirements of the Seller under the Deferred Prosecution Agreement and the U.S. Civil Settlement pursuant to section 363(f) of the Bankruptcy Code;

(c)    that the Purchaser would not have agreed to this Agreement if the sale was not free and clear of any and all Liens, Claims, Encumbrances, and Interests of any kind and nature whatsoever except for the Permitted Exceptions or if Purchaser would, or in the future could, be liable or otherwise responsible for any of the foregoing under any theory of law or in equity;

(d)    that Seller has the authority to transfer the Purchased Assets to Purchaser;

(e)    that the Purchase Price constitutes fair value for the Purchased Assets;

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(f)    that Purchaser acted in good faith in all respects and that Purchaser and its assignees and designees are entitled to the protections of section 363(m) of the Bankruptcy Code;

(g)    that notice of the transactions contemplated hereby was good and sufficient and was provided timely to all parties in interest in the Bankruptcy Case who are entitled or required to receive notice pursuant to the Federal Rules of Bankruptcy Procedure, the Local Rules of the Bankruptcy Court, or other applicable Law;

(h)    that Seller is authorized and directed to consummate the sale of the Purchased Assets and to execute and deliver all agreements, instruments and documents reasonably necessary or desirable to consummate the sale of the Purchased Assets and to effectuate the provisions of the Final Sale Order;

(i)    that the sale process conducted by Seller and its agent was non-collusive, fair and reasonable and was conducted in good faith;

(j)    that Purchaser and Seller did not engage in any conduct which would allow the transaction contemplated by this Agreement to be set aside pursuant to section 363(n) of the Bankruptcy Code;

(k)    that Purchaser is not a successor to, or otherwise liable for, the Liabilities, Interests, Claims, settlements, fines, penalties, debts, responsibilities or obligations of Seller under any theory of law or in equity or for any purpose, including the Deferred Prosecution Agreement and the U.S. Civil Settlement;

(l)    that, pursuant to section 105 of the Bankruptcy Code, all creditors of Seller are enjoined from taking any actions against Purchaser or the Purchased Assets;

(m)    that Purchaser shall not be deemed a successor employer to Seller for purposes of any Liability arising under the WARN Act or any collective bargaining agreement or other labor or employment agreement; and

(n)    that the Final Sale Order is binding upon any successors to Seller, including any trustee that may be appointed in the Bankruptcy Case (including if such case is converted to a case under chapter 7 of the Bankruptcy Code);

(vi)    all other agreements, instruments, and documents of conveyance and transfer executed by Seller, in form and substance reasonably acceptable to Purchaser and/or the Title Company, as may be necessary or desirable to convey the Purchased Assets to

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Purchaser free and clear of all Liens, Claims, Encumbrances and Interests subject to the Permitted Exceptions;

(vii)    legal, valid and binding UCC-3 termination statements or other documentation (in form and substance reasonably satisfactory to Seller, Purchaser and their respective counsel), in recordable form, sufficient to release any Lien against the Purchased Assets or to terminate any recordation or filing in respect thereof;

(viii)    a certificate dated as of the Closing Date and signed by the Seller, certifying that each of the conditions set forth in Sections 6.1 and 6.2 have been satisfied;

(ix)    the Bill of Sale, duly executed by the Seller; and

(x)    such other agreements, instruments, documents as are necessary to complete this transaction with such Seller obligation to survive the Closing.

(xi)    Assignment and Assumption of the Spectrum Lease.

(b)    Deliveries by the Purchaser at the Closing. At the Closing, Purchaser shall cause to be delivered to the Title Company the following:

(i)    the Purchase Price, in cash (subject to prorations and adjustments, including, but not limited to, a credit for the Deposit and any interest earned thereon) by no later than 1:00 p.m. (eastern time);

(ii)    two (2) counterparts of a closing statement setting forth all closing adjustments and prorations for the Purchased Assets to be prepared by the Title Company; and

(iii)    such other agreements, instruments, and documents as are necessary to complete this transaction.

Article VIII

TERMINATION

8.1    Termination. This Agreement may be terminated at any time prior to Closing:

(a)    by mutual agreement of Purchaser and Seller;

(b)    by Seller if the Closing shall not have occurred on or before the date that is fifteen (15) Business Days after the date of the Final Sale Order (as may be extended by written agreement of Purchaser and Seller) (the “Closing Date Deadline”); provided, however, that the Seller is not in material breach of any of its representations and warranties contained in this Agreement and has not failed in any material respect to perform any of its obligations hereunder;

(c)    by Purchaser if there shall have been a material breach by the Seller of any of its representations, warranties, covenants or agreements contained in this Agreement, which

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breach would result in the failure to satisfy one or more of the conditions set forth in this Agreement, and such material breach or other event or condition shall be incapable of being cured or, if capable of being cured, shall not have been cured within ten (10) calendar days after written notice thereof shall have been received by Seller; provided, that Purchaser is not in material breach of this Agreement as of such date;

(d)    by Seller, if there shall have been a material breach by Purchaser of any of its representations, warranties, covenants or agreements contained in this Agreement, which breach would result in the failure to satisfy one or more of the conditions set forth in this Agreement, and such material breach or other event or condition shall be incapable of being cured or, if capable of being cured, shall not have been cured within ten (10) calendar days after written notice thereof shall have been received by Purchaser; provided, that no Seller is in material breach of this Agreement as of such date; or

(e)    by Purchaser on or after the date the Final Sale Order ceases to be in full force and effect, or is revoked, rescinded, vacated, materially modified, reversed or stayed, or otherwise rendered ineffective by a court of competent jurisdiction.

Article IX

DUE DILIGENCE

9.1    Seller Deliveries. Within fifteen (15) Business Days after the Effective Date, Seller shall deliver to Purchaser copies of the following documents, solely to the extent that such documents exist and are in Seller’s possession, custody or control (collectively, the “Due Diligence Documents”):

(a)    All Phase I environmental reports relating to the Real Property;

(b)    The existing owner’s title insurance policy relating to the Purchased Assets obtained in connection with Seller’s acquisition of the Real Property; and

(c)    The existing survey relating to the Purchased Assets obtained in connection with Seller’s acquisition of the Real Property.

Upon the Effective Date, Seller shall make the Books and Records available to Purchaser and Purchaser’s Representatives. Nothing set forth herein shall be construed as creating an obligation of Seller to provide internal documents, including analyses or opinions of the Purchased Assets generated by or for Seller, or correspondence between third parties unaffiliated with Seller, or information, reports, studies, tests, or documents prepared for third parties unaffiliated with Seller, or information that Seller is not authorized to provide, share or deliver because of confidentiality obligations by which Seller is bound. The delivery of the Due Diligence Documents may be made by email attachments, access to an electronic data room, hard copy, or such other means as the Parties may mutually agree. Purchaser agrees to keep all of the Due Diligence Documents confidential. In providing the Due Diligence Documents to Purchaser, Seller makes no representation or warranty, express, written, oral, statutory, or implied, regarding the accuracy or completeness of the Due Diligence Documents, and all such

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representations and warranties are hereby expressly excluded and disclaimed, provided that Seller shall provide to Purchaser all of the Due Diligence Documents in Seller’s possession and make available to Purchaser all of the Books and Records. Purchaser understands that, although Seller will use commercially reasonable efforts to locate the Due Diligence Documents and make them available pursuant to this Agreement, Purchaser will not rely on such Due Diligence Documents as being a complete and accurate source of information with respect to the Purchased Assets and will instead in all instances rely exclusively on its own inspections and Seller’s representations and warranties with respect to all matters which it deems relevant to its decision to acquire, own and operate the Purchased Assets.

Article X

EVIDENCE OF TITLE.

10.1    Title Commitment. Within three (3) Business Days after the Effective Date, as evidence of title, Seller shall order an updated abstract of title with respect to the Purchased Assets (the “Title Report”).

10.2    Survey. Purchaser shall have the right to order a new survey of the Purchased Assets (the “Survey”), at Purchaser’s sole cost and expense and shall deliver copies of the Survey to Seller and the Title Company upon receipt.

10.3    Title Objections. Purchaser shall raise written objections to the Title Report and/or the Survey within fifteen (15) days following Purchaser’s receipt of the Title Report (the “Title Review Period”), as to any matter which renders the title to the Purchased Assets unmarketable (the “Title Objection Notice”), except for matters accepted according to the terms of this Agreement. Seller shall have five (5) Business Days after its receipt of the Title Objection Notice to notify Purchaser (“Seller’s Title Notice”) that Seller has decided to either:(i) remedy the title; or (ii) notify Purchaser that Seller is unable or unwilling to cure any such title defect, provided that if Seller fails to provide the Seller’s Title Notice, Seller shall be deemed to have elected not to cure or otherwise resolve Purchaser’s title objections. Purchaser may elect, by written notice to Seller within three (3) Business Days of Purchaser’s receipt of Seller’s Title Notice, to waive such defects and proceed with the Closing subject thereto. Purchaser’s failure to deliver any written notice shall be a conclusive presumption that Purchaser has approved the Title Report and the Survey and this Agreement shall remain in full force and effect. If Seller is unable or unwilling to remedy the title objections and Purchaser does not elect to waive such defects, then Purchaser may terminate this Agreement by providing written notice thereof to Seller by no later than the later to occur of (i) three (3) Business Days after receiving Seller’s Title Notice or after Seller is deemed to have elected not to cure any objections or (ii) the last day of the Title Review Period, in which event the Deposit shall be refunded forthwith in full termination of this Agreement. All matters affecting title to the Purchased Assets, including those items identified in the Title Report and/or the Survey not objected to by Purchaser within the time frame specified or which Seller is unwilling or unable to remedy shall be deemed to be Permitted Exceptions. If Purchaser fails to terminate this Agreement as provided above, then Purchaser shall be required to proceed to closing and take title to the Purchased Assets, subject to the Permitted Exceptions. After the Title Review Period, Purchaser may, by delivery of written

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notice to Seller, object only to other matters of title that (i) first arise, first appear of record, or are first created after the effective date of the Title Report, and (ii) materially and adversely impact the value or use of the Purchased Assets, as determined by Purchaser in the exercise of its reasonable discretion (“Subsequent Objections”). If Purchaser delivers any Subsequent Objections to Seller, then Seller shall notify Purchaser in writing on or before the date that is two (2) Business Days after the date of delivery to Seller of the Subsequent Objections (or, if such Subsequent Objections are delivered within two (2) days of the Closing Date, on or before 10:00 a.m. (eastern time) on the Closing Date) of Seller’s election to cure or not to cure prior to Closing such Subsequent Objections. If Seller fails to deliver a notice to Purchaser within two (2) Business Days after Seller’s receipt of the Subsequent Objections, Seller shall be deemed to have elected not to cure or otherwise resolve such Subsequent Objections. If Seller elects or is deemed to have elected not to cure such Subsequent Objections, then Purchaser shall have until the earlier to occur of (i) three (3) days following the date of Seller’s election or deemed election not to cure such Subsequent Objections, or (ii) 12:00 p.m. (eastern time) on the Closing Date to terminate this Agreement by written notice to Seller whereupon the Deposit shall be returned to Purchaser and the Parties shall be released from any further obligations hereunder, except for those which expressly survive termination of this Agreement.

Article XI

INSPECTION

11.1    Access to Purchaser. Subject to the terms and conditions contained herein, Purchaser and its agents shall have a period of thirty (30) days following the Effective Date (the “Inspection Period”) to inspect or cause to be inspected all of the physical and economic conditions of the Purchased Assets, access to which shall be granted to Purchaser and/or Purchaser’s agents and representatives, at all reasonable times, provided that Purchaser shall provide Seller with at least twenty-four (24) hours’ prior notice of each on-site inspection at the Purchased Assets. Purchaser shall have the right hereunder to conduct any environmental or other assessment of the Purchased Assets including sampling of environmental media, and in addition, Purchaser at its own cost may cause a Phase I Environmental Assessment of the Purchased Assets to be conducted by an environmental consultant of Purchaser’s choice. Purchaser shall not undertake any invasive testing procedures with respect to the Improvements or any portion of the Real Property without Seller’s additional prior written consent. Seller shall cause its Representatives to cooperate with Purchaser and its representatives in connection with such investigation and examination. If Purchaser is not satisfied with the results of such inspections, Purchaser may cancel this Agreement for any reason or no reason by providing written notice (in the manner described by Section 19 below) to Seller on or before 5:00 p.m. (EST) on the last day of the Inspection Period and shall thereupon promptly receive a refund of the Deposit and interest accumulated thereon and be relieved of any and all liability hereunder except as to Purchaser’s restoration obligations under this Section and Purchaser’s indemnification obligations as set forth in this Agreement. Purchaser agrees that in conducting any inspections, investigations or tests of the Purchased Assets, Purchaser and its agents and representatives will (i) not unreasonably interfere with the operation and maintenance of the Purchased Assets; (ii) not damage any part of the Purchased Assets or any personal property owned or held by any third party; (iii) not injure or otherwise cause bodily harm to Seller or its

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tenants, agents, invitees, contractors and employees; (iv) maintain commercial general liability insurance of $1,000,000.00 combined single limit for bodily injury, death, or property damage, covering any accident arising in connection with the presence of Purchaser, its agents or representatives, on the Purchased Assets; (v) promptly pay when due the costs of all tests, investigations and examinations done with regard to the Purchased Assets; (vi) not permit any liens to attach to the Purchased Assets or any part thereof by reason of the exercise of Purchaser’s rights hereunder; (vii) not conduct any intrusive testing or soil borings (including, without limitation, any Phase II environmental tests) without Seller’s prior written consent (which may be withheld in Seller’s sole and absolute discretion), (viii) fully restore the Purchased Assets to the condition in which the same were found before any such inspections or tests were undertaken; and (ix) notify Seller of its inspections such that Seller and its agents and representatives may be present during any such inspection, investigation or test. Purchaser shall indemnify, defend, and hold Seller and the partners, shareholders, officers, directors, agents, employees, controlling persons and Affiliates of Seller (individually, a “Seller Party” and collectively, the “Seller Parties”) harmless from all losses, costs, liens, claims, causes of action, liability, damages and expenses, including, without limitation, reasonable attorneys’ fees, incurred by any Seller Party as a result of any entry by Purchaser (or its agents or representatives) onto the Purchased Assets, including, without limitation, any damage to the Purchased Assets or injury to persons resulting from entry upon or inspections, tests or investigations of the Purchased Assets conducted by or on behalf of Purchaser. Upon Seller’s request, Purchaser shall provide to Seller copies of tests, reports, and studies obtained by Purchaser with respect to the Purchased Assets. In the event this Agreement is terminated for any reason, Purchaser hereby agrees to promptly return to Seller all the due diligence information Seller provided to Purchaser and (ii) provide Seller with a copy of any third party reports they have obtained in connection with this Agreement if requested by Seller. The provisions of this Section and Purchaser’s indemnification obligations shall survive the Closing or the termination of this Agreement, as applicable.

11.2    Purchaser Acknowledgment. Purchaser hereby agrees to defend, indemnify and hold Seller harmless from and against any and all claims, causes of action, costs (including reasonable attorneys’ fees and costs), expenses, damages, liabilities or losses asserted against, suffered or incurred by Seller as a result of the use, spill, disposal, manufacture, storage or release of any hazardous or toxic wastes, substances, chemicals or materials by Purchaser or by any of Purchaser’s agents, contractors, employees, invitees, tenants, successors or assigns on or about the Purchased Assets. The indemnifications contained in this Section shall survive the Closing or the termination of this Agreement, as applicable.

Article XII

COSTS; CLOSING ADJUSTMENTS.

12.1    Costs.

(a)    Purchaser shall be responsible for:

(i)    all state, county and local fees required to be paid upon recording of the Deed with respect to the Purchased Assets.

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(ii)    With respect to the Title Commitment: (1) the examination and search fees incurred by the Title Company to acquire the Title Commitment, (2) the base premium charged on the owner’s policy of title insurance issued to Purchaser pursuant to the Title Commitment and the costs of any endorsements or extended title insurance coverage requested by Purchaser, and (3) all costs related to any loan obtained by Purchaser for this transaction (including, without limitation, premiums for any loan title policy and endorsements, loan fees, and any applicable intangibles tax and mortgage tax).

(iii)    the cost of any leasing commissions for the option term of any lease that is exercised, or new lease executed after the Effective Date and for any tenant improvement costs, allowances or inducements related thereto and shall pay such amounts or credit Seller therefor at the Closing.

(b)    Seller shall pay for any New York realty transfer tax and sales tax due in connection with this transaction.

(c)    Each Party shall pay: 50% of the escrow charges of the Title Company and (2) their own respective attorneys’ fees.

12.2    Real Estate Taxes and Other Charges. Real estate taxes, utilities, including but not limited to water charges, sewer, rents and fuel, and all other customary items shall be adjusted, apportioned and allowed of the Closing Date, if necessary by an estimated tax bill, with the Closing Date being a day of income and expense to the Purchaser. If at any time up to the Closing Date, the Purchased Assets or any part thereof shall be or shall have been affected by an assessment or assessments for municipal improvements whether or not confirmed or completed an whether or not payable in installments, then for purpose of this Agreement, the proportional share of all of the unpaid installments of any such assessment(s), which are to become due and payable after the delivery of the Deed contemplated hereunder, shall be paid proportionally by Seller and Purchaser. Installments allocable to period prior to the Closing and unpaid as of the Closing Date shall be paid by the Seller or allowed as a reduction in the Purchase Price.

Article XIII

POSSESSION

13.1    Right to Possession. Right to possession of, and control over, the Purchased Assets shall transfer to Purchaser on the Closing Date. On the Closing Date, Seller shall:

(a)    Transfer possession to Purchaser with the Purchased Assets in broom clean condition, free of any and all drugs, pharmaceutical supplies, and other merchandise health and beauty products, home health care products or any other product, paraphernalia, packaging, or bottles.

(b)    Transfer and deliver to Purchaser all keys, pass keys, pass codes, security codes, locks and safe combinations and all other similar items in Seller’s possession as Purchaser may require to obtain occupation and control of the Purchased Assets.

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(c)    Make available to Purchaser originals of all documents, instruments and agreements in Seller’s possession that are required to be transferred to Purchaser by this Agreement.

Article XIV

AS-IS, WAIVER AND RELEASE

As a material inducement to the execution and delivery of this Agreement by Seller and the performance by Seller of its duties and obligations hereunder, Purchaser does hereby acknowledge, represent, warrant and agree, to and with the Seller, that, subject to Seller’s representations and warranties contained in this Agreement, the Bargain and Sale Deed, and/or the Bill of Sale: (i) Purchaser is purchasing the Purchased Assets in an “AS-IS” condition as of the Closing Date with respect to any facts, circumstances, conditions and defects, latent or patent; (ii) Seller has no obligation to repair or correct any such facts, circumstances, conditions or defects or compensate Purchaser for same; (iii) by the Closing, Purchaser shall have undertaken all such physical inspections and examinations of the Purchased Assets as Purchaser deems necessary or appropriate under the circumstances, and that based upon same, Purchaser will be relying upon such inspections and examinations and the advice and counsel of its agents and officers, and Purchaser is and will be fully satisfied that the Purchase Price is fair and adequate consideration for the Purchased Assets; (iv) Seller is not making and has not made any warranty or representation with respect to all or any part of the Purchased Assets (including, but not limited to, any matters contained in documents made available or delivered to Purchaser in connection with this Agreement as an inducement to Purchaser to enter into this Agreement and thereafter to purchase the Purchased Assets or for any other purpose); and (v) by reason of all of the foregoing, Purchaser shall assume the full risk of any loss or damage occasioned by any fact, circumstance, condition or defect pertaining to the physical and financial condition of the Purchased Assets, including without limitation the presence of any asbestos containing material, hazardous, toxic or radioactive waste, substance or materials in, on, under or about the Purchased Assets, and Purchaser hereby expressly and unconditionally waives and releases Seller and all of their parents, subsidiaries, Affiliates and partnerships, and its and their respective officers, directors, shareholders, partners, agents and employees, and their respective successors, heirs and assigns and each of them (individually and collectively, the “Released Parties”) from any and all rights and claims against Seller and/or the Released Parties with respect to the condition of the Purchased Assets, including without limitation any rights of Purchaser under the State or Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended from time to time, or similar Laws. Subject to the foregoing limitation, Purchaser acknowledges and agrees that the foregoing waiver and release includes all rights and claims of Purchaser against Seller pertaining to the condition of the Purchased Assets, whether heretofore or now existing or hereafter arising, or which could, might, or may be claimed to exist, of whatever kind or nature, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, each as though fully set forth herein at length, which in any way arise out of, or are connected with, or relate to, the condition of the Purchased Assets. The foregoing provisions shall survive the Closing Date and the consummation of the transaction contemplated by this Agreement.

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Article XV

CASUALTY LOSS

15.1    Damage to Property. If, prior to the Closing Date, any substantial or material portion of the Purchased Assets is damaged or destroyed by fire or other casualty, then Seller shall promptly upon acquiring actual knowledge thereof deliver written notice to Purchaser of such casualty and the following provisions shall apply with respect to such casualty:

(a)    If such damage or destruction results in a casualty loss which would exceed $100,000.00 to repair, as determined by Seller in the exercise of reasonable discretion (the “Casualty Threshold”), either Purchaser or Seller shall have the right to terminate this Agreement by written notice to the other Party hereto received within ten (10) days after such notice of fire or other casualty, in which event this Agreement shall terminate and thereafter neither Party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If this Agreement is not terminated pursuant to this subsection, Seller and Purchaser shall be obligated to close the purchase and sale contemplated hereby.

(b)    If such damage or destruction results in a casualty loss in an amount not exceeding the Casualty Threshold, neither Purchaser nor Seller shall have such right to terminate this Agreement, except as otherwise provided in this Agreement.

(c)    At Closing, Seller shall assign to Purchaser all insurance proceeds payable under Seller’s insurance policies (if any) subject to the interest of any Liens on account of any such damage or destruction and credit to Purchaser all such insurance proceeds previously paid to Seller (if any), together with an amount equal to the amount of any insurance deductible applicable to the casualty loss. Seller shall not be obligated to repair or restore the damage to such Purchased Assets on account of such casualty.

Article XVI

CONDEMNATION

16.1    Condemnation Proceedings. In the event that notice of any action, suit or Proceeding shall be given prior to the Closing Date for the purpose of condemning all or any portion of the Purchased Assets, then neither Party shall have any right to terminate this Agreement and at Closing, the proceeds of such condemnation shall be assigned and belong to Purchaser.

Article XVII

DEFAULT

17.1    Seller Default. In the event that Seller shall be in material default hereunder for any reason other than Purchaser’s default, Purchaser may deliver a written notice to Seller stating with particularity the alleged default of Seller, the action required by Seller to cure such default, and Purchaser’s intent to exercise its remedies provided below if the default is not cured. Seller shall have ten (10) days after receipt of such notice to cure the alleged default to Purchaser’s

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reasonable satisfaction (and the Closing Date shall be delayed, if necessary, until the end of such ten (10) day period). In the event such default is not cured within such ten (10) day period, then Purchaser may elect, as its sole and exclusive remedy, to seek to enforce specific performance only for failure to cause the Purchased Assets to be conveyed in accordance with the terms and provisions hereof (without any reduction in the Purchase Price) or to terminate this Agreement by written notice to Seller and the Title Company, whereupon Purchaser shall be entitled to a full refund of the Deposit. It is expressly understood and agreed that the remedy of specific performance shall not be available to enforce any other obligation of Seller hereunder other than a failure to cause the Purchased Assets to be conveyed in accordance with the terms and provisions of this Agreement. Purchaser shall be deemed to have elected to terminate this Agreement if Purchaser fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Purchased Assets is located on or before thirty (30) days following the date upon which the Closing was to have occurred.

17.2    Purchaser Default. In the event that Purchaser shall be in default hereunder for any reason other than Seller’s default, Seller may deliver a written notice to Purchaser stating with particularity the alleged default of Purchaser, the action required by Purchaser to cure such default and Seller’s intent to terminate this Agreement if the default is not cured. Purchaser shall have ten (10) days after receipt of such notice to cure the alleged default to Seller’s reasonable satisfaction (and the Closing Date shall be delayed, if necessary, until the end of such ten (10) day period). In the event such default is not cured within such ten (10) day period, then Seller may, as Seller’s sole and exclusive remedy for such default, terminate this Agreement by written notice to Purchaser and the Title Company, whereupon Seller shall be entitled to retain the Deposit as full liquidated damages for such default of Purchaser. It is hereby agreed that Seller’s damages in the event of a default by Purchaser hereunder are uncertain and difficult to ascertain, and that the Deposit constitutes a reasonable liquidation of such damages and is intended not as a penalty, but as full liquidated damages. Purchaser covenants not to bring any action or suit challenging the amount of liquidated damages provided hereunder in the event of such default. Notwithstanding anything to the contrary contained herein, this provision shall in no way affect or impair Seller’s right of recovery under any indemnity given by Purchaser in favor of Seller under this Agreement.

Article XVIII

BROKER

18.1    Broker’s Commission. In connection with the consummation of the sale contemplated by this Agreement, Seller shall be solely responsible for paying a broker’s commission to CBRE/Rochester (“Seller’s Broker”) pursuant to the terms of a separate agreement. No commissions shall be due or payable to the Seller’s Broker unless and until the Closing contemplated hereby occurs. Purchaser and Seller each represent and warrant to the other that, except for the Seller’s Broker, they have not employed, retained or consulted with any other broker, agent or finder in connection with the solicitation of Purchaser, the negotiations in connection with this Agreement or the purchase and sale referenced herein and Purchaser and Seller shall indemnify each other and hold each other harmless from and against any and all claims, demands, causes of action, debts, liabilities, judgments and damages (including costs and

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reasonable attorneys’ fees) which may be asserted or recovered against each other on account of any brokerage fee, commission or other compensation arising by reason of Purchaser’s or Seller’s breach of this representation and warranty.

Article XIX

Intentionally Deleted

Article XX

MISCELLANEOUS

20.1    Governing Law. This Agreement shall be governed by and construed, interpreted and enforced in accordance with the Laws of the State of New York without regard to conflicts of Laws or choice of Laws principles thereof that would cause the application of the Laws of any jurisdiction other than the State of New York.

20.2    Binding Effect. This Agreement shall bind the Parties hereto, their respective heirs, successors and assigns. Except as set forth in Section 20.5 hereof, neither Purchaser nor Seller may assign its interest hereunder without the prior written approval of the other Party.

20.3    Notices. Any notices, communications, requests or consents which may be given or are required to be given under the terms of this Agreement shall be in writing and shall be sent (i) by registered or certified mail return receipt requested, (ii) by Federal Express (or other nationally recognized overnight service), or (iii) by facsimile or email, if confirmed by a copy sent by overnight courier to Seller or Purchaser, as the case may be, at such Party’s address, as set forth in this Article XIV. Such notice, communication, request or consent shall be deemed to have been given (a) the date indicated on the duly completed United States Postal Service return receipt, or (b) on the first (1st) Business Day after delivery to the custody of a nationally recognized overnight courier service or (c) on the date sent by facsimile or email if confirmed as hereinabove provided. Either Party may designate any other name or address to receive notices.

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If to Seller:	Rochester Drug Cooperative 50 Jet View Drive Rochester, New York Attn: John T. Kinney
With a copy to:	Harter Secrest & Emery LLP 1600 Bausch & Lomb Place Rochester, New York 14604 Attn: Kelly A. Pronti, Esq. Email: kpronti@hselaw.com
If to Purchaser:	IEC Electronics Corp.
	105 Norton Street
	Newark, New York 14464 Attn: Thomas L. Barbato, CFO
With a copy to:	Underberg & Kessler LLP
	300 Bausch & Lomb Place
	Rochester, New York 14604
	Attn: Katherine H. Karl, Esq.

20.4    Time for Performance. Time shall be of the essence for purposes of this Agreement.

20.5    Assignability. Purchaser shall not have the right to assign this Agreement and its rights hereunder without Seller’s prior written consent, unless such assignment is to a single asset entity in which Purchaser owns a controlling interest, in which case, Seller’s consent shall not be required, provided, however, that upon such assignment, Purchaser shall in no way be released or relieved of any of its obligations under this Agreement.

20.6    Number and Gender. Whenever required by the context or use in this Agreement, the singular word shall include the plural word and the masculine gender shall include the feminine and/or neuter gender, and vice versa.

20.7    Captions. The paragraph titles, headings and/or captions contained herein have been inserted solely as a means of reference and convenience. Such captions shall not affect the interpretation or construction of this Agreement and shall not define, limit, extend or otherwise describe the scope of this Agreement or the intent of any provision hereof.

20.8    Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original, all of which shall be deemed to be one and the same instrument. Facsimile or email transmission signatures shall be deemed original signatures.

20.9    Legal Counsel. Purchaser and Seller acknowledge that they have been, or have had the opportunity to be, represented by legal counsel in connection with this Agreement and that this Agreement is the product of extensive negotiations between the Parties. Purchaser and Seller agree that the fact that this Agreement or one or more provisions hereof were drafted by one Party or the other shall not affect the meaning or interpretation of this Agreement.

25

20.10    Contents Confidential. Purchaser agrees that the terms set forth in this Agreement shall remain totally and completely confidential and shall not be revealed or disclosed to any person or Party whatsoever, except: (i) with the prior written consent of Seller; (ii) as may be disclosed to Purchaser’s attorneys, accountants and other representatives that are involved in connection with the consummation of its transaction, and then only to the extent necessary to accomplish the transactions set forth herein, after having directed each such recipient of such information to maintain the confidentiality of such information; (iii) as may be required by applicable law; (iv) as may be necessary in connection with assisting Purchaser in obtaining necessary governmental approvals; and (v) in connection with any litigation between the Parties. If for any reason the Closing does not occur, Purchaser shall (i) return to Seller all materials and other information regarding the Purchased Assets, and (ii) immediately deliver to Seller all written studies, analyses, reports and assessments relating to any of the Purchaser’s investigations upon the request of Seller.

20.11    Waiver. No action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by any Party taking such action of compliance with any representation, warranty, covenant, or agreement contained herein. The waiver by any Party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

20.12    Third Party Beneficiaries. Nothing in this Agreement is intended, nor shall anything herein be construed, to confer any rights, legal or equitable, in any Person other than the Parties hereto and their permitted successors and assigns. There are no third party beneficiaries to this Agreement.

20.13    Cooperation and Further Assurances. The Parties shall use their respective commercially reasonable efforts to (a) take or cause to be taken all actions, and to do or cause to be done all other things, necessary, proper or advisable to expeditiously satisfy the closing conditions set forth herein and to consummate the transactions contemplated hereby as promptly as practicable and evidence the consummation of the transactions contemplated hereby, and (b) obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings in connection with the foregoing. Without further order of the Bankruptcy Court, Seller shall assist with such other post-closing matters as Purchaser may reasonably request.

20.14    Notification of Certain Matters. From time to time prior to the Closing Date, the Parties shall promptly notify each other of the occurrence or non-occurrence of any event or circumstance that as applicable, indicates (a) that any of the representations and warranties set forth herein may not be, will not be, or are not, true and correct, or (b) any failure on its part to comply with or satisfy, in any material respect, any covenant, agreement or condition to be complied with or satisfied by it pursuant hereto (any such notification, a “Required

26

Notification”); provided, however, that in each case, such disclosure shall not be deemed to (i) amend or supplement any Schedule hereto, or (ii) cure any breach of such representation, warranty, covenant or agreement or satisfy any condition set forth herein.

20.15    Entire Agreement. This Agreement, including the exhibits and schedules, contains the entire agreement between Seller and Purchaser pertaining to the transaction contemplated hereby and fully supersedes all prior agreements and understandings between Seller and Purchaser pertaining to such transaction. If any provision hereof is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect. This Agreement may be amended, modified, or supplemented only by an instrument in writing signed by the Parties.

[Remainder of this page intentionally left blank. Signature page(s) follow.]

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

27

PURCHASER:
IEC ELECTRONICS CORP., a Delaware Corporation
By:
Name:	Thomas L. Barbato
Title:	Chief Financial Officer
SELLER:
ROCHESTER DRUG CO-OPERATIVE, INC. a New York cooperative corporation
By:
Name:
Title:

28

EXHIBIT “A”

Legal Description

All that tract or parcel of land situate in the Town of Chili, County of Monroe and State of New York, known and described as Lot R-106 of the Jetview Business Park, Section 1, as shown on a map filed in the Monroe County Clerk's Office in Liber 295 of Maps, at page 76. The said lot fronts on the east side of Jetview Drive and is of the size and dimensions as shown on the filed map.

EXHIBIT “B”

Bargain and Sale Deed

Record and Return to:             

Prepared by:

Harter Secrest & Emery, LLP

1600 Bausch & Lomb Place

Rochester, NY 14604

Bargain and Sale Deed

THIS DEED is made this ______ day of ___________, 2020 by and between ROCHESTER DRUG CO-OPERATIVE, INC., a New York cooperative corporation with an address of 50 Jet View Drive, Rochester, New York 14624 (the “Grantor”) and IEC Electronics Corp., a Delaware corporation with an address of 105 Norton Street, Newark, New York 14464 (the “Grantee”).

The words “Grantor” and “Grantee” shall mean all Grantors and all Grantees listed above.

Transfer of Ownership. The Grantor grants and conveys (transfers ownership of) the property (called the “Property”) described below to the Grantee. This transfer is made for the sum of FIVE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($5,250,000.00). The Grantor acknowledges receipt of this money.

Tax Map Reference. Municipality of the Town of Chili, County of Monroe, State of Monroe, New York, Tax ID # 134.18-1-51.1.

Property. The Property consists of the land and the building and structures on the land in the Township of Chili, County of Monroe and State of New York. The legal description is: Please see attached legal description attached hereto as Exhibit “A” and made part hereof. Being and intending to convey the same Property conveyed to the Grantor by that certain Deed recorded ________________in Book _____, Page _____, in the Monroe County Clerk’s Office.

The street address of the Property is: 50 Jetview Drive, Chili, New York 14624.

This conveyance is made expressly subject to:

The lien for real property taxes for the current year if the same are not due and payable as of the date hereof, and any liens for special assessments which as of the date hereof are not due and payable;

1.    Recorded leases, agreements, easements, rights of way, covenants, conditions and restrictions, and other matters of record as the same may be of present force and effect;

2

2.    All zoning ordinances or statutes and building, use and occupancy restrictions of public record;

3.    All public and private roads and easements;

4.    All matters that would be disclosed or apparent on a current survey; and

5.    That in compliance with Section 13 of the Lien Law, the grantors will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvements and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose,

6.    Signatures. This Deed is signed and attested to by the Grantor’s and Grantee’s proper corporate officers as of the date at the top of the first page.

[Signatures contained on following page]

IN WITNESS WHEREOF, the Grantor has set its hand and seal as of the day and year first above written.

	GRANTOR:
WITNESS:	ROCHESTER DRUG CO-OPERATIVE, INC.,
	a New York cooperative corporation
	By:
	Name:
	Title:

STATE OF            )

COUNTY OF            ) ss.:

On this ___ day of _______________, 2020, before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

	GRANTEE:
WITNESS:	IEC ELECTRONICS CORP.
	a Delaware Corporation
	By:
	Name:	Thomas L. Barbato
	Title:	Chief Financial Officer

STATE OF            )

COUNTY OF            ) ss.:

On this ___ day of _______________, 2020, before me, the undersigned, a Notary Public in and for said State, personally appeared Thomas L. Barbato, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

EXHIBIT “C”

FORM OF BILL OF SALE

BILL OF SALE

ROCHESTER DRUG CO-OPERATIVE, INC., a cooperate corporation organized under the Laws of the State of New York whose address is 50 Jet View Drive, Rochester, New York 14624 (“Seller”), for and in consideration of the sum of TEN DOLLARS, to it paid by IEC ELECTRONICS CORP., a corporation organized and existing under the Laws of the State of Delaware whose address is 105 Norton Street, Newark, New York 14464 (“Purchaser”), the receipt whereof is hereby acknowledged, has granted, bargained, sold, transferred and delivered, and by these presents does grant, bargain, sell, transfer and deliver unto Purchaser, all fixtures, Equipment and other personal property located on, and/or used by Seller in connection with its use and operation of, the Real Property, as such term is defined in that certain Purchase and Sale Agreement (the “Purchase Agreement”) dated as of __________ ___, 2020 by and between Seller and Purchaser (collectively, the “Transferred Property”). Except as expressly provided in the Purchase Agreement, this Bill of Sale and Seller’ conveyance of the Transferred Property is made without representation or warranty of any kind whatsover.

TO HAVE AND TO HOLD the same unto Purchaser forever.

IN WITNESS WHEREOF, I have hereunto set my hand this [●] day of [●], 2020.

SELLER:

ROCHESTER DRUG CO-OPERATIVE, INC.,

a New York cooperative corporation

By:

Name:

Title:

SCHEDULE 1

EXCLUDED ASSETS

1.    THREE (3) PC HARD DRIVES

2.    TWO (2) SMALL FANS (LASKSO/HONEYWELL)

3.    ALL IN ONE CPU

4.    FOUR (4) LAPTOPS

5.    IGLOO COOLER (ELECTRIC)

6.    HP LASERJET 600 M601 W/ STAND & PAPER TRAYS

7.    HP LASERJET PRO M402N PRINTER

8.    ACER MONITOR W/ KEYBOARD STAND, HP COMPAQ

PC HD (LABELED PC-CHECK A)

9.    THINKCENTRE W/ MONITOR & KEYBOARD

10.    PITNEY BOWES SEND PRO P1500 S/N 6012280

POSTAGE SYSTEM

11.    TWO (2) CRYSTAL ROCK WATER COOLERS

12.    KEURIG B30 COFFEE MACHINE W/ PRODUCT

DISPENSER CABINET & CURRENCY MACHINE

13.    SERVERS FOR RTP SYSTEM

INCLUDES: IBM POWER 8 ISERIES W/ ASSOCIATED DISK

DRIVES, TAPE DRIVES, POWER UNITS, HMC

14.    BARRACUDA MESSAGE ARCHIVER 400

15.    IBM POWER 720 ISERIES W/ ASSOCIATED DISK &

TAPE DRIVES & POWER UNITS, HMC

16.    ALL IN ONE CPU (HR ROOM)

17.    INVENTORY

18.    TRASH COMPACTORS

19.    FOUR (4) VENDING MACHINES

20.    VEHICLE FLEET

EX-21.1

Exhibit 21.1 

Subsidiaries of IEC Electronics Corp.

Subsidiary	State of Incorporation
IEC Electronics Corp.-Albuquerque	New Mexico
IEC Analysis & Testing Laboratory, LLC	New Mexico

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-103847, 333-122181, 333-151218, 333-174884, 333-180041, and 333-230941 on Form S-8 of our report dated November 20, 2020, relating to the consolidated financial statements of IEC Electronics Corp. and subsidiaries appearing in this Annual Report on Form 10-K of IEC Electronics Corp. for the year ended September 30, 2020.

/s/ Deloitte & Touche LLP

Rochester, New York

November 20, 2020

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey T. Schlarbaum, certify that:

1.I have reviewed this Annual Report on Form 10-K for the year ended September 30, 2020 of IEC Electronics Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 20, 2020	/s/ Jeffrey T. Schlarbaum
	Jeffrey T. Schlarbaum
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas L. Barbato, certify that:

1.I have reviewed this Annual Report on Form 10-K for the year ended September 30, 2020 of IEC Electronics Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 20, 2020	/s/ Thomas L. Barbato
	Thomas L. Barbato
	Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of IEC Electronics Corp. (the "Company") on Form 10-K for the fiscal year ended September 30, 2020 as filed with the Securities and Exchange Commission on the day hereof (the "Report"), I, Jeffrey T. Schlarbaum, President and Chief Executive Officer of the Company, and Thomas L. Barbato, Senior Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 20, 2020	/s/ Jeffrey T. Schlarbaum
	Jeffrey T. Schlarbaum
	President and Chief Executive Officer
	(Principal Executive Officer)

Dated: November 20, 2020	/s/ Thomas L. Barbato
	Thomas L. Barbato
	Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

XML

Document And Entity Information - USD ($)

12 Months Ended

Sep. 30, 2020

Nov. 10, 2020

Mar. 27, 2020

Document And Entity Information [Abstract]

Document Type

10-K

Document Annual Report

true

Current Fiscal Year End Date

--09-30

Document Transition Report

false

Entity File Number

001-34376

Entity Registrant Name

IEC ELECTRONICS CORP

Entity Incorporation, State or Country Code

DE

Entity Tax Identification Number

13-3458955

Entity Address, Address Line One

105 Norton Street

Entity Address, City or Town

Newark

Entity Address, State or Province

NY

Entity Address, Postal Zip Code

14513

City Area Code

315

Local Phone Number

331-7742

Title of 12(b) Security

Common Stock, $0.01 par value

Trading Symbol

IEC

Security Exchange Name

NASDAQ

Entity Well-known Seasoned Issuer

No

Entity Voluntary Filers

No

Entity Current Reporting Status

Yes

Entity Interactive Data Current

Yes

ICFR Auditor Attestation Flag

false

Entity Filer Category

Non-accelerated Filer

Entity Small Business

true

Entity Emerging Growth Company

false

Entity Shell Company

false

Entity Public Float

$ 66,722,319

Entity Common Stock, Shares Outstanding

10,503,083

Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

Portions of IEC Electronics Corp.’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III Items 10, 11, 12, 13 and 14 of this Form 10-K.

Entity Central Index Key

0000049728

Amendment Flag

false

Document Period End Date

Sep. 30, 2020

Document Fiscal Period Focus

FY

Document Fiscal Year Focus

2020

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Current assets:
Cash	$ 312	$ 0
Accounts receivable, net of allowance	30,361	27,618
Unbilled contract revenue	8,773	9,529
Inventories	51,374	44,267
Federal income tax receivable	0	517
Other current assets	1,757	1,454
Total current assets	92,577	83,385
Property, plant and equipment, net	23,587	19,433
Deferred income taxes	4,840	7,154
Operating Lease, Right-of-Use Asset	260	0
Other long-term assets	1,700	860
Total assets	122,964	110,832
Current liabilities:
Current portion of long-term debt	0	1,371
Operating Lease, Liability, Current	61	0
Current portion of finance lease obligation	436	338
Accounts payable	29,733	23,690
Accrued payroll and related expenses	3,659	3,174
Other accrued expenses	457	668
Customer deposits	19,783	13,229
Total current liabilities	54,129	42,470
Long-term debt	21,476	28,910
Operating Lease, Liability, Noncurrent	184	0
Long-term finance lease obligation	6,616	6,685
Other long-term liabilities	1,404	1,527
Total liabilities	83,809	79,592
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value: 500,000 shares authorized; none issued or outstanding	0	0
Common stock, $0.01 par value: Authorized 50,000,000 shares; Issued: 11,394,036 and 11,304,393 shares, respectively; Outstanding: 10,338,548 and 10,248905 shares, respectively	105	103
Additional paid-in capital	49,161	48,001
Accumulated deficit	(8,522)	(15,275)
Treasury stock, at cost: 1,055,488 shares	(1,589)	(1,589)
Total stockholders’ equity	39,155	31,240
Total liabilities and stockholders’ equity	$ 122,964	$ 110,832

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - $ / shares	Sep. 30, 2020	Sep. 30, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	11,556,214	11,394,036
Common stock, shares outstanding	10,500,726	10,338,548
Treasury stock, shares	1,055,488	1,055,488

XML

CONSOLIDATED INCOME STATEMENTS - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 182,714	$ 156,981
Cost of sales	158,594	135,337
Gross profit	24,120	21,644
Selling and administrative expenses	13,986	14,076
Operating profit	10,134	7,568
Interest expense	1,438	1,645
Income before income taxes	8,696	5,923
Provision for income taxes	1,943	1,176
Net income	$ 6,753	$ 4,747
Net income per common share:
Net earnings/loss (in dollars per share)	$ 0.65	$ 0.46
Net earnings/loss (in dollars per share)	$ 0.63	$ 0.45
Weighted average number of shares outstanding:
Weighted Average Number of Shares Outstanding, Basic	10,417,445	10,306,947
Diluted (in shares)	10,727,438	10,518,126

XML

CONSOLIDATED STATEMENTS of CHANGES in STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Impact of adoption of ASC 606, net of taxes	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Deficit Impact of adoption of ASC 606, net of taxes	Treasury Stock, at cost
Number of shares outstanding, beginning balance (shares) at Sep. 30, 2018			10,248,905
Beginning Balance at Sep. 30, 2018	$ 25,376	$ 441	$ 102	$ 47,326	$ (20,463)	$ 441	$ (1,589)
Net Income (Loss) Attributable to Parent	4,747				4,747
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes (shares)			51,872
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes	(52)		$ 1	(53)
Stock Issued, Value, Stock Options Exercised, Net of Tax Benefit (Expense)	$ 101			101
Exercise of stock options, net of shares surrendered (shares)	34,000		26,707
Stock Issued During Period, Value, Employee Stock Purchase Plan	$ 60			60
Employee stock plan purchases (shares)			11,064
Employee stock plan purchases	4,747
APIC, Share-based Payment Arrangement, Option, Increase for Cost Recognition	567			567
Ending Balance at Sep. 30, 2019	$ 31,240		$ 103	48,001	(15,275)		(1,589)
Number of shares outstanding, ending balance (shares) at Sep. 30, 2019	10,338,548		10,338,548
Net Income (Loss) Attributable to Parent	$ 6,753				6,753
Stock-based compensation	739			739
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes (shares)			46,695
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes	$ (98)		$ 0	(98)
Exercise of stock options, net of shares surrendered (shares)	100,500		100,500
Exercise of stock options, net of shares surrendered	$ 434		$ 1	433
Employee stock plan purchases (shares)			14,983
Employee stock plan purchases	87		$ 1	86
Ending Balance at Sep. 30, 2020	$ 39,155		$ 105	$ 49,161	$ (8,522)		$ (1,589)
Number of shares outstanding, ending balance (shares) at Sep. 30, 2020	10,500,726		10,500,726

XML

CONSOLIDATED STATEMENTS of CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) Attributable to Parent	$ 6,753	$ 4,747
Non-cash adjustments:
Stock-based compensation	739	567
Depreciation and amortization	3,332	2,832
Change in reserve for doubtful accounts	114	(14)
Change in excess/obsolete inventory reserve	1,268	(81)
Deferred tax expense	2,314	1,577
Amortization of deferred gain on sale of leaseback	(114)	(114)
Amortization of deferred gain on sale of leaseback
Accounts receivable	(2,857)	(2,436)
Unbilled contract revenue	756	(5,196)
Inventories	(8,375)	(13,828)
Federal income tax receivable	517	(517)
Other current assets	(303)	293
Other long-term assets	(856)	(434)
Accounts payable	5,251	(2,670)
Change in book overdraft position	(332)	(2,329)
Accrued expenses	274	1,588
Customer deposits	6,554	5,634
Net change in lease right-of-use assets and liabilities	(15)	0
Accrued expenses	0	(75)
Net cash flows provided by/(used in) operating activities	15,020	(10,456)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(6,268)	(2,118)
Proceeds from disposal of property, plant and equipment	0	20
Net cash flows used in investing activities	(6,268)	(2,098)
Borrowings under other loan agreements
Repayments under other loan agreements	76,038	81,225
Payments under finance lease	(82,724)	(67,575)
Borrowings under other loan agreements	1,782	391
Proceeds from exercise of stock options	(3,904)	(1,231)
Payments under finance lease	(387)	(310)
Right-of-Use Asset Obtained in Exchange for Finance Lease Liability	416	0
Proceeds from employee stock plan purchases	(84)	(55)
Cash paid for employee taxes upon vesting of restricted stock	434	101
Restricted (non-vested) stock grants, net of forfeitures	87	60
Cash paid for employee taxes upon vesting of restricted stock	(98)	(53)
Restricted (non-vested) stock grants, net of forfeitures	0	1
Net cash flows (used in)/provided by financing activities	(8,440)	12,554
Net cash increase for the year	312	0
Cash, beginning of year	0	0
Cash, end of year	312	0
Supplemental cash flow information:
Interest paid	1,351	1,623
Income taxes paid	147	7
Property, plant and equipment purchased with extended payment terms	$ 1,124	$ 0

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WARRANTY RESERVES

12 Months Ended

Sep. 30, 2020

Product Warranties Disclosures [Abstract]

WARRANTY RESERVES

NOTE 7—WARRANTY RESERVES

IEC generally warrants its products and workmanship for up to twelve months from date of sale. As an offset to warranty claims, the Company is sometimes able to obtain reimbursement from suppliers for warranty-related costs or losses. Based on historical warranty claims experience and in consideration of sales trends, a reserve is maintained for estimated future warranty costs to be incurred on products and services sold through the balance sheet date. The warranty reserve is included in other accrued expenses on the consolidated balance sheets.

A summary of additions to and charges against IEC’s warranty reserves during the period follows: 

	Years Ended
Warranty Reserve	September 30, 2020		September 30, 2019
(in thousands)
Reserve, beginning of period	$	165	$	173
Provision	(14)		116
Warranty costs	(51)		(124)
Reserve, end of period	$	100	$	165

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1—OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business

IEC Electronics Corp. ( “IEC,” “we” or the “Company”) provides electronic manufacturing services (“EMS”) to advanced technology companies that produce life-saving and mission critical products for the medical, industrial, aerospace and defense sectors. The Company specializes in delivering technical solutions for the custom manufacture of complex full system assemblies by providing on-site analytical testing laboratories, custom design and test engineering services combined with a broad array of manufacturing services encompassing electronics, interconnect solutions, and precision metalworking. As a full service EMS provider, IEC holds all appropriate certifications for the market sectors it supports including ISO 9001:2015, AS9100D, and ISO 13485, and we are Nadcap accredited. IEC is headquartered in Newark, NY and also has operations in Rochester, NY and Albuquerque, NM. Additional information about IEC can be found on its web site at www.iec-electronics.com. The contents of this web site are not incorporated by reference into this annual report.

Generally Accepted Accounting Principles

IEC’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Fiscal Calendar

The Company’s fiscal year ends on September 30 and the first three quarters generally end on the Friday closest to the last day of the calendar quarter. For the fiscal year ended September 30, 2020 (“fiscal 2020”), the fiscal quarters ended on December 27, 2019, March 27, 2020 and June 26, 2020. For the fiscal year ended September 30, 2019 (“fiscal 2019”), the fiscal quarters ended on December 28, 2018, March 29, 2019 and June 28, 2019.

Consolidation

The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries: IEC Electronics Corp-Albuquerque (“Albuquerque”); IEC Analysis & Testing Laboratory, LLC (“ATL”); and, for fiscal 2019, IEC California Holdings, Inc., which was dissolved as of September 18, 2019. All intercompany transactions and accounts are eliminated in consolidation.

Cash

The Company’s cash represents deposit accounts with Manufacturers and Traders Trust Company (“M&T Bank”), a banking corporation headquartered in Buffalo, NY. The Company’s cash management system provides for the funding of the disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks in excess of the bank balance create a book overdraft. Book overdrafts are presented in accounts payable in the consolidated balance sheets. There were no book overdrafts as of September 30, 2020. Book overdrafts were $0.3 million as of September 30, 2019. Changes in the book overdrafts are presented within net cash flows provided by/(used in) operating activities within the consolidated statements of cash flows.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value under the first-in, first-out method. The Company regularly assesses slow-moving, excess and obsolete inventory and maintains balance sheet reserves in amounts required to reduce the recorded value of inventory to the lower of cost or net realizable value.

Property, Plant and Equipment

Property, plant and equipment (“PP&E”) are stated at cost and are depreciated over various estimated useful lives using the straight-line method. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. At the time of retirement or other disposition of PP&E, cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded in earnings.

Depreciable lives generally used for PP&E are presented in the table below. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement. 

PP&E Lives	Estimated Useful Lives
	(years)
Land improvements	10
Buildings and improvements	5 to 40
Machinery and equipment	3 to 10
Furniture and fixtures	3 to 7
Software	3 to 10

Reviewing Long-Lived Assets for Potential Impairment

ASC 360 (Property, Plant and Equipment) requires the Company to test long-lived assets (PP&E and definite lived assets) for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable. If carrying value exceeds undiscounted future cash flows attributable to an asset, it is considered impaired and the excess of carrying value over fair value must be charged to earnings. No impairment charges were recorded by IEC for long-lived assets during fiscal 2020 and fiscal 2019. 

Legal Contingencies

When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, ASC 450 (Contingencies) requires the Company to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.

When it is considered probable that a loss has been incurred but the amount of loss cannot be estimated, disclosure but not accrual of the probable loss is required. Disclosure of a loss contingency is also required when it is reasonably possible, but not probable, that a loss has been incurred. 

Legal Expense Accrual

The Company records legal expenses as they are incurred, based on invoices received or estimates provided by legal counsel. Future estimated legal expenses are not recorded until incurred.

Customer Deposits

Customer deposits represent amounts invoiced to customers for which the revenue has not yet been earned and therefore represent a commitment for the Company to deliver goods or services in the future. Deposits are generally short-term in nature and are recognized as revenue when earned.

Fair Value Measurements

Under ASC 825 (Financial Instruments), the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value. The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and borrowings. IEC believes that recorded value approximates fair value for all cash, accounts receivable, accounts payable, accrued liabilities and borrowings.

ASC 820 (Fair Value Measurements and Disclosures) defines fair value, establishes a framework for measurement, and prescribes related disclosures. ASC 820 defines fair value as the price that would be received upon sale of an asset or would be paid to transfer a liability in an orderly transaction. Inputs used to measure fair value are categorized under the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data.

Level 3: Model-derived valuations in which one or more significant inputs are unobservable.

The Company deems a transfer between levels of the fair value hierarchy to have occurred at the beginning of the reporting period. There were no such transfers during fiscal 2020 or fiscal 2019.

Stock-Based Compensation

ASC 718 (Stock Compensation) requires that compensation expense be recognized for equity awards based on fair value as of the date of grant. For stock options, the Company uses the Black-Scholes pricing model to estimate grant date fair value. Costs associated with stock awards are recorded over requisite service periods, generally the vesting period. If vesting is contingent on the achievement of performance objectives, fair value is accrued over the period the objectives are expected to be achieved only if it is considered probable that the objectives will be achieved. The Company also has an employee stock purchase plan (“ESPP”) that provides for the purchase of Company common stock at a discounted stock purchase price.

Income Taxes and Deferred Taxes

ASC 740 (Income Taxes) requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns, but not in both. Deferred tax assets are also established for tax benefits associated with tax loss and tax credit carryforwards. Such deferred tax balances reflect tax rates that are scheduled to be in effect, based on currently enacted legislation, in the years the book/tax differences reverse and tax loss and tax credit carryforwards are expected to be realized. An allowance is established for any deferred tax asset for which realization is not likely.

ASC 740 also prescribes the manner in which a company measures, recognizes, presents, and discloses in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained following examination by taxing authorities, based on technical merits of the position. The Company believes that it has no material uncertain tax positions.

Any interest incurred is reported as interest expense. Any penalties incurred are reported as tax expense. The Company’s income tax filings are subject to audit by various tax jurisdictions and current open years are for fiscal year ended September 30, 2015 through fiscal 2020. 

Dividends

IEC does not pay dividends on its common stock as it is the Company’s current policy to retain earnings for use in the business. Furthermore, the Company’s Sixth Amended and Restated Credit Facility Agreement with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in Note 6—Credit Facilities. 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Significant items subject to such estimates include: excess and obsolete inventory reserve, warranty reserves, the valuation of deferred income tax assets and revenue recognition related to the accounts for over time contracts. Actual results may differ from management’s estimates.

Statements of Cash Flows

The Company presents operating cash flows using the indirect method of reporting under which non-cash income and expense items are removed from net income. 

Segments

The Company’s results of operations for fiscal 2020 and fiscal 2019 represent a single operating and reporting segment, referred to as contract manufacturing within the EMS industry. The Company strategically directs production between its various manufacturing facilities based on a number of considerations to best meet its customers’ requirements. The Company shares resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. The Company’s operations as a whole reflect the level at which the business is managed and how the Company’s chief operating decision maker assesses performance internally.

Leases

At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating lease or a finance lease. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.

The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:

•Periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and

•Periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. Lease components provide the Company with the right to use an identified asset, which consist of real estate properties and equipment. Non-lease components consist primarily of maintenance services.

As an implicit discount rate is not readily available in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of twelve months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other current liabilities and other long-term liabilities, respectively.

A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by the Company to implement the lease and lease incentives. ROU assets are classified as other long-term assets, on the Company’s condensed consolidated balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment, and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record the impairment loss in its condensed consolidated statements of operations. The Company did not recognize an impairment loss during the fiscal year ended September 30, 2020.

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price Index). The Company did not incur variable lease payments during the fiscal year ended September 30, 2020.

Recently Adopted Accounting Standards

FASB Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842) was issued in February 2016. The guidance was effective for the Company beginning with the first quarter of fiscal 2020. As a result of this adoption, the following accounting policies were implemented or changed.

The Company elected the optional transition method to initially apply the new lease standard at the adoption date and not adjust its comparative period consolidated financial statements. The Company has elected the package of three practical expedients, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient in determining lease term or impairment of

ROU assets. In addition, the Company has elected a short-term lease exemption policy that permits the Company to not apply the recognition requirements of the new lease standard to leases with a term of 12 months or less. The Company has also elected an accounting policy to not separate lease and non-lease components for certain classes of leases.

Adoption of Topic 842 resulted in recognition of additional net lease assets of approximately $0.3 million and net lease liabilities of approximately $0.3 million as of October 1, 2019 based on the present value of remaining minimum rental payments and corresponding ROU assets based upon the operating lease liabilities. The adoption did not impact our beginning stockholders’ equity for fiscal 2020 and did not have a material impact on the consolidated statements of operations or cash flows.

Recently Issued Accounting Updates

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03 “Codification Improvements to Financial Instruments.” This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (“CECL”) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to determine their impact on the Company's consolidated financial statements.

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REVENUE RECOGNITION

12 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

NOTE 2—REVENUE RECOGNITION

ASC 606: Revenue from Contracts with Customers

Satisfaction of Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Many of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company primarily provides contract manufacturing services to its customers. The customer provides a design, the Company procures materials and manufactures to that design and ships the product to the customer. Revenue is derived primarily from the manufacturing of these electronics components that are built to customer specifications.

The Company's performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for 51.0% and 51.2% of the Company's revenue for the fiscal years ended September 30, 2020 and September 30, 2019, respectively. Revenue on these contracts is recognized when obligations under the terms of the customer contract are satisfied; generally this occurs with the transfer of control upon shipment. If there is no enforceable right to payment for work completed to date, or the Company does not recapture costs incurred plus an applicable margin, then the Company records revenue upon shipment to the customer.

Revenue from goods and services transferred to customers over time accounted for 49.0% and 48.8% of the Company's revenue for the fiscal years ended September 30, 2020 and September 30, 2019, respectively. For revenue recognized over time, the Company uses an input measure to determine progress towards completion. Under this method, sales and gross profit are

recognized as work is performed generally based on the relationship between the actual costs incurred and the total estimated costs at completion. If the Company has an enforceable right to payment for work completed to date, with a recapture of costs incurred plus an applicable margin, and the goods do not have an alternative future use once the manufacturing process has commenced, then the Company records an unbilled revenue associated with non-cancellable customer orders.

The Company derives revenue from engineering and design services. Service revenue is generally recognized once the service has been rendered. For material management arrangements, revenue is generally recognized as services are rendered. Under such arrangements, some or all of the following services may be provided: design, bid, procurement, testing, storage or other activities relating to materials the customer expects to incorporate into products that it manufactures. Value-added support services revenue, including material management and repair work revenue, amounted to less than 3% of total revenue in each of the fiscal years ended September 30, 2020 and September 30, 2019.

Returns and Discounts

The Company does not offer its customers a right of return. Rather, the Company warrants that each unit received by the customer will meet the agreed upon technical and quality specifications and requirements. Only when the delivered units do not meet these requirements can the customer return the non-compliant units as a corrective action under the warranty. The remedy offered to the customer is repair of the returned units or replacement if repair is not viable. Accordingly, the Company records a warranty reserve and any warranty activities are not considered to be a separate performance obligation. Historically, warranty reserves have not been material.

Provisions for discounts, allowances, estimated returns and other adjustments are recorded in the period the related sales are recognized.

Shipping and Handling Costs

Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in net sales in the accompanying consolidated statements of operations. Shipping and handling costs incurred by the Company for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying consolidated statements of operations.

Contract Assets

Contract assets consist of unbilled contract amounts resulting from sales under contracts when the revenue recognized exceeds the amount billed to the customer.

Practical Expedients and Exemptions

The Company generally expenses incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are recorded in selling and administrative expense in the consolidated statements of operations.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Disaggregated Revenue

The table below shows net sales from contracts with customers by market sector. See additional information regarding market sectors in Note 10—Market Sectors and Major Customers.

	Years Ended
	September 30, 2020						September 30, 2019
	Point in Time		Over Time		Net Sales		Point in Time		Over Time		Net Sales
(in thousands)
Aerospace & Defense	$	56,454	$	53,174	$	109,628	$	42,625	$	51,564	$	94,189
Medical	15,826		31,680		47,506		18,115		16,421		34,536
Industrial	20,877		4,703		25,580		19,597		8,659		28,256
	$	93,157	$	89,557	$	182,714	$	80,337	$	76,644	$	156,981

Customer Deposits

Customer deposits are recorded when cash payments are received or due in advance of revenue recognition from contracts with customers. The timing of revenue recognition may differ from the timing of billings to customers. The changes in customer deposits from the Company's custom manufacturing services are as follows:

	Years Ended
Customer Deposits	September 30, 2020		September 30, 2019
(in thousands)
Beginning balance	$	13,229	$	7,595
Recognition of deferred revenue	(17,807)		(10,799)
Deferral of revenue	24,361		16,433
Ending balance	$	19,783	$	13,229

Sales Outside the United States

For each of the fiscal years ended September 30, 2020 and September 30, 2019, less than 3% of net sales were shipped to locations outside the United States.

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ALLOWANCE FOR DOUBTFUL ACCOUNTS

12 Months Ended

Sep. 30, 2020

Receivables [Abstract]

ALLOWANCE FOR DOUBTFUL ACCOUNTS

NOTE 3—ALLOWANCE FOR DOUBTFUL ACCOUNTS

A summary of activity in the allowance for doubtful accounts during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Allowance for Doubtful Accounts	September 30, 2020		September 30, 2019
(in thousands)
Allowance, beginning of period	$	71	$	85
Increase (decrease) in provision for doubtful accounts	114		(14)
Write-offs	—		—
Allowance, end of period	$	185	$	71

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INVENTORIES

12 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 4—INVENTORIES

A summary of inventory by category at period end follows:

Inventories	September 30, 2020		September 30, 2019
(in thousands)
Raw materials	$	32,904	$	25,393
Work-in-process	15,009		15,928
Finished goods	3,461		2,946
Total inventories	$	51,374	$	44,267

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PROPERTY, PLANT AND EQUIPMENT

12 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET

A summary of property, plant and equipment and accumulated depreciation at period end follows:

Property, Plant and Equipment	September 30, 2020		September 30, 2019
(in thousands)
Land and improvements	$	788	$	788
Buildings and improvements	7,430		7,411
Building under capital lease	7,750		7,750
Machinery and equipment	34,095		31,708
Furniture and fixtures	8,113		8,047
Software	5,215		5,215
Construction in progress	6,079		1,173
Total property, plant and equipment, at cost	69,470		62,092
Accumulated depreciation	(45,883)		(42,659)
Property, plant and equipment, net	$	23,587	$	19,433

Depreciation expense during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Depreciation Expense	September 30, 2020		September 30, 2019
(in thousands)
Depreciation expense	$	3,238	$	2,775

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CREDIT FACILITIES

12 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

CREDIT FACILITIES

NOTE 6—CREDIT FACILITIES

A summary of borrowings at period end follows:   

	Fixed/		September 30, 2020				September 30, 2019
	Variable	Maturity			Interest				Interest
Debt	Rate	Date	Balance		Rate		Balance		Rate
(in thousands)
M&T credit facilities:
Revolving Credit Facility	v	6/4/2023	$	19,960	2.75	%	$	26,646	4.31	%
Master Lease	v	6/4/2023	1,782		3.00		—		—
Term Loan B	v	5/5/2022	—		—		2,779		4.59
Equipment Line Term Note	v	Various	—		—		1,125		4.56
Total debt, gross			21,742				30,550
Unamortized debt issuance costs			(266)				(269)
Total debt, net			21,476				30,281
Less: current portion			—				(1,371)
Long-term debt			$	21,476			$	28,910

M&T Bank Credit Facilities

Effective as of June 4, 2020, the Company and M&T Bank entered into the Sixth Amended and Restated Credit Facility Agreement (the “Credit Facility”) which replaced the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (collectively, the “Prior Credit Facility, as amended”).

Pursuant to the Credit Facility, the Company increased its revolving credit facility to an aggregate principal amount of $45.0 million and added provisions that allow the Company, subject to certain requirements, to request further increases, in minimum amounts of $5.0 million, up to $55.0 million. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Term Loan B and Equipment Line Term Note. The Credit Facility also amended the financial covenant, Fixed Charge Coverage Ratio, and set a Minimum Fixed Charge Coverage Ratio. In addition, the Credit Facility modified the definition of Applicable Margin used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and modified the definition of Permitted Acquisitions. The Credit Facility also established a LIBOR floor of 1% and included an alternate benchmark rate when LIBOR is discontinued. During the fiscal year ended September 30, 2020, the Company paid fees of approximately $84 thousand related to this Credit Facility.

Also as of June 4, 2020, the Company and M&T Bank entered into a master equipment lease (the “Master Lease”) for a lease line of up to $10.0 million in lease value of equipment to the Company. The Master Lease contains terms and provisions customary for transactions of this type, including obligations relating to the use, operation and maintenance of the equipment. The Master Lease also contains customary events of default, including nonpayment of amounts due under the lease and assignments for the benefit of creditors, bankruptcy or insolvency. In the event that an event of default occurs, M&T Bank may exercise one or more remedies specified in the Master Lease. At the conclusion of the lease term, the Company will have the right to purchase the equipment under the Master Lease. The Master Lease will renew automatically for additional 12-month terms until the Company provides M&T Bank with notice of non-renewal.

The Credit Facility is secured by a general security agreement covering the assets of the Company and its subsidiaries, a pledge of the Company’s equity interest in its subsidiaries, a negative pledge on the Company’s real property, and a guarantee by the Company’s subsidiaries, all of which restrict use of these assets to support other financial instruments.

Individual debt facilities provided under the Credit Facility as of September 30, 2020, and Prior Credit Facility, as amended, as of September 30, 2019, are described below:

a)Revolving Credit Facility (“Revolver”): At September 30, 2020, up to $45.0 million was available pursuant to the Credit Facility through June 4, 2023. At September 30, 2019, up to $35.0 million was available through May 5, 2022 under the Prior Credit Facility, as amended. The maximum amount the Company may borrow is determined based on a borrowing base calculation described below.

b)Master Lease: At September 30, 2020, we had drawn down $1.8 million pursuant to the $10.0 million Master Lease that was entered into as of June 4, 2020.

c)Term Loan B: As of September 30, 2019, $14.0 million was borrowed on January 18, 2013. Principal was being repaid in 120 equal monthly installments of $117 thousand. As part of an amendment to the Prior Credit Facility, as amended, the principal was modified from $8.0 million to $6.0 million and principal was being repaid in equal monthly installments of $71 thousand plus a balloon payment of $0.6 million. The maturity date of the loan was May 5, 2022. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Term Loan B and no amounts remained outstanding as of September 30, 2020.

d)Equipment Line Term Note: On March 18, 2019, $0.3 million was converted from an Equipment Line Advance, principal was being repaid in 36 equal monthly installments of $9 thousand and was set to mature on March 18, 2022. On May 6, 2019, $0.4 million was converted from an Equipment Line Advance, principal was being repaid in 36 equal monthly installments of $11 thousand and was set to mature on May 6, 2022. Some of the proceeds from the Credit Facility were used to repay the existing outstanding Equipment Line Term Note and no amounts remained outstanding as of September 30, 2020.

Borrowing Base

At September 30, 2020, under the Credit Facility, the maximum amount the Company can borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus (ii) up to 90% of eligible investment grade accounts plus (iii) a percentage of eligible inventories (up to a cap of $30.0 million). At September 30, 2019, under the Prior Credit Facility, as amended, the maximum amount the Company could borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus a percentage of eligible inventories (up to a cap of $30.0 million) or (ii) $35.0 million.

At September 30, 2020, the upper limit on Revolver borrowings was $39.4 million, and $19.4 million was available. At September 30, 2019, the upper limit on Revolver borrowings was $35.0 million with $8.4 million available. Average Revolver balances amounted to $24.4 million and $21.4 million during the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

Interest Rates

Under the Credit Facility, variable rate debt accrues interest at LIBOR plus the applicable marginal interest rate that fluctuates based on the Company’s Fixed Charge Coverage Ratio, as defined below. At September 30, 2020, the applicable marginal interest rate was 1.75% for the Revolver. At September 30, 2019, the applicable marginal interest rate was 2.25% for the Revolver and 2.50% for Term Loan B and Equipment Line Advances. Changes to applicable margins and unused fees resulting from the Fixed Charge Coverage Ratio, as defined below, generally become effective mid-way through the subsequent quarter.

The Company incurs quarterly unused commitment fees ranging from 0.250% to 0.375% of the excess of $45.0 million over average borrowings under the Revolver. Fees incurred amounted to $32 thousand and $20 thousand during the fiscal years ended September 30, 2020 and September 30, 2019, respectively. The fee percentage varies based on the Company’s Fixed Charge Coverage Ratio, as defined below.

Financial Covenants

The Credit Facility contains various affirmative and negative covenants including financial covenants. As of September 30, 2020, the Company had to maintain a minimum fixed charge coverage ratio (“Fixed Charge Coverage Ratio”). The Fixed Charge Coverage Ratio compares (i) EBITDAS minus unfinanced capital expenditures minus income tax expense, to (ii) the sum of interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, income taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio was measured for a trailing twelve months ended September 30, 2020 as a minimum of 1.10 times. The Fixed Charge Coverage Ratio was the only covenant in effect at September 30, 2020. The Credit Facility also provides for customary events of default, subject in certain cases to customary cure periods, in which the outstanding balance and any unpaid interest would become due and payable.

The Company was in compliance with the financial debt covenant at September 30, 2020.

Contractual Principal Payments

A summary of contractual principal payments under IEC’s borrowings at September 30, 2020 for the next three years taking into consideration the Credit Facility is as follows:

Debt Repayment Schedule	Contractual Principal Payments
(in thousands)
Twelve months ending September 30,
2021	$	—
2022	—
2023	21,742
	$	21,742

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STOCK-BASED COMPENSATION

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 8—STOCK-BASED COMPENSATION

The 2019 Stock Incentive Plan (the “2019 Plan”) was approved by the Company’s stockholders at the March 2019 Annual Meeting. The 2019 Plan replaced the 2010 Omnibus Incentive Compensation Plan (“2010 Plan”) that was approved by the Company’s stockholders at the January 2011 Annual Meeting. The 2019 Plan, like the 2010 Plan, is administered by the Compensation Committee of the Board of Directors and provides for the following types of awards: incentive stock options, nonqualified options, stock appreciation rights, restricted shares, restricted stock units, performance compensation awards, cash incentive awards, director stock and other equity-based and equity-related awards. Awards are generally granted to certain members of management and employees, as well as directors. The Company also has an ESPP, adopted in 2011, that provides for the purchase of Company common stock at a discounted stock purchase price. Under the 2019 Plan, 840,360 shares of common stock, plus any shares that are subject to awards granted under the 2010 Plan that expire, are forfeited or canceled without the issuance of shares (other than shares used to pay the exercise price of a stock option under the 2010 Plan and shares used to cover the tax withholding of the award under the 2010 Plan) may be issued over a term of ten years. Under the ESPP, 150,000 shares of common stock may be issued over a term of ten years.

Stock-based compensation expense totaled $0.7 million and $0.6 million for the fiscal years ended September 30, 2020 and 2019, respectively.

At September 30, 2020, there were 603,869 shares of common stock remaining available to be issued under the 2019 Plan and 74,718 shares of common stock remaining available to be issued under the ESPP.

Expenses relating to stock options that comply with certain U.S. income tax rules are neither deductible by the Company nor taxable to the employee. Further information regarding awards granted under the 2010 Plan, 2019 Plan and ESPP is provided below.

Stock Options

When options are granted, IEC estimates fair value using the Black-Scholes option pricing model and recognizes the computed value as compensation cost over the vesting period, which is typically four years. The contractual term of options granted under the 2010 Plan and 2019 Plan is generally seven years. The volatility rate is based on the historical volatility of IEC’s common stock.

Assumptions used in the Black-Scholes model and the estimated value of options granted during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Valuation of Options	September 30, 2020			September 30, 2019
Assumptions for Black-Scholes:
Risk-free interest rate	0.46		%	1.64		%
Expected term in years	5.5			5.5
Volatility	40		%	37		%
Expected annual dividends	none			none
Value of options granted:
Number of options granted	47,500			70,000
Weighted average fair value per share	$	2.77		$	2.40
Fair value of options granted (000s)	$	132		$	168

A summary of stock option activity, together with other related data, follows:

	Years Ended
	September 30, 2020			September 30, 2019
Stock Options	Number of Options	Wgtd.  Avg. Exercise Price		Number of Options	Wgtd.  Avg. Exercise Price
Outstanding, beginning of period	743,145	$	4.54	737,145	$	4.33
Granted	47,500	6.00		70,000	6.40
Exercised	(100,500)	4.32		(34,000)	4.46
Forfeited	(15,000)	3.92		(24,250)	3.70
Expired	(5,000)	6.91		(5,750)	4.06
Outstanding, end of period	670,145	$	4.67	743,145	$	4.54
For options expected to vest
Number expected to vest	662,160	$	4.66	733,068	$	4.52
Weighted average remaining life, in years	3.3			3.5
Intrinsic value (000s)		$	2,656		$	1,757
For exercisable options
Number exercisable	506,145	$	4.31	566,146	$	4.22
Weighted average remaining life, in years	2.1			2.5
Intrinsic value (000s)		$	2,198		$	1,521
For non-exercisable options
Expense not yet recognized (000s)		$	339		$	329
Weighted average years to be recognized	2.8			3.3
For options exercised
Intrinsic value (000s)		$	444		$	77

Restricted (Non-vested) Stock

Certain holders of IEC restricted stock have voting and dividend rights as of the date of grant, and, until vested, the shares may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically four or five years (three years in the case of directors), holders have all the rights and privileges of any other common stockholder of the Company. The fair value of a share of restricted stock is its market value on the date of grant, and that value is recognized as stock compensation expense over the vesting period. 

A summary of restricted stock activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted (Non-vested) Stock	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	82,707	$	5.25	103,233	$	4.08
Granted	24,850	5.03		32,385	7.09
Vested	(44,482)	4.80		(51,511)	4.09
Forfeited	(13,250)	6.09		(1,400)	4.13
Outstanding, end of period	49,825	$	5.32	82,707	$	5.25
For non-vested shares
Expense not yet recognized (000s)		$	229		$	328
Weighted average remaining years for vesting		1.5			2.0
For shares vested
Aggregate fair value on vesting dates (000s)		$	317		$	346

Stock Issued to Board Members

In addition to annual grants of restricted stock, included in the table above, board members may elect to have their meeting fees paid in the form of shares of the Company’s common stock. The Company has not paid any meeting fees in stock since May 21, 2013. 

Restricted Stock Units

Holders of IEC restricted stock units do not have voting and dividend rights as of the date of grant, and, until vested, the unit may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically three years, holders will receive shares of the Company’s common stock and have all the rights and privileges of any other common stockholder of the Company. The fair value of a restricted stock unit is the market value of the underlying shares of the Company’s stock on the date of grant and that value is recognized as stock compensation expense over the vesting period. 

A summary of restricted stock unit activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted Stock Units	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	153,186	$	5.36	170,492	$	3.96
Granted	50,556	9.19		63,011	7.09
Vested	(17,015)	3.58		(12,258)	4.64
Forfeited	—	—		(68,059)	3.58
Outstanding, end of period	186,727	$	6.56	153,186	$	5.36
For non-vested shares
Expense not yet recognized (000s)		$	762		$	659
Weighted average remaining years for vesting		1.8			2.2
For shares vested
Aggregate fair value on vesting dates (000s)		$	86		$	—

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INCOME TAXES

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9—INCOME TAXES

Provision for income taxes during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Income Tax Provision	September 30, 2020		September 30, 2019
(in thousands)
Current tax:
State	$	146	$	116
Federal	(517)		(517)
Deferred tax:
State	(49)		17
Federal	2,340		1,471
Valuation allowance	23		89
Provision for income taxes	$	1,943	$	1,176

Differences between the federal statutory rate and IEC’s effective tax rates for fiscal 2020 and fiscal 2019 are explained by the following reconciliation.

	Years Ended
Taxes as Percent of Pretax Income	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
Increase in valuation allowance	0.3		1.5
Deferred tax adjustment	—		0.5
State income taxes, net of federal benefit	2.8		1.8
Stock-based compensation	(0.5)		0.3
Research and development credit	(1.4)		(5.4)
Non-deductible expenses	0.1		0.2
Income tax provision as percent of pretax income	22.3	%	19.9	%

The following table displays deferred tax assets by category:

	As of
Deferred Tax Assets/(Liabilities)	September 30, 2020		September 30, 2019
(in thousands)
Deferred tax assets/(liabilities):
Federal and state net operating loss carryforward	$	3,194	$	4,945
Alternative minimum tax credit carryforward	—		517
Depreciation and fixed assets	(213)		268
New York State investment tax and other credits	1,419		1,396
Inventories	876		476
Deferred gain on sale-leaseback	466		452
Research and development credit	440		319
Section 481(a) adjustment	(64)		(96)
Other	141		273
Total deferred tax asset before allowance	6,259		8,550
Valuation allowance	(1,419)		(1,396)
Deferred tax assets, net	$	4,840	$	7,154

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company has assessed the provisions of the CARES Act and determined that there were no material tax impacts to the consolidated financial statements for the fiscal year ended September 30, 2020.

The CARES Act includes a provision which accelerates the refund of alternative minimum tax (“AMT”) credits to allow a full utilization or refund of the remaining credits beginning in tax year 2019, with the option to elect to claim the refund in tax year 2018. In the prior fiscal year, as the Company expected to have net operating loss carryforward to offset its 2019 taxable income in full, the AMT credit was expected to be refundable in full. As such, the Company elected to claim the remaining AMT refund in full in the 2018 tax year and thus reclassified the remaining portion of its AMT credit from deferred income tax to federal income tax receivable in the consolidated balance sheet. As of September 30, 2020, the refund has been received in full and thus the federal income tax receivable balance is zero.

As of September 30, 2020, the Company’s deferred tax assets were primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and New York State tax credit carryforwards. A valuation allowance of $1.4 million was recorded against the Company's gross deferred tax asset balance as of September 30, 2020 and 2019.

IEC has federal NOLs for income tax purposes of approximately $15.2 million at September 30, 2020, expiring in tax year 2034. The Company also has an additional state NOL available of $0.1 million in one jurisdiction in which it files.

New York state corporate tax reform has resulted in the reduction of the business income base rate for qualified manufacturers in New York State to 0% beginning in fiscal 2016 for IEC. At September 30, 2020, the Company has $1.4 million of New York State investment tax and other credit carryforwards, expiring in various years through 2032. The credits cannot be utilized unless the New York state tax rate is no longer 0%, and as such, the Company has recorded a valuation allowance against the full amount of these credit carryforwards (net of the federal benefit).

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MARKET SECTORS AND MAJOR CUSTOMERS

12 Months Ended

Sep. 30, 2020

Risks and Uncertainties [Abstract]

MARKET SECTORS AND MAJOR CUSTOMERS

NOTE 10—MARKET SECTORS AND MAJOR CUSTOMERS

A summary of sales, according to the market sector within which IEC’s customers operate, follows: 

	Years Ended
Percent of Sales by Sector	September 30, 2020	September 30, 2019
Aerospace and Defense	60%	60%
Medical	26%	22%
Industrial	14%	18%
	100%	100%

Three individual customers represented 10% or more of sales for the fiscal year ended September 30, 2020. Two customers were in the aerospace and defense sector and totaled 27% and 11% of sales, respectively. The third customer was in the medical sector and represented 17% of sales. In the prior fiscal year, one individual customer represented 10% or more of sales, this customer was in the aerospace and defense sector and totaled 23% of sales.

Two individual customers represented 10% or more of receivables and accounted for 30% of outstanding balances at September 30, 2020. At September 30, 2019, two individual customers represented 10% or more of receivables and accounted for 38% of such outstanding balances.

Credit risk associated with individual customers is periodically evaluated by analyzing the entity’s financial condition and payment history. Customers generally are not required to post collateral.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11—COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be involved in legal actions in the ordinary course of its business, but management does not believe that any such proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s consolidated financial statements.

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LEASES (Notes)

12 Months Ended

Sep. 30, 2020

Leases [Abstract]

LEASES

NOTE 12—LEASES

Operating Leases

IEC has a lease portfolio that consists of operating leases for equipment, and has remaining terms from less than one year to up to approximately five years, with contractual terms expiring from 2020 to 2024. None of these leases contain residual value guarantees, substantial restrictions, or covenants.

Supplemental balance sheet information related to the Company’s operating leases were as follows:

	September 30, 2020
Weighted average remaining lease term for operating leases (in years)	3.8
Weighted average discount rate for operating leases	5.47	%

Finance Leases

IEC's lease portfolio also consists of finance leases for equipment and real estate, and has remaining terms of five years up to approximately thirteen years, with contractual terms expiring in 2024 through 2033.

Supplemental balance sheet information related to the Company’s finance leases were as follows:

	September 30, 2020
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)	$	6,329
Weighted average remaining lease term for finance leases (in years)	11.3
Weighted average discount rate for finance leases	4.83%

Lease Expense

The components of lease expense, recorded in cost of sales, selling and administrative expenses and interest expense in the consolidated statements of operations, during the fiscal year ended September 30, 2020 were as follows:

		Year ended
Lease Expense	Classification	September 30, 2020
(in thousands)
Operating lease expense
Fixed payment operating lease expense ¹	Cost of sales	$	184
Fixed payment operating lease expense	Selling and administrative expenses	32
Variable payment operating lease expense		—
Finance lease expense
Depreciation of ROU assets	Cost of sales	534
Interest	Interest expense	347
Total lease expense		$	1,097

1 Includes short-term leases which are not material.

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases during the fiscal year ended September 30, 2020 were as follows:

	Year ended
Supplemental Cash Flow	September 30, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease ROU assets	$	83
Interest paid on finance leases	346
Financing cash flows from finance leases	—
Lease liabilities arising from obtaining ROU assets:
Operating leases	$	53

Contractual Lease Payments

A summary of operating lease payments for the next five years follows:

Operating Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	73
2022	73
2023	71
2024	55
2025 and thereafter	—
Total operating lease payments	272
Less: amounts representing interest	(27)
Total operating lease obligation	$	245

A summary of finance lease payments for the next five years follows:

Finance Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	768
2022	781
2023	795
2024	809
2025 and thereafter	6,117
Total finance lease payments	9,270
Less: amounts representing interest	(2,218)
Total finance lease obligation	$	7,052

The Company also entered into a master lease arrangement for certain equipment and leasehold improvements to be located at the new facility in Newark, NY and received financing of $1.8 million during the fiscal year ended September 30, 2020 which is included in property, plant and equipment as construction in progress and as a long-term debt section of the consolidated balance sheet. As of September 30, 2020, the Company has an outstanding lease agreement that has not yet commenced for certain property located in Newark, New York that will include a new manufacturing facility and administrative offices. The facility lease is expected to commence in early fiscal 2021 when construction of the asset is complete.

Disclosures Related to Periods Prior to Adoption of the New Lease Standard

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and under the previous lease accounting standard, the maturities of lease liabilities at September 30, 2019 were as follows:

Capital Lease Payment Schedule	Contractual Payments
(in thousands)
Twelve months ending September 30,
2020	$	673
2021	686
2022	700
2023	714
2024 and thereafter	6,720
Total capital lease payments	9,493
Less: amounts representing interest	(2,470)
Present value of minimum lease payment	$	7,023

LEASES

NOTE 12—LEASES

Operating Leases

IEC has a lease portfolio that consists of operating leases for equipment, and has remaining terms from less than one year to up to approximately five years, with contractual terms expiring from 2020 to 2024. None of these leases contain residual value guarantees, substantial restrictions, or covenants.

Supplemental balance sheet information related to the Company’s operating leases were as follows:

	September 30, 2020
Weighted average remaining lease term for operating leases (in years)	3.8
Weighted average discount rate for operating leases	5.47	%

Finance Leases

IEC's lease portfolio also consists of finance leases for equipment and real estate, and has remaining terms of five years up to approximately thirteen years, with contractual terms expiring in 2024 through 2033.

Supplemental balance sheet information related to the Company’s finance leases were as follows:

	September 30, 2020
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)	$	6,329
Weighted average remaining lease term for finance leases (in years)	11.3
Weighted average discount rate for finance leases	4.83%

Lease Expense

The components of lease expense, recorded in cost of sales, selling and administrative expenses and interest expense in the consolidated statements of operations, during the fiscal year ended September 30, 2020 were as follows:

		Year ended
Lease Expense	Classification	September 30, 2020
(in thousands)
Operating lease expense
Fixed payment operating lease expense ¹	Cost of sales	$	184
Fixed payment operating lease expense	Selling and administrative expenses	32
Variable payment operating lease expense		—
Finance lease expense
Depreciation of ROU assets	Cost of sales	534
Interest	Interest expense	347
Total lease expense		$	1,097

1 Includes short-term leases which are not material.

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases during the fiscal year ended September 30, 2020 were as follows:

	Year ended
Supplemental Cash Flow	September 30, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease ROU assets	$	83
Interest paid on finance leases	346
Financing cash flows from finance leases	—
Lease liabilities arising from obtaining ROU assets:
Operating leases	$	53

Contractual Lease Payments

A summary of operating lease payments for the next five years follows:

Operating Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	73
2022	73
2023	71
2024	55
2025 and thereafter	—
Total operating lease payments	272
Less: amounts representing interest	(27)
Total operating lease obligation	$	245

A summary of finance lease payments for the next five years follows:

Finance Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	768
2022	781
2023	795
2024	809
2025 and thereafter	6,117
Total finance lease payments	9,270
Less: amounts representing interest	(2,218)
Total finance lease obligation	$	7,052

The Company also entered into a master lease arrangement for certain equipment and leasehold improvements to be located at the new facility in Newark, NY and received financing of $1.8 million during the fiscal year ended September 30, 2020 which is included in property, plant and equipment as construction in progress and as a long-term debt section of the consolidated balance sheet. As of September 30, 2020, the Company has an outstanding lease agreement that has not yet commenced for certain property located in Newark, New York that will include a new manufacturing facility and administrative offices. The facility lease is expected to commence in early fiscal 2021 when construction of the asset is complete.

Disclosures Related to Periods Prior to Adoption of the New Lease Standard

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and under the previous lease accounting standard, the maturities of lease liabilities at September 30, 2019 were as follows:

Capital Lease Payment Schedule	Contractual Payments
(in thousands)
Twelve months ending September 30,
2020	$	673
2021	686
2022	700
2023	714
2024 and thereafter	6,720
Total capital lease payments	9,493
Less: amounts representing interest	(2,470)
Present value of minimum lease payment	$	7,023

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Net Income Per Share (Notes)

12 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

NET INCOME PER SHARE

NOTE 13—NET INCOME PER SHARE

The Company applies the two-class method to calculate and present net income per share. Certain of the Company's restricted (non-vested) share awards contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing net income per share pursuant to the two-class method. Under the two-class method, net earnings are reduced by the amount of dividends declared (whether paid or unpaid) and the remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends.

Basic earnings per common share are calculated by dividing income available to common stockholders by the weighted average number of shares outstanding during each period. Diluted net earnings per common share add to the denominator incremental shares resulting from the assumed exercise of all potentially dilutive stock options, as well as unvested restricted stock and restricted stock units. Options, restricted stock and restricted stock units are primarily held by directors, officers and certain employees.

The Company uses the two-class method to calculate net income per share as both classes share the same rights in dividends. Therefore, basic and diluted earnings per share (“EPS”) are the same for both classes of ordinary shares.

A summary of shares used in the EPS calculations follows (in thousands except share and per share data):

	Years Ended
Net Income Per Share	September 30, 2020		September 30, 2019
Basic net income per share:
Net income	$	6,753	$	4,747
Less: Income attributable to non-vested shares	32		38
Net income available to common stockholders	$	6,721	$	4,709
Weighted average common shares outstanding	10,417,445		10,306,947
Basic net income per share	$	0.65	$	0.46
Diluted net income per share:
Net income	$	6,753	$	4,747
Shares used in computing basic net income per share	10,417,445		10,306,947
Dilutive effect of non-vested shares and options	309,993		211,179
Shares used in computing diluted net income per share	10,727,438		10,518,126
Diluted net income per share	$	0.63	$	0.45

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the net income per share calculations.

	Years Ended
	September 30, 2020	September 30, 2019
Anti-dilutive shares excluded	1,202	61,475

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QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Sep. 30, 2020

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL DATA (UNAUDITED)

NOTE 14—QUARTERLY FINANCIAL DATA (UNAUDITED)

The accompanying unaudited financial information for the three month periods specified below have been prepared in accordance with GAAP for interim financial information. In the opinion of management, all adjustments required for a fair presentation of the information have been made.

Note that quarterly amounts are rounded separately and as a result the sum of the quarterly amounts may not equal the computed amount for the full year.

	Net Sales		Gross Profit		Net Income		Basic Earnings Per Share		Diluted Earnings Per Share
(Unaudited; in thousands, except per share data)
Fiscal Quarters
Fourth 2020	$	46,446	$	6,737	$	1,927	$	0.18	$	0.18
Third 2020	47,364		6,642		2,114		0.20		0.20
Second 2020	44,171		5,503		1,523		0.15		0.14
First 2020	44,734		5,239		1,189		0.11		0.11
Fourth 2019	$	43,922	$	6,394	$	1,794	$	0.17	$	0.17
Third 2019	40,324		5,605		1,211		0.12		0.11
Second 2019	37,294		4,586		670		0.06		0.06
First 2019	35,441		5,059		1,072		0.10		0.10

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Subsequent Events

12 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 15—SUBSEQUENT EVENTS

On September 15, 2020, the Company announced that it had entered into a Purchase and Sale Agreement dated as of August 28, 2020 (the “Agreement”), pursuant to which the Company agreed to acquire an approximately 86,000 square foot industrial and office building and certain equipment located in Rochester, New York (the “Property”) from Rochester Drug Co-Operative, Inc. for a purchase price of $5.3 million, exclusive of closing costs. The Company financed a portion of the purchase price for the Property with a mortgage loan from M&T Bank. The Agreement contains customary representations and warranties and customary indemnification provisions for transactions of this type. The closing occurred in October 2020.

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Generally Accepted Accounting Principles

Generally Accepted Accounting Principles

IEC’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Fiscal Calendar

Fiscal Calendar

The Company’s fiscal year ends on September 30 and the first three quarters generally end on the Friday closest to the last day of the calendar quarter. For the fiscal year ended September 30, 2020 (“fiscal 2020”), the fiscal quarters ended on December 27, 2019, March 27, 2020 and June 26, 2020. For the fiscal year ended September 30, 2019 (“fiscal 2019”), the fiscal quarters ended on December 28, 2018, March 29, 2019 and June 28, 2019.

Consolidation

Consolidation

The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries: IEC Electronics Corp-Albuquerque (“Albuquerque”); IEC Analysis & Testing Laboratory, LLC (“ATL”); and, for fiscal 2019, IEC California Holdings, Inc., which was dissolved as of September 18, 2019. All intercompany transactions and accounts are eliminated in consolidation.

Cash

Cash

The Company’s cash represents deposit accounts with Manufacturers and Traders Trust Company (“M&T Bank”), a banking corporation headquartered in Buffalo, NY. The Company’s cash management system provides for the funding of the disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks in excess of the bank balance create a book overdraft. Book overdrafts are presented in accounts payable in the consolidated balance sheets. There were no book overdrafts as of September 30, 2020. Book overdrafts were $0.3 million as of September 30, 2019. Changes in the book overdrafts are presented within net cash flows provided by/(used in) operating activities within the consolidated statements of cash flows.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote.

Inventory Valuation

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value under the first-in, first-out method. The Company regularly assesses slow-moving, excess and obsolete inventory and maintains balance sheet reserves in amounts required to reduce the recorded value of inventory to the lower of cost or net realizable value.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment (“PP&E”) are stated at cost and are depreciated over various estimated useful lives using the straight-line method. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. At the time of retirement or other disposition of PP&E, cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded in earnings.

Depreciable lives generally used for PP&E are presented in the table below. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement. 

PP&E Lives	Estimated Useful Lives
	(years)
Land improvements	10
Buildings and improvements	5 to 40
Machinery and equipment	3 to 10
Furniture and fixtures	3 to 7
Software	3 to 10

Reviewing Long-Lived Assets for Potential Impairment

Reviewing Long-Lived Assets for Potential Impairment

ASC 360 (Property, Plant and Equipment) requires the Company to test long-lived assets (PP&E and definite lived assets) for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable. If carrying value exceeds undiscounted future cash flows attributable to an asset, it is considered impaired and the excess of carrying value over fair value must be charged to earnings. No impairment charges were recorded by IEC for long-lived assets during fiscal 2020 and fiscal 2019.

Legal Contingencies

Legal Contingencies

When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, ASC 450 (Contingencies) requires the Company to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.

When it is considered probable that a loss has been incurred but the amount of loss cannot be estimated, disclosure but not accrual of the probable loss is required. Disclosure of a loss contingency is also required when it is reasonably possible, but not probable, that a loss has been incurred.

Legal Expense Accrual

Legal Expense Accrual

The Company records legal expenses as they are incurred, based on invoices received or estimates provided by legal counsel. Future estimated legal expenses are not recorded until incurred.

Customer Deposits

Customer Deposits

Customer deposits represent amounts invoiced to customers for which the revenue has not yet been earned and therefore represent a commitment for the Company to deliver goods or services in the future. Deposits are generally short-term in nature and are recognized as revenue when earned.

Fair Value Measurements

Fair Value Measurements

Under ASC 825 (Financial Instruments), the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value. The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and borrowings. IEC believes that recorded value approximates fair value for all cash, accounts receivable, accounts payable, accrued liabilities and borrowings.

ASC 820 (Fair Value Measurements and Disclosures) defines fair value, establishes a framework for measurement, and prescribes related disclosures. ASC 820 defines fair value as the price that would be received upon sale of an asset or would be paid to transfer a liability in an orderly transaction. Inputs used to measure fair value are categorized under the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data.

Level 3: Model-derived valuations in which one or more significant inputs are unobservable.

The Company deems a transfer between levels of the fair value hierarchy to have occurred at the beginning of the reporting period.

Stock-Based Compensation

Stock-Based Compensation

ASC 718 (Stock Compensation) requires that compensation expense be recognized for equity awards based on fair value as of the date of grant. For stock options, the Company uses the Black-Scholes pricing model to estimate grant date fair value. Costs associated with stock awards are recorded over requisite service periods, generally the vesting period. If vesting is contingent on the achievement of performance objectives, fair value is accrued over the period the objectives are expected to be achieved only if it is considered probable that the objectives will be achieved. The Company also has an employee stock purchase plan (“ESPP”) that provides for the purchase of Company common stock at a discounted stock purchase price.

Income Taxes and Deferred Taxes

Income Taxes and Deferred Taxes

ASC 740 (Income Taxes) requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns, but not in both. Deferred tax assets are also established for tax benefits associated with tax loss and tax credit carryforwards. Such deferred tax balances reflect tax rates that are scheduled to be in effect, based on currently enacted legislation, in the years the book/tax differences reverse and tax loss and tax credit carryforwards are expected to be realized. An allowance is established for any deferred tax asset for which realization is not likely.

ASC 740 also prescribes the manner in which a company measures, recognizes, presents, and discloses in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained following examination by taxing authorities, based on technical merits of the position. The Company believes that it has no material uncertain tax positions.

Any interest incurred is reported as interest expense. Any penalties incurred are reported as tax expense. The Company’s income tax filings are subject to audit by various tax jurisdictions and current open years are for fiscal year ended September 30, 2015 through fiscal 2020.

Dividends

Dividends

IEC does not pay dividends on its common stock as it is the Company’s current policy to retain earnings for use in the business. Furthermore, the Company’s Sixth Amended and Restated Credit Facility Agreement with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in Note 6—Credit Facilities.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Significant items subject to such estimates include: excess and obsolete inventory reserve, warranty reserves, the valuation of deferred income tax assets and revenue recognition related to the accounts for over time contracts. Actual results may differ from management’s estimates.

Statements of Cash Flows

Statements of Cash Flows

The Company presents operating cash flows using the indirect method of reporting under which non-cash income and expense items are removed from net income.

Segments

Segments

The Company’s results of operations for fiscal 2020 and fiscal 2019 represent a single operating and reporting segment, referred to as contract manufacturing within the EMS industry. The Company strategically directs production between its various manufacturing facilities based on a number of considerations to best meet its customers’ requirements. The Company shares resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. The Company’s operations as a whole reflect the level at which the business is managed and how the Company’s chief operating decision maker assesses performance internally.

Leases

Leases

At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating lease or a finance lease. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.

The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:

•Periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and

•Periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. Lease components provide the Company with the right to use an identified asset, which consist of real estate properties and equipment. Non-lease components consist primarily of maintenance services.

As an implicit discount rate is not readily available in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of twelve months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other current liabilities and other long-term liabilities, respectively.

A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by the Company to implement the lease and lease incentives. ROU assets are classified as other long-term assets, on the Company’s condensed consolidated balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment, and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record the impairment loss in its condensed consolidated statements of operations. The Company did not recognize an impairment loss during the fiscal year ended September 30, 2020.

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price Index). The Company did not incur variable lease payments during the fiscal year ended September 30, 2020.

Recently Adopted Accounting Standards and Recently Issued Accounting Updates

Recently Adopted Accounting Standards

FASB Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842) was issued in February 2016. The guidance was effective for the Company beginning with the first quarter of fiscal 2020. As a result of this adoption, the following accounting policies were implemented or changed.

The Company elected the optional transition method to initially apply the new lease standard at the adoption date and not adjust its comparative period consolidated financial statements. The Company has elected the package of three practical expedients, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient in determining lease term or impairment of

ROU assets. In addition, the Company has elected a short-term lease exemption policy that permits the Company to not apply the recognition requirements of the new lease standard to leases with a term of 12 months or less. The Company has also elected an accounting policy to not separate lease and non-lease components for certain classes of leases.

Adoption of Topic 842 resulted in recognition of additional net lease assets of approximately $0.3 million and net lease liabilities of approximately $0.3 million as of October 1, 2019 based on the present value of remaining minimum rental payments and corresponding ROU assets based upon the operating lease liabilities. The adoption did not impact our beginning stockholders’ equity for fiscal 2020 and did not have a material impact on the consolidated statements of operations or cash flows.

Recently Issued Accounting Updates

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03 “Codification Improvements to Financial Instruments.” This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (“CECL”) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to determine their impact on the Company's consolidated financial statements.

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Property, Plant and Equipment

Depreciable lives generally used for PP&E are presented in the table below. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement. 

PP&E Lives	Estimated Useful Lives
	(years)
Land improvements	10
Buildings and improvements	5 to 40
Machinery and equipment	3 to 10
Furniture and fixtures	3 to 7
Software	3 to 10

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REVENUE RECOGNITION (Tables)

12 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The table below shows net sales from contracts with customers by market sector. See additional information regarding market sectors in Note 10—Market Sectors and Major Customers.

	Years Ended
	September 30, 2020						September 30, 2019
	Point in Time		Over Time		Net Sales		Point in Time		Over Time		Net Sales
(in thousands)
Aerospace & Defense	$	56,454	$	53,174	$	109,628	$	42,625	$	51,564	$	94,189
Medical	15,826		31,680		47,506		18,115		16,421		34,536
Industrial	20,877		4,703		25,580		19,597		8,659		28,256
	$	93,157	$	89,557	$	182,714	$	80,337	$	76,644	$	156,981

Schedule of Customer Material Deposits

The changes in customer deposits from the Company's custom manufacturing services are as follows:

	Years Ended
Customer Deposits	September 30, 2020		September 30, 2019
(in thousands)
Beginning balance	$	13,229	$	7,595
Recognition of deferred revenue	(17,807)		(10,799)
Deferral of revenue	24,361		16,433
Ending balance	$	19,783	$	13,229

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ALLOWANCE FOR DOUBTFUL ACCOUNTS (Tables)

12 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Allowance for Credit Losses on Financing Receivables

A summary of activity in the allowance for doubtful accounts during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Allowance for Doubtful Accounts	September 30, 2020		September 30, 2019
(in thousands)
Allowance, beginning of period	$	71	$	85
Increase (decrease) in provision for doubtful accounts	114		(14)
Write-offs	—		—
Allowance, end of period	$	185	$	71

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INVENTORIES (Tables)

12 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

A summary of inventory by category at period end follows:

Inventories	September 30, 2020		September 30, 2019
(in thousands)
Raw materials	$	32,904	$	25,393
Work-in-process	15,009		15,928
Finished goods	3,461		2,946
Total inventories	$	51,374	$	44,267

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PROPERTY, PLANT AND EQUIPMENT (Tables)

12 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Fixed Assets Schedule And Accumulated Depreciation Disclosure

A summary of property, plant and equipment and accumulated depreciation at period end follows:

Property, Plant and Equipment	September 30, 2020		September 30, 2019
(in thousands)
Land and improvements	$	788	$	788
Buildings and improvements	7,430		7,411
Building under capital lease	7,750		7,750
Machinery and equipment	34,095		31,708
Furniture and fixtures	8,113		8,047
Software	5,215		5,215
Construction in progress	6,079		1,173
Total property, plant and equipment, at cost	69,470		62,092
Accumulated depreciation	(45,883)		(42,659)
Property, plant and equipment, net	$	23,587	$	19,433

Depreciation expense during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Depreciation Expense	September 30, 2020		September 30, 2019
(in thousands)
Depreciation expense	$	3,238	$	2,775

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CREDIT FACILITIES (Tables)

12 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of Debt

A summary of borrowings at period end follows:   

	Fixed/		September 30, 2020				September 30, 2019
	Variable	Maturity			Interest				Interest
Debt	Rate	Date	Balance		Rate		Balance		Rate
(in thousands)
M&T credit facilities:
Revolving Credit Facility	v	6/4/2023	$	19,960	2.75	%	$	26,646	4.31	%
Master Lease	v	6/4/2023	1,782		3.00		—		—
Term Loan B	v	5/5/2022	—		—		2,779		4.59
Equipment Line Term Note	v	Various	—		—		1,125		4.56
Total debt, gross			21,742				30,550
Unamortized debt issuance costs			(266)				(269)
Total debt, net			21,476				30,281
Less: current portion			—				(1,371)
Long-term debt			$	21,476			$	28,910

Schedule of Maturities of Long-term Debt

A summary of contractual principal payments under IEC’s borrowings at September 30, 2020 for the next three years taking into consideration the Credit Facility is as follows:

Debt Repayment Schedule	Contractual Principal Payments
(in thousands)
Twelve months ending September 30,
2021	$	—
2022	—
2023	21,742
	$	21,742

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WARRANTY RESERVES (Tables)

12 Months Ended

Sep. 30, 2020

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability

A summary of additions to and charges against IEC’s warranty reserves during the period follows: 

	Years Ended
Warranty Reserve	September 30, 2020		September 30, 2019
(in thousands)
Reserve, beginning of period	$	165	$	173
Provision	(14)		116
Warranty costs	(51)		(124)
Reserve, end of period	$	100	$	165

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STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

Assumptions used in the Black-Scholes model and the estimated value of options granted during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Valuation of Options	September 30, 2020			September 30, 2019
Assumptions for Black-Scholes:
Risk-free interest rate	0.46		%	1.64		%
Expected term in years	5.5			5.5
Volatility	40		%	37		%
Expected annual dividends	none			none
Value of options granted:
Number of options granted	47,500			70,000
Weighted average fair value per share	$	2.77		$	2.40
Fair value of options granted (000s)	$	132		$	168

Changes in Number of Options Outstanding with Other Related Data

A summary of stock option activity, together with other related data, follows:

	Years Ended
	September 30, 2020			September 30, 2019
Stock Options	Number of Options	Wgtd.  Avg. Exercise Price		Number of Options	Wgtd.  Avg. Exercise Price
Outstanding, beginning of period	743,145	$	4.54	737,145	$	4.33
Granted	47,500	6.00		70,000	6.40
Exercised	(100,500)	4.32		(34,000)	4.46
Forfeited	(15,000)	3.92		(24,250)	3.70
Expired	(5,000)	6.91		(5,750)	4.06
Outstanding, end of period	670,145	$	4.67	743,145	$	4.54
For options expected to vest
Number expected to vest	662,160	$	4.66	733,068	$	4.52
Weighted average remaining life, in years	3.3			3.5
Intrinsic value (000s)		$	2,656		$	1,757
For exercisable options
Number exercisable	506,145	$	4.31	566,146	$	4.22
Weighted average remaining life, in years	2.1			2.5
Intrinsic value (000s)		$	2,198		$	1,521
For non-exercisable options
Expense not yet recognized (000s)		$	339		$	329
Weighted average years to be recognized	2.8			3.3
For options exercised
Intrinsic value (000s)		$	444		$	77

Changes in Number of Restricted Non-vested Stock Outstanding with Other Related Data

A summary of restricted stock activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted (Non-vested) Stock	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	82,707	$	5.25	103,233	$	4.08
Granted	24,850	5.03		32,385	7.09
Vested	(44,482)	4.80		(51,511)	4.09
Forfeited	(13,250)	6.09		(1,400)	4.13
Outstanding, end of period	49,825	$	5.32	82,707	$	5.25
For non-vested shares
Expense not yet recognized (000s)		$	229		$	328
Weighted average remaining years for vesting		1.5			2.0
For shares vested
Aggregate fair value on vesting dates (000s)		$	317		$	346

A summary of restricted stock unit activity, together with related data, follows: 

	Years Ended
	September 30, 2020			September 30, 2019
Restricted Stock Units	Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares	Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period	153,186	$	5.36	170,492	$	3.96
Granted	50,556	9.19		63,011	7.09
Vested	(17,015)	3.58		(12,258)	4.64
Forfeited	—	—		(68,059)	3.58
Outstanding, end of period	186,727	$	6.56	153,186	$	5.36
For non-vested shares
Expense not yet recognized (000s)		$	762		$	659
Weighted average remaining years for vesting		1.8			2.2
For shares vested
Aggregate fair value on vesting dates (000s)		$	86		$	—

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INCOME TAXES (Tables)

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

Provision for income taxes during the fiscal years ended September 30, 2020 and 2019 follows:

	Years Ended
Income Tax Provision	September 30, 2020		September 30, 2019
(in thousands)
Current tax:
State	$	146	$	116
Federal	(517)		(517)
Deferred tax:
State	(49)		17
Federal	2,340		1,471
Valuation allowance	23		89
Provision for income taxes	$	1,943	$	1,176

Schedule of Effective Income Tax Rate Reconciliation

Differences between the federal statutory rate and IEC’s effective tax rates for fiscal 2020 and fiscal 2019 are explained by the following reconciliation.

	Years Ended
Taxes as Percent of Pretax Income	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
Increase in valuation allowance	0.3		1.5
Deferred tax adjustment	—		0.5
State income taxes, net of federal benefit	2.8		1.8
Stock-based compensation	(0.5)		0.3
Research and development credit	(1.4)		(5.4)
Non-deductible expenses	0.1		0.2
Income tax provision as percent of pretax income	22.3	%	19.9	%

Schedule of Deferred Tax Assets by Category

The following table displays deferred tax assets by category:

	As of
Deferred Tax Assets/(Liabilities)	September 30, 2020		September 30, 2019
(in thousands)
Deferred tax assets/(liabilities):
Federal and state net operating loss carryforward	$	3,194	$	4,945
Alternative minimum tax credit carryforward	—		517
Depreciation and fixed assets	(213)		268
New York State investment tax and other credits	1,419		1,396
Inventories	876		476
Deferred gain on sale-leaseback	466		452
Research and development credit	440		319
Section 481(a) adjustment	(64)		(96)
Other	141		273
Total deferred tax asset before allowance	6,259		8,550
Valuation allowance	(1,419)		(1,396)
Deferred tax assets, net	$	4,840	$	7,154

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MARKET SECTORS AND MAJOR CUSTOMERS (Tables)

12 Months Ended

Sep. 30, 2020

Risks and Uncertainties [Abstract]

Schedules of Concentration of Risk, by Risk Factor

A summary of sales, according to the market sector within which IEC’s customers operate, follows: 

	Years Ended
Percent of Sales by Sector	September 30, 2020	September 30, 2019
Aerospace and Defense	60%	60%
Medical	26%	22%
Industrial	14%	18%
	100%	100%

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LEASES (Tables)

12 Months Ended

Sep. 30, 2020

Leases [Abstract]

Supplemental Balance Sheet Information

Supplemental balance sheet information related to the Company’s operating leases were as follows:

	September 30, 2020
Weighted average remaining lease term for operating leases (in years)	3.8
Weighted average discount rate for operating leases	5.47	%

Supplemental balance sheet information related to the Company’s finance leases were as follows:

	September 30, 2020
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)	$	6,329
Weighted average remaining lease term for finance leases (in years)	11.3
Weighted average discount rate for finance leases	4.83%

Components of Lease Expense and Supplemental Cash Flow Information

The components of lease expense, recorded in cost of sales, selling and administrative expenses and interest expense in the consolidated statements of operations, during the fiscal year ended September 30, 2020 were as follows:

		Year ended
Lease Expense	Classification	September 30, 2020
(in thousands)
Operating lease expense
Fixed payment operating lease expense ¹	Cost of sales	$	184
Fixed payment operating lease expense	Selling and administrative expenses	32
Variable payment operating lease expense		—
Finance lease expense
Depreciation of ROU assets	Cost of sales	534
Interest	Interest expense	347
Total lease expense		$	1,097

1 Includes short-term leases which are not material.

Supplemental cash flow information related to the Company's leases during the fiscal year ended September 30, 2020 were as follows:

	Year ended
Supplemental Cash Flow	September 30, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease ROU assets	$	83
Interest paid on finance leases	346
Financing cash flows from finance leases	—
Lease liabilities arising from obtaining ROU assets:
Operating leases	$	53

Operating Lease Payments for Next Five Years

A summary of operating lease payments for the next five years follows:

Operating Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	73
2022	73
2023	71
2024	55
2025 and thereafter	—
Total operating lease payments	272
Less: amounts representing interest	(27)
Total operating lease obligation	$	245

Finance Lease Payments for Next Five Years

A summary of finance lease payments for the next five years follows:

Finance Lease Payment Schedule	Contractual Lease Payments
(in thousands)
Twelve months ending September
2021	$	768
2022	781
2023	795
2024	809
2025 and thereafter	6,117
Total finance lease payments	9,270
Less: amounts representing interest	(2,218)
Total finance lease obligation	$	7,052

Schedule of Future Minimum Lease Payments for Capital Leases

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and under the previous lease accounting standard, the maturities of lease liabilities at September 30, 2019 were as follows:

Capital Lease Payment Schedule	Contractual Payments
(in thousands)
Twelve months ending September 30,
2020	$	673
2021	686
2022	700
2023	714
2024 and thereafter	6,720
Total capital lease payments	9,493
Less: amounts representing interest	(2,470)
Present value of minimum lease payment	$	7,023

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Net Income Per Share (Tables)

12 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

A summary of shares used in the EPS calculations follows (in thousands except share and per share data):

	Years Ended
Net Income Per Share	September 30, 2020		September 30, 2019
Basic net income per share:
Net income	$	6,753	$	4,747
Less: Income attributable to non-vested shares	32		38
Net income available to common stockholders	$	6,721	$	4,709
Weighted average common shares outstanding	10,417,445		10,306,947
Basic net income per share	$	0.65	$	0.46
Diluted net income per share:
Net income	$	6,753	$	4,747
Shares used in computing basic net income per share	10,417,445		10,306,947
Dilutive effect of non-vested shares and options	309,993		211,179
Shares used in computing diluted net income per share	10,727,438		10,518,126
Diluted net income per share	$	0.63	$	0.45

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the net income per share calculations.

	Years Ended
	September 30, 2020	September 30, 2019
Anti-dilutive shares excluded	1,202	61,475

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Tables)

12 Months Ended

Sep. 30, 2020

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

	Net Sales		Gross Profit		Net Income		Basic Earnings Per Share		Diluted Earnings Per Share
(Unaudited; in thousands, except per share data)
Fiscal Quarters
Fourth 2020	$	46,446	$	6,737	$	1,927	$	0.18	$	0.18
Third 2020	47,364		6,642		2,114		0.20		0.20
Second 2020	44,171		5,503		1,523		0.15		0.14
First 2020	44,734		5,239		1,189		0.11		0.11
Fourth 2019	$	43,922	$	6,394	$	1,794	$	0.17	$	0.17
Third 2019	40,324		5,605		1,211		0.12		0.11
Second 2019	37,294		4,586		670		0.06		0.06
First 2019	35,441		5,059		1,072		0.10		0.10

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, Plant and Equipment (Details)	12 Months Ended
	Sep. 30, 2020
Land improvements
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	10 years
Buildings and improvements | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	5 years
Buildings and improvements | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	40 years
Machinery and equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Machinery and equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	10 years
Furniture and fixtures | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Furniture and fixtures | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	7 years
Software | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Software | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	10 years

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details) - USD ($)	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Oct. 01, 2019
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Impairment charges	$ 0	$ 0
Bank Overdrafts	0	(300,000)
Additional net lease assets	260,000	$ 0	$ 300,000
Additional net lease liabilities	$ 245,000		$ 300,000

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OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Earnings Per Share (Details) - shares	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Accounting Policies [Abstract]
Weighted Average Number of Shares Outstanding, Basic	10,417,445	10,306,947
Diluted shares	10,727,438	10,518,126
Anti-dilutive shares excluded	1,202	61,475

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REVENUE RECOGNITION (Details) - Revenue from Contract with Customer	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Transferred at Point in Time
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Percentage of sales by sector (percent)	51.00%	51.20%
Transferred over Time
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Percentage of sales by sector (percent)	49.00%	48.80%
Customer Concentration Risk | Outside U.S.
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Percentage of sales by sector (percent)	3.00%	3.00%
Value-added Support Services | Transferred over Time
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Percentage of sales by sector (percent)	3.00%	3.00%

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REVENUE RECOGNITION - DISAGGREGATED REVENUE (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 182,714	$ 156,981
Transferred over Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	89,557	76,644
Transferred at Point in Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	93,157	80,337
Aerospace and Defense
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	109,628	94,189
Aerospace and Defense | Transferred over Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	53,174	51,564
Aerospace and Defense | Transferred at Point in Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	56,454	42,625
Medical
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	47,506	34,536
Medical | Transferred over Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	31,680	16,421
Medical | Transferred at Point in Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	15,826	18,115
Industrial
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	25,580	28,256
Industrial | Transferred over Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	4,703	8,659
Industrial | Transferred at Point in Time
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 20,877	$ 19,597

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REVENUE RECOGNITION - CUSTOMER MATERIAL DEPOSITS (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Revenue from Contract with Customer [Abstract]
Beginning balance	$ 13,229	$ 7,595
Recognition of deferred revenue	(17,807)	(10,799)
Deferral of revenue	24,361	16,433
Ending balance	$ 19,783	$ 13,229

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REVENUE RECOGNITION - IMPACT OF ADOPTION OF ASC 606 (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Sep. 30, 2020	Jun. 26, 2020	Mar. 27, 2020	Dec. 27, 2019	Sep. 30, 2019	Jun. 28, 2019	Mar. 29, 2019	Dec. 28, 2018	Sep. 30, 2020	Sep. 30, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Inventory, Net	$ 51,374				$ 44,267				$ 51,374	$ 44,267
Retained Earnings (Accumulated Deficit)	(8,522)				(15,275)				(8,522)	(15,275)
Revenue from Contract with Customer, Excluding Assessed Tax									182,714	156,981
Cost of Goods and Services Sold									158,594	135,337
Gross Profit	6,737	$ 6,642	$ 5,503	$ 5,239	6,394	$ 5,605	$ 4,586	$ 5,059	24,120	21,644
Provision for income taxes									1,943	1,176
Net Income (Loss) Attributable to Parent	$ 1,927	$ 2,114	$ 1,523	$ 1,189	$ 1,794	$ 1,211	$ 670	$ 1,072	6,753	4,747
Accumulated Deficit
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net Income (Loss) Attributable to Parent									$ 6,753	$ 4,747

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ALLOWANCE FOR DOUBTFUL ACCOUNTS (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Allowance for Doubtful Accounts
Allowance, beginning of period	$ 71	$ 85
Increase (decrease) in provision for doubtful accounts	114	(14)
Write-offs	0	0
Allowance, end of period	$ 185	$ 71

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INVENTORIES (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Inventory Disclosure [Abstract]
Inventory, Raw Materials, Net of Reserves	$ 32,904	$ 25,393
Work-in-process	15,009	15,928
Finished goods	3,461	2,946
Inventory, Net	$ 51,374	$ 44,267

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PROPERTY, PLANT AND EQUIPMENT - Summary of Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Property, Plant and Equipment [Abstract]
Land and improvements	$ 788	$ 788
Buildings and improvements	7,430	7,411
Building under capital lease	7,750	7,750
Machinery and equipment	34,095	31,708
Furniture and fixtures	8,113	8,047
Software	5,215	5,215
Construction in progress	6,079	1,173
Total property, plant and equipment, at cost	69,470	62,092
Accumulated depreciation	(45,883)	(42,659)
Property, plant and equipment, net	$ 23,587	$ 19,433

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PROPERTY, PLANT AND EQUIPMENT - Depreciation Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 3,238	$ 2,775

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CREDIT FACILITIES - Schedule of Debt (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Long-term Debt, Gross	$ 21,742	$ 30,550
Unamortized debt issuance costs	(266)	(269)
Total debt, net	21,476	30,281
Less: current portion	0	(1,371)
Long-term debt	$ 21,476	$ 28,910
Term Loan B
Date	May 05, 2022
Interest Rate	0.00%	4.59%
Long-term Debt, Gross	$ 0	$ 2,779
Equipment Line Advances Term Note [Member]
Interest Rate	0.00%	4.56%
Total debt, net		$ 1,125
Master Lease
Date	Jun. 04, 2023
Interest Rate	3.00%
Long-term Debt, Gross	$ 1,782
Revolving Credit Facility
Date	Jun. 04, 2023
Interest Rate	2.75%	4.31%
Long-term Debt, Gross	$ 19,960	$ 26,646

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CREDIT FACILITIES - Narrative (Details) - USD ($)				1 Months Ended	12 Months Ended
	Jul. 08, 2019	May 06, 2019	Mar. 18, 2019	Jan. 31, 2013	Sep. 30, 2020	Sep. 30, 2019	Jun. 04, 2020	Jul. 07, 2019	Jan. 18, 2013
Debt Instrument [Line Items]
Long-term line of credit			$ 14,000,000.0
Available borrowing capacity					$ 19,400,000	$ 8,400,000
Long-term debt					21,476,000	$ 30,281,000
Credit Agreement 2013 | Term Loan B
Debt Instrument [Line Items]
Long-term line of credit	$ 6,000,000.0							$ 8,000,000.0	$ 14,000,000.0
Repayment monthly installments				120 equal monthly installments
Line of credit facility, periodic payment, principal	71,000			$ 117,000
Interest rate, effective percentage						2.50%
Balloon payment	$ 600,000
Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity					$ 45,000,000.0	$ 35,000,000.0
Interest rate, stated percentage					2.75%	4.31%
Maturity date					Jun. 04, 2023
Maximum borrowing capacity as percent of eligible receivables					85.00%
Maximum borrowing capacity based on eligible inventory					$ 30,000,000.0	$ 30,000,000.0
Current borrowing capacity					39,400,000	35,000,000.0
Average borrowing capacity					24,400,000	$ 21,400,000
Commitment fee amount					$ 45,000,000.0
Interest rate, effective percentage					1.75%	2.25%
Revolving Credit Facility | Minimum
Debt Instrument [Line Items]
Unused capacity, commitment fee percentage					0.25%
Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Unused capacity, commitment fee percentage					0.375%
Revolving Credit Facility | Credit Agreement 2013
Debt Instrument [Line Items]
Commitment fee amount					$ 32,000	$ 20,000
Master Lease
Debt Instrument [Line Items]
Maximum borrowing capacity					10,000,000.0		$ 10,000,000.0
Long-term line of credit					1,800,000
Equipment Line Advances [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity							45,000,000.0
Minimum Increase amounts allowed							5,000,000.0
Maximum borrowing capacity allowed after provisional increments							$ 55,000,000.0
Payment of fees					$ 84,000
Equipment Line Advances [Member] | Minimum
Debt Instrument [Line Items]
Interest rate, stated percentage							1.00%
Term Loan B
Debt Instrument [Line Items]
Interest rate, stated percentage					0.00%	4.59%
Maturity date					May 05, 2022
Equipment Line Advances Term Note [Member]
Debt Instrument [Line Items]
Interest rate, stated percentage					0.00%	4.56%
Long-term line of credit		$ 400,000	300,000
Line of credit facility, periodic payment, principal		$ 11,000	$ 9,000
Long-term debt						$ 1,125,000

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CREDIT FACILITIES - Contractual Principal Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
2021	$ 0
2022	0
2023	21,742
Long-term Debt, Gross	$ 21,742	$ 30,550

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Carrying Value	$ 21,476	$ 30,281

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WARRANTY RESERVES (Details) - Warranty Reserves - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Warranty Reserve
Reserve, beginning of period	$ 165	$ 173
Provision	(14)	116
Warranty costs	(51)	(124)
Reserve, end of period	$ 100	$ 165

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STOCK-BASED COMPENSATION - Narrative (Details) - USD ($) $ in Millions	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available to be issued (in shares)	74,718
Share-based Payment Arrangement, Expense	$ 0.7	$ 0.6
Director
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
2010 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of common shares that may be issued		840,360
Common shares, issuance term		10 years
Shares available to be issued (in shares)	603,869
2010 Plan | Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award expiration period	7 years
Vesting One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
Vesting Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	5 years

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STOCK-BASED COMPENSATION - Valuation Assumptions (Details) - USD ($)	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Assumptions for Black-Scholes:
Risk-free interest rate	0.46%	1.64%
Expected term in years	5 years 6 months	5 years 6 months
Volatility	40.00%	37.00%
Expected annual dividends	$ 0	$ 0
Value of options granted:
Number of options granted (in shares)	47,500	70,000
Weighted average fair value per share (in dollars per share)	$ 2.77	$ 2.40
Share Based Compensation Arrangement By Share Based Payment Award Options Granted In Period Fair Value	$ 132,000	$ 168,000

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STOCK-BASED COMPENSATION - Summary of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2018
Number of Options
Outstanding, beginning of period (in shares)	743,145	737,145
Granted (in shares)	47,500	70,000
Exercised (in shares)	(100,500)	(34,000)
Forfeited (in shares)	(15,000)	(24,250)
Expired (in shares)	(5,000)	(5,750)
Outstanding, end of period (in shares)	670,145	743,145
Wgtd.  Avg. Exercise Price
Outstanding, beginning of period (in dollars per share)	$ 4.54	$ 4.33
Granted (in dollars per share)	6.00	6.40
Exercised (in dollars per share)	4.32	4.46
Forfeited (in dollars per share)	3.92	3.70
Expired (in dollars per share)	6.91	4.06
Outstanding, end of period (in dollars per share)	$ 4.67	$ 4.54
For options expected to vest
Number expected to vest (in shares)		662,160	733,068
Number expected to vest (in dollars per share)		$ 4.66	$ 4.52
Weighted average remaining term, in years	3 years 3 months 18 days	3 years 6 months
Intrinsic value (000s)	$ 2,656	$ 1,757
For exercisable options
Number exercisable (in shares)	506,145	566,146
Number exercisable (in dollars per share)	$ 4.31	$ 4.22
Weighted average remaining term, in years	2 years 1 month 6 days	2 years 6 months
Intrinsic value (000s)	$ 2,198	$ 1,521
For non-exercisable options
Expense not yet recognized (000s)	$ 339	$ 329
Weighted average years to be recognized	2 years 9 months 18 days	3 years 3 months 18 days
For options exercised, Intrinsic value (000s)	$ 444	$ 77

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STOCK-BASED COMPENSATION - Changes in Non-Vested Options Outstanding (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2018
Number of Options
Granted (in shares)	47,500	70,000
Wgtd. Avg. Grant Date Fair Value
Granted (in dollars per share)	$ 2.77	$ 2.40
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	186,727	153,186
Number of Options
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9.19	$ 7.09
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	50,556	63,011
Wgtd. Avg. Grant Date Fair Value
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 6.56	$ 5.36
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(17,015)	(12,258)
Vested (in dollars per share)	$ 3.58	$ 4.64
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value	$ 0	$ 3.58
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	0	(68,059)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 86	$ 0
Non-vested | Restricted Stock Units (RSUs) [Member]
Wgtd. Avg. Grant Date Fair Value
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 762	$ 659
Employee Service Share Based Compensation Non Vested Shares Total Compensation Not Yet Recognized Period For Recognition	1 year 9 months 18 days	2 years 2 months 12 days
Vested | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number		153,186	170,492
Wgtd. Avg. Grant Date Fair Value
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value		$ 5.36	$ 3.96

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STOCK-BASED COMPENSATION - Summary of Restricted Stock Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Wgtd. Avg. Grant Date Fair Value
Granted (in shares)	47,500	70,000
Restricted Stock Units (RSUs) [Member]
Number of Non-vested Shares
Outstanding, beginning of period (in shares)	153,186
Granted (in shares)	50,556	63,011
Vested (in shares)	(17,015)	(12,258)
Forfeited (in shares)	0	(68,059)
Outstanding, end of period (in shares)	186,727	153,186
Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period (in dollars per share)	$ 5.36
Granted (in dollars per share)	9.19	$ 7.09
Vested (in dollars per share)	3.58	4.64
Forfeited (in dollars per share)	0	3.58
Outstanding, end of period (in dollars per share)	$ 6.56	$ 5.36
Vested | Restricted Stock Units (RSUs) [Member]
Number of Non-vested Shares
Outstanding, beginning of period (in shares)	153,186	170,492
Outstanding, end of period (in shares)		153,186
Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period (in dollars per share)	$ 5.36	$ 3.96
Outstanding, end of period (in dollars per share)		$ 5.36
Non-vested | Restricted Stock Units (RSUs) [Member]
For non-vested shares
Expense not yet recognized (000s)	$ 762	$ 659
Weighted average remaining years for vesting	1 year 9 months 18 days	2 years 2 months 12 days
Non-vested | Restricted Stock
Number of Non-vested Shares
Outstanding, beginning of period (in shares)	82,707	103,233
Granted (in shares)	24,850	32,385
Vested (in shares)	(44,482)	(51,511)
Forfeited (in shares)	(13,250)	(1,400)
Outstanding, end of period (in shares)	49,825	82,707
Wgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period (in dollars per share)	$ 5.25	$ 4.08
Granted (in dollars per share)	5.03	7.09
Vested (in dollars per share)	4.80	4.09
Forfeited (in dollars per share)	6.09	4.13
Outstanding, end of period (in dollars per share)	$ 5.32	$ 5.25
For non-vested shares
Expense not yet recognized (000s)	$ 229	$ 328
Weighted average remaining years for vesting	1 year 6 months	2 years
For shares vested
Aggregate fair value on vesting dates (000s)	$ 317	$ 346

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INCOME TAXES - Provision For/(Benefit From) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Current tax:
State	$ 146	$ 116
Federal	(517)	(517)
Deferred tax:
State	(49)	17
Federal	2,340	1,471
Deferred Tax Assets, Valuation Allowance	23	89
Valuation allowance	$ 1,943	$ 1,176

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INCOME TAXES - Effective Tax Rate Reconciliation (Details)	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Federal statutory rate	21.00%	21.00%
Increase in valuation allowance	0.30%	1.50%
Deferred tax adjustment	0.00%	0.50%
State income taxes, net of federal benefit	2.80%	1.80%
Stock-based compensation	(0.50%)	0.30%
Research and development credit	(1.40%)	(5.40%)
Non-deductible expenses	0.10%	0.20%
Income tax provision as percent of pretax income	22.30%	19.90%

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INCOME TAXES - Deferred Income Taxes (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Federal and state net operating loss carryforward	$ 3,194	$ 4,945
Alternative minimum tax credit carryforward	0	517
Depreciation and fixed assets	(213)	268
New York State investment tax and other credits	1,419	1,396
Inventories	876	476
Deferred gain on sale-leaseback	466	452
Research and development credit	440	319
Section 481(a) adjustment	(64)	(96)
Other	141	273
Total deferred tax asset before allowance	6,259	8,550
Other	(1,419)	(1,396)
Total deferred tax asset before allowance	$ 4,840	$ 7,154

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INCOME TAXES - Narrative (Details) - USD ($)	Sep. 30, 2020	Sep. 30, 2019
Income taxes receivable	$ 0
Valuation allowance	$ 1,419,000	$ 1,396,000
Business income base rate, tax, percent	0.00%
New York State investment tax and other credit carryforwards	$ 1,419,000	$ 1,396,000
Investment Tax Credit Carryforward
New York State investment tax and other credit carryforwards	1,400,000
Internal Revenue Service (IRS)
Operating loss carryforwards	15,200,000
State Jurisdiction
Operating loss carryforwards	$ 100,000

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MARKET SECTORS AND MAJOR CUSTOMERS - Summary of Sales by Sector (Details) - Sales Revenue	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Concentration Risk [Line Items]
Percentage of sales by sector (percent)	100.00%	100.00%
Aerospace and Defense
Concentration Risk [Line Items]
Percentage of sales by sector (percent)	60.00%	60.00%
Medical
Concentration Risk [Line Items]
Percentage of sales by sector (percent)	26.00%	22.00%
Industrial
Concentration Risk [Line Items]
Percentage of sales by sector (percent)	14.00%	18.00%

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MARKET SECTORS AND MAJOR CUSTOMERS - Narrative (Details) - customer	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Sales | Aerospace and Defense
Concentration Risk [Line Items]
Concentration Risk, Customer	Two
Customer Concentration Risk | Sales
Concentration Risk [Line Items]
Concentration risk, number of customers	3	1
Customer Concentration Risk | Sales | Medical | Customer Three
Concentration Risk [Line Items]
Concentration risk, percentage	17.00%
Customer Concentration Risk | Sales | Aerospace and Defense
Concentration Risk [Line Items]
Concentration risk, percentage		23.00%
Customer Concentration Risk | Sales | Aerospace and Defense | Customer One
Concentration Risk [Line Items]
Concentration risk, percentage	27.00%
Customer Concentration Risk | Sales | Aerospace and Defense | Customer Two
Concentration Risk [Line Items]
Concentration risk, percentage	11.00%
Customer Concentration Risk | Accounts Receivable
Concentration Risk [Line Items]
Concentration risk, number of customers	2	2
Concentration risk, percentage	30.00%	38.00%

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LEASES - Supplemental Balance Sheet Information (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Leases [Abstract]
Weighted average remaining lease term for operating leases (in years)	3 years 9 months 18 days
Weighted average discount rate for operating leases	5.47%
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)	$ 6,329
Weighted average remaining lease term for finance leases (in years)	11 years 3 months 18 days
Weighted average discount rate for finance leases	4.83%

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LEASES - Components of Lease Expense (Details) $ in Thousands	12 Months Ended
	Sep. 30, 2020 USD ($)
Lessee, Lease, Description [Line Items]
Variable payment operating lease expense	$ 0
Depreciation of ROU assets	534
Interest	347
Total lease expense	1,097
Cost of sales
Lessee, Lease, Description [Line Items]
Operating lease expense	184
Selling and administrative expenses
Lessee, Lease, Description [Line Items]
Operating lease expense	$ 32

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LEASES - Supplemental Cash Flow Information (Details) $ in Thousands	12 Months Ended
	Sep. 30, 2020 USD ($)
Leases [Abstract]
Cash paid for operating lease ROU assets	$ 83
Interest paid on finance leases	346
Financing cash flows from finance leases	0
Operating lease liabilities	$ 53

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LEASES - Operating Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Oct. 01, 2019
Leases [Abstract]
2021	$ 73
2022	73
2023	71
2024	55
2025 and thereafter	0
Total operating lease payments	272
Less: amounts representing interest	(27)
Operating lease liabilities	$ 245	$ 300

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LEASES - Finance Lease Payments (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Leases [Abstract]
2021	$ 768
2022	781
2023	795
2024	809
2025 and thereafter	6,117
Total finance lease payments	9,270
Less: amounts representing interest	(2,218)
Total finance lease obligation	7,052
Construction in progress	$ 1,800

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LEASES - Summary of future capital lease payments (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Leases [Abstract]
2020	$ 673
2021	686
2022	700
2023	714
2024 and thereafter	6,720
Total capital lease payments	9,493
Less: amounts representing interest	(2,470)
Present value of minimum lease payment	$ 7,023

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Net Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Sep. 30, 2020	Jun. 26, 2020	Mar. 27, 2020	Dec. 27, 2019	Sep. 30, 2019	Jun. 28, 2019	Mar. 29, 2019	Dec. 28, 2018	Sep. 30, 2020	Sep. 30, 2019
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Net income	$ 1,927	$ 2,114	$ 1,523	$ 1,189	$ 1,794	$ 1,211	$ 670	$ 1,072	$ 6,753	$ 4,747
Undistributed Earnings (Loss) Allocated to Participating Securities, Basic									32	38
Net Income (Loss) Available to Common Stockholders, Basic									$ 6,721	$ 4,709
Weighted Average Number of Shares Outstanding, Basic									10,417,445	10,306,947
Incremental Common Shares Attributable to Dilutive Effect of Nonvested Shares with Forfeitable Dividends									309,993	211,179
Net earnings/loss (in dollars per share)	$ 0.18	$ 0.20	$ 0.15	$ 0.11	$ 0.17	$ 0.12	$ 0.06	$ 0.10	$ 0.65	$ 0.46
Net Income (Loss) Attributable to Parent, Diluted									$ 6,753	$ 4,747
Diluted shares									10,727,438	10,518,126
Diluted Earnings/ (Loss) Per Share (in dollars per share)	$ 0.18	$ 0.20	$ 0.14	$ 0.11	$ 0.17	$ 0.11	$ 0.06	$ 0.10	$ 0.63	$ 0.45
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount									1,202	61,475

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QUARTERLY FINANCIAL DATA (UNAUDITED) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Sep. 30, 2020	Jun. 26, 2020	Mar. 27, 2020	Dec. 27, 2019	Sep. 30, 2019	Jun. 28, 2019	Mar. 29, 2019	Dec. 28, 2018	Sep. 30, 2020	Sep. 30, 2019
Quarterly Financial Information Disclosure [Abstract]
Revenues	$ 46,446	$ 47,364	$ 44,171	$ 44,734	$ 43,922	$ 40,324	$ 37,294	$ 35,441
Gross Profit	6,737	6,642	5,503	5,239	6,394	5,605	4,586	5,059	$ 24,120	$ 21,644
Net income	$ 1,927	$ 2,114	$ 1,523	$ 1,189	$ 1,794	$ 1,211	$ 670	$ 1,072	$ 6,753	$ 4,747
Basic earnings / (loss) per share (in dollars per share)	$ 0.18	$ 0.20	$ 0.15	$ 0.11	$ 0.17	$ 0.12	$ 0.06	$ 0.10	$ 0.65	$ 0.46
Diluted earnings / (loss) per share (in dollars per share)	$ 0.18	$ 0.20	$ 0.14	$ 0.11	$ 0.17	$ 0.11	$ 0.06	$ 0.10	$ 0.63	$ 0.45

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Subsequent Events (Details) ft² in Thousands, $ in Thousands	2 Months Ended	12 Months Ended
	Oct. 31, 2020 USD ($) ft²	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Subsequent Event [Line Items]
Industrial and office building and equipment acquired		$ 6,268	$ 2,118
Subsequent Event
Subsequent Event [Line Items]
Area of industrial and office building | ft²	86
Industrial and office building and equipment acquired	$ 5,300