NOTE 2. SCB ACQUISITION

On December 17, 2010, IEC, through a subsidiary now known as Southern California Braiding, Inc., acquired substantially all of the assets of Southern California Braiding Company, Inc. of Bell Gardens, CA, a privately held manufacturer of high reliability wire, cable and harness products for military and defense markets. The contracted purchase price was $25.0 million, subject to adjustment for any increase or decrease in working capital between the contract date and the closing date. The closing-date working capital adjustment amounted to $1.6 million, resulting in a $26.6 million price at closing. $609 thousand was paid with 100,000 shares of newly issued IEC common stock, and the $26.0 million remainder was paid with cash proceeds from certain borrowings under the M&T Credit Agreement.

The cash portion of the purchase price was decreased to $25.8 million based on a further analysis of closing-date working capital as required under the asset purchase agreement. The resulting $248 thousand adjustment, which was refunded to IEC in May 2011, was recorded as a reduction of goodwill.

$3.1 million of the amount paid for SCB was deposited in escrow accounts to be released to the sellers or returned to the purchaser under certain specified circumstances through March 31, 2012. In February 2011, $623 thousand was released to the sellers upon satisfaction of applicable provisions in the asset purchase agreement. The remaining escrow is subject to buyer indemnity claims, if any, and sellers' further performance under the agreement as indicated below. At December 30, 2011, the escrow consisted of $2.0 million of cash and 77,176 shares of IEC common stock.

The acquisition agreement provided for a potential return of contingent consideration held in escrow if SCB’s gross sales and backlog for calendar-year 2011 did not reach specified targets. The Company recorded the estimated amount of contingent consideration at the end of each fiscal quarter, resulting in a receivable of $1.1 million as of September 30, 2011. Based on actual results through the end of December 2011, such contingent consideration was adjusted to $2.0 million at December 30, 2011. Within the accompanying financial statements, the $907 thousand current-quarter adjustment is reported as "other income" and the total amount due from sellers is included in "other current assets."

Concurrent with the acquisition, IEC assumed responsibility for operating leases covering SCB's premises, for which rent approximates $350 thousand per year. In accordance with another provision in the purchase contract, the former shareholders of SCB agreed that they would not compete with the Company for a five-year period.

Under the acquisition method of accounting, the Company is required to measure and record the fair value of assets acquired and liabilities assumed, as summarized below. The excess of purchase price over the value of identifiable net assets acquired is recorded as goodwill.

	December 17,
SCB Opening Balance Sheet	2010
(thousands, except shares)
Accounts receivable	$	1,576
Inventories		2,896
Other current assets		29
Leasehold improvements		1,169
Machinery & equipment		1,344
Furniture & fixtures		236
Intangible assets		6,000
Goodwill		13,708
Deferred income taxes		122
Total assets acquired		27,080

Accounts payable	$	560
Accruals and other liabilities		129
Total liabilities assumed		689
Net assets acquired/purchase price	$	26,391

Funded with bank debt	$	25,782
Funded with 100,000 shares of IEC common stock		609
Total funding for SCB acquisition	$	26,391

Operating and Pro Forma Results: The first table below displays the revenue and earnings of SCB from date of acquisition to the end of the first quarter of fiscal 2011. The disclosed amounts are included in the accompanying consolidated financial statements.

The second table presents IEC's unaudited, pro forma, consolidated operating results for the first quarter of fiscal 2011 as if the SCB acquisition had occurred on the first day of the preceding fiscal year. The pro forma results combine IEC's actual consolidated results for the quarter with revenue and earnings generated by SCB during the 2.5-month portion of the quarter when it was not a member of the IEC consolidated group. While the pro forma results take into consideration certain estimated changes in expenses resulting from the merged operations, they do not reflect additional revenues that may be generated by combining SCB with other members of the IEC group. The pro forma results are not necessarily equivalent to those that would have been obtained by consummating the SCB acquisition on the earlier date, nor are they necessarily indicative of future results.

SCB Fiscal 2011 Operating Results	14 Days ended
Subsequent to Date of Acquisition	December 31, 2010
(in thousands)	(unaudited)
Net sales	$	235
Loss before income taxes		(120	)
Net loss		(71	)

	Three months ended
IEC Pro Forma Operating Results	December 31, 2010
(in thousands, except share and per share data)	(unaudited)

As if SCB had been acquired in the fiscal
year preceding the year of acquisition

Net sales	$	32,575
Income before income taxes		2,194
Net income		1,342

Earnings per share:
Basic	$	0.14
Diluted		0.14

Weighted average common and common equivalent shares:
Basic		9,308,573
Diluted		9,849,718

In developing pro forma (as if combined) financial results, the acquiree's pre-merger data is adjusted to account for some of the changes that are estimated to result from operating the entity as part of the IEC consolidated group. For example, depreciation changes due to asset revaluations; newly identified intangibles are amortized; interest is incurred on acquisition-related debt; and certain expenses decrease or increase based on the manner in which IEC intends to operate the entity. As mentioned above, certain other expected changes, such as potential revenue changes, are not factored into the pro forma information. A summary of adjustments made in preparing IEC’s pro forma information above is provided in the table that follows.

Adjustments Reflected in	Three months ended
"Pro Forma Results" Table Above	December 31, 2010
(in thousands, except share data)	(unaudited)
	Increase (decrease)
Cost of sales
Depreciation expense	$	64

Selling and administrative expenses
Compensation	$	(379	)
Sales/marketing expenses		(364	)
Insurance premiums		(76	)
Legal and accounting expenses		(154	)
Contract staffing		(112	)
Amortization of intangibles		86
Corporate allocation		150
Other		(33	)
Total selling and administrative expense adjustments	$	(882	)

Interest expense
Interest on acquisition debt	$	201
Other		(2	)
Total interest expense adjustments	$	199

Other (income) expense
Eliminate acquisition expenses (legal, accounting, etc.)	$	(109	)

Weighted average common shares outstanding
100,000 shares issued in SCB acquisition, weighted to cover 77 days prior to the acquisition date		83,696