UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

Commission File No. 0-13143

INNOVEX, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (763) 479-5300

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

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

(Title of Class)
Common Stock ($.04 par value)

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, and (2) has been subject to such filing requirements for the past 90 days. Yes   [X]      No  [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (S229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $52,411,000 at November 23, 2001 when the closing sale price of such stock, as reported in the Nasdaq National Market System, was $3.70.

The number of shares outstanding of the Registrant’s Common Stock, $.04 par value, as of November 23, 2001 was 15,044,249 shares.

Documents Incorporated by Reference:

1. Portions of the Registrant’s Proxy Statement to be filed with the Commission within 120 days after the end of the Registrants fiscal year are incorporated by reference into Part III of the Form 10-K.

INNOVEX, INC.

PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

     Innovex was founded in 1972 to acquire the assets of a manufacturer of needle and wire assemblies used in computer core memories. With the introduction of solid state memory devices, needle wire assemblies became obsolete and, in late 1973, the Company moved into related areas of manufacturing utilizing and expanding its micro-welding and miniature assembly expertise.

     Prior to fiscal 1999, the Company primarily operated through two divisions, Precision Products (Precision) and Litchfield Precision Components (LPC). Each division had its own administrative, engineering, manufacturing and marketing organizations. During the quarter ending September 30, 1998, the Company combined the operations of its two core operating divisions, Precision and LPC into one operating division, Innovex Precision Components. The combination merged the rapidly growing LPC flexible circuit fabrication and chemical etching operations with Precision’s high volume fine wire manufacturing expertise. The combination also allowed Innovex to leverage Precision’s disk drive industry market and trade knowledge to disk drive industry flexible circuit applications as the industry transitioned from wire interconnects.

     Prior to the divisional combination, the largest division, Precision, developed, engineered and manufactured specialty precision electromagnetic products for original equipment manufacturers (“OEM’s”). Lead wire assemblies for the thin film disk drive market were the division’s primary product. Lead wire assemblies are fine twisted magnet wires that connect the back end electronics of a disk drive with the inductive or magneto resistive thin film heads that read and write information on the disk. After the divisional combination, the lead wire assembly revenue declined as anticipated. As a result, during the fiscal 1999 fourth quarter, charges of $2.8 million were recorded to account for the discontinuance of this product line.

     LPC, prior to the fiscal 1998 divisional combination, designed and manufactured highly complex flexible circuitry and chemically machined components for computer, computer peripheral, medical and other applications. The Company purchased Litchfield Precision Components, Inc. on May 16, 1996. This acquisition reduced the Company’s reliance on the disk drive industry while providing an entry into the large and rapidly growing flexible circuit market. Innovex’s flexible circuit operation is one of a limited number of operations in the world able to produce flexible circuits with line and spacing tolerances of less than 2 mils for the high-end portion of the flexible circuit market.

     The Iconovex subsidiary, established in fiscal 1994 to market and further develop a technologically advanced software product, was discontinued in June 1999 with a $1.7 million charge recorded related to this disposition.

     Innovex, Inc. and its subsidiaries (the “Company”) purchased all of the outstanding shares of ADFlex Solutions, Inc. (“ADFlex”) in two parts on August 9, 1999 and September 14, 1999. The total ADFlex purchase price, including transaction costs, change in control payments and all of the issued and outstanding common stock was approximately $37 million. At that time, the Company also obtained credit facilities totaling in principal amount $40 million, which were utilized to refinance ADFlex’s outstanding debt, pay down current liabilities and pay related transaction costs. Prior to the acquisition, ADFlex was a leading supplier of flexible circuit based solutions to the computer, computer peripheral, communications and consumer electronics industries. Applications for these flex-based interconnects include cellular phones, hard disk drives, other storage systems, high-end consumer products, notebook computers, pagers and personal communication systems. ADFlex’s diverse customer and industry base has reduced Innovex’s reliance on the disk drive industry. Prior to the ADFlex acquisition, the Company had one primary operating group, Innovex Precision Components. The Company combined its operations into one group that designs and manufactures flexible circuits.

1

     Innovex, Inc. was incorporated under the laws of the State of Minnesota in 1972. Its principal executive offices are located at 5540 Pioneer Creek Drive, Maple Plain, Minnesota 55359-9003 and its telephone number is (763) 479-5300. Products are developed and manufactured through the Company’s wholly owned subsidiaries, Innovex Precision Components, Inc., Innovex Southwest, Inc., Innovex (Thailand) Ltd. and Innovex Limited. Innovex Precision Components, Inc. and Innovex Ltd. are Minnesota corporations. Innovex Southwest, Inc. is a Delaware corporation and Innovex (Thailand) Ltd. is a Thailand corporation.

(b)   FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Prior to the ADFlex acquisition, the Company had one major operating unit during fiscal 1999. The Company also had one other subsidiary, Iconovex and its Smart Solution joint venture, which generated less than 1% of the Company’s revenue and was not considered a core segment due to its immaterial nature. The Company currently consists of one segment that manufactures and markets flexible circuits to various industries and financial results will be presented as a single segment. Topics covered throughout this document may be discussed referencing former separate operations where helpful to the reader’s understanding.

(c)   NARRATIVE DESCRIPTION OF BUSINESS

Company Overview

     Innovex is a leading worldwide provider of flexible circuit interconnect solutions to original equipment manufacturers (“OEMs”) in the electronics industry. The Company offers a full range of customized flexible circuit applications and services from initial design, development and prototype to fabrication, assembly and test on a global basis. The Company targets high-volume markets where miniaturization, form and weight are driving factors and flexible circuits are an enabling technology. Applications for flexible circuits currently addressed by the Company include notebook computers, portable communication devices such as cellular telephones and pagers, data storage devices such as hard disk drives (“HDDs”), tape drives and arrays and high-end consumer electronics products such as digital video disk (DVD) and compact disk (CD) players. The Company’s principal customers include Alps, Compaq, Dell, Digital Equipment, Hewlett Packard, IBM, Iomega, Littelfuse, Maxtor, Motorola, Nokia, Philips, Qualcomm, Quantum, ReadRite, SAE Magnetics, Samsung, Seagate, Staktek, Storage Tek, Xerox and other leading electronic OEMs.

     Flexible circuits consist of copper conductive patterns on flexible substrate materials, such as polyimide, and provide electrical connection between components in electronic systems. Flexible circuit interconnects frequently incorporate components such as integrated circuits (“ICs”), connectors, stiffeners, resistors and capacitors mounted directly on a flexible circuit. With proliferation of electronic applications, electronic products have become smaller, lighter and more portable. To meet the challenges represented by the increased complexity of miniaturization, form and weight requirements, OEMs have increasingly turned to flexible circuit interconnect solutions because they decrease the weight and expense of connectors and other packaging components, conform to contoured, ergonomic shapes or small spaces and provide mechanical flexure. The Company’s products consist of flexible circuits with high to mid-range tolerances and may include other secondary finishing or assembly operations. The high-end flexible circuits generate the highest gross margin percents. The mid-range or standard flexible circuits with components added through the performance of additional assembly steps garner lower gross margin percents due to higher material costs and the increased number of competitors.

     Historically, the Company’s wire operations produced a variety of small lead wire assemblies primarily for computer disk drives. The disk drive industry has transitioned away from lead wire assembly interconnects to integrated interconnects such as the Company’s Head Interconnect Flex (“HIF”), Flex suspension assembly (“FSA”) and BridgeFlex (“BFC”) products. This transition has had a significant impact on the Company’s operations over the last three years as it has had to manage the rapid increase in its flexible circuit business while controlling the rapid drop in its lead wire assembly operations. Lead wire assembly sales constituted none of fiscal 2001 consolidated revenues, less than 1% of fiscal 2000 revenues, 26% of fiscal 1999 revenues and over 72% of fiscal 1998 revenues.

2

     While the trend toward miniaturization and portability increases product complexity, electronic OEMs face escalating time to market, cost and global sourcing requirements. In response, the Company has established manufacturing facilities in Thailand that have lower cost structures and closer proximity to the Company’s OEM customer base. The Company believes it is a preferred supplier for the majority of its customers’ high-end, high-volume flexible circuit interconnect requirements.

Industry Overview and Trends

     Flexible circuit interconnects provide electrical connection between components in electronic systems and are increasingly used as a platform to support the attachment of electronic devices. Flexible circuits offer several advantages over rigid printed circuit boards (“PCBs”) and ceramic hybrid circuits, particularly for small, complex electronic systems. Flexible circuits, due to their mechanical flexure and three-dimensional shape, accommodate packaging contours and motion in a manner that traditional two-dimensional rigid PCBs cannot. Flexible circuits also provide improved thermal dissipation and signal propagation as compared to PCBs. In addition, flexible circuits can reduce the size, weight and expense of: (i) the primary substrate for component attachment when flexible circuits are used in place of a PCB; (ii) connectors, cables and other interconnection schemes when flexible circuits provide the connection to other substrates or subsystems within the system; and (iii) individual IC die packages by bonding an IC directly to a flexible chip carrier rather than a ceramic or plastic package.

     These capabilities enable circuits to solve many of the challenges faced by electronic OEMs who currently use traditional interconnection devices. Products which currently use polyimide flexible circuit interconnect assemblies include notebook computers, portable communication devices such as cellular telephones, pagers and personal digital assistants (“PDAs”), printers, scanners and data storage devices such as HDDs, tape drives and arrays, and high-end consumer electronic products such as DVD and CD disk players, cameras and camcorders. New, rapidly growing applications for polyimide flexible circuit interconnect assemblies include high-density interposers and other chip carrier packaging applications.

     The Company considers the following trends important in understanding the electronic flexible circuit interconnect industry:

     Miniaturization, Portability and Complexity of Electronic Products — Electronics OEMs continue to design and introduce more compact and portable high-performance products with greater functionality. The complexity of these new products requires smaller size, lighter weight, greater circuit and component density, better thermal dissipation properties, higher frequencies and increased reliability as compared to conventional rigid board assemblies. These requirements necessitate greater sophistication in flexible circuit interconnect manufacturing and process technologies. The trend toward increasingly sophisticated products also requires greater engineering expertise and investment in manufacturing and process technology for suppliers to produce high-quality electronic interconnect products on time, in volume and at acceptable cost.

     Shorter Product Life Cycles and Time to Market — Rapid advances in technology have significantly shortened the life cycle of complex electronic products and placed increased pressure on OEMs to quickly develop and introduce new products. These time-to-market challenges have in turn increased OEMs’ emphasis on the development, design engineering, prototype development and ramp-to-volume capabilities of their suppliers. In addition, the importance of being first to market with new products has heightened the emphasis on shortening supply channels, reducing the number of suppliers and finding turnkey sourcing capabilities that are supported by technologically advanced manufacturing infrastructure.

     Globalization and Reduction of Manufacturing Costs — At the same time that shorter product life cycles increase time-to-market pressures, users continue to demand increased electronic performance at lower prices. Notable product examples of this trend are notebook computers, desktop computers, peripherals, portable communications and consumer electronics. Leading OEMs who often manufacture products in multiple geographic regions are relying more on suppliers with global sourcing capabilities which can help to shorten the OEMs’ supply chain and provide regionally competitive pricing. As part of global sourcing, OEMs increasingly require their suppliers to establish local infrastructure to provide proximity to engineering, manufacturing and sales support.

3

     Outsourcing — To avoid delays in new product introductions, reduce manufacturing costs and avoid logistical complexities, OEMs are increasingly turning to fewer suppliers which are capable of producing electronic interconnect products from development, design, quick-turn prototype and pre-production through volume production and assembly. Many OEMs have accelerated this process by outsourcing their captive component, subsystem and even system manufacturing to focus on their core competencies. The accelerated time-to-market and time-to-volume needs of OEMs have resulted in increased collaboration with qualified suppliers capable of providing a broad and integrated offering. To meet their rapidly changing electronic interconnect requirements, many OEMs have moved to limit their vendor base to a smaller number of technically qualified, strategically located suppliers capable of providing both quick-turn prototype and pre-production quantities as well as cost-competitive volume production quantities.

     Proliferation of Electronics and Creation of New Markets — The markets for electronic products are growing as a result of technological change, increasing demands for a wider variety of electronic product features and more powerful and less expensive electronic components. Due to this growth, new markets have emerged in computing, data communications, telecommunications and multimedia. Moreover, existing markets such as computer networking and peripherals, digital and mobile communications, video-on-demand, the Internet, instrumentation and industrial controls have significantly expanded product applications.

Current Product Applications

     The Company provides flexible circuit interconnect products to a diverse group of markets. Historically, the HDD market has represented the largest component of the Company’s sales at 68%, 59%, and 74% of total sales for 2001, 2000 and 1999. Through the ADFlex acquisition and new market expansion efforts, the Company is continuing its efforts to reduce the impact of cyclicality of the HDD industry on its business. However, net sales attributable to this market are expected to continue to represent a large component of total sales for the foreseeable future. Accordingly, the occurrence of significant slowdowns or changes in this industry has had and may continue to have a material adverse effect on the Company’s operating results.

     Current applications addressed by the Company include:

     Flex Suspension Assembly — The disk drive market uses flexible circuits as the interconnect between the read/write head and disk drive electronics. In these applications, circuits need to mechanically flex hundreds of millions of times through the life of the drive. These applications include the Company’s head interconnect flex (“HIF”) and Flex Suspension Assembly (“FSA”) which provide the electrical interconnect from the disk drive head to the back end electronics (actuator flex) of the disk drive. The HIF is bonded to a disk drive suspension by the Company’s customers. The Flex Suspension Assembly (“FSA”) is a HIF that is bonded to a suspension for customers desiring a more complete solution. During fiscal 2001, the company introduced the Flex Gimbal Suspension Assembly (“FgSA”). The FgSA is the next generation FSA that provides improved technical performance at a lower cost than competing products by increasing the utilization of the flexible circuit characteristics and simplifying the suspension used in the assembly. These interconnects were provided by lead wire assemblies produced by the Company prior to the use of flexible circuits.

     Data Storage — The data storage market includes interconnects used for tape drives, disk arrays, and other interconnects in hard disk drives. Large individual drive storage systems are being replaced by arrays of less expensive disk drives or tape drives. The growth of personal computer networks has generated a growth in small arrays for local area network storage. In addition to the flexible circuit interconnects inside each of the individual drives, controlled impedance flex interconnects are used to connect the back of the drives to standard interface boards. The Company also produces the actuator flex which provides the back end electronic interconnect for hard disk drives. Mounting an unpackaged die directly onto the flexible circuit substrate, or flip chip, is becoming the predominant interconnect technology for these applications.

4

     Consumer Electronics — The consumer market includes interconnects used for CD and DVD applications, portable telecommunications devices, computers and printers. CD and DVD consumer applications are growing rapidly. These devices use flexible circuits as the interconnect between the read/write head and CD/DVD drive electronics. The use of polyimide flexible circuits in portable communications devices is growing as the space, weight and functionality challenges are becoming more difficult. In some cellular telephones, flexible circuits replace rigid PCBs, connectors and cables and can thereby reduce space, weight and cost. Early applications for flexible circuits in notebook computers were mainly as interconnects from the motherboard to the LCD and as shielded jumpers. More recently, systems have used as many as ten flexible circuit interconnects per notebook, including PCMCIA connector/flex jumpers, LED/speaker flexible circuit assemblies, track ball/mouse button flexible circuit assemblies and various other shielded jumpers.

     New Ventures — The new venture markets include flexible circuits for integrated circuit substrates, optoelectronic interconnects for broadband applications, flexible circuits for display applications and other high-end flexible circuits markets. These markets are projected to have rapid growth in the near future and the Company is producing increasing levels of flexible circuits for these markets.

Sales and Support

     The Company markets its products directly to a number of industries requiring electronic interconnects through the use of an internal sales staff. Historically, the Company has sold a substantial portion of its flexible circuit interconnects to a limited number of customers. Innovex has benefited from early entry as a supplier to the disk drive industry and has been able to leverage relationships to the next generation integrated flexible circuit interconnects. This, coupled with the Company’s reputation for high standards of quality and innovative manufacturing processes, has established Innovex as a predominant supplier of interconnects for the industry. The Company’s principal customers, each accounting for over 10 percent of the Company’s consolidated net sales in at least one of the last three years are Maxtor and Seagate. See Note I of Notes to Consolidated Financial Statements for additional information.

     Because of the Company’s focus on leading edge imaging technology, its customers include a number of the leading technology companies in the world including Alps, Compaq, Dell, Digital Equipment, General Electric, Hewlett Packard, IBM, Iomega, Littelfuse, Lucent, Maxtor, Medtronic, Motorola, Nokia, Philips, Qualcomm, Quantum, ReadRite, SAE Magnetics, Samsung, Seagate, Staktek, Storage Technology, Xerox and other leading electronic OEMs.

     Even though the Company’s customer mix will change from period to period in the future, the Company expects that sales to relatively few customers will continue to account for a high percentage of its net sales in the foreseeable future. The loss of a significant customer or a substantial reduction in orders by any significant customer, including reductions due to market, economic or competitive conditions in the computer, computer peripheral, communications and high-end consumer markets has had and may continue to have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Research and Development

     The Company continually engages in research, development and engineering activities. The Company’s goals are to utilize these activities to improve and enhance existing products and to develop new products in order to expand its market share. During fiscal years 2001, 2000 and 1999, the Company spent approximately $4,518,000, $3,472,000, $2,878,000 on research and development. The Company’s research and development effort is concentrated on improving and increasing long run flexible circuit manufacturing capabilities for both adhesiveless and adhesive based flexible circuits, developing new materials, developing processes for manufacturing new products, developing new FSA and FgSA generations and improving the FSA attachment process.

5

     The Company expects to continue its past practice of acquiring new technology from outside sources through the payment of cash, Company stock and royalties.

Environmental Controls

     Flexible circuit interconnect manufacturing requires the use of chemicals. As a result, the Company is subject to a variety of environmental laws relating to the storage, discharge, handling, emission, generation, manufacture, use and disposal of chemicals, solid and hazardous waste and other toxic and hazardous materials used to manufacture the Company’s products. The Company has discontinued operations in its Chandler Arizona location and is currently decommissioning the facility. A preliminary review of the facility indicates that no material remediation costs will be required. However, given the uncertainties associated with environmental contamination, there can be no assurance that such costs will not have a material adverse impact on the Company. Pursuant to the agreements governing the 1993 ADFlex purchase of certain assets from the Rogers acquisition, Rogers Corporation has retained all environmental liabilities relating to the purchased assets prior to the closing date of the acquisition. While Rogers currently has sufficient assets to fulfill its obligations under the acquisition agreements, if environmental liabilities requiring remediation are discovered and the Company were unable to enforce the acquisition agreement against Rogers, the Company could become subject to costs and damages relating to such environmental liabilities. Any such costs and damages imposed on the Company could materially adversely affect the Company.

     The Company believes it has been operating its facilities in substantial compliance in all material respects with existing environmental laws and regulations. However, the Company cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not previously been applied. For this reason, the Company implemented procedures geared toward minimizing the negative impacts and reducing potential financial risks arising from environmental issues. Compliance with more stringent laws or regulations, or more vigorous enforcement policies of regulatory agencies could require substantial expenditures by the Company and could adversely affect the results of operations of the Company. The Company does not anticipate any material amount of environmental-related capital expenditures in fiscal 2002.

Backlog

     The backlog for the Company’s continuing operations was $20.1 million, $19.1 million, $36.6 million at September 30, 2001, 2000 and 1999. The Company’s backlog fluctuates based on the timing of the receipt of orders from customers. Backlog is defined by the Company as firm orders that are scheduled to be delivered within 12 months from the date of the order. While the Company currently believes substantially all of its September 30, 2001 backlog will be delivered within 12 months, customers may determine not to release orders into production, may extend requested delivery dates or cancel orders. In such cases, the Company may not realize the revenue indicated by the backlog.

Competition

     The flexible circuit interconnect market is differentiated by customers, markets and geography with each niche having its own combination of complex packaging and interconnection requirements. The Company believes it competes principally on the basis of design capability, price, quality, flexibility and technological advancements in underlying applications. During periods of economic slowdown in the electronics industry and other periods when excess capacity exists, electronic OEMs become more price sensitive. The Company believes that once a customer has selected a particular vendor to design and manufacture a flexible circuit interconnect, the customer generally relies upon that vendor’s design for the life of that specific application and, to the extent possible, subsequent generations of similar applications. Accordingly, it is difficult to achieve significant sales to a particular customer with respect to any application once another vendor has been selected to design and manufacture the flexible circuit interconnect used in that application. While this market paradigm may provide a barrier to the Company’s competitors in the markets served by the Company, it also may present an obstacle to the Company’s entry into other markets.

6

     The flexible circuit interconnect market is highly competitive. The Company experiences competition world-wide from a number of leading foreign and domestic providers such as Minnesota Mining and Manufacturing (“3M”) and Sumitomo for high-end applications, and Nippon Mektron (“NOK”), Fujikura Ltd. (“Fujikura”), Multi-Fineline Electronix, Inc. (“M-Flex”), Sheldahl Inc. (“Sheldahl”) and Parlex Corporation (“Parlex”) for mid-range applications. 3M, Sumitomo, NOK and Fujikura are substantially larger than the Company with greater financial and other resources. M-Flex, Sheldahl and Parlex are US-based flexible circuit manufacturers that have lower sales of polyimide flexible circuits than the Company and have historically targeted suppliers of computers, communication and automotive services and the military. Expansion of the Company’s existing products or services could expose the Company to new competition. Moreover, new developments in the electronics industry could render existing technology obsolete or less competitive and could potentially introduce new competition into the market. There can be no assurance that the Company’s competitors will not develop enhancements to, or future generations of, competitive products or services that will offer superior price or performance features to those of the Company or that new competitors will not enter the Company’s markets. Finally, as many of the Company’s competitors are based in foreign countries, they have cost structures and prices based on foreign currencies. Accordingly, currency fluctuations could cause the Company’s dollar-priced products to be less competitive than its competitors’ products priced in other currencies.

     The Company also competes in assembly matters with leading flexible circuit assembly providers such as Smartflex Systems, Inc. (“Smartflex”) and Pemstar. The Company believes that competition in assembly is primarily driven by availability of assembly technology, price and cycle time. The Company believes it competes favorably with these competitors because it offers its customers a complete flexible circuit interconnect solution including design, fabrication, assembly and testing.

     The Company’s competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price/performance characteristics. Competitive pressures often necessitate price reductions that adversely affect operating results. The Company will be required to make a continued high level of investment in product development and research, sales and marketing, and ongoing customer service and support to remain competitive. There can be no assurance that existing or future competitors will not be able to duplicate the Company’s strategies or that competitive pressures faced by the Company will not have a material adverse effect on the Company.

Employees

     As of September 30, 2001, the Company had a total of 3,465 employees. Of these employees, 178 were based at the Company’s Maple Plain, Minnesota facility; 39 were based in Chandler, Arizona; 247 were based in Litchfield, Minnesota; 5 were based in Agua Prieta, Mexico and 2,996 were based in Thailand. The Company has transferred operations from its Chandler, Arizona facility to Minnesota and Lamphun Thailand. The Company discontinued operations in Mexico in fiscal 2000 and the remaining Mexican employees will be paid severance in accordance with Mexican labor laws once the facility disposition is complete.

     The Company’s future operating results depend in part upon its ability to attract and retain other qualified management, technical, manufacturing, sales and support personnel for its operations. Competition for such personnel is intense and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The failure to attract or retain such persons could materially adversely affect the Company.

Intellectual Property

     The Company believes that, due to its customers’ demands for rapid technological advances and the resulting limited product life cycles, the success of its business generally depends more on the technical and engineering expertise, creativity and marketing, and service abilities of its employees than on patents, trademarks and copyrights. Nevertheless, the Company owns patents and has a policy of seeking patents when appropriate on inventions concerning new products and improvements as part of its ongoing research, development and manufacturing activities. The Company does control patents related to the FSA and new generation FgSA products and believes that these patents give the Company a competitive advantage within disk drive industry applications. There can be no assurance that any patents issued to the Company will provide a competitive advantage or will not be challenged by third parties, or that the patents of others will not have an adverse effect on the Company’s ability to do business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company’s products or design around the patents issued to the Company. In addition, there can be no assurance that foreign intellectual property laws or the Company’s agreements will protect the Company’s intellectual property rights in any foreign country. Any failure to protect the Company’s intellectual property rights could have a material adverse effect upon the Company.

7

Suppliers

     The Company purchases raw circuit materials, process chemicals and various components from multiple outside sources. For components, the Company typically makes short-term purchasing commitments to key suppliers for specific customer programs. These commitments are usually made for three to twelve month periods. These suppliers commit to providing cooperative engineering, as required, and in some cases maintain a local inventory to provide shorter lead times and reduced inventory levels for the Company. In most cases, suppliers are approved, and are often dictated by the Company’s customers. For process chemicals, the Company relies on a limited number of key suppliers. Alternate chemical products are available from other sources, but process chemical changes would often require requalification of the processes, which could take weeks or months to complete. The Company has attempted to mitigate these risks by identifying stable companies with leading technology and delivery positions.

     The Company currently purchases a number of its components, process chemicals and other materials from single sources. In the United States, these products are available only from a limited number of suppliers. There can be no assurance that these sources will continue to supply the Company with the materials needed at competitive prices. While viable alternate suppliers exist, because of the Company’s limited inventory of raw materials, tight manufacturing cycles and the significant amount of time required to qualify new suppliers, single sourcing is expected to continue. Consequently, any unanticipated interruption of material supplies or components would have a short-term material adverse effect on the Company.

Technology

     Design Technology — The flexible circuit interconnects manufactured by the Company are designed specifically for each application, requiring significant joint design activities between the Company and the customer at the start of a project. The Company has developed design methodologies that solve difficult interconnection problems and save the customer time and money. The Company also designs and produces, in volume, flexible circuits that range from high-density, single-sided circuits to more complex double-sided and multi-layer circuits. The Company is continually investing in and improving its computer-based design tools to more quickly design new flexible circuit interconnects, to enhance cooperative design and communication with its customers and to more closely link designs to the manufacturing process. The Company is recognized as a technology leader in fine-line, single-sided flexible circuit technology and flexible circuit assembly technology, including advanced chip-on-flex, flip-chip-on-flex and high-density polyimide assembly technologies.

     Circuit Fabrication Technology — The Company has extensive experience in fine-line polyimide flex and has pioneered manufacturing processes that deliver high unit volumes at cost-effective yields. At the core of the process is roll-to-roll subtractive fine-line circuit processing. The starting materials are flexible laminates composed of a thin dielectric film that is either adhesive-bonded to treated copper foil or metalized without the use of adhesives. Very accurate images (down to 0.001”) are produced in volume in photoresist. Circuit conductors are then formed by chemically etching the underlying copper foil. Coverfilm materials are adhered to the circuitry to provide an insulative coating and to expose contact pads for surface metalization. The exposed surfaces are then coated with solder for surface mount or bondable gold for chip-on-flex applications. Laser processing is then used to create various openings to drill vias and cut contoured peripheries in substrate materials.

8

     The Company’s key flexible circuit fabrication technologies include:

Manufacturing

     The Company has developed a manufacturing process that combines the use of technology with the deployment of human resources in a geographic and organizational manner that allows the Company to compete on a pure cost basis, if necessary, with suppliers of similar products throughout the world. Quality systems are in place that are certified to standards set by demanding customers in the electronics industry. The Minnesota and Lamphun Thailand operations have received ISO 9002 certification.

     The Company believes it enjoys an advantage based on a manufacturing process designed to optimize the utilization of automation, labor and capital, and a manufacturing process and technology with better yield, material utilization and throughput relative to its competitors. Most of the automated circuit fabrication processes are performed in Minnesota where there is an ample supply of qualified technical resources with the more labor intensive processes performed in Thailand to remain competitive with low cost Asian based competitors. The Company also believes that integrating assembly technology with manufacturing technology and high-volume production capabilities will over time provide improvements in its production costs through higher product yields, faster production ramps, reduced inventories, shortened production cycle times and increased leverage over expenses.

Foreign Sales and Operations

     The Company has finishing, assembly and inspection facilities located in Korat and Lamphun, Thailand. While the Company believes it has established good relationships with its local labor forces and the local governments, the spread of the manufacturing process over multiple countries subjects the Company to risks inherent in international operations. Those risks include currency fluctuations, inflationary pressures, unexpected changes in regulatory requirements, tariffs and barriers, potentially limited intellectual property protection, potential cross border shipment delays, changes in political climate, difficulties in coordinating and managing foreign operations, foreign labor issues, increases in employee turnover and potentially adverse tax consequences. Any of the foregoing could have a material adverse effect on the Company.

9

     While Innovex transacts business predominantly in U.S. Dollars an increasing portion of its sales and expenses are denominated in foreign currencies. Changes in the relation of foreign currencies to the U.S. Dollar will affect the Company’s cost of goods sold and operating margins and could result in exchange losses. To reduce the impact of certain foreign currency fluctuations, the Company enters into short-term forward foreign currency exchange contracts (hedges) in the regular course of business. The forward exchange contracts generally require the Company to exchange foreign currencies for U.S. Dollars at maturity, at rates agreed to at inception of the contracts. The gains or losses on hedges of transaction and remeasurement exposure are included in income in the period in which the exchange rates change. The gains and losses on unhedged foreign currency transactions are included in income as incurred. No assurance can be given that the Company’s hedging strategies will prevent future currency fluctuations from adversely affecting the Company.

     A large portion of the sales and expenses for the Thailand operation are denominated in Thai baht. The Thai Baht experienced significant fluctuations in relation to the U.S. Dollar during portions of 2001, 2000 and 1999. The fluctuations did not have a significant impact on the Company’s results of operations for those years. However, there can be no assurance that future currency fluctuations will not have a material adverse effect on the Company.

ITEM 2. PROPERTIES

     In total, at September 30, 2001, the Company leased or owned approximately 725,000 square feet of manufacturing and other space. The Company’s significant facilities are as follows:

     The Company constructed the building in Maple Plain, Minnesota to be used for manufacturing, research and development and corporate offices. The Company obtained the Arizona, Mexico and Lamphun Thailand facilities during fiscal 1999 as part of the ADFlex acquisition. The Lamphun Thailand facility was completed in February 1999 and is used for circuit finishing and assembly. Operations have been discontinued at the Mexico and Arizona facilities to reduce excess manufacturing capacity. The Korat Thailand facilities were obtained in fiscal 2000 as part of the Thailand subcontractor purchase. The Company believes that the facilities in Minnesota and Thailand are adequate to meet its current requirements and that suitable additional space or substitute space is readily available as needed.

10

ITEM 3. LEGAL PROCEEDINGS

     On November 15, 2001, Bank Boston Robertson Stephens was granted a summary judgement by the United States District Court, District of Minnesota for $800,000 against the Company related to disputed investment banking fees incurred by ADFlex Solutions Inc. during the acquisition of ADFlex by the Company in Fiscal 1999. The Company will record an additional expense of $350,000 during the quarter ending December 2001 to cover the unaccrued portion of this judgment. With the exception of this judgment, neither the Company nor any of its subsidiaries is a party to, and none of its property is the subject of, any other material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Registrant did not submit any matter to a vote of its security holders during the fourth quarter of the fiscal year covered by this Report.

ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT

     Mr. Haley served as President of the Company from 1972 to 1988 and Chief Executive Officer from 1988 through 1999. He has been a Director and Chairman of the Company since its inception in 1972.

     Mr. Murnane was promoted to President and Chief Operating Officer in July 1998 and to Chief Executive Officer in January 2000. Mr. Murnane joined the Company in July 1995 as Vice President. From June 1993 to June 1995, Mr. Murnane was Chief Operating Officer of Boutwell, Owens & Co., a private manufacturer of packaging, in Fitchburg, Massachusetts. From June 1992 to June 1993, Mr. Murnane was Director of Operations for Uniform Printing & Supply, Inc. in Acton, Massachusetts. Prior to that, he held various operating and corporate planning positions during a ten-year career at United Parcel Service.

     Mr. Paulson joined the Company in February 2001 as Chief Financial Officer. Prior to Innovex, Mr. Paulson spent 19 years at The Pillsbury Company (TPC) where he held a variety of executive positions managing complex financial and business issues in multi-operational and multinational divisions including Vice President of Finance.

     Mr. Chan joined the Company in June 1988 as Director of Sales and Marketing for the Precision Products Division. In October 1990, Mr. Chan was promoted to Vice President of Sales and Marketing of the Precision Products Division. In 1991, his responsibilities were expanded to include manufacturing. In May 1995, he was promoted to Vice President and General Manager of Precision Products Division. In July of 1998, he was promoted to Senior Vice President , Sales and Marketing. Prior to joining Innovex, Mr. Chan was the Director of Sales and Marketing for Braemar Computer Corporation a division of Carlysle Corporation. In August 2001, Mr. Chan was named General Manager of Consumer Electronics Division.

     Mr. Dahmes joined the Company in July 1997 as Plant Manager. Mr. Dahmes was promoted to Director of Manufacturing in July 1998 and to Vice President, Quality in March of 1999. In November 1999, he was promoted to Vice President, Managing Director Innovex (Thailand). In August 2001, Mr. Dahmes was named Vice President of Research and Development. From 1992 to 1995, Mr. Dahmes served as Process Engineering Manager for Sheldahl Interconnect, and from 1995 to 1997, he was an Engineering Manager with Sheldahl Microproducts.

11

     Mr. Keller joined the Company in January 1990 as Corporate Controller. In May 1992, Mr. Keller was made an officer of the corporation and in October 1996, he was promoted to Vice President, Finance. From July 1988 to January 1990, Mr. Keller was Manager of Financial Accounting and Tax for UFE, Inc., a manufacturer of injection molded plastic components. From 1983 to 1988, Mr. Keller was a Senior Auditor for the Pillsbury Company. From 1980 to 1983, he was a Senior Accountant with Deloitte Haskins & Sells, a CPA firm.

     Mr. Kuchipudi joined the Company in September 1999 as Vice President, Operations. From July 1996 to August 1999, Mr. Kuchipudi was a management consultant for Pittiglio Rabin Todd & McGrath. Prior to that, he held various engineering and marketing positions during a five-year career at Motorola, Inc.

     Mr. Schuller joined the Company in April 2001 as Vice President, Strategic Marketing and New Business Development. Prior to joining Innovex, Mr. Schuller spent five years at McKinsey & Company where he led a number of major strategy and business development engagements for Fortune 500 companies. Before McKinsey, he worked for The Pillsbury Company in Strategic and Financial Planning as well as Ernst & Young as a certified public accountant. In August 2001, Mr. Schuller was named General Manager of New Ventures Division.

12

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER
               MATTERS

Common Stock Information

     The Company’s common stock is traded in the over-the-counter market under the symbol “INVX.” The table below sets forth the high and low closing sale prices as reported by NASDAQ. As of November 16, 2001, the Company had 685 shareholders of record. The Company has not paid a dividend since November 1999. The Company’s intention is to continue this policy.

Price Range of Common Stock

ITEM 6. SELECTED FINANCIAL DATA

     The following selected consolidated financial data has been derived from the consolidated financial statements of the Company for each of the years in the five-year period ended September 30, 2001. The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of the Company and related notes thereto included elsewhere in this report.

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

Earnings Summary

     The Company reported a net loss of ($28,876,000) or ($1.93) basic and diluted net loss per share for the fiscal year ended September 30, 2001. This compares to net loss of $(11,054,000) or ($0.75) basic and diluted net loss per share in fiscal 2000 and net income of $6,559,000, $0.44 basic and diluted net income per share in 1999. Fiscal 2001 results decreased as compared to fiscal 2000 primarily due to charges to restructure the Company’s manufacturing operations by closing the Company’s manufacturing facility in Chandler, Arizona and moving those operations to Minnesota and Thailand. In addition, a portion of the decrease was due to lower revenue generated by standard flexible circuit product lines associated with the ADFlex Solutions acquisition in late 1999. The Company took a number of steps during fiscal 2001 to reduce its fixed costs including closing the high cost Chandler facility and reducing the world wide work force. As a result of these cost reduction measures and expected increase in revenue, the Company expects significantly improved operating results in fiscal 2002.

13

     Fiscal 2000 results decreased as compared to fiscal 1999 primarily due to charges to restructure the Company’s manufacturing operations by moving operations from Mexico to Thailand and closing the Mexican facility. The decrease is also due to operating losses generated by the acquired ADFlex operation and increased interest expense as a result of the ADFlex acquisition. Revenue related to the acquired ADFlex operation decreased throughout fiscal 2000 as a result of pre-acquisition customer service and quality issues and the operations relatively high cost structure. Innovex took several steps to reduce costs during fiscal 2000. The higher cost Mexican facility was closed with operations being transferred to the expanded lower cost Lamphun Thailand facility and the manufacturing, customer service and quality areas were strengthened.

Results of Operations

     Net Sales — The Company’s net sales of $145,635,000 for fiscal 2001 decreased 11% from fiscal 2000 net sales of $164,462,000. The decrease in 2001 from 2000 was due to lower revenue generated by standard flexible circuit product lines associated with the ADFlex Solutions acquisition in late 1999. Revenue generated by the acquired ADFlex Solutions operation declined in early fiscal 2001 and throughout fiscal 2000 as a result of quality, cost and customer service issues existing at the time of purchase. In addition, revenue from the acquired consumer and telecommunication product lines was significantly impacted by the current economic downturn during the second, third and fourth quarters of fiscal 2001. The quality, cost and customer service issues have been addressed and revenue from the acquired product lines has stabilized. Revenue from the core high-end flexible circuits continues to increase. Revenue is expected to show modest sequential increases throughout fiscal 2002.

     Net sales for fiscal 2000 were $164,462,000, a 59% increase from 1999 net sales of $103,198,000. The increase in 2000 over 1999 was due, in part, to the increase in flexible circuit revenue from the disk drive industry. In addition, a large portion of the increase was due to revenue generated from the telecommunication, network systems, consumer and other industries related to the August 1999 acquisition of ADFlex. These increases offset a reduction in revenue generated from lead wire interconnects as the disk drive industry transitioned to integrated interconnects including the Company’s Head Interconnect Flex (HIF) and Flex Suspension Assembly (FSA). Less than 1% of revenue for fiscal 2000 was generated by lead wire assemblies as compared to 26% for fiscal 1999.

     Revenue from the disk drive industry generated 68% of fiscal 2001 revenue and is expected to be higher during fiscal 2002 due to FSA revenue increasing at a faster pace than increases in revenue from other industries. In addition, during fiscal 2001, 13% of the revenue was generated from network system applications, 10% from consumer applications and 9% from applications from other industries. The acquisition of ADFlex has reduced the Company’s dependence on the disk drive industry significantly from its historical levels of 85-90% of revenue. Fiscal 2002 should benefit from continued growth in the demand for high technology flexible circuit products including the Company’s FSA and Flex Gimbal Suspension Assembly (FgSA) and an expected economic improvement in the later part of the year. Significant progress has been made in gaining customer acceptance of the Company’s FSA product and the introduction of the next generation FgSA product will be integral to increasing revenue in future years.

     Export sales accounted for 80% of the Company’s revenue in fiscal 2001 as compared to 73% for 2000 and 74% for 1999, reflecting the high level of interconnect shipments to electronic manufacturers in Asia. A significant portion of the remaining domestic sales are subsequently shipped internationally by the Company’s customers.

     Gross Margin — The Company’s gross margin as a percent of sales for fiscal 2001 decreased to 11.4%, from the 15.0% reported for fiscal 2000. The decrease was primarily due to reduced fixed cost leverage resulting from lower revenue levels of the standard flexible circuits and duplicate costs related to the transfer of manufacturing operations from Chandler, Arizona to the Company’s Minnesota facility. Gross margins in fiscal 2002 are expected to improve due to a lower fixed cost basis as a result of the cost reduction measures taken by the Company in fiscal 2001. These cost reduction measures include the transfer of manufacturing operations from Arizona to the Minnesota and Thailand facilities and a reduction of the Company’s workforce. The Company also expects increased gross margin leverage from this reduced cost structure as revenue increases are realized.

14

     The Company’s gross margin decreased to 15.0% of sales in fiscal 2000 as compared to 26.1% for fiscal 1999. The decrease was primarily due to fiscal 2000 including lower margin revenue related to the acquired ADFlex operation. The acquisition related revenue generates a lower gross margin percent than the high-end Innovex flexible circuit revenue due to the higher material content of the assembly portion of the business and lower level of technical tolerances required. Gross margins for the acquired ADFlex operation are also lower due the level of fixed costs related to the operation.

     Operating Expenses — Selling, general and administrative expenses were 12.7% of net sales in 2001 as compared to 9.8% in 2000 and 9.5% in 1999. A portion of the increase in selling, general and administrative expenses in fiscal 2001 over 2000 is the result of increased spending due to hiring, relocation and duplicate personnel costs related to the Chandler to Minnesota move and due to lower revenues as a result of the current economic slowdown. The increase in operating expenses as a percent of sales for 2000 as compared to 1999 is the result of the amortization of intangibles related to the ADFlex and Boron acquisitions. Fiscal 2002 operating expenses should decrease as a percent of sales as a result of cost savings measures taken in fiscal 2001 and by the expected increase in fiscal 2002 revenue.

     Engineering expense decreased to 4.4% of net sales in fiscal 2001 from 4.7% in 2000 and 4.4% in 1999. The decrease in engineering expenses as a percent of sales for fiscal 2001 is a result of reduced spending due to the completion of the effort to develop a materials manufacturing process. Engineering spending increased in fiscal 2000 as compared to 1999 due to spending related to the development of base material manufacturing process in the new Maple Plain Minnesota facility. The fiscal 2001 and 2000 spending was concentrated on FSA development and the development of a process to manufacture material for use in producing double sided, plated through-hole flexible circuits. Fiscal 2002 engineering spending is expected to concentrate on manufacturing process improvements, further FSA and FgSA technology improvements, semiconductor packaging substrates and other high-end flexible circuit technology development related to new products.

     Restructuring Charges — The fiscal 2001 second quarter includes asset impairment and restructuring charges of $9,754,000 and $10,124,000 related to the restructuring of the Company’s manufacturing operations. The restructuring is primarily related to closing the Company’s Chandler, Arizona facility and moving manufacturing operations to the Company’s Minnesota and Thailand locations. The charges were recorded pursuant to a plan announced in January 2001. The charge included approximately $6,380,000 related to asset impairment of property and equipment and $3,374,000 for the impairment of the remaining unamortized balance of the goodwill recorded at the time of the Company’s September 1999 acquisition of ADFlex Solutions, Inc. The charge also includes $1,636,000 of inventory written off related to discontinued product lines and accrued liabilities of $2,156,000 for employee severance and benefits and $6,332,000 for facility abandonment costs.The restructuring is expected to be substantially complete by the end of the second quarter of fiscal year 2002 with the exception of the costs accrued to maintain the leased Chandler facility through the June 2003 lease termination.

     The fiscal 2000 first quarter includes a $13,785,085 restructuring charge related to restructuring the Company’s manufacturing operations. The restructuring is primarily related to closing the Company’s Agua Prieta, Mexico facility and moving operations to its facility in Lamphun, Thailand. The charge included approximately $6,605,000 related to asset impairment of property and equipment, $356,000 for the write off of inventory and supplies, $176,000 for increasing the accounts receivable reserve, and accrued liabilities of $2,101,000 for facility abandonment costs and $4,547,000 in employee severance and benefits. A change in estimate was recorded in the quarter ending September 2000 increasing the facility abandonment accrual by $1,435,000 and decreasing the accrued employee severance by $1,485,000. The estimate changes were due to higher costs than expected to discontinue the operation of the Mexican facility and higher turnover than expected prior to the payment of severance. The restructuring was substantially complete as of September 2000 with the exception of completing the disposition of the Mexican facility. During the quarter ending March 31, 2001, the Company had a $495,000 increase in the estimate of the facility abandonment charges relating to the length of time required to complete the disposition of the facility located in Agua Prieta, Mexico.

15