UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For the fiscal year ended September 30, 2002

or

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 $49,937,000 at November 15, 2002 when the closing sale price of such stock, as reported in the Nasdaq National Market System, was $3.50.

The number of shares outstanding of the Registrant’s Common Stock, $.04 par value, as of November 15, 2002 was 15,151,975 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.
2002 Form 10-K

PART I

ITEM 1. BUSINESS

(a)   GENERAL DEVELOPMENT OF BUSINESS

        Prior to fiscal 1999, Innovex, Inc. and its subsidiaries (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.

        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.

        On November 27, 2002, the Company entered into an Option Agreement with Concorde PAPE II (“Concorde”), pursuant to which Concorde granted to the Company an option to acquire shares of KRP Precision Public Company Limited (“KRP”) representing 24.9% of the issued and outstanding shares of KRP. Currently, Concorde owns approximately 55.7% of the shares of KRP. The option is exercisable in the discretion of the Company at any time on or prior to December 31, 2003. Payment of the exercise price is due in shares of Company common stock. If exercised, the Company will deliver shares of its common stock in exchange for the KRP shares. In addition, if the Company exercises this option, Concorde will grant the Company a second option to purchase the remaining shares of KRP owned by Concorde. In the event the second option is not exercised, Concorde may require the Company to purchase its KRP shares under certain circumstances. Further, in the event the Company exercises its second option, the Company may be required to make a general offer to purchase KRP shares from KRP shareholders.

        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. and Innovex (Thailand) Ltd. Innovex Precision Components, Inc. is a Minnesota corporation and Innovex (Thailand) Ltd. is a Thailand corporation.

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(b)   FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

        Prior to the ADFlex acquisition, the Company had one major operating unit during fiscal 1999. 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 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, LCD displays for portable communication devices, data storage devices such as hard disk drives (“HDDs”), tape drives and arrays, high-end consumer electronics products such as digital video disk(DVD) and compact disk(CD) players and printers. The Company’s principal customers include 3M, Alps, Compaq, Dell, Hewlett Packard, IBM, Iomega, Littelfuse, Maxtor, Medtronic, Motorola, Nokia, Philips, Qualcomm, Quantum, ReadRite, SAE Magnetics, Samsung, Seagate, Staktek, StorageTek, 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 percentages. The mid-range or standard flexible circuits with components added through the performance of additional assembly steps garner lower gross margin percentages due to higher material costs and the increased number of competitors.

        Prior to 1999, the Company’s primary products were small lead wire assemblies 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”) and Flex suspension assembly (“FSA”) products. This transition has had a significant impact on the Company’s operations since 1998 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 2002 and 2001 consolidated revenues and less than 1% of fiscal 2000 revenues after comprising over 72% of fiscal 1998 revenues.

        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.

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        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, 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.

        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.

        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.

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 74%, 68%, and 59% of total sales for 2002, 2001 and 2000. 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.

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        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 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, CD and DVD applications 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. 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.

        New Ventures. The new venture markets include flexible circuits for integrated circuit substrates, optoelectronic interconnects for broadband applications, hand held color liquid crystal displays, plasma displays, laptop computers, various solid ink and ink jet printer applications, etched metal fuses and other high-end flexible circuits markets. These markets are projected to have rapid growth in the 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. In addition, the Company utilizes sales representatives on a limited basis in several Asian countries where it is advantageous to be represented locally. 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 H 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 3M, Alps, Compaq, Dell, Hewlett Packard, IBM, Iomega, Littelfuse, Maxtor, Medtronic, Motorola, Nokia, Philips, Qualcomm, Quantum, ReadRite, SAE Magnetics, Samsung, Seagate, Staktek, StorageTek, 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.

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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 2002, 2001 and 2000, the Company spent approximately $4,786,000, $4,518,000 and $3,472,000 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 processes for manufacturing new products including flexible circuits for display, integrated circuit substrate and printer applications, developing new FSA and FgSA generations and improving the FSA attachment process.

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

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 has decommissioned 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 Rogers Corporation (“Rogers”), Rogers 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 was 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 2003.

Backlog

        The backlog for the Company’s continuing operations was $23.9 million, $20.1 million and $19.1 million at September 30, 2002, 2001 and 2000, respectively. 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, 2002 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.

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        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 3M Company (“3M”) and Sumitomo for high-end applications, and Nippon Mektron (“NOK”), Fujikura Ltd. (“Fujikura”) and Multi-Fineline Electronix, Inc. (“M-Flex”) for standard flex and assembly applications. 3M, Sumitomo, NOK and Fujikura are substantially larger than the Company with greater financial and other resources. There are a number of other flexible circuit manufacturers that target other flexible circuit markets and rarely compete directly with the Company. 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’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, 2002, the Company had a total of 3,340 employees. Of these employees, 183 were based at the Company’s Maple Plain, Minnesota facility; 220 were based in Litchfield, Minnesota; and 2,937 were based in Thailand. 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.

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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 precision placement 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. A semi-additive process was developed during fiscal 2002 enabling the formation of finer lines in the future. 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 used to create various openings to drill vias and cut contoured peripheries in substrate materials.

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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. All 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.

(d)   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.

        While Innovex transacts business predominantly in U.S. dollars a large 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 in the regular course of business. The forward exchange contracts generally require the Company to exchange Thailand baht for U.S. dollars or U.S. dollars for Thailand baht at maturity, at rates agreed to at inception of the contracts. These contracts are not designated as hedges, therefore, the gains and losses on foreign currency transactions are included in income as incurred. No assurance can be given that the Company’s strategies will prevent future currency fluctuations from adversely affecting the Company.

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        A large portion of the sales and expenses for the Thailand operation are denominated in Thailand baht. The Thailand baht experienced significant fluctuations in relation to the U.S. dollar during portions of 2002, 2001 and 2000. 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, 2002, the Company leased or owned approximately 564,000 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 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 Arizona facility 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.

ITEM 3. LEGAL PROCEEDINGS

        Neither the Company nor any of its subsidiaries is a party to, and none of its property is the subject of, any 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

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    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. Since that time Mr. Chan has held various management positions with the Company including Vice President of Sales and Marketing of the Precision Products Division, Vice President and General Manager of Precision Products Division, Senior Vice President, Sales and Marketing and General Manager of Consumer Electronics.

    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.

    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.

    Mr. Velayuthan joined the Company in March, 2001 as Vice President, Asia Operations. Prior to Innovex, Mr. Velayuthan spent six years at Seagate Technology where he held a variety of management positions in manufacturing and quality.

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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 15, 2002, the Company had 544 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

Securities Authorized for Issuance Under Equity Compensation Plans:

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, 2002. 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.

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

        Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

Critical Accounting Policies