|UNITED STATESSECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


FORM 10-K
|----------------------------------------------------------------------------------

||X| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF                 THE SECURITIES EXCHANGE ACT OF 1934
|--- | -----------------------------------------------------------------------------------------------------

|For the fiscal year
ended September 30, 2002



or
|--------------------------------------------------

||_| | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)                 OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------------------------

|Commission File No.
0-13143

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

|                                               | 
|---------------------------------------------- | 
|Minnesota                                      | 
|(state
      or other jurisdiction of          | 
|incorporation
      or organization)           | 
|                                               | 
|5540
      Pioneer Creek Drive                 | 
|Maple
      Plain, Minnesota                   | 
|(Address
      of principal executive offices) | 

|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 or15 (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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| | The
Companys key flexible circuit fabrication technologies include:
| | --------------------------------------------------------------------

| | Fine Feature Roll-to-Roll Imaging and Etching.Allows the fabrication of circuits with very
fine line widths and spaces. This is critical to meeting complex space constrained
interconnection needs. Processing wide web (up to 24 inches) in a continuous roll-to-roll
format (as opposed to discrete panels) allows fabrication of high circuit volumes with
improved material utilization resulting in lower cost.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Semi-additive
metallization. Allows the fabrication of flexible circuits with finer lines and
spaces through the etching of thinner material and selective additive metallization of
the etched lines.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7
|-

|
|

| | Laser
Processing. Laser technology is used to produce low cost, very fine openings,
small vias and contoured shapes that solve density problems while avoiding more expensive
traditional alternatives. Also, using a laser to cut the periphery of parts allows
prototypes and low volume production parts to be built faster and without the cost of
blanking die.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Bondable
Gold Plating. Prepares flexible circuits for chip-on-flex bonding, a process
which saves space and improves electrical performance (access time) by wire bonding an IC
die directly to the flexible circuit.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Coverfilm,
Lay-up and Lamination. A process where coverfilm materials are adhered to the
circuitry to provide an insulative coating and to expose contact pads for surface
metalization. This process allows accurate positioning of solder plated pads to support
fine pitch surface mount assembly to the finished circuits.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Assembly
and Test Technology.  The Company applies advanced assembly and test technology
to provide flexible circuit interconnect assemblies to its customers. The Company
assembles passive electrical and various mechanical components, including connectors,
stiffeners, diodes, formed metal parts and other devices to its flexible circuits using
primarily manual processes in its plants in Thailand. The Company also performs advanced
direct die attach and assembly of integrated circuit devices as well as the functional
testing of these flexible circuit assemblies. Assembling these components directly onto
the flexible circuit increases performance and reduces space, weight and cost.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Flex
Suspension Assembly. The Company has a proprietary automated process to attach
flexible circuits to suspensions for disk drive applications.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

|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.
8
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Functions                                                                                   |  | Location
      (number of facilities) |  | Square Feet |  | Owned/
      Leased |  | Expiration     
|------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ----------- |  | ------------------- |  | ---------------
|Executive
      Offices, Research
         and Development and Circuit
         Fabrication |  | Maple
      Plain, Minnesota (one)    |  | 96,000      |  | Owned               |  | N/A            
|                                                                                            | 
|Held for
      disposition                                                                  |  | Chandler,
      Arizona (one)         |  | 150,000     |  | Leased              |  | June
      2003
|                                                                                            |  |                                       |  |             |  |                     |  |                
|Circuit inspection
      and finishing                                                      |  | Korat
      Thailand (two)            |  | 12,000      |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  | 8,000       |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  |             |  |                     |  |                
|Circuit Finishing
      and Assembly;                                                       |  | Lamphun
      Thailand (two)          |  | 15,000      |  | Owned               |  | N/A            
|Sales
      and Support                                                                     |  |                                       |  | 140,000     |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  |             |  |                     |  |                
|Circuit Fabrication                                                                         |  | Litchfield,
      Minnesota (five)    |  | 63,000      |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  | 15,000      |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  | 10,000      |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  | 51,000      |  | Owned               |  | N/A            
|                                                                                            |  |                                       |  | 4,000       |  | Owned               |  | N/A            

|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
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                     |  |  |  | Age |  | Position                                                          
|------------------------ |  |  |  | --- |  | ------------------------------------------------------------------
|Thomas
      W. Haley    |  |  |  | 66  |  | Chairman,
      and Director of the Company                       
|William P.
      Murnane |  |  |  | 40  |  | President
      and Chief Executive Officer                       
|Thomas Paulson           |  |  |  | 46  |  | Chief Financial
      Officer                                     
|Allan J.
      Chan      |  |  |  | 52  |  | Senior Vice
      President, General Manager, Consumer Electronics
|Brian R.
      Dahmes    |  |  |  | 42  |  | Vice President,
      Research and Development                    
|Douglas W.
      Keller  |  |  |  | 44  |  | Vice President,
      Finance                                     
|Srinivas
      Kuchipudi |  |  |  | 34  |  | Vice President,
      Operations                                  
|Kelly S.
      Schuller  |  |  |  | 37  |  | Vice President,
      General Manager, New Ventures               
|Vasu Velayuthan          |  |  |  | 38  |  | Vice President,
      Asia Operations                             

|9
|-

|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.
10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  | 2002   |  | 2001  
|------------------- |  | ------ |  | ------
|
|
|First
      Quarter |  | $4.200 |  | $1.260
|Second Quarter      |  | 5.170  |  | 3.310 
|Third Quarter       |  | 7.425  |  | 3.600 
|Fourth Quarter      |  | 4.100  |  | 1.950 

|Securities Authorized for
Issuance Under Equity Compensation Plans:
|-------------------------------------------------------------------

|Plan
      category                                                    |  | Number
      of shares of common
      stock to be issued upon
      exercise of outstanding
      options, warrants and rights |           | Weighted-average
      exercise price of
      outstanding options,
      warrants and rights |  | Number
      of shares of common
      stock remaining available
      for future issuance under
      equity compensation plans(1)
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|Equity
      compensation plans
         approved by stockholders:     |  |                                                                                                                                 | 1,785,511 |                                                                                               |  |                                                                                                                                    
|                                                                       | 
|Equity
      compensation plans not
         approved by stockholders: |  |                                                                                                                                 |          |                                                                                               |  |                                                                                                                                    
|                                                                       |  |                                                                                                                                 |           |                                                                                               |  |                                                                                                                                    
|Total                                                                  |  |                                                                                                                                 | 1,785,511 |                                                                                               |  |                                                                                                                                    

|(1) | Excludes
shares of common stock listed in the first column.
|--- | -----------------------------------------------------------

|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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Years Ended
      September 30,                   |  |  | 2002 |             | 2001 |   | 2000        |   | 1999 |             | 1998
|------------------------------------------------- |  |  | ---- | ----------- | ---- | - | ----------- | - | ---- | ----------- | ----
|Net
      sales                                   |  |  | $    | 134,727,529 |      | $ | 145,635,446 |   | $    | 164,461,510 |     
|Net income
      (loss)                           |  |  |      | (3,835,065  | )    |   | (28,875,680 | ) |      | (11,054,410 | )   
|Net income
      (loss) per share:                |  | 
|Basic                                             |  |  |      | ($ 0.25     | )    |   | ($ 1.93     | ) |      | ($ 0.75     | )   
|Diluted                                           |  |  |      | ($ 0.25     | )    |   | ($ 1.93     | ) |      | ($ 0.75     | )   
|Cash dividends
      per share                    |  |  | $    | 0.00        |      | $ | 0.00        |   | $    | 0.04        |     
|Total assets                                      |  |  |      | 114,927,864 |      |   | 142,666,541 |   |      | 167,679,892 |     
|Long-term
      debt, less current     maturities |  |  |      | 15,371,841  |      |   | 26,403,021  |   |      | 21,003,284  |     
|Stockholders
      equity                        |  |  |      | 64,421,454  |      |   | 68,174,772  |   |      | 96,396,047  |     

|11
|--

|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


We
believe that the estimates, assumptions and judgments involved in the accounting policies
described below have the greatest potential impact on our financial statements, so we
consider these to be our critical accounting policies. Because of the uncertainty inherent
in these matters, actual results could differ from the estimates we used in applying the
critical accounting policies. Within the context of these critical accounting policies, we
are not currently aware of any reasonably likely event that would result in materially
different amounts being reported.



Allowance for Excess and
Obsolete Inventory:


Inventories,
which are composed of raw materials, work in process and finished goods, are valued at the
lower of cost or market with cost being determined by the first-in, first-out method. On a
periodic basis, the Company analyzes the level of inventory on hand, its cost in relation
to market value and estimated customer requirements to determine whether write-downs for
excess or obsolete inventory are required. Actual customer requirements in any future
periods are inherently uncertain and thus may differ from estimates. If actual or expected
requirements were significantly greater or lower than the established reserves, a
reduction or increase to the obsolescence allowance would be recorded in the period in
which such a determination was made.



Goodwill:


The
Company adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and
Intangible Assets and as a result discontinued the amortization of goodwill and any
other intangible assets determined to have indefinite lives. The Company has determined
goodwill relates to one reporting unit for purposes of impairment testing. Goodwill and
other intangible assets with indefinite lives are tested for impairment annually or
whenever an impairment indicator arises. If events or circumstances change, including
reductions in anticipated cash flows generated by operations, goodwill could become
impaired and result in a charge to earnings.



Deferred Taxes:


The
Company accounts for income taxes using the liability method. Deferred income taxes are
provided for temporary differences between the financial reporting and tax bases of assets
and liabilities. A valuation allowance is set up where the realization of any deferred
taxes become less likely than not to occur. The valuation allowance is analyzed
periodically by the Company and may result in income tax expense different than statutory
rates.



Earnings Summary


The
Company reported a net loss of ($3,835,000) or ($0.25) basic and diluted net loss per
share for the fiscal year ended September 30, 2002. This compares to a net loss of
$(28,876,000) or ($1.93) basic and diluted net loss per share in fiscal 2000 and a net
loss of ($11,054,000) or ($0.75) basic and diluted net loss per share in 2000. Fiscal 2002
results improved as compared to fiscal 2001 primarily due to lower restructuring charges
and a lower fixed cost basis resulting from cost reduction measures taken by the Company
in fiscal 2001 impacting manufacturing, selling, general and administrative and
engineering costs. Fiscal 2002 results were negatively impacted by the reduction in 2002
revenue primarily caused by lower worldwide information technology infrastructure
spending.


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.
Although the costs of making these changes were reflected in fiscal 2001, many of the
benefits were not realized until fiscal 2002.

12
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Results of Operations


Net
Sales. The Companys net sales of $134,728,000 for fiscal 2002 decreased 7% from
fiscal 2001 net sales of $145,635,000. The largest portion of the decline was due to a
reduction in flexible circuit revenue for high end tape library, tape backup and array
applications as a result of lower worldwide information technology infrastructure
spending. In addition, fiscal 2002 did not include any Bridge Flex revenue as the product
was phased out in early fiscal 2001. The Bridge Flex was a transitional product that
completed the connection from the suspension to the actuator flex for disk drive head
interconnect solutions that terminated at the back of the suspension. The need for Bridge
Flex products was eliminated as the conductors from subsequent versions of these disk
drive head interconnect solutions extended beyond the suspension. In fiscal 2002, the
Company also experienced a continued decline in flexible circuit revenue from hand held
telecommunications applications as the telecommunications market continues to be
depressed. Revenue increases in fiscal 2002 were experienced in a number of areas
including disk drive actuator flex, DVD, integrated circuit packaging and solid ink
printer applications to offset a portion of the decreases. Revenue from disk drive
actuator flex products increased as the result of market share gains. DVD related revenue
increased due to a customers new product introduction. Integrated circuit packaging
revenue improved as a result of increased demand for stacked memory for high end server
applications.


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.


Revenue
from the disk drive industry generated 74% of fiscal 2002 revenue as compared to 68% in
fiscal 2001. This portion should remain similar in fiscal 2003 as FSA and actuator flex
revenue is expected to increase in proportion to overall revenue. Consumer related revenue
was 14% of revenue in fiscal 2002 as compared to 10% in 2001 due to the DVD and solid ink
printer revenue increases. Revenue generated from network system applications was 6% in
fiscal 2002 down from 13% in fiscal 2001 due to the drop in tape storage related revenue.
Revenue from other applications was 6% in fiscal 2002 compared to 9% in fiscal 2001. The
September 1999 acquisition of ADFlex reduced the Companys dependence on the disk
drive industry significantly from its historical levels of 8590% of revenue. Fiscal
2003 revenue is expected to increase over 2002 levels. The Company anticipates that disk
drive related revenue will increase as a result of market share improvements for its FSA,
Flex Gimbal Suspension Assembly(FgSA) and actuator flex product lines. Revenue increases
are also expected as a result of the Companys qualification as a supplier of
flexible circuits for liquid crystal display applications.


Export
sales accounted for 82% of the Companys revenue in fiscal 2002 as compared to 80%
for 2001 and 73% for 2000, 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 2002
increased to 11.9%, from the 11.4% reported for fiscal 2001. The improved gross margin
percent was primarily due to a lower fixed cost basis resulting from cost reduction
measures taken by the Company in fiscal 2001. This cost reduction was partially offset by
lower fixed cost leverage caused by the reduction in revenue. The cost reduction measures
included the transfer of manufacturing operations from Arizona to the Minnesota and
Thailand facilities and a reduction of the Companys workforce. The benefit of the
lower cost base was also partially offset by an increase in variable material costs caused
by an increased proportion of FSA products in the product mix. FSA products have a higher
variable material cost component than products including only flexible circuits due to the
cost of the purchased suspension to which the flexible circuit is attached.


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. The lower gross margin percent was also impacted
by the increased proportion of high material content FSA products in the product mix.

13
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Gross
margins in fiscal 2003 are expected to improve due to improved fixed cost leverage
resulting from the expected increase in revenue.


Operating
Expenses. Selling, general and administrative expenses were 12.3% of net sales in 2002
as compared to 12.7% in 2001 and 9.8% in 2000. Selling, general and administrative
spending was $16.6 million in 2002, $18.5 million in 2001 and $16.1 million in 2000.
Fiscal 2002 expenses were lower than 2001 expenses as a result of the 2001 restructuring
that closed the Companys Arizona facility and reduced the Companys workforce.
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. In addition, the increase as a
percent of revenue was due to lower revenues in 2001 as a result of the current economic
slowdown. Fiscal 2003 operating expenses should not change significantly from 2002 levels
and should decrease as a percent of sales as a result of the expected increase in fiscal
2003 revenue.


Engineering
expense decreased to 4.2% of net sales in fiscal 2002 from 4.4% in 2001 and 4.7% in 2000.
Engineering spending was $5.7 million in 2002, $6.4 million in 2001 and $7.7 million in
2000. Fiscal 2002 expenses were lower than 2001 expenses as a result of the 2001
restructuring that closed the Companys Arizona facility and reduced the
Companys workforce. The decrease in engineering expenses as a percent of sales for
fiscal 2001 as compared to 2000 is a result of reduced spending due to the completion of
the effort to develop a materials manufacturing process. Fiscal 2002 engineering spending
was focused on manufacturing process improvements, further FSA and FgSA technology
improvements, qualifying products and processes for new applications including liquid
crystal displays, printers and semiconductor packaging substrates and other high-end
flexible circuit technology development related to new products. 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 2003 engineering spending is expected to continue to concentrate on
manufacturing process improvements, further FSA and FgSA technology improvements,
qualifying products and processes for new applications including liquid crystal displays,
printers and semiconductor packaging substrates and other high-end flexible circuit
technology development related to new products.


Restructuring
Charges. During the fiscal 2002 second quarter, an additional $950,000 restructuring
charge was recorded due to an increase of $876,000 in the estimate of the leased Chandler
facility disposition costs and $74,000 for costs to complete the disposal of the Agua
Prieta, Mexico facility.


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. During the fiscal 2002 second quarter, an additional $876,000 restructuring charge
was recorded due to an increase in the estimate of the leased Chandler facility
disposition costs. The restructuring is substantially complete with the exception of the
costs accrued to maintain the leased Chandler facility until its disposition. The lease
terminates in June 2003 if it is not disposed prior to that time.


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. The facility
was sold during the fiscal 2002 second quarter with an additional $74,000 restructuring
charge recorded at that time due to the cost of disposition.
14
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Interest
Income (Expense). Interest income decreased to $119,000 in fiscal 2002 from $127,000
and $524,000 in fiscal 2001 and 2000 respectively. The decreases in fiscal 2002 and 2001
correspond to the reduction in the Companys excess cash. Interest expense decreased
to $2,735,000 in 2002, from $3,550,000 in 2001 and $3,193,000 in 2000. Interest decreased
in 2002 due to lower interest rates on the Companys U.S. based debt facilities which
have floating interest rates and the reduction in interest bearing debt by over $14
million during fiscal 2002. Interest expense increased in fiscal 2001 as compared to 2000
due to the new $27 million credit facility put in place in Thailand during fiscal 2001.


Other
Income (Expense). Fiscal 2002 net other income of $351,000 was primarily income from
the Companys 35% investment in Applied Kinetics Incorporated. Net other expense in
fiscal 2001 of $266,000 was primarily due to increased foreign currency transaction costs
as a result of the high level of revenue recorded in Thailand baht and foreign currency
translation losses related to the volatility of the Thailand baht/US dollar relationship
during the year.


Income
(Loss) Before Provision For Income Taxes. Income (loss) before provision for income
taxes was ($9,441,000) for fiscal 2002 as compared to ($32,349,000) and ($15,570,000) for
2001 and 2000, respectively. As a percent of net sales, income before provision for income
taxes was (7.0%) for 2002 as compared to (22.2%) for 2001 and (9.5%) for 2000.


Benefit (Provision)
For Income Taxes. The income tax benefit for fiscal 2002 was $5,606,000
          reflecting an effective tax rate of 59.4%. The effective tax benefit rate is
          higher than the statutory federal rate primarily due to the exclusion of income
          generated from Innovexs foreign operating corporation and a reduction in
          the Companys deferred tax allowance. The deferred tax allowance was
          reduced as a result of the estimated improvement in deferred tax asset
          recoverability in light of the receipt of a $13 million tax refund resulting
          from the carry-back of the fiscal 2001 net operating loss. The carry-back was
          allowed as part of the economic relief act that was passed into law during the
          second quarter. The fiscal 2001 income tax benefit was $3,473,000 resulting in
          an effective tax rate of 10.7%. The effective tax benefit rate was lower than
          the statutory federal rate primarily due to an increase in the deferred tax
          allowance.


Net
Income (Loss). The fiscal 2002 net loss was ($3,835,000) as compared to ($28,876,000)
and ($11,054,000) for 2001 and 2000, respectively.



Liquidity and Capital
Resources


Cash
and equivalents increased by $566,000 to $2,364,000 at September 30, 2002 from the prior
year. Net cash provided by operating activities increased in 2002 to $15,866,000 from
$1,412,000 in 2001 and $766,000 in 2000. The increase in 2002 net cash provided by
operations was primarily due to the receipt of a $13 million tax refund and decreases in
accounts receivables and inventory as compared to the prior year. Accounts receivable and
accounts payable decreased due to the lower level of revenue during fiscal 2002. The $4.5
million inventory reduction was due to a concentrated effort to better manage inventory in
addition to the lower level of revenue activity. Other current and long-term liabilities
decreased by $6.6 million during fiscal 2002 primarily due to the payment of liabilities
accrued as part of the fiscal 2001 manufacturing restructuring. The increase in cash and
equivalents as well as net cash provided by operating activities during fiscal 2001 as
compared to 2000 was primarily due to the reduction in accounts receivable and inventories
more than offsetting the reduction in accounts payable.


Working
capital improved to ($453,000) at September 30, 2002 from ($5,883,000) at September 30,
2001. The Companys current ratio was 1.0 at fiscal 2002 year-end, compared to 0.9 at
the end of fiscal 2001. The improvement is primarily due to the reduced line of credit
balances and the reduction of other current liabilities including the accrual set up at
the time of the January 2001 manufacturing restructuring.
15
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company invested approximately $4 million, $12 million and $24 million in capital
expenditures in fiscal 2002, 2001 and 2000. Fiscal 2002 expenditures primarily included
technological upgrades, selected capacity increases and facility improvements. The fiscal
2001 expenditures were primarily related to additional FSA attachment equipment and the
Minnesota and Thailand facility additions related to the move of operations from Arizona
to Minnesota and Thailand. The capital expenditures in fiscal 2000 include additional
equipment to increase the capacity of the automated flexible circuit production facility
in Litchfield, Minnesota and the costs to construct and equip the Maple Plain
manufacturing facility. In addition, fiscal 2000 included capital expenditures to increase
the capacity of the Lamphun Thailand facility as part of the manufacturing restructuring
plan to close the Mexican facility and move the operation to Thailand. The Company also
acquired the assets and operations of its Thailand subcontractor in October 1999 for
$3,750,000.


Net
property, plant and equipment decreased by $13.0 million to $73,692,000 at September 30,
2002. The decrease was due to depreciation of $13.4 million and the sale of the Mexican
facility more than offsetting fiscal 2002 capital expenditures of $3.5 million.


In
April 2001 the Company entered into a 1.2 billion Thailand baht (approximately $27
million) credit facility agreement with Bank of Ayudhya Public Company Limited and The
Industrial Finance Corporation of Thailand. The facility is comprised of a 590 million
baht long-term facility, a 530 million baht packing credit facility, a 70 million baht
short term working capital facility and a 10 million baht overdraft facility. The Thailand
based facility is secured by certain receivables, inventory and assets held by the Company
in Thailand. In June 2002, the Company completed a 300 million Thailand baht
(approximately $6.8 million) expansion of its Thailand credit facilities also secured by
certain receivables and inventory held by the Company. As of September 30, 2002, the
Company had $14 million of borrowing capacity available under the existing credit
facilities.


Long-term
debt, net of current maturities, decreased by $10.2 million. The decrease is primarily the
result of the $7.8 million payments made on the existing Wells Fargo facility with the
remainder being scheduled principal payments made on the Thailand credit facilities and
other long term lease financing. The ratio of long-term debt, net of current maturities,
to stockholders equity was .24 at September 30, 2002 compared to .39 at the end of
fiscal 2001.


The
Company believes that with the existing U.S. and Thailand credit facilities and cash
generated from operations, it will have adequate funds to support projected working
capital and capital expenditures for fiscal 2003. The Company is considering alternatives
for generating additional working capital and long term financing and will continue to
pursue financing opportunities in both Thailand and the U.S to better leverage its assets.
The Companys financing needs and the financing alternatives available to it are
subject to change depending on, among other things, general economic and market
conditions, changes in industry buying patterns, customer acceptance of the FSA product
and cash flow from operations. The Company failed to comply with certain covenants under
its U.S. credit facility during the current quarter. The attached Ninth Amendment to
Credit Agreement includes the banks waiver of this non-compliance as of September
30, 2002. The Thailand based credit facilities were modified to require compliance with
two financial ratios rather than require an increase in registered capital. The Company is
in compliance with the covenants under its Thailand based financing agreements as of
September 30, 2002.



New Pronouncements


In
June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143, Accounting for
Retirement Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The statement is effective for the Company on October
1, 2002 and is not expected to have a material impact.


In
June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 clarifies the accounting for costs associated with exit
or disposal activities. This statement is effective for the Company beginning in January
2003 and is not expected to have a material impact.



Recently Passed
Legislation


On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
Act), which immediately impacts Securities and Exchange Commission
registrants, public accounting firms, lawyers and securities analysts. This legislation is
the most comprehensive since the passage of the Securities Acts of 1933 and 1934. It has
far reaching effects on the standards of integrity for corporate management, board of
directors, and executive management. Additional disclosures, certifications and possibly
procedures will be required of the Company. The Company does not expect any material
adverse effect as a result of the passage of this legislation; however, the full scope of
the Act has not been determined. The Act provides for additional regulations and
requirements of publicly-traded companies many of which have yet to be issued.
16
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Forward-Looking
Information


Statements
included in this Managements Discussion and Analysis of Financial Condition and
Results of Operations, elsewhere in this report and in future filings by the Company with
the SEC, except for the historical information contained herein and therein, are
forward-looking statements that involve risks and uncertainties. These risks
and uncertainties include the timely availability and acceptance of new products including
the FgSA and semiconductor packaging substrates, the impact of competitive products and
pricing, interruptions in the operations of the Companys single source suppliers,
changes in manufacturing efficiencies and other risks detailed from time to time in this
report and in other reports filed by the Company with the Securities and Exchange
Commission. In addition, a significant portion of the Companys revenue is generated
from the disk drive, consumer electronics, computer and data storage industries and the
global economic downturn has had and a continued economic downturn will continue to have
an adverse impact on the Companys operations. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect subsequent events or
circumstances or the occurrence of unanticipated events.



ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The
Companys earnings and cash flows are subject to fluctuations due to changes in
foreign currency exchange rates. While the Company transacts business predominately in
U.S. dollars a 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 gains
or 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 to manage its risk exposure, not as speculative instruments. Typically, these
contracts have maturities of 6 months or less. 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.


The
Company periodically reviews the outlook for expected currency exchange rate movements as
well as the policy on desired future foreign currency cash flow positions (long, short,
balanced) for those currencies in which the Company has significant activity. Expected
future cash flow positions and strategies are continuously monitored. At September 30,
2002, the Company had one open forward exchange contract to buy a total of 550,000,000
Thai baht. No assurance can be given that the Companys strategies will prevent
future currency fluctuations from adversely affecting the Companys business,
financial condition, results of operations and cash flows.
17
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA



INDEX TO FINANCIAL DATA
|------------------------------------------------------------------------------

|                                                                                                                                        | Page
|--------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report
      of Independent Certified Public Accountants                                                                                |     
|                                                                                                                                        |     
|Consolidated
      Balance Sheets at September 30, 2002 and 2001                                                                        |     
|                                                                                                                                        |     
|Consolidated
      Statements of Operations for each of the three years in the period
         ended September 30, 2002                 |     
|                                                                                                                                        |     
|Consolidated
      Statements of Stockholder' Equity for each of the three years in the
      period
         ended September 30, 2002 |     
|                                                                                                                                        |     
|Consolidated
      Statements of Cash Flows for each of the three years in the period
        ended September 30, 2002                  |     
|                                                                                                                                        |     
|Notes to
      Consolidated Financial Statements                                                                                        |     
|                                                                                                                                        |     
|Quarterly
      Financial Data (unaudited)                                                                                              |     

|18
|--

|Report of Independent
Certified Public Accountants



Board of DirectorsInnovex, Inc.


We
have audited the accompanying consolidated balance sheets of Innovex, Inc. and
Subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in the
period ended September 30, 2002. These financial statements are the responsibility of the
companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.


In
our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Innovex, Inc. and Subsidiaries as of
September 30, 2002 and 2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended September 30, 2002, in
conformity with accounting principles generally accepted in the United States of America.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | \s\ Grant Thornton LLP 
      
| |  | ----------------------------------------

|Minneapolis, MinnesotaOctober
23, 2002
19
|-----------------------------------------

|CONSOLIDATED BALANCE
SHEETSINNOVEX, INC. AND SUBSIDIARIES
|---------------------------------------------------------

|                                                                                                           |  |  |   | September
      30,
|---------------------------------------------------------------------------------------------------------- |  |  | - | -------------------
|
|Assets                                                                                                     |  |  |   |                    
|Current
      assets:                                                                                      |  | 
|Cash
      and equivalents                                                                                 |  |  | $ | 2,364,136          
|Accounts
      receivable, less allowance for doubtful accounts of $425,000
              (2001 $670,000) |  |  |   | 16,773,103         
|Inventories                                                                                                |  |  |   | 9,285,600          
|Income
      taxes receivable                                                                              |  |  |   | 1,362,329          
|Deferred
      income taxes  current                                                                      |  |  |   | 3,147,691          
|Other
      current assets                                                                                 |  |  |   | 1,748,962          
|                                                                                                           |  |  |   |                    
|Total
      current assets                                                                                 |  |  |   | 34,681,821         
|Property,
      plant and equipment  at cost:                                                             |  | 
|Land
      and land improvements                                                                           |  |  |   | 3,620,545          
|Buildings
      and leasehold improvements                                                                 |  |  |   | 38,829,134         
|Machinery
      and equipment                                                                              |  |  |   | 69,078,164         
|Office
      furniture and fixtures                                                                        |  |  |   | 1,479,936          
|                                                                                                           |  |  |   |                    
|                                                                                                           |  |  |   | 113,007,779        
|Less
      accumulated depreciation and amortization                                                       |  |  |   | 39,316,085         
|                                                                                                           |  |  |   |                    
|Net
      property, plant and equipment                                                                    |  |  |   | 73,691,694         
|Goodwill                                                                                                   |  |  |   | 3,000,971          
|Deferred
      income taxes  long-term                                                                    |  |  |   | 1,236,038          
|Other assets                                                                                               |  |  |   | 2,317,340          
|                                                                                                           |  |  |   |                    
|                                                                                                           |  |  | $ | 114,927,864        
|                                                                                                           |  |  |   |                    
|Liabilities
      and Stockholders Equity                                                                 |  | 
|Current
      liabilities:                                                                                 |  | 
|Current
      maturities of long-term debt                                                                 |  |  | $ | 10,798,096         
|Line
      of credit                                                                                       |  |  |   | 7,302,352          
|Accounts
      payable                                                                                     |  |  |   | 13,075,040         
|Accrued
      compensation                                                                                 |  |  |   | 1,653,223          
|Other
      accrued liabilities                                                                            |  |  |   | 2,305,858          
|                                                                                                           |  |  |   |                    
|Total
      current liabilities                                                                            |  |  |   | 35,134,569         
|Other long-term
      liabilities                                                                          |  |  |   |                   
|Long-term
      debt, less current maturities                                                              |  |  |   | 15,371,841         
|Commitments
      and contingencies                                                                        |  |  |   |                   
|                                                                                                           |  | 
|Stockholders
      equity:                                                                                |  | 
|Common
      stock, $.04 par value; 30,000,000 shares authorized,                                          |  | 
|15,108,283
      shares issued and outstanding (2001 15,044,249)                                          |  |  |   | 604,331            
|Capital
      in excess of par value                                                                       |  |  |   | 17,815,641         
|Retained
      earnings                                                                                    |  |  |   | 46,001,482         
|                                                                                                           |  |  |   |                    
|Total
      stockholders' equity                                                                           |  |  |   | 64,421,454         
|                                                                                                           |  |  |   |                    
|                                                                                                           |  |  | $ | 114,927,864        
|                                                                                                           |  |  |   |                    

|The accompanying notes
are an integral part of these statements.
20
|-------------------------------------------------------------------

|CONSOLIDATED
STATEMENTS OF OPERATIONSINNOVEX, INC. AND SUBSIDIARIES
|-------------------------------------------------------------------

|                                                      | For the
      years ended September 30, | 
|----------------------------------------------------- | --------------------------------------- | 
|
|Net
      Sales                                       |                                         | 
|Costs
      and Expenses:                             |                                         | 
|Cost
      of sales                                   |                                         | 
|Selling,
      general and administrative             |                                         | 
|Engineering                                           |                                         | 
|Restructuring
      charges                           |                                         | 
|Interest
      expense                                |                                         | 
|Interest
      income                                 |                                         | 
|Other
      (income) expense                          |                                         | 
|                                                      |                                         | 
|                                                      |                                         | 
|                                                      |                                         | 
|Income
      (Loss) Before Provision for Income Taxes |                                         | 
|Benefit
      (Provision) for Income Taxes            |                                         | 
|                                                      |                                         | 
|Net
      Income (Loss)                               |                                         | 
|                                                      |                                         | 
|Net
      Income (Loss) Per Share:                    |                                         | 
|Basic                                                 |                                         | 
|                                                      |                                         | 
|Diluted                                               |                                         | 
|                                                      |                                         | 
|Weighted
      Average Shares Outstanding:            |                                         | 
|Basic                                                 |                                         | 
|                                                      |                                         | 
|Diluted                                               |                                         | 
|                                                      |                                         | 

|The accompanying notes
are an integral part of these statements.
21
|-------------------------------------------------------------------

|CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITYINNOVEX, INC. AND SUBSIDIARIES
|-----------------------------------------------------------------------------

|For
      the years ended September 30, 2002, 2001 and 2000 |  | Common
      Stock |         | Capital in
      Excess of
      Par Value |   | Retained
      Earnings |  |   |             | Total
      Stockholders
      Equity | 
|----------------------------------------------------------- |  | ------------------ | ------- | ------------------------------------------ | - | ----------------------- |  | - | ----------- | -------------------------------------- | 
|Balance
      at October 1, 1999                            |  | $                  | 592,884 |                                            | $ | 16,181,730              |  | $ | 90,359,585  |                                        | 
|Shares
      issued through exercise of stock options       |  |                    | 3,902   |                                            |   | 639,243                 |  |   |             |                                        | 
|Tax
      benefits derived from exercise of stock options   |  |                    |         |                                            |   | 179,058                 |  |   |             |                                        | 
|Shares
      issued through employee stock purchase plan    |  |                    | 425     |                                            |   | 86,578                  |  |   |             |                                        | 
|Dividends
      paid ($0.155 per share)                     |  |                    |         |                                            |   |                         |  |   | (592,948    | )                                      | 
|Net
      loss                                              |  |                    |         |                                            |   |                         |  |   | (11,054,410 | )                                      | 
|                                                            |  |                    |         |                                            |   |                         |  |   |            
|Balance
      at September 30, 2000                         |  |                    | 597,211 |                                            |   | 17,086,609              |  |   | 78,712,227  |                                        | 
|Shares
      issued through exercise of stock options       |  |                    | 2,358   |                                            |   | 260,472                 |  |   |             |                                        | 
|Tax
      benefits derived from exercise of stock options   |  |                    |         |                                            |   | 142,983                 |  |   |             |                                        | 
|Shares
      issued through employee stock purchase plan    |  |                    | 2,201   |                                            |   | 246,391                 |  |   |             |                                        | 
|Net
      loss                                              |  |                    |         |                                            |   |                         |  |   | (28,875,680 | )                                      | 
|                                                            |  |                    |         |                                            |   |                         |  |   |            
|Balance
      at September 30, 2001                         |  |                    | 601,770 |                                            |   | 17,736,455              |  |   | 49,836,547  |                                        | 
|Shares
      issued through exercise of stock options       |  |                    | 364     |                                            |   | 16,562                  |  |   |             |                                        | 
|Shares
      issued through employee stock purchase plan    |  |                    | 2,197   |                                            |   | 62,624                  |  |   |             |                                        | 
|Net
      loss                                              |  |                    |         |                                            |   |                         |  |   | (3,835,065  | )                                      | 
|                                                            |  |                    |         |                                            |   |                         |  |   |            
|Balance
      at September 30, 2002                         |  | $                  | 604,331 |                                            | $ | 17,815,641              |  | $ | 46,001,482  |                                        | 
|                                                            |  |                    |         |                                            |   |                         |  |   |            

|The accompanying notes
are an integral part of these statements.
22
|-------------------------------------------------------------------

|CONSOLIDATED
STATEMENTS OF CASH FLOWSINNOVEX, INC. AND SUBSIDIARIES
|-------------------------------------------------------------------

|                                                             | For
      the years ended September 30, | 
|------------------------------------------------------------ | --------------------------------------- | 
|
|
|Cash
      Flows From Operating Activities:                  |                                         | 
|Net
      income (loss)                                      |                                         | 
|Adjustments
      to reconcile net income (loss) to net cash |                                         | 
|provided
      by operating activities:                      |                                         | 
|Depreciation
      and amortization                          |                                         | 
|Restructuring
      charges                                  |                                         | 
|Other
      non-cash items                                   |                                         | 
|Changes
      in operating assets and liabilities, net of    |                                         | 
|business
      acquisition:                                  |                                         | 
|Accounts
      receivable                                    |                                         | 
|Inventories                                                  |                                         | 
|Deferred
      income taxes                                  |                                         | 
|Income
      taxes                                           |                                         | 
|Other
      current assets                                   |                                         | 
|Accounts
      payable                                       |                                         | 
|Other
      current and long-term liabilities                |                                         | 
|                                                             |                                         | 
|Net
      cash provided by operating activities              |                                         | 
|Cash
      Flows From Investing Activities:                  |                                         | 
|Capital
      expenditures                                   |                                         | 
|Business
      acquisition                                   |                                         | 
|Proceeds
      from sale of assets                           |                                         | 
|Sales
      and maturities of held-to-maturity securities    |                                         | 
|Other                                                        |                                         | 
|                                                             |                                         | 
|Net
      cash used in investing activities                  |                                         | 
|Cash
      Flows From Financing Activities:                  |                                         | 
|Principal
      payments on long-term debt                   |                                         | 
|Net
      (payments) proceeds on line of credit              |                                         | 
|Issuance
      of long-term debt                             |                                         | 
|Proceeds
      from exercise of stock options                |                                         | 
|Proceeds
      from employee stock purchase plan             |                                         | 
|Dividends
      paid                                         |                                         | 
|                                                             |                                         | 
|Net
      cash provided by (used in) financing activities    |                                         | 
|                                                             |                                         | 
|Increase
      (decrease) in cash and equivalents            |                                         | 
|Cash
      and equivalents at beginning of year              |                                         | 
|                                                             |                                         | 
|Cash
      and equivalents at end of year                    |                                         | 
|                                                             |                                         | 

|Supplemental Disclosures:


Cash paid for interest was
approximately $2,834,000; $3,508,000; and $2,743,000 in 2002, 2001 and 2000.


Income tax payments were
approximately $29,000; $86,000; and $0 in 2002, 2001 and 2000.


Tax benefits derived from exercise of
stock options totaling approximately $0, $143,000 and $179,000 in 2002, 2001 and 2000 were
recorded as a reduction of current income taxes payable and an increase in capital in
excess of par value.
The accompanying notes
are an integral part of these statements.
23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSINNOVEX, INC. AND SUBSIDIARIES



September 30, 2002, 2001 and 2000



Note A.  Summary
of Significant Accounting Policies


Innovex
Inc. and Subsidiaries (the Company) is a diversified manufacturer of
electrical components for the computer, data storage, consumer, medical,
telecommunications and other electronic industries. Substantially all of the
Companys revenues, operating profits and assets relate to one operating unit
involved in the manufacture of flexible circuit interconnects. Company customers are
located throughout the United States, Europe and the Pacific Rim. The Company has
manufacturing facilities in Litchfield and Maple Plain, Minnesota and Lamphun and Korat,
Thailand.


A
summary of the significant accounting policies consistently applied in the preparation of
the accompanying consolidated financial statements follows:


Principles
of Consolidation and Fiscal Year   The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.


The
Company utilizes a fiscal year that ends on the Saturday nearest to September 30. For
clarity of presentation, the Company has described all periods as if the year ended
September 30. The fiscal years ended September 30, 2002, 2001 and 2000 all include
fifty-two weeks of operations.


Foreign
Currency Translation   The Company uses the United States dollar as its functional
currency for its subsidiary in Thailand. Re-measurement gains and losses, resulting from
the process of re-measuring the financial statements of these foreign subsidiaries into
U.S. Dollars, are included in operations. Net foreign currency remeasurement and foreign
exchange instrument gains (losses) of $71,000, ($457,000) and ($142,000) were included in
other income (expense) in the fiscal years ended September 30, 2002, 2001 and 2000.


Foreign
Exchange Instruments  The Company enters into short-term forward foreign currency
exchange contracts in the regular course of business to manage its exposure against
foreign currency fluctuations, primarily relating to nonfunctional currency monetary
assets and liabilities. 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 the inception of the contracts. The contracts are not designated as
hedges, therefore, the gains and losses on foreign currency transactions are included in
other income (expense). The Company does not enter into forward contracts for trading
purposes.


Cash
Equivalents  The Company considers all highly liquid temporary investments with an
original maturity of three months or less to be cash equivalents. The Company had no cash
equivalents at September 30, 2002 and 2001. Approximately $1.7 million and $1.0 million
were on deposit in foreign financial institutions at September 30, 2002 and 2001.


Accounts
Receivable  The Company grants credit to customers in the normal course of business
and generally does not require collateral or any other security to support amounts due.
Management performs ongoing credit evaluations of customers. The Company maintains
allowances for potential credit losses.


Inventories
 Inventories which are composed of raw materials, work-in-progress and finished
goods, are stated at the lower of cost or market, with cost determined by the first-in,
first-out method.


Property,
Plant and Equipment  Depreciation is provided using the straight-line method over
the estimated useful lives of the assets for financial reporting and accelerated methods
for tax purposes. Estimated service lives range from 5 to 30 years for buildings and
leasehold improvements, from 2 to 7 years for machinery and equipment and from 3 to 7
years for office furniture and fixtures.


Goodwill
 Prior to October 1, 2001, goodwill was amortized on the straight-line basis over 10
years. On October 1, 2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) 142, Goodwill and Intangible Assets. As a result, the Company discontinued
the amortization of goodwill and any other intangible assets determined to have indefinite
useful lives. For the twelve month period ended September 30, 2001, the Company would have
reported adjusted net loss and diluted net loss per share of $28,509,000 and $1.90
respectively, had it discontinued amortization of intangibles at October 1, 2000. Adjusted
net loss and diluted net loss per share excludes, from previously reported financial
information, goodwill amortization of $366,000, net of tax, for the twelve month period
ended September 30, 2001. The Company has determined goodwill relates to one reporting
unit for purposes of impairment testing. Goodwill and other intangible assets with
indefinite lives are tested for impairment annually or whenever an impairment indicator
arises.
24
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



Fair
values of Financial Instruments  Due to their short-term nature, the carrying value
of current financial assets and liabilities approximates their fair values. The fair value
of borrowings, if recalculated based on current interest rates, would not significantly
differ from the recorded amounts.


Net
Income (Loss) Per Share  The Companys basic net income (loss) per share is
computed by dividing net income (loss) by the weighted average number of outstanding
common shares. The Companys diluted net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of outstanding common shares and
common share equivalents related to stock options, when dilutive. Options to purchase
1,312,812, 1,226,222 and 631,543 shares of common stock with weighted average exercise
purchase prices of $11.19, $12.34 and $15.20 were outstanding during 2002, 2001 and 2000,
but were excluded from the computation of common share equivalents because they were
antidilutive.


Revenue
Recognition  Sales are recorded at the time of shipment and provision for
anticipated returns, net of exchanges, is recorded based on historical experience.


Use
of Estimates  Preparation of the Companys consolidated financial statements
requires management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses and disclosure about contingent
assets and liabilities at the date of the financial statements. Actual results could
differ from these estimates.


Income
Taxes  The Company records income taxes in accordance with the liability method of
accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the
tax provision as they occur.


Stock
Based Compensation  The Company utilizes the intrinsic value method of accounting
for its employee stock based compensation plans. Pro forma information related to the fair
value based method of accounting is contained in Note D.


New
Pronouncements  In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS 143, Accounting for Retirement Obligations. This statement addresses financial
accounting and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The statement is effective
for the Company on October 1, 2002 and is not expected to have a material impact.


In
June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 clarifies the accounting for costs associated with exit
or disposal activities. This statement is effective for the Company beginning in January
2003 and is not expected to have a material impact.



Note B. 
Inventories


Inventories
are comprised of the following at September 30:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                          |  |  |   | 2002      |  |   | 2001       | 
| | ---------------------------------------- |  |  | - | --------- |  | - | ---------- | 
| | Raw
      materials and purchased parts  |  |  | $ | 3,938,671 |  | $ | 6,155,408  | 
| | Work-in-process
      and finished goods |  |  |   | 5,346,929 |  |   | 7,626,787  | 
| |                                          |  |  |  
| |                                          |  |  | $ | 9,285,600 |  | $ | 13,782,195 | 
| |                                          |  |  |  

|25
|--

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)




Note C.  Line of
Credit and Long-Term Debt


On
April 23, 2001 the Company entered into a 1.2 billion Thailand baht (approximately $28
million) credit facility agreement with Bank of Ayudhya Public Company Limited and The
Industrial Finance Corporation of Thailand. The facility is comprised of a 590 million
baht term loan, a 530 million baht packing credit facility, a 70 million baht short term
working capital facility, and a 10 million baht overdraft facility. On March 1, 2002 the
Company entered into a supplemental agreement with Bank of Ayudhya and The Industrial
Finance Corporation, increasing the packing credit facility to 830 million baht
(approximately $19 million). Under the terms of the credit facility, any outstanding
balance on the term loan bears interest at 7.00% annually until April 23, 2003, at which
time the outstanding balance will bear interest at the Thailand MLR rate, 7.00% at
September 30, 2002. The term loan is serviced by quarterly payments commencing September
28, 2001 and continuing through December 30, 2005. Payments will be 22 million baht per
quarter for the first year, 27 million baht per quarter for the second year, 35 million
baht per quarter for the third year, 40 million baht per quarter for the fourth year, and
47 million baht for the remaining two quarterly payments. The packing credit, working
capital and overdraft facilities bear interest at the Thailand MOR market rate, 7.25% at
September 30, 2002. The Thailand based facility is secured by certain receivables,
inventory and assets held by the Company in Thailand. The Company is required to maintain
certain financial ratios and meet certain net worth levels. A requirement to increase
registered capital was replaced by additional financial ratios. At September 30, 2002, 502
million baht or $11.6 million was outstanding under the term loan, 317 million baht or
$7.3 million was outstanding under the packing credit facility and there were no
outstanding balances under the working capital and overdraft facilities. The interest rate
for the term loan was 7.00% and the interest rate for the packing credit facility was
5.00% at September 30, 2002. At September 30, 2001, 568 million baht or $12.8 million was
outstanding under the term loan, 422 million baht or $9.5 million was outstanding under
the packing credit facility and there were no outstanding balances under the working
capital and overdraft facilities.


On
September 15, 1999 the Company entered into a credit facility to pay off all outstanding
balances existing at the time of the ADFlex acquisition as required by the ADFlex merger
agreement. As amended, the credit facility consists of a $25.0 million, five-year term
loan with equal principal payments of $1,562,500 due each quarter currently and continuing
through April 1, 2004. Under the terms of the amended credit facility, the term facility
bears interest at the prime interest rate plus 3.0%. The credit facility is collateralized
by all U.S. based accounts receivable, inventory, equipment, real property and general
intangibles of the Company. The Company is required to maintain certain financial ratios
and meet certain net worth and indebtedness tests that were waived at September 30, 2002.
At September 30, 2002, $10.9 million was outstanding under the term loan. At September 30,
2001, $18.75 million was outstanding under the term loan and $2.4 million was outstanding
under a revolving line of credit. The interest rate for the term loan was 6.75% at
September 30, 2002 and 5.88% at September 30, 2001.


Other
long-term debt consists of capitalized equipment leases. Assets under capital lease as of
September 30, 2002 had an acquisition cost of $6.4 million and a net book value of $4.4
million. Interest rates on these leases range from 7.5% to 9.1%. Aggregate maturities of
long-term debt including capitalized leases for the next five years are as follows (in
thousands): 2003  $10,798; 2004  $9,232; 2005  $4,929; 2006 
$1,186; 2007  $25. The recorded value of long-term debt approximates fair market
value.



Note D. 
Stockholders Equity


Stock
Option Plans   The Company has stock option plans that provide for incentive and
non-qualified stock options to be granted to directors, officers and other key employees
or consultants. The stock options granted generally have a ten-year life, vest over a
period of six months to five years, and have an exercise price equal to the fair market
value of the stock on the date of grant. At September 30, 2002, the Company had 613,518
shares of common stock available for issue under the plans.


Restricted
Stock Plan   The Company also has a restricted stock plan that provides for grants of
common stock to key employees of the Company other than the Chief Executive Officer and
the four highest paid executives of the Company other than the Chief Executive Officer.
The common stock grants generally vest over five years. At September 30, 2002, the Company
had 113,850 shares of common stock available for issue under the plan.


Transactions
under the plans during each of the three years in the period ending September 30, 2002 are
summarized as follows:



26
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|------------------------------------------------------

| |                                      |  | Number
      of
      Shares Under
      Option |           | Weighted
      Average
      Exercise Price
| | ------------------------------------ |  | ----------------------------------------------- | --------- | -------------------------------------------
| | Outstanding
      at October 1, 1999 |  |                                                 | 1,138,414 |                                            
| | Granted                              |  |                                                 | 546,750   |                                            
| | Forfeited                            |  |                                                 | (196,570  | )                                          
| | Exercised                            |  |                                                 | (97,646   | )                                          
| |                                      |  |                                                 |          
| | Balance
      at September 30, 2000  |  |                                                 | 1,390,948 |                                            
| | Granted                              |  |                                                 | 535,100   |                                            
| | Forfeited                            |  |                                                 | (291,550  | )                                          
| | Exercised                            |  |                                                 | (58,139   | )                                          
| |                                      |  |                                                 |          
| | Balance
      at September 30, 2001  |  |                                                 | 1,576,359 |                                            
| | Granted                              |  |                                                 | 521,850   |                                            
| | Forfeited                            |  |                                                 | (303,598  | )                                          
| | Exercised                            |  |                                                 | (9,100    | )                                          
| |                                      |  |                                                 |          
| | Balance
      at September 30, 2002  |  |                                                 | 1,785,511 |                                            
| |                                      |  |                                                 |          
| |                                      | 
| |                                      | 

|Options exercisable at
September 30:
|------------------------------------

| |      |  | Number
      Exercisable |  |  | Weighted
      Average
      Exercise Price | 
| | ---- |  | ------------------------ |  |  | ------------------------------------------- | 
| | 2000 |  | 499,908                  |  |  | $11.20                                      | 
| | 2001 |  | 587,849                  |  |  | 11.81                                       | 
| | 2002 |  | 754,745                  |  |  | 11.32                                       | 

|The
following table summarizes information concerning currently outstanding and exercisable
stock options:
|----------------------------------------------------------------------------------------------------------

|                      |  |           |  | Options Outstanding |  |  |   |       | Options
      Exercisable
|--------------------- |  | --------- |  | ------------------- |  |  | - | ----- | -------------------------
|
|
|$
      0.00  $ 2.71 |  | 436,311   |  | 8.8 years           |  |  | $ | 1.66  |                          
|3.35
         4.60   |  | 240,750   |  | 8.6 years           |  |  |   | 3.98  |                          
|5.04
         9.38   |  | 379,800   |  | 5.7 years           |  |  |   | 7.51  |                          
|10.16
       11.53   |  | 421,050   |  | 5.1 years           |  |  |   | 11.11 |                          
|12.59
       15.00   |  | 202,600   |  | 7.3 years           |  |  |   | 13.11 |                          
|18.87
       31.31   |  | 105,000   |  | 4.2 years           |  |  |   | 29.01 |                          
|                      |  |           |  |                     |  |  |   |       |                          
|                      |  | 1,785,511 |  |                     |  |  |   |       |                          
|                      |  |           |  |                     |  |  |   |       |                          

|The
Companys 2002, 2001 and 2000 pro forma net income (loss) and diluted net income
(loss) per share would have been ($4,622,503), ($29,868,000), and ($11,927,000), or
($0.32), ($2.06) and ($0.82) had the fair value method been used for valuing options
granted during those years. The impact on net income (loss) may differ in future
disclosures because they do not take into effect pro forma compensation expense related to
grants made before 1996. The weighted average fair value of options granted in 2002, 2001
and 2000 was $1.46, $5.11 and $4.26. The value was computed by applying the following
weighted average assumptions to the Black Scholes options pricing model: volatility of
90%, 72% and 54%; dividend yields of 0.0%; risk-free rate of return of 4.0%, 5.2% and
6.1%; and an average term of 4.5 years for 2002, 2001 and 2000.
27
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



Employee
Stock Purchase Plan  The Company has an Employee Stock Purchase Plan (ESPP) which is
available to eligible employees. Under terms of the plan, eligible employees may designate
from 1% to 10% of their compensation to be withheld through payroll deductions for the
purchase of common stock at 85% of the lower of the market price on the first or last day
of the offering period. Under the plan, 250,000 shares of common stock have been reserved
for issuance. As of September 30, 2002, 120,594 shares have been issued under the plan.
Fair value disclosures under SFAS No. 123 have not been disclosed for shares under the
ESPP as such values are immaterial.



Note E.  Income
Taxes


The
effective income tax rates differed from the federal statutory income tax rate as follows
for the years ended September 30:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                    |  | 2002  |    |  | 2001  |    |  | 2000  |   
| | -------------------------------------------------- |  | ----- | -- |  | ----- | -- |  | ----- | --
| |                                                    |  |       |    |  |       |    |  |       |   
| | Federal
      statutory rate                       |  | (34.0 | %) |  | (34.0 | %) |  | (34.0 | %)
| | State income
      taxes                           |  | (3.3  | )  |  | (0.5  | )  |  | (5.6  | ) 
| | FSC benefit                                        |  |      |    |  |      |    |  | (4.4  | ) 
| | Tax exempt
      interest                          |  |      |    |  |      |    |  | (0.8  | ) 
| | Foreign operating
      income benefit             |  | (11.7 | )  |  |      |    |  | (4.0  | ) 
| | Allowances                                         |  | (9.0  | )  |  | 20.1  |    |  | 16.2  |   
| | Adjustments
      to income tax provision accruals |  | (1.8  | )  |  |      |    |  | 1.6   |   
| | Non-deductible
      intangibles                   |  | 0.4   |    |  | 3.0   |    |  | 1.0   |   
| | Other                                              |  |      |    |  | 0.7   |    |  | 1.0   |   
| |                                                    |  |       |    |  |       |    | 
| |                                                    |  | (59.4 | %) |  | (10.7 | %) |  | (29.0 | %)
| |                                                    |  |       |    |  |       |    | 

|Components
of the (benefit) provision for income taxes are as follows for the years ended September
30 (thousands of dollars):
|------------------------------------------------------------------------------------------------------------------------------

| |          |  | 2002     |   |  | 2001    |   |  | 2000    |  
| | -------- |  | -------- | - |  | ------- | - |  | ------- | -
| | Current: |  |          |   |  |         |   |  |         |  
| | Federal  |  | ($14,165 | ) |  | ($1,647 | ) |  | ($5,284 | )
| | State    |  | (478     | ) |  | (216    | ) |  | (1,310  | )
| |          |  |          |   |  |         |   | 
| |          |  | (14,643  | ) |  | (1,863  | ) |  | (6,594  | )
| | Deferred |  | 9,037    |   |  | (1,610  | ) |  | 2,079   |  
| |          |  |          |   |  |         |   | 
| |          |  | ($ 5,606 | ) |  | ($3,473 | ) |  | ($4,515 | )

|During
fiscal year 2002, the Company received an income tax refund for approximately $13.2
million as part of an economic relief act that was passed into law.


Deferred
taxes recognize the impact of temporary differences between the amounts of assets and
liabilities recorded for financial statement purposes and such amounts measures in
accordance with tax laws. Realization of net operating loss carryforward and other
deferred tax temporary differences are contingent on future taxable earnings. The
Companys deferred tax asset was reviewed for expected utilization using a more
likely than not approach as required by SFAS 109 by assessing the available positive
and negative evidence surrounding its recoverability. Accordingly, the Company recorded a
valuation allowance of $18,415,000 and $19,263,000 on the deferred tax asset at September
30, 2002 and 2001. The Company continues to assess and evaluate strategies that will
enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the
valuation allowance appropriately at such time when it is determined that the more
likely than not approach is satisfied. The net operating loss and tax credit
carry-forwards expire at various dates through September 2022.


The
cumulative temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial statement purposes are as follows at September 30
(thousands of dollars):
28
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|------------------------------------------------------

| |                                                          |  |  | 2002 |         | 2001 |  
| | -------------------------------------------------------- |  |  | ---- | ------- | ---- | -
| | Current
      deferred tax assets:                       |  |  |      |         |      |  
| | Inventories                                              |  |  | $    | 405     |      | $
| | Receivables                                              |  |  |      | 68      |      |  
| | Compensation
      and benefits                          |  |  |      | 266     |      |  
| | Restructuring                                            |  |  |      | 113     |      |  
| | NOL
      carryforwards                                  |  |  |      | 2,046   |      |  
| | Other                                                    |  |  |      | 250     |      |  
| |                                                          |  |  |     
| |                                                          |  |  | $    | 3,148   |      | $
| |                                                          |  |  |     
| | Long-term
      deferred tax assets (liabilities)  net: |  | 
| | Accelerated
      depreciation                           |  |  | $    | (4,953  | )    | $
| | Intangibles                                              |  |  |      | 6,171   |      |  
| | Restructuring                                            |  |  |      | 126     |      |  
| | Tax
      credit and NOL carryforwards                   |  |  |      | 18,307  |      |  
| | Allowances                                               |  |  |      | (18,415 | )    |  
| |                                                          |  |  |     
| |                                                          |  |  | $    | 1,236   |      | $
| |                                                          |  |  |     

|Note F. 
Retirement and Profit-Sharing Plans


The
Company sponsors a 401K retirement plan for all of its employees meeting minimum
eligibility requirements. The plan provides Company matching contributions of 50% of the
first 6% of employee contributions to the plan. An additional 401K retirement plan was
also in effect for the first 13 weeks of fiscal 2000 relating to the ADFlex acquisition.
This plan was sponsored for all employees of the ADFlexs United States operation.
Under this plan, the Company made contributions each year up to a maximum of 4% of an
employees total compensation. The Company merged the ADFlex plan into the Company
plan on December 31, 1999. Company contributions for both these plans were approximately
$301,000, $621,000 and $547,000 for the years ended September 30, 2002, 2001 and 2000.



Note G.  Research
and Development Costs


The
Company incurred research and development costs of approximately $4,786,000, $4,518,000
and $3,472,000 for the years ended September 30, 2002, 2001 and 2000.



Note H.  Foreign
Operations and Significant Customers


As
part of the September 1999 ADFlex acquisition, the Company acquired an Asian operation,
located in Lamphun, Thailand. The Company has continued to increase the functions
performed at this location in order to take advantage of the proximity to customers and
favorable labor and operating costs. In addition, the Company purchased the assets of its
Thailand subcontractor, Boron Public Limited Company in October 1999. The Company had
aggregate export sales of $110,751,000, $116,405,000 and $119,603,000 for the years ending
September 30, 2002, 2001 and 2000, principally to Pacific Rim customers. With respect to
foreign operations for the years ended September 30, 2002 and 2001, long-lived assets of
$27,683,000 and $30,330,000 were located in Thailand and $2,000 and $2,855,000 were
located Mexico, respectively.


Revenues
from two customers made up a significant portion of the Companys total net sales
during the years ending September 30:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                  |  |  | 2002 |    | 2001 |  |    |   | 2000 | 
| | ---------------- |  |  | ---- | -- | ---- |  | -- | - | ---- | 
| | Customer
      A |  |  |      | 64 | %    |  | 54 | % |      | 
| | Customer
      B |  |  |      | 9  |      |  | 8  |   |      | 

|29
|--

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)



Accounts
receivable from the above two customers are 75% and 63% of the Companys accounts
receivable at September 30, 2002 and 2001.



Note I. 
Commitments and Contingencies


The
Company paid rent of $2,113,000 in fiscal 2002 under facility and equipment operating
leases that expire at various dates through January 2007. As of September 30, 2002, the
future minimum lease commitments under the operating leases are payable as follows (in
thousands): 2003  $1,811; 2004  $1,273; 2005  $1,155; 2006 
$1,153; 2007  $288; 2008  $0.


The
nature of the Companys business exposes the Company to potential environmental
remediation liabilities arising from the manufacture, use and disposal of hazardous
materials used to manufacture flex interconnect products. Management believes that any
cost associated with maintaining the Companys compliance with current environmental
remediation laws will not have a material adverse effect on the Companys financial
statements.



Note J. 
Derivative Instruments


The
Company enters into forward exchange contracts that are recorded at fair value with
related fair value gains or losses recorded in earnings within the caption other (income)
expense. Generally, these contracts have maturities of six months or less. These contracts
are entered into to offset the gains or losses on foreign currency denominated assets and
liabilities. The Company does not enter into forward exchange contracts for trading
purposes and the contracts are not designated as hedges. At September 30, 2002, the
Company had an open forward exchange contract to buy Thailand baht maturing January 3,
2003 with notional amounts totaling 550,000,000 Thailand baht (approximately $12.7 million
U.S. dollars). At September 30, 2001, the Company had an open forward exchange contract to
buy Thailand baht maturing October 4, 2001 with notional amounts totaling 425,000,000
Thailand baht (approximately $9.6 million U.S. dollars).



Note L. 
Restructuring Charges


Manufacturing
operations restructuring   The fiscal 2001 second quarter included 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
moving manufacturing operations from the Companys Chandler, Arizona facility to the
Companys Minnesota 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. During
the fiscal 2002 second quarter, an additional $876,000 restructuring charge was recorded
due to an increase in the estimate of the leased Chandler facility disposition costs. The
restructuring is substantially complete with the exception of the costs to maintain the
leased Chandler facility until its disposition. The lease terminates in June 2003 if it is
not disposed prior to that time.


The
fiscal 2000 first quarter includes a $13,785,000 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 was recorded pursuant to a plan announced
in November 1999. 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. The facility was sold during the fiscal 2002
second quarter with an additional $74,000 restructuring charge recorded at that time due
to the cost of disposition.
30
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)


Lead
wire assembly product line disposition   In fiscal 1999, a restructuring charge was
recorded primarily related to the discontinuation of the lead wire assembly product line.
The disposition was substantially completed by June 30, 2000.


The
remaining restructuring accrual as of September 30, 2002 totaled $303,000. Selected
information regarding the restructuring follows (in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Lead Wire
      Assembly Product 
      Line Disposition |  | Manufacturing
      Operations 
      Restructuring  Arizona |   | Manufacturing
      Operations 
      Restructuring  Mexico |   |     |  
|----------------------------------- | -------------------------------------------------------- |  | ------------------------------------------------------------- | - | ------------------------------------------------------------ | - | --- | -
|
|
|Accrual
      at October 1, 2000    |                                                          |  | $                                                             |  |                                                              | $ | 64  |  
|Establishment
      of accrual      |                                                          |  |                                                               |  |                                                              |   |    |  
|Payments                            |                                                          |  |                                                               |  |                                                              |   | (64 | )
|Change in estimate                  |                                                          |  |                                                               |  |                                                              |   |    |  
|                                    |                                                          |  |                                                               |   |                                                              |   |     |  
|Accrual
      at September 30, 2001 |                                                          |  |                                                               |  |                                                              |   |    |  
|Payments                            |                                                          |  |                                                               |  |                                                              |   |    |  
|Change
      in estimate            |                                                          |  |                                                               |  |                                                              |   |    |  
|                                    |                                                          |  |                                                               |   |                                                              |   |     |  
|Accrual
      at September 30, 2002 |                                                          |  | $                                                             |  |                                                              | $ |    |  
|                                    |                                                          |  |                                                               |   |                                                              |   |     |  

|Note M.  Recently
Passed Legislation


On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
Act), which immediately impacts Securities and Exchange Commission
registrants, public accounting firms, lawyers and securities analysts. This legislation is
the most comprehensive since the passage of the Securities Acts of 1933 and 1934. It has
far reaching effects on the standards of integrity for corporate management, board of
directors, and executive management. Additional disclosures, certifications and possibly
procedures will be required of the Company. The Company does not expect any material
adverse effect as a result of the passage of this legislation; however, the full scope of
the Act has not been determined. The Act provides for additional regulations and
requirements of publicly-traded companies many of which have yet to be issued.



Quarterly Financial
Data(Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2002                      |  |  | 1st Quarter |            | 2nd Quarter* |   | 3rd Quarter |  | 4th Quarter |            | Year |  
|------------------------- |  |  | ----------- | ---------- | ------------ | - | ----------- |  | ----------- | ---------- | ---- | -
|Net
      sales           |  |  | $           | 37,842,859 |              | $ | 34,971,762  |  | $           | 31,823,731 |      | $
|Gross profit              |  |  |             | 5,773,364  |              |   | 5,025,189   |  |             | 3,556,788  |      |  
|Net loss                  |  |  |             | (296,917   | )            |   | 341,993     |  |             | (1,277,516 | )    |  
|Net loss
      per share: |  | 
|Basic                     |  |  |             | ($ 0.02    | )            | $ | 0.02        |  |             | ($ 0.08    | )    |  
|Diluted                   |  |  |             | ($ 0.02    | )            | $ | 0.02        |  |             | ($ 0.08    | )    |  

|
|

|* | The
second quarter includes restructuring charges of $950,000 related to the restructuring of
the Companys manufacturing operations and a $1.7 million tax benefit related to the
reduction of the deferred tax allowance due to receipt of a $13 million income tax refund
received as part of the economic relief act that was passed into law during the quarter.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31
|--

|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|------------------------------------------------------

|2001                                |  |  | 1st
      Quarter |            | 2nd
      Quarter** |   | 3rd
      Quarter |   | 4th
      Quarter |            | Year |  
|----------------------------------- |  |  | ----------------- | ---------- | ------------------- | - | ----------------- | - | ----------------- | ---------- | ---- | -
|Net
      sales                     |  |  | $                 | 38,576,884 |                     | $ | 34,936,271        |   | $                 | 36,250,675 |      | $
|Gross profit                        |  |  |                   | 6,026,704  |                     |   | 3,097,789         |   |                   | 3,057,488  |      |  
|Net income
      (loss)             |  |  |                   | (626,947   | )                   |   | (23,266,023       | ) |                   | (2,891,465 | )    |  
|Net income
      (loss) per  share: |  | 
|Basic                               |  |  |                   | ($ 0.04    | )                   |   | ($ 1.55           | ) |                   | ($ 0.19    | )    |  
|Diluted                             |  |  |                   | ($ 0.04    | )                   |   | ($ 1.55           | ) |                   | ($ 0.19    | )    |  

|
|

|** | The
second quarter includes restructuring charges of $20,372,939 related to the restructuring
of the Companys manufacturing operations.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------

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



Not
applicable.
32
|-----------------------------------------------------------------------------------------------------------------------------------

|PART III


ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT


Reference
is made to the section entitled Election of Directors in the Registrants
definitive proxy statement to be mailed to shareholders on or about December 15, 2002, and
to be filed with the Securities and Exchange Commission within 120 days after September
30, 2002. The information required by Item 10 is incorporated herein by reference from the
proxy statement.


ITEM 11. EXECUTIVE
COMPENSATION


Reference
is made to the section entitled Executive Compensation and Election of
Directors in the Registrants definitive proxy statement to be mailed to the
Shareholders on or about December 15, 2002, and to be filed with the Securities and
Exchange Commission within 120 days after September 30, 2002. The information required by
Item 11 is incorporated herein by reference from the proxy statement.


ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Reference
is made to the section entitled Security Ownership of Certain Beneficial Owners and
Management and Election of Directors in the Registrants definitive
proxy statement to be mailed to Shareholders on or about December 15, 2002, and to be
filed with the Securities and Exchange Commission within 120 days after September 30,
2002. The information required by Item 12 is incorporated herein by reference from the
proxy statement.


ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS


Reference
is made to the section entitled Certain Transactions in the Registrants
definitive proxy statement to be mailed to Shareholders on or about December 15, 2002, and
to be filed with the Securities and Exchange Commission within 120 days after September
30, 2002. The information required by Item 13 is incorporated herein by reference from the
proxy statement.


ITEM 14. CONTROLS AND
PROCEDURES


(a)
Evaluation of Disclosure Controls and Procedures.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys Chief Executive Officer, William P. Murnane, and Chief Financial Officer,
Thomas Paulson, have reviewed the Companys disclosure controls and procedures
within 90 days prior to the filing of this report. Based upon this review, these officers
believe that the Companys disclosure controls and procedures are effective in
ensuring that material information related to the Company is made known to them by others
within the Company.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b)
Changes in Internal Controls.
|---------------------------------

| | There
were no significant changes in the Companys internal controls or in other factors
that could significantly affect these controls during the quarter covered by this report
or from the end of the reporting period to the date of this Form 10-K.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|33
|--

|PART IV


ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a) LIST OF DOCUMENTS
FILED AS PART OF THIS REPORT
|---------------------------------------------------------------------------------------------------------------------------------------

|(1) | Financial Statements | Page(s)                                                                                                                  
|--- | -------------------- | -------------------------------------------------------------------------------------------------------------------------
|    |                      | The following Consolidated Financial Statements of the Registrant, Innovex, Inc.and subsidiaries, are included in Item 8:
|    |                      |  Consolidated Balance Sheets at September 30, 2002 and 2001                                                             
|    |                      |  Consolidated Statements of Operations for each of the three years in the period
   ended September 30, 2002            
|    |                      |  Consolidated Statements of Stockholders Equity for each of the three years in
   the period ended September 30, 2002  
|    |                      |  Consolidated Statements of Cash Flows for each of the three years in the period
   ended September 30, 2002            
|    |                      |  Notes to Consolidated Financial Statements                                                                             

|(2) | Financial Statement Schedules
|--- | -----------------------------
|    |                              

|(3) |  | Exhibits
|--- |  | --------

|3(a) |  | Articles
of Incorporation, as amended, are incorporated by reference to Exhibit 3 of the
Registrants Form         10Q for the Quarter Ended December 31, 1996
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|3(b) |  | Bylaws,
as amended, are incorporated by reference to Exhibit 3(b) of the Registrants Form S-1
Registration         Statement dated June 19, 1986 (Commission File No. 33-6594)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(a) |  | 1983
Employee Incentive Stock Option Plan is incorporated by reference to Exhibit 4(a) of the
Registrants         Form S-8 dated June 3, 1987 (Commission File No. 33-14776)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(b) |  | 1987
Employee Stock Option Plan, as amended, is incorporated by reference to Exhibit 4(a) of
the         Registrants Form S-8 dated March 17, 1989 (Commission File No. 33-27530)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(c) |  | Innovex,
Inc. and Subsidiaries Employees Retirement Plan is incorporated by reference to Exhibit
10(i) of         the Registrants Form 10-K for the Year Ended September 30, 1992
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(d) |  | 1994
Stock Option Plan, as amended, is incorporated by reference to Exhibit 4.1 of the
Registrants Form         S-8 dated February 27, 2002 (Commission File No. 333-83452)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(e) |  | Innovex,
Inc. Employee Stock Purchase Plan is incorporated by reference to Exhibit 4.1 of the
Registrants         Form S-8 dated May 19, 2000 (Commission File No. 333-37380)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(f) |  | Innovex,
Inc. Restricted Stock Plan is incorporated by reference to Exhibit 4.1 of the
Registrants Form         S-8 dated August 23, 2001 (Commission File No. 333-68228)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(g) |  | Form
of Employment Agreement between certain executive officers and the Company is
incorporated by         reference to Exhibit 10(g) of the Registrants Form 10-K for the
year ended September 30, 1996
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(h) |  | Agreement
and Plan of Merger, dated July 1, 1999, by and among ADFlex Solutions, Inc. and Innovex,
Inc. and         Innovex Acquisition Corp. is incorporated by reference to Exhibit (c)(1)
of the Registrants Schedule         14(d)(1) filed on July 7, 1999
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|34
|--

|10(i) |  | Lease
dated June 28, 1993 between ADFlex Solutions, Inc. and TL Properties, Inc. and the First
Amendment to         Lease, dated June 1994, incorporated by reference to the ADFlex
Solutions, Inc. Registration Statement on         Form S-1 (SEC file No. 33-80324) or
amendments thereto, filed on June 16, 1994
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(j) |  | Credit
Agreement dated as of September 15, 1999 among Innovex, Inc. as Borrower and the Banks
Named Herein,         as Banks, and Norwest Bank Minnesota, N.A., as Agent is
incorporated by reference to Exhibit 10(i) of the         Registrants Form 10-K for the
Year Ended September 30, 1999
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(k) |  | First
Amendment to Credit Agreement is incorporated by reference to Exhibit 10(j) of the
Registrants Form         10-K for the year ended September 30, 2000
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(l) |  | Second
Amendment to Credit Agreement is incorporated by reference to Exhibit 10 of the
Registrants Form         10-Q for the quarter ended December 31, 2000
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(m) |  | Third
Amendment to Credit Agreement is incorporated by reference to Exhibit 10(a) of the
Registrants Form         10-Q for the quarter ended March 31, 2001
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(n) |  | Fourth
Amendment to Credit Agreement is incorporated by reference to Exhibit 10(a) of the
Registrants Form         10-Q for the quarter ended June 30, 2001
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(o) |  | Fifth
Amendment to Credit Agreement is incorporated by reference to Exhibit 10(o) of the
Registrants Form         10-K for the year ended September 30, 2001
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(p) |  | Sixth
Amendment to Credit Agreement is incorporated by reference to Exhibit 10 of the
Registrants Form         10-Q for the quarter ended December 31, 2001
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(q) |  | Seventh
Amendment to Credit Agreement is incorporated by reference to Exhibit 10 of the
Registrants Form         10-Q for the quarter ended March 31, 2002
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10(r) |  | Eighth
Amendment to Credit Agreement is incorporated by reference to Exhibit 10 of the
Registrants Form         10-Q for the quarter ended June 30, 2002
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|10(s) |  | Ninth
Amendment to Credit Agreement
|----- |  | -----------------------------------

|10(t) |  | Credit
Facilities Agreement between Innovex (Thailand) Limited as the Borrower and The
Industrial Finance         Corporation of Thailand and Bank of Ayudhya Public Company
Limited as the Creditor is incorporated by         reference to Exhibit 10(b) of the
Registrants Form 10-Q for the quarter ended March 31, 2001
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10(u) |  | Option
Agreement between Innovex, Inc. and Concorde PAPE II
|----- |  | -----------------------------------------------------------

|21 |  | Subsidiaries
of Registrant
|-- |  | --------------------------

|23 |  | Consent
of Grant Thornton LLP
|-- |  | -----------------------------

|99.1 |  | Certificate
pursuant to 18 U.S.C. § 1350
|---- |  | ----------------------------------------

|(b) REPORTS
ON FORM 8-K
|-----------------------

| | None.
| | -----

(c) EXHIBITS

| | Reference is made to Item 14 (a) 3
| | ----------------------------------

(d) SCHEDULES

| | Reference is made to Item 14 (a) 2
| | ----------------------------------

|35
|--

|SIGNATURES


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

| |  | INNOVEX,
INC.By   /s/ WILLIAM P. MURNANEWilliam P. Murnane
              President and Chief Executive Officer
| |  | --------------------------------------------------------------------------------------------------------------

|Date December 10, 2002 |  | By   /s/ THOMAS PAULSONThomas Paulson
              Chief Financial Officer
|---------------------- |  | ---------------------------------------------------------------------------

|Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated
on this 10th day of December, 2002.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|/s/ WILLIAM
P. MURNANEWilliam P. Murnane | President, Chief Executive Officer and Director
(principal executive officer)
|---------------------------------------- | -----------------------------------------------------------------------------

|/s/ THOMAS PAULSON
Thomas Paulson | Chief Financial Officer(principal financial officer)
|--------------------------------- | ----------------------------------------------------

|/s/ THOMAS W. HALEY
Thomas W. Haley | Chairman and Director
|----------------------------------- | ---------------------

|/s/ ELICK EUGENE HAWK
Elick Eugene Hawk | Director
|--------------------------------------- | --------

|/s/ RAJ K. NOOYI
Raj K. Nooyi | Director
|----------------------------- | --------

|/s/ MICHAEL
C. SLAGLE
Michael C. Slagle | Director
|--------------------------------------- | --------

|36
|--

|I, William P. Murnane, certify that:
|------------------------------------

|1. | I
have reviewed this annual report on Form 10-K of Innovex, Inc.;
|-- | -----------------------------------------------------------------

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

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

|4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | Designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:
December 10, 2002 |  | /s/ William P. MurnanePresident and Chief Executive Officer
|----------------------- |  | -----------------------------------------------------------

|37
|--

|I, Thomas Paulson,
certify that:
|--------------------------------

|1. | I
have reviewed this annual report on Form 10-K of Innovex, Inc.;
|-- | -----------------------------------------------------------------

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

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

|4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: December 10, 2002 |  | /s/ Thomas Paulson
Chief Financial Officer
|----------------------- |  | ------------------------------------------

|38
|--

|UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


Washington, DC 20549


FORM 10-K


ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15 (d)


OF THE SECURITIES
EXCHANGE ACT OF 1934


OF


INNOVEX, INC.


FOR


FISCAL YEAR ENDED SEPTEMBER
30, 2002


     EXHIBITS
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|