<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED JUNE 30, 2000              COMMISSION FILE NO. 0-12942

                               PARLEX CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

         MASSACHUSETTS                                    04-2464749
         -------------                                    ----------
  (State or other jurisdiction                          (IRS Employer
of incorporation or organization)                   Identification Number)

                                ONE PARLEX PLACE
                          METHUEN, MASSACHUSETTS 01844
                          ----------------------------
          (Address of principal executive offices, including zip code)

                                  978-685-4341
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

       TITLE OF EACH CLASS                NAME OF EXCHANGE ON WHICH REGISTERED
       -------------------                ------------------------------------
  Common Stock ($.10 par value)                  Nasdaq National Market

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
           -----------------------------------------------------------
                                      None

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                    YES   X                              NO
                         ---                                ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. (X)

         The aggregate market value of shares of the Registrant's Common Stock,
par value $.10 per share, held by non-affiliates of the Registrant at September
20, 2000 as computed by reference to the closing price of such stock was
approximately $191,527,038.

         The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at September 20, 2000 was 6,279,575 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The information required in response to Part III of Form 10-K is hereby
incorporated by reference to the specified portions of the definitive proxy
statement to be filed with the Commission within 120 days after the close of the
fiscal year.

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                           FORWARD-LOOKING STATEMENTS

================================================================================

         This document includes and incorporates forward-looking statements that
are subject to a number of risks and uncertainties. All statements, other than
statements of historical facts included or incorporated in this document,
regarding our strategy, future operations, financial position and estimated
revenues, projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this document, the words "will,"
"believe," "anticipate," "intend," "estimate," "expect," "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements and
you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in the section of this report entitled "Factors that May Affect Future
Results" and elsewhere in this document.

                                     PART I

ITEM 1. BUSINESS

                                    OVERVIEW

         We are a leading provider of flexible interconnect solutions to the
automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets. Our product offerings, which we believe are the
broadest of any company in the flexible interconnect industry, include flexible
circuits, laminated cable, polymer thick film, flexible interconnect hybrid
circuits, prototype flexible circuits and flexible interconnect assemblies.

         Our objective is to be the supplier of choice for key customers in
markets where cost-effective flexible interconnects provide added value to our
customers' products. We believe that our creative engineering expertise, our
ability to advance the technology of manufacturing processes and materials and
our broad product portfolio allow us to provide the lowest cost solution that
meets the performance requirements of our customers.

         We have a long history of providing flexible interconnect solutions to
some of the leading original equipment manufacturers, or OEMs, in our target
markets, including Hewlett-Packard, Honeywell, Motorola, Nortel Networks,
Siemens, and Symbol Technologies. We have a global presence and operate seven
manufacturing facilities, which are located in China, Mexico, the United Kingdom
and the United States. Certain information related to revenues derived by
geographic location, major customers and product lines is included in Note 12 of
our financial statements and is incorporated herewith by reference.

         On March 1, 2000, we acquired the businesses of Poly-Flex Circuits,
Inc. and Poly-Flex Circuits Limited (collectively "Poly-Flex"), wholly-owned
subsidiaries of Cookson Group plc. This acquisition further diversified our
product offerings by providing us with polymer thick film and surface mount
assembly capabilities. Poly-Flex has manufacturing facilities in Cranston, Rhode
Island and the United Kingdom.

INDUSTRY BACKGROUND

         Over the past two decades, electronic systems have become smaller,
lighter and more complex, while demands for increased performance at lower costs
have increased dramatically. The demand for more portable electronic packaging
has also increased. As two-dimensional rigid printed circuit boards, a
conventional form of electronic interconnect packaging, limit the options
available to design engineers, the demand for three-dimensional, flexible
interconnect solutions has increased. In addition to their improved packaging
and performance characteristics, they offer superior heat dissipation
characteristics compared to rigid circuits, making flexible interconnects
attractive for use in advanced, high-speed electronics. The IPC, an
international trade organization, estimates that worldwide sales of flexible
circuits alone in 1999 were approximately $3.4 billion.



                                       2
<PAGE>

         Flexible interconnects provide electrical connection between components
in electronic systems and are increasingly used as a platform to support the
attachment of electronic devices. Flexible interconnects offer several
advantages over rigid printed circuit boards and ceramic hybrid circuits,
particularly for small, complex electronic systems:

-        Their ability to physically bend or flex and their three-dimensional
         shape permit them to accommodate packaging contours and motion in a
         manner that traditional two-dimensional rigid printed circuit boards
         cannot;

-        They provide improved heat dissipation and signal integrity as compared
         to printed circuit boards; and

-        They permit the use of substrates for component attachment, as well as
         connectors, cables and other interconnection devices, with reduced
         size, weight and expense.

         We consider the following trends important in understanding the
flexible interconnect industry:

MINIATURIZATION, PORTABILITY AND COMPLEXITY OF ELECTRONIC PRODUCTS

         High-performance electronic products, such as cellular phones and
personal digital assistants, continue to become more compact, portable and
contain greater functionality. The complexity of these new products requires
flexible interconnects with smaller size, lighter weight, greater circuit and
component density, better heat dissipation properties, higher frequencies and
increased reliability. As electronic products become increasingly sophisticated,
electronic interconnect suppliers will require greater engineering expertise and
investment in manufacturing and process technology to produce high-quality
electronic interconnect products on time, in volume and at acceptable cost.

SHORTER PRODUCT LIFE CYCLES AND TIME-TO-MARKET PRESSURE

         Rapid technological advances have significantly shortened the life
cycle of complex electronic products and increased pressure to develop and
introduce new products quickly. 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.

GLOBALIZATION AND REDUCTION OF MANUFACTURING COSTS

         Customers continue to demand increased electronic performance at lower
prices. Leading OEMs who often manufacture products in multiple geographic
regions are relying more on suppliers with global sourcing capabilities. Local
sourcing can help to shorten the manufacturer's supply chain and provide
regionally competitive pricing. OEMs also increasingly demand that their
suppliers provide infrastructure for local delivery of engineering,
manufacturing and sales support.

INCREASED OUTSOURCING

         To avoid delays in new product introductions, reduce manufacturing
costs and avoid logistical complexities, OEMs are increasingly turning to
suppliers capable of producing electronic interconnect products from
development, design, quick-turn prototype and pre-production through volume
production and assembly. The accelerated time-to-market and ramp-to-volume needs
of manufacturers have resulted in increased collaboration with qualified
suppliers capable of providing a broad and integrated offering. Many OEMs now
seek to use a small number of technically qualified, strategically located
suppliers capable of providing both quick-turn prototype and pre-production
quantities as well as cost-competitive volume production quantities.

PROLIFERATION OF ELECTRONICS AND CREATION OF NEW PRODUCT APPLICATIONS



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<PAGE>

         The markets for electronic products are growing as a result of
technological change, increasing demands for a wider variety of electronic
product features and more powerful and less expensive electronic components.
Because of this growth, new markets for flexible interconnects are being created
and new applications for flexible interconnects are emerging within existing
markets.

OUR SOLUTION

         We combine creative engineering design capabilities with innovative
manufacturing processes and materials to provide our customers with a complete
and cost-effective flexible interconnect solution. We believe that our processes
and technologies allow us to produce superior flexible interconnect solutions at
a lower cost than our competitors. In addition, because we are able to produce a
broad range of flexible interconnects ranging from low-cost laminated cable to
more expensive high-performance multilayer and rigid-flexible interconnects, we
are able to provide our customers with a product that most efficiently meets
their demands for functionality.

         Our solution begins with the product design phase, in which our
engineers typically work closely with customers to develop a technically
advanced flexible interconnect design. Although our customers generally provide
the initial engineering guidelines for a particular interconnect, our design
engineers are often called upon to work in tandem with a customer's design team
to develop a solution. An important part of the Parlex solution is ensuring at
an early stage, before time and money are spent on manufacturing, that the
design can be produced efficiently and cost-effectively.

         Once the design is completed, we apply our experience with innovative
materials and manufacturing processes to produce a flexible interconnect
solution that meets our customer's functionality and cost objectives. We have
developed materials and processes that provide customers improved performance at
a lower production cost. In addition, we provide a dedicated quick-turn
capability for producing prototype flexible interconnects and supporting our
customers' needs for limited quantities of flexible interconnects on short
notice. We believe that we are the only volume manufacturer of flexible
interconnects to offer this valuable service in a dedicated facility. When
customers come to us for prototype development of a flexible interconnect, we
believe that we enjoy a competitive advantage in pursuing the subsequent volume
production of that flexible interconnect. Over the past several years we have
gained substantial experience in producing products in high volume, and we
believe this expertise is a key factor in our ability to provide customers with
cost-effective, flexible interconnect solutions.

         We believe that our capability to supply worldwide a broad range of
products with a diverse mix of performance characteristics will enable us to
capture additional market share in the flexible interconnect industry. We are
one of a limited number of independent manufacturers that offers a range of
flexible interconnect solutions from design concept through high-volume
production. By offering a variety of products and services, we can provide
design and manufacturing solutions for our customers while reducing their
time-to-market and product development costs.

OUR STRATEGY

         Our objective is to be the flexible interconnect supplier of choice for
customers in our target markets. Our strategy to achieve this objective includes
the following key elements:

DEVELOP INNOVATIVE PROCESSES AND MATERIALS

         We believe that our ability to develop innovative processes and
materials enhances our opportunity for growth within our target markets. We
intend to continue to focus our development efforts on proprietary flexible
materials and processes that have a broad range of applications. These materials
and processes enable us to produce, at reduced cycle times, cost-effective
flexible interconnects that are reliable and improve product performance.


                                       4
<PAGE>

Our PALFlex-registered trademark-, PALCoat-registered trademark-,
U-Flex-registered trademark-, PALCore-registered trademark- HP,
Polysolder-registered trademark- and AutoNet-TM- technologies are examples of
some of our innovative materials and manufacturing processes.

OFFER THE BROADEST RANGE OF PRODUCTS AND SERVICES IN THE FLEXIBLE INTERCONNECT
INDUSTRY

         We offer product lines that service virtually all of our customers'
flexible interconnect needs. We are not aware of another company in the
flexible interconnect industry that provides a broader range of products and
services. Our product line includes flexible and rigid-flexible circuits from
one to 24 layers, laminated cable, flexible interconnect hybrid circuits,
flexible interconnect assemblies and, with our recent Poly-Flex acquisition,
surface mount assembly capabilities. We offer products using a variety of
materials, including adhesiveless and adhesive-based polyimide, polyester,
and polymer thick film technologies. This wide product range enables us to
remain the flexible interconnect supplier of choice to our customers even
when their functional requirements change. For example, when a major
automotive customer increased the number of electronic signals required for
performance beyond the capability of a double-sided circuit, our
PALCore-registered trademark- HP product met the customer's enhanced
functionality and cost objectives. Conversely, another customer's design had
the desired performance but was too costly in a highly competitive market. We
redesigned this customer's flexible circuit to eliminate expensive shield
layers by using HSI+-C-, our patented high-speed screening process.

DEVELOP STRATEGIC RELATIONSHIPS WITH KEY CUSTOMERS

         We seek to develop strategic relationships with key customers in
targeted industries. As a value-added strategic partner with our customers, we
work with a customer's technology roadmap to design and develop cost-effective
flexible interconnect solutions. We believe that these relationships are most
effective when we provide a significant portion of a customer's flexible
interconnect needs. Through these strategic relationships, we achieve greater
visibility into our customers' entire range of flexible interconnect
requirements. As a result of our relationships with key customers, we developed
PALFlex-registered trademark-, PALCore-registered trademark- and HSI+-C- with
the knowledge that successful development would result in immediate market
acceptance.

DIVERSIFY CUSTOMER BASE ACROSS SPECIFIC MARKETS

         We seek to serve a variety of markets to help mitigate the effects of
economic cycles in any one industry. Our business units are aligned to specific
market segments to better understand and service customers within particular
industries. In addition, we believe our diversification among the major segments
provides greater insight into emerging technological requirements. For example,
we applied our proprietary knowledge of shielding requirements in the computer
industry to gain a competitive advantage in the telecommunications and
networking market.

EXPAND GLOBAL PRESENCE

         We believe that our customers will increasingly require service and
support on a global basis. To address these requirements, we have continued to
expand our global presence in emerging markets and throughout the world. We now
have facilities in Asia, Europe, and the east and west coasts of North America.
In 1995 we established a joint venture in China to serve the emerging flexible
circuit market in China and throughout Asia and to produce specific products
more cost-effectively for North America's customers. In May 1998, we leased a
facility in Mexico that performs the finishing and, in some instances, assembly
operations for flexible interconnects manufactured at our other facilities. In
April 1999, we purchased a facility in San Jose, California to produce low to
medium volumes of flexible circuits and provide our customers with quick-turn
and prototyping services. This facility also supports several customers who use
Parlex Shanghai for high volume production. In addition, we have developed, and
plan to continue to develop, strategic relationships and alliances that we
believe are necessary for the success of our international business. We have
increased our distribution capabilities by establishing a presence in Singapore
and France to serve key customers in Asia and Europe. Our recent acquisition of
Poly-Flex, which has


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<PAGE>

manufacturing facilities in Rhode Island and the United
Kingdom, positions us to further expand our presence in Europe. We will continue
to explore appropriate expansion opportunities as demand for our solutions
increases.

OUR MARKETS

         Flexible interconnects are used in most segments of the electronics
industry. The primary market segments that place high value on superior,
cost-effective flexible interconnect solutions include:

AUTOMOTIVE

         Automobile manufacturers increasingly use electronics to enhance
vehicle performance and functionality, while at the same time reducing
electronic component size, weight and manufacturing and assembly costs. Flexible
circuits and laminated cable can provide cost-effective interconnect solutions
for such applications as dashboard instrumentation, automotive entertainment
systems, electronic engine control units, steering wheel controls, power
distribution, sensors and anti-lock brakes. Providers of flexible interconnects
typically work closely with the companies that supply these electronic systems
to the vehicle manufacturers. Because automotive production cycles generally
last three to five years and designs are unlikely to change during that period,
a flexible interconnect that is designed into an automobile model or platform
provides a relatively predictable source of demand over an extended time period.

TELECOMMUNICATIONS AND NETWORKING

         The telecommunications and networking market includes infrastructure
equipment and subscriber equipment submarkets. Infrastructure equipment consists
of support electronics for the distribution of voice and data transmission. The
growth of data transfer via the Internet has dramatically increased demand for
this type of equipment. Infrastructure equipment employs sophisticated
electronics which usually require the use of complex flexible interconnects.
Subscriber equipment consists of cellular devices such as handsets and battery
assemblies. Tight packaging and the need to reduce weight have driven the demand
for flexible interconnects in this submarket. Laminated cable and single and
double-sided flexible circuits are generally used in subscriber equipment.

DIVERSIFIED ELECTRONICS

         The diversified electronics market, which we define to include medical
electronics, encompasses many applications. Virtually any electronic device
which requires tight packaging, light weight or high reliability is a product
that could incorporate flexible interconnects. Typical applications include
electronic scales, industrial controls, metering devices, scanners, sensors and
medical monitoring equipment.

AEROSPACE

         Aerospace electronics were at one time the primary applications for
flexible circuitry. Because of product complexity and space restrictions,
aerospace applications often require multilayer rigid-flexible circuits. Typical
applications are navigation systems, flight controls, displays, communications
equipment and munitions. Although overall spending in this segment has
decreased, we believe that procurement of flexible interconnects will continue
to experience modest growth. We believe that the trend toward "smart" military
systems will continue to drive demand for flexible interconnects in this
segment.

COMPUTER

         Demand for flexible circuits and laminated cable in the computer market
is driven by short product life cycles as consumers demand increasingly
powerful, less expensive, smaller, faster and lighter equipment. Disk drives
represent the largest application for flexible circuits in this market. Other
applications include notebook


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displays, personal digital assistants, mass storage devices and peripheral
equipment such as scanners, printers and docking stations.

APPLIANCES

         The home appliance market is beginning to make the transition from
electro-mechanical controls to electronic controls containing intelligence and
display. Over time, appliances are expected to become more technologically
advanced. The utility and ease of use and repair associated with flexible
interconnects make them especially suitable for these applications.

RADIO FREQUENCY IDENTIFICATION (RFID)

         The emerging identification and tracking market is based upon next
generation identification tags generating radio frequency signals which are
attached to an antenna. Advancing technology at lower prices, increasing
cooperation among industry participants and high volume applications such as
automated fuel payment, electronic ticketing, baggage handling and parcel
tracking are expected to be the growth drivers for this market. Market
researchers have estimated that the compound annual growth rate for the
shipments of RFID systems will be approximately 27% between 2000 and 2002. The
size, cost and performance requirements demanded by this market are expected to
drive the use of flexible circuits and assemblies in these applications.

OUR PRODUCTS

         Our current flexible interconnect products include flexible circuits,
laminated cable, flexible interconnect hybrid circuits and flexible interconnect
assemblies. We manufacture our products, which are designed by us, our customers
or jointly, to our customers' application-specific requirements. Lead times for
the design and manufacture of our products generally range from one week for
some products to three months for more sophisticated products.

FLEXIBLE CIRCUITS

         Flexible circuits, which consist of conductive patterns that are etched
or printed onto flexible substrate materials such as polyimide or polyester, are
used to provide connections between electronic components and as a substrate to
support these electronic devices. The circuits are manufactured by passing base
materials through multiple processes such as drilling, screening, photo imaging,
etching, plating and finishing. Flexible circuits can be produced in single or
multiple layers. We produce a wide range of flexible circuits including:

-        SINGLE-SIDED FLEXIBLE CIRCUITS, which have a conductive pattern only on
         one side. Single-sided flexible circuits are usually less costly and
         more flexible than double-sided flexible circuits. Through our
         proprietary high-speed interconnect screening technology,
         HSI+-C-, which eliminates the need for a separate shield layer, we
         can produce single-sided flexible circuits that provide the same
         functionality as double-sided flexible circuits at a lower cost. We
         manufacture single-sided circuitry in both the United States and at
         Parlex Shanghai, where substantially all of our production to date has
         been single-sided.

-        DOUBLE-SIDED FLEXIBLE CIRCUITS, which have conductive patterns or
         materials on both sides that are interconnected by a drilled and
         copper-plated hole. Double-sided flexible circuits can provide either
         more functionality than a single-sided flexible circuit by containing
         conductive patterns on both sides, or can provide greater shielding
         than a single-sided flexible circuit by having a conductive pattern on
         one side and a layer of shielding material on the other.

-        MULTILAYER AND RIGID-FLEXIBLE CIRCUITS, which consist of layers of
         circuitry that are stacked and then laminated. These circuits are used
         where the complexity of the electronic design demands multiple layers
         of flexible circuitry. If some of the layers are rigid printed circuit
         board material, the product becomes a rigid-flexible


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         circuit. We have manufactured these circuits with up to 40 layers in
         prototype programs and 24 layers in production.

-        POLYMER THICK FILM FLEXIBLE CIRCUITS, which are flexible circuits
         manufactured using a technology that uses a low-cost thick film
         polyester dielectric substrate and a silver screen-printed conductive
         pattern. These circuits are made with an additive process involving the
         high-speed screen printing of conductive traces utilizing internally
         developed ink systems. We are able to produce multilayer circuits using
         proprietary dielectric materials and double-sided circuits using
         proprietary printed through-hole technologies. Polymer thick film
         flexible circuits are used in low-cost, low-temperature, low-power
         interconnect applications.

LAMINATED CABLE

         Laminated cable, which consist of flat or round wire laminated to a
flexible substrate material, provide connections between electronic sub-systems
and replace conventional wire harnesses. We manufacture laminated cable in an
efficient, proprietary roll process. Substantially all of the laminated cable
that we produce uses flat wire. Approximately 70% of the laminated cable that we
produce is insulated with polyester material, allowing for maximum flexibility,
while the remainder is insulated with polyimide material for its enhanced
performance at elevated temperatures. Our laminated cable is capable of handling
both power (high current) and signal (low current).

         Improving the process by which laminated cable is manufactured can
increase functionality and lower the cost of production. To this end, we have
developed U-Flex-registered trademark-, a proprietary technique that forms flat
wire into a u-shape, followed by an injection molding process that enables the
u-shaped end to function as a connector. This technique improves electrical
performance and eliminates the need for a separate costly connector. We have
also developed Pemacs-registered trademark- shielding, which adds a specially
designed silver ink to laminated cable to meet stringent electronic shielding
requirements without compromising flexibility.

FLEXIBLE INTERCONNECT HYBRID CIRCUITS

         In many cases, although a laminated cable is capable of carrying the
necessary signals, etched circuitry is required for termination. For these
applications we manufacture flexible interconnect hybrid circuits, which take
advantage of the lower cost of laminated cable and the technology of flexible
circuits by combining them into a single interconnect. On some products, we
apply our HSI+-C- process to the flexible interconnect hybrid circuit in
order to provide signal clarity and shielding.

FLEXIBLE INTERCONNECT ASSEMBLIES

         Both flexible circuits and laminated cable can be converted into an
electronic assembly by adding electronic components. This process can be as
simple as adding a connector or as complex as attaching components such as
capacitors, resistors or integrated circuits onto a flexible circuit using
surface mount assembly. We attach surface mount components to both copper and
polymer thick film circuits with either solder paste or our patented
Polysolder-registered trademark- conductive adhesive. We can place a full range
of electronic devices, from passive components to computing devices, on our
flexible interconnects.

         The following table sets forth representative applications in which our
products are used:

<TABLE>
<CAPTION>
         FLEXIBLE CIRCUITS
         -----------------
<S>                                                           <C>
         Single-Sided                                         Automotive Displays
                                                              Batteries for Cell Phones
                                                              Printers
                                                              Personal Digital Assistants
                                                              Data Storage
</TABLE>


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<PAGE>

<TABLE>
<S>                                                           <C>
         Double-Sided                                         Engine Control Units
                                                              Laptop Computers
                                                              Cellular Phones (Including Batteries)
                                                              Engine Sensors

         Multilayer and Rigid-Flexible                        Engine Control Units
                                                              Computer Networks
                                                              Network Switching Systems
                                                              Aircraft Displays
                                                              Automotive Transmission Systems

         Polymer Thick Film                                   Business Phones
                                                              Disposable Medical Devices
                                                              Appliances
                                                              Radio Frequency Identification

         LAMINATED CABLE                                      Postage Meters
                                                              Automotive Sound Systems
                                                              Notebook Computers
                                                              Industrial Controls
                                                              Electronic Scales

         FLEXIBLE INTERCONNECT HYBRID CIRCUITS                Total Vehicle Interconnection
                                                              Printers
                                                              Sensors
                                                              Scanning Devices
                                                              Night Vision Systems

         FLEXIBLE INTERCONNECT ASSEMBLIES                     Aircraft Identification Systems
                                                              Sensors
                                                              Scanning Devices
                                                              Batteries for Portable Products
                                                              Disk Drives
                                                              Night Vision Systems
</TABLE>


NEW PROCESS AND MATERIAL TECHNOLOGIES

         An important part of our strategy is development of new processes and
materials for use in our products. Our proprietary processes and materials
include:

         PALFLEX-registered trademark-. PALFlex-registered trademark- is both an
adhesiveless polyimide-based material and a manufacturing process that we
believe provides superior performance at a lower cost than traditional
copper-clad materials. PALFlex-registered trademark- provides additional cost
benefits by allowing us to combine several material manufacturing steps with
circuit manufacturing and eliminating several major process steps. We developed
PALFlex-registered trademark- for high volume automotive applications and are
now adapting it for use across a number of other product lines. Because
PALFlex-registered trademark- is produced in roll form and the copper thickness
can be controlled to tight tolerances, we believe that it may serve as the
foundation for products in the emerging high density substrate market. We
shipped our first product incorporating the current version of
PALFlex-registered trademark- in fiscal 1998.



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<PAGE>

         PALCOAT-registered trademark-. Working closely with a materials
manufacturer and an equipment manufacturer we developed PALCoat-registered
trademark-, a new material for coating the outside of flexible circuits.
PALCoat-registered trademark- has been designed to provide the electrical and
physical characteristics required for a new generation of products but at a
substantially lower cost than what is now commercially available.
PALCoat-registered trademark- entered volume production in fiscal 1999.

         PALCORE-registered trademark- HP. PALCore-registered trademark- HP is a
low-cost multilayer flexible material that is designed to minimize the
difference between the cost of materials used in flexible circuits and those
used in conventional rigid circuits. We have applied for patents on our latest,
more flexible version of PALCore-registered trademark-HP, which entered
production in January 2000.

         POLYSOLDER-registered trademark- Polysolder-registered trademark- is
both a patented lead-free, conductive adhesive used to attach electronic
components onto flexible interconnects and a patented manufacturing process that
enables the attachment of electronic devices onto substrates at low
temperatures. Polysolder-registered trademark- has been used in the production
of polymer thick film flexible circuit assemblies for several years. We plan to
apply the Polysolder-registered trademark- process to etched flexible circuits
and laminated cable. This technology will enable us to use polyester, instead of
the more expensive polyimide, as a substrate in the production of these flexible
interconnect assemblies.

         RFID FLIP CHIP ATTACHMENT PROCESS. We have developed a low-cost process
that we believe will be an enabling technology in the RFID market. Our
high-speed flip chip attachment process is up to ten times faster at placing
semiconductors on low-cost materials than conventional process alternatives.
This process allows us to meet our customer's goals for cost and reliability.
This process entered production in September 1999.

         AUTONET-TM- AutoNet-TM- is a proprietary flexible interconnect designed
specifically to meet the emerging needs of the automotive industry. As each
generation of vehicles incorporates greater electronic content, interconnection
becomes both more important and more difficult. AutoNet-TM- draws upon our
flexible interconnect process and materials technology to provide a
cost-effective interconnect for placement in the headliners, trunks and doors of
automobiles. AutoNet-TM- is designed to replace traditional wire harnesses and
is lighter, smaller, more reliable and provides shielding necessary to control
the emission of electronic signals. We believe that the potential market for
AutoNet-TM- is substantial and will develop over the next few years.

OUR CUSTOMERS

         Our customers are a diverse group of OEMs that serve a variety of
industries. In fiscal 2000, we sold products to approximately 700 accounts,
counting divisions within certain major customers as separate accounts. Our
largest 20 customers based on sales accounted for approximately 64% of total
revenues in fiscal 1998, 63% in fiscal 1999, and 60% in fiscal 2000. Our major
end-customers include: Dell Computer, Delphi, General Dynamics, Hewlett-Packard,
Honeywell, Kulicke & Soffa Industries, Lexmark, Motorola, Nortel Networks,
Pitney Bowes, Siemens, Symbol Technologies, and Visteon.

SALES AND CUSTOMER SERVICE

         We have organized our sales and customer service into business units
that are tied to the following markets: automotive, telecommunications and
networking, diversified electronics, aerospace and computer. Our sales managers
focus on a specific industry and develop targeted customers within that
industry. Our sales managers draw upon the expertise of our engineering staff as
an integral part of the sales process, and upon customer service representatives
to support their customers' day-to-day requirements. Sales managers coordinate
the efforts of a network of 25 independent manufacturers' representative
organizations worldwide. In fiscal 2000, manufacturers' representative
organizations accounted for approximately 60% of total revenues.

         The sales process involves extensive coordination between a customer's
design engineers and our design and engineering staff. Our sales managers then
work closely with our applications engineers to prepare a feasibility study to
assess the cost of producing the interconnect solution to the customer's
specifications. This process often involves


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multiple design and manufacturing iterations to identify the lowest cost
solution that meets the customer's specifications.

         Sales managers lead our efforts to become the preferred supplier to
target customers. The managers' ability to understand the quality, cost,
delivery, technology and service objectives of target customers is critical to
our goal of achieving the highest level of customer satisfaction. To develop
strategic relationships with target customers, our employees participate in
joint training, engineering seminars, manufacturing intern programs and as
members of customers' problem solving teams. We often have access to a
customer's materials resource planning schedule, which allows us to better
forecast that customer's near and mid-term requirements.

         To complement the independent manufacturers' representative
organizations with which we work, we have direct sales and customer support
offices in Raleigh-Durham, North Carolina, and San Diego, California. Through
these offices we provide applications engineering, logistical support and
coordination of activities with our customers. We expect to open additional
sales and customer support offices in the U.S. and Europe. We have agreements
with distribution companies in Singapore and France to provide forward stocking
and inventory coordination for regional customers. These relationships enable us
to provide customers with service comparable to that of a local provider.

         Under the terms of our Chinese joint venture agreement, Parlex Shanghai
has agreed that it will sell its products outside China only through us. In
turn, we have agreed that we will sell flexible circuits in China only through
the joint venture.

MANUFACTURING

         We believe that our manufacturing expertise in a number of specialized
areas, together with our investment in process research and development and
equipment, have contributed to our position as an industry leader. A significant
amount of our production equipment is proprietary, including cable laminators,
precision cable slitters and roll plating, roll etching and automatic punching
equipment.

         Our computer-aided manufacturing system takes the customer's design and
programs the various steps that will be required to manufacture the particular
product. The manufacturing process varies a great deal from product to product.
Although there is no standard process, significant elements of production are
highlighted below:

<TABLE>
<CAPTION>
          ETCHED FLEXIBLE CIRCUIT                        POLYMER THICK FILM                            LAMINATED CABLE
          -----------------------                         FLEXIBLE CIRCUIT                             ---------------
                                                          ----------------
<S>                                               <C>                                                 <C>
                  Drilling                           Convert/Condition Substrate                         Lamination
                  Plating                                   Screen Print                                  Slitting
                 Developing                                    Diecut                                 Conductor Forming
                  Etching                                Conductive Adhesive                          Injection Molding
                 Lamination                       Surface Mount/Flip Chip Assembly                        Shielding
             Electrical Testing                          Electrical Testing                             Laser Skiving
                  Assembly                                                                                Assembly
</TABLE>

         We recently completed a major expansion of our production capacity. In
fiscal 1999, we added 60,000 square feet to our Methuen, Massachusetts facility,
12,000 square feet to our Salem, New Hampshire facility and 10,000 square feet
to our Shanghai, China facility. Additionally, we purchased over $10.4 million
of new equipment in fiscal 2000. Our acquisitions of Dynaflex in fiscal 1999 and
Poly-Flex in fiscal 2000 gave us a full complement of flexible circuit
manufacturing equipment and an additional 19,000 and 95,000 square feet of
facility capacity, respectively. We believe that we now have sufficient capacity
to meet forecast growth in the U.S. operations for the next several years. We
are currently adding additional capacity in Shanghai and Mexico and we intend to
continue to expand capacity to meet the needs of our growing customer base.



                                       11
<PAGE>

         Six of our manufacturing facilities are certified to the
international standard ISO 9001 or ISO 9002. Three of our facilities are
certified to the automotive standard QS 9000.

MATERIALS AND MATERIALS MANAGEMENT

         We aggressively attempt to control our cost of purchased materials and
our level of inventories through long-term relationships with our suppliers. Our
goal is to attain a competitive price from suppliers and foster a shared vision
towards advancing technology.

         We purchase raw materials, process chemicals and various components
from multiple outside sources. We often make long-term purchasing commitments
with key suppliers for specific customer programs. These suppliers commit to
provide cooperative engineering as required and in some cases to maintain a
local inventory to provide shorter lead times and reduced inventory levels. In
many cases our customers approve, and often specify, sources of supply.

         We qualify our suppliers through a vendor rating system that limits the
number of suppliers to those that can provide the best total value and quality.
We monitor each supplier's quality, delivery, service and technology so that the
materials we receive meet our objectives.

COMPETITION

         Our business is highly competitive. We compete against other
manufacturers of flexible interconnects as well as against manufacturers of
rigid-printed circuits. Competitive factors among flexible circuit and laminated
cable suppliers are price, product quality, technological capability and
service. We believe that we compete favorably on all of these competitive
factors, but believe that our competitive strength is in our ability to apply
technology to reduce cost. We compete against rigid board products on the basis
of product versatility, although price can also be a competitive factor if the
difference between the cost of a rigid circuit and a flexible circuit becomes
too great.

INTELLECTUAL PROPERTY

         We have acquired patents and we seek patents on new products and
processes where we believe patents would be appropriate to protect our
interests. Although patents are an important part of our competitive position,
we do not believe that any single patent or group of patents is critical to our
success. We believe that, due to the rapid technological change in the flexible
interconnect business, our success depends more on design creativity and
manufacturing expertise than on patents and other intellectual property. We own
18 patents issued, and have six patent applications pending, in the United
States and have several corresponding foreign patent applications pending. We
have obtained federal trademark registrations for PALFlex-registered trademark-,
PALCore-registered trademark-, U-Flex-registered trademark-, PALCoat-registered
trademark- and Polysolder-registered trademark-, and have one trademark
application pending. We also rely on internal security measures and on
confidentiality agreements for protection of trade secrets and proprietary
know-how. We cannot be sure that our efforts to protect our intellectual
property will be effective to prevent misappropriation or that others may not
independently develop similar technology.

         Under the terms of our Chinese joint venture agreement, we transferred
specified technology to Parlex Shanghai and have agreed to provide it with
additional technology and expertise as the joint venture's capabilities and
markets develop. PALFlex-registered trademark- is excluded from the arrangement.

         In January 2000, we sold two U.S. patents for PALCore-registered
trademark-, a low-cost multilayer material, to Polyclad Laminates, Inc., a
subsidiary of Cookson Electronics, for approximately $1.3 million. We had
previously licensed PALCore-registered trademark- to Isola Laminate Systems
Corp. (f/k/a Allied Signal Laminate Systems) and will transfer royalties
received in connection with the license to Polyclad Laminates, Inc. as part of
the sale. We have retained a perpetual, royalty-free, non-exclusive license to
use the PALCore-registered trademark- material in our products. We also hold a
patent,



                                       12
<PAGE>

which we have not licensed to anyone, which covers the process of using
PALCore-registered trademark- in the production of flexible interconnects.

ENVIRONMENTAL REGULATIONS

         Flexible interconnect manufacturing requires the use of metals and
chemicals. Water used in the manufacturing process must be treated to remove
metal particles and other contaminants before it can be discharged into the
municipal sanitary sewer system. We operate and maintain water effluent
treatment systems and use approved laboratory testing procedures to monitor the
effectiveness of these systems at our San Jose, California and Methuen,
Massachusetts facilities. We operate these treatment systems under an effluent
discharge permit issued by the local governmental authority. Air emissions
resulting from our manufacturing processes are regulated by permits issued by
government authorities. These permits must be renewed periodically and are
subject to revocation in the event of violations of environmental laws. We
believe that the waste treatment equipment at our facilities is currently in
compliance with the requirements of environmental laws in all material respects
and that our air emissions are within the limits established in the relevant
permit. However, violations may occur in the future. We are also subject to
other environmental laws including those relating to the storage, use and
disposal of chemicals, solid waste and other hazardous materials, as well as to
work place health and safety and indoor air quality emissions. Furthermore,
environmental laws could become more stringent or might apply to additional
aspects of our operations over time, and the costs of complying with such laws
could be substantial. Compliance with local, state and federal laws did not have
a material impact on our capital expenditures, earnings or competitive position
in fiscal 2000. We estimate that capital expenditures in fiscal 2000 and 2001
associated with environmental compliance will be $550,000.

EMPLOYEES

         As of June 30, 2000, we employed approximately 1,000 people in the
United States. Of these employees, 860 were direct employees of Parlex and 140
worked for interim staffing agencies. In addition, we employed approximately 300
people in Mexico, approximately 130 people in the United Kingdom and Parlex
Shanghai employed approximately 560 people in China.

We are not party to any collective bargaining agreement and we believe our
relations with our employees are good.

ITEM 2. PROPERTIES

                                   FACILITIES

Our facilities at June 30, 2000 are:

<TABLE>
<CAPTION>
                LOCATION                APPROXIMATE    LEASED/OWNED                  DESCRIPTION
                --------                SQUARE FEET    ------------                  -----------
                                        -----------

<S>                                     <C>            <C>                           <C>
                Methuen,                  185,000      Owned                         Corporate headquarters, product
                Massachusetts                                                        and process development and
                                                                                     flexible circuit manufacturing

                Cranston, Rhode            55,500      Owned                         Polymer thick film and surface
                Island                                                               mount assembly operations

                Salem, New Hampshire       46,000      Leased (lease expires in      Laminated cable manufacturing
                                                       January 2007)

                Newport, Isle of           40,000      Leased (lease expires in      Polymer thick film and surface
                Wight, United Kingdom                  November 2009)                mount assembly operations

                Shanghai, China            37,000      Leased (lease expires in      Single- and double-sided
                                                       August 2002)                  flexible circuit manufacturing
</TABLE>


                                       13
<PAGE>
<TABLE>
<S>                                     <C>            <C>                           <C>
                Empalme, Sonora,           38,000      Leased (lease expires in      Finishing and assembly operations
                Mexico                                 January 2005)

                San Jose, California       19,000      Leased (lease expires in      Prototype and quick-turn operations
                                                       December 2000)
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

         From time to time we are involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not
currently involved in any material legal proceedings.

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

         No matter was submitted to a vote of our stockholders during the fourth
quarter of the fiscal year covered by this report.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)      PRICE RANGE OF COMMON STOCK

         Our common stock is quoted on the Nasdaq National Market under the
symbol "PRLX." The following table sets forth, for the periods indicated, the
high and low intraday sale prices for our common stock as reported on the Nasdaq
National Market.

<TABLE>
<CAPTION>
                                                                                             HIGH       LOW
                                                                                             ----       ---

<S>                                                                                         <C>         <C>
FISCAL YEAR ENDED JUNE 30, 1999
  First Quarter........................................................................     $16.50      $8.19
  Second Quarter.......................................................................     $12.25      $8.00
  Third Quarter........................................................................     $13.50      $9.38
  Fourth Quarter.......................................................................     $15.75      $9.25
 FISCAL YEAR ENDED JUNE 30, 2000

  First Quarter........................................................................     $19.50     $12.88
  Second Quarter.......................................................................     $28.69     $14.13
  Third Quarter........................................................................     $38.81     $20.88
  Fourth Quarter.......................................................................     $46.13     $19.00
</TABLE>


         On June 30, 2000, the closing sale price of our common stock as
reported on the Nasdaq National Market was $42.13 per share and there were 100
holders of record of our common stock.

(b)      DIVIDEND POLICY

         We have never declared or paid any cash dividends on our capital stock.
We presently intend to retain future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends. Future cash
dividends, if any, will be determined by our Board of Directors and will be
based on our earnings, capital, financial condition and other factors that the
Board deems relevant. Our credit agreement permits us to pay cash dividends to
the extent such payment would not cause us to violate financial covenants
contained in the credit agreement.


                                       14
<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED JUNE 30,
                                               2000(1)       1999(2)        1998         1997        1996
                                               -------       -------        ----         ----        ----
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                           <C>          <C>            <C>         <C>         <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
  DATA:
Total revenues....................            $101,839     $67,047        $60,275     $55,087     $47,257
Cost of products sold.............              76,614      52,785         47,304      44,137      40,308
                                                ------      ------         ------      ------      ------
Gross profit......................              25,225      14,262         12,971      10,950       6,949
Selling, general and administrative
  expenses........................              14,097       9,715          8,272       7,288       5,518
                                                ------       -----          -----       -----       -----
Operating income..................              11,128       4,547          4,699       3,662       1,431
Income from operations before
  provision for income taxes and
  minority interest..................           10,473       4,681          5,130       3,381       1,170

Net income........................              $6,335      $3,020         $3,157      $2,120        $770
                                                ======      ======         ======      ======        ====
Net income per share:
  Basic...........................               $1.31       $0.65          $0.73       $0.59       $0.22
                                                 =====       =====          =====       =====       =====
   Diluted........................               $1.28       $0.63          $0.71       $0.57       $0.21
                                                 =====       =====          =====       =====       =====
Weighted average shares outstanding:
  Basic...........................               4,842       4,662          4,296       3,569       3,556
  Diluted.........................               4,940       4,771          4,466       3,715       3,675
</TABLE>


<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED JUNE 30,
                                               2000(1)       1999(2)        1998         1997        1996
                                               -------       -------        ----         ----        ----
                                                                  (IN THOUSANDS)

<S>                                            <C>         <C>            <C>           <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital..................              $38,752     $18,762        $26,286       $9,592     $9,148
Total assets.....................              115,341      63,521         56,181       32,234     29,662
Current portion of long-term debt.               1,483         619            432        1,000        501
Long-term debt, less current portion               360       1,632          1,166        2,500      3,650
Stockholders' equity                            87,790      45,333         41,591       17,788     15,455
</TABLE>


-----------

(1)      Includes Poly-Flex beginning March 1, 2000

(2)      Includes Dynaflex beginning April 30, 1999.



                                       15
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

         We are a leading supplier of flexible interconnects principally for
sale to the automotive, telecommunications and networking, diversified
electronics, aerospace and computer markets. We believe that our development of
innovative materials and processes provides us with a competitive advantage in
the markets in which we compete. During the past three years, we have invested
approximately $33.2 million in property and equipment and approximately $11.1
million in research and development to develop materials and enhance our
manufacturing processes. We believe that these expenditures will help us to meet
increased customer demand for our products, and enable us to continue to be a
technological leader in the flexible interconnect industry. Our research and
development expenses are included in our cost of products sold.

         We formed a Chinese joint venture, Parlex Shanghai, in 1995 to better
serve customers that have production facilities in Asia and to more cost
effectively manufacture products for worldwide distribution. We own 50.1% of the
equity interest in Parlex Shanghai. Accordingly, Parlex Shanghai's results of
operations, cash flows and financial position are included in our consolidated
financial statements.

RECENT ACQUISITIONS

         On April 30, 1999, we acquired the Dynaflex division of CCIR of
California Corp., an indirect wholly-owned subsidiary of Hadco Corporation, for
approximately $2.7 million. Dynaflex, located in San Jose, California, is a
prototype and quick-turn facility. This acquisition gives us a West Coast
presence and a greatly improved rapid prototype and quick-turnaround capability.
Quick-turnaround capability permits production of a small number of flexible
interconnects upon short notice. This service often leads to large volume orders
at our other manufacturing facilities.

         On March 1, 2000, we acquired the businesses of Poly-Flex Circuits,
Inc. and Poly-Flex Circuits Limited (collectively "Poly-Flex"), wholly-owned
subsidiaries of Cookson Group plc, for a purchase price of approximately $19.7
million plus related acquisition costs of approximately $1.0 million. This
purchase price is subject to adjustment based upon final determination of
Poly-Flex's net assets and earnings before income taxes. This acquisition
further diversified our product offerings by providing us with polymer thick
film and surface mount assembly capabilities. Poly-Flex has manufacturing
facilities in Cranston, Rhode Island and the United Kingdom.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, selected
items in our statements of income as a percentage of total revenue. You should
read the table and the discussion below in conjunction with our Consolidated
Financial Statements and the Notes thereto.

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR ENDED JUNE 30,
                                                                                    --------------------------
                                                                                   2000      1999          1998
                                                                                   ----      ----          ----

<S>                                                                               <C>       <C>           <C>
              Total revenues...................................................   100.0%    100.0%        100.0%
              Cost of products sold............................................    75.2%     78.7%         78.5%
              Gross profit.....................................................    24.8%     21.3%         21.5%
              Selling, general and administrative expenses.....................    13.8%     14.5%         13.7%
              Operating income.................................................    10.9%      6.8%          7.8%
              Income from operations before income taxes and minority interest.    10.3%      7.0%          8.5%
              Net income.......................................................     6.2%      4.5%          5.2%
</TABLE>


                                       16
<PAGE>

COMPARISON OF YEARS ENDED JUNE 30, 2000, 1999, AND 1998

TOTAL REVENUES. Total revenues for fiscal 2000 were $101.8 million, an increase
of 52% from $67.0 million reported in fiscal 1999. Revenues were generated
primarily from product sales. Revenues grew in each of our principal product
lines-flexible circuits, laminated cable, flexible interconnect hybrid circuits
and flexible interconnect assemblies. Sales were strong in all markets, with the
largest growth coming from the telecommunications and networking sector. Our
revenues for fiscal 2000 also included Poly-Flex's shipments, following our
acquisition of Poly-Flex on March 1, 2000.

In fiscal 1999, total revenues rose to $67.0 million, an increase of 11% from
the $60.3 million reported in fiscal 1998. Revenues grew in each of our
principal product lines. We have been developing new, innovative products that
continue to gain acceptance in the marketplace and have been a prime factor in
our continued growth. The increase in total revenues in each year was primarily
attributable to an increase in the volume of units shipped.

Total revenues included licensing and royalty fees of $1,887,000 for fiscal
2000, $674,000 in fiscal 1999 and $227,000 in fiscal 1998. Although we intend to
continue developing materials and processes that we can license to third
parties, we do not expect that licensing and royalty revenues will represent a
significant portion of total revenues in the near term.

COSTS OF PRODUCTS SOLD. Cost of products sold was $76.6 million , or 75.2% of
total revenues, for fiscal 2000, versus $52.8 million, or 78.7% in fiscal 1999.
Our gross margins improved as a result of various factors, including the shift
of more automotive products to our proprietary PALFlex-registered trademark-
technology, which can produce a higher performance flexible circuit at a cost
lower than using conventional materials. We also sent more product to our
facility in Mexico for its cost-effective finishing and assembly processes.
Dynaflex satisfied our customer's prototype demands, allowing other facilities
to concentrate on larger production orders, which contributed to enhanced
operating efficiency. Dynaflex did not operate at a profitable level, but we do
not consider its losses for fiscal 2000 material to our overall results. In
addition, in fiscal 1999 we incurred substantial costs associated with the start
up of our Mexican facility.

In fiscal 1999, cost of products sold was $52.8 million and $47.3 million in
fiscal 1998. As a percentage of total revenues, cost of products sold was 78.7%
in fiscal 1999 and 78.5% in fiscal 1998. The increase in fiscal 1999 is the
result of some unanticipated losses in the manufacturing of flexible circuits
associated with automotive applications that occurred in the quarter ended
September 27, 1998. Product shipped to our Mexican facility was returned because
of an unexpected delay in qualifying the site for finishing operations. As a
result, the product was contaminated during unplanned storage and shipment back
to our Methuen, Massachusetts facility. These circuits required extensive
rework, and we discarded a significant quantity of them. The cost of products
sold as a percentage of total revenues for the remainder of fiscal 1999 was
77.1%

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $14.1 million, or 13.8% of total revenues in fiscal
2000 and $9.7 for the comparable period in the prior year, or 14.5% of total
revenues for that period. The increase in expenses resulted primarily from the
inclusion of the Dynaflex operations, which we purchased in April 1999, an
increase in the sales commissions associated with increased sales and the
expenses of Poly-Flex, which we purchased in March 2000.

In fiscal 1999, selling, general and administrative expenses were $9.7 million
and $8.3 million in fiscal 1998. As a percentage of total revenues, selling,
general and administrative expenses were 14.5% in fiscal 1999 and 13.7% in
fiscal 1998. The increases in expenses in both absolute dollars and as a
percentage of total revenues was a result of an expansion in our business. We
have increased our internal sales personnel, added new field offices, paid
increased sales commissions due to increased sales, and increased our
contributions to our 401(k) plan.

OTHER INCOME AND INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Other income
was $237,000 for fiscal 2000, compared to $360,000 in fiscal 1999.


                                       17
<PAGE>

In fiscal 1999, other income of $360,000 and $684,000 in fiscal 1998 was
comprised, for the most part, of interest income.

Interest expense was $892,000 for fiscal 2000, compared to $226,000 for fiscal
1999. The increase was due to the larger amount of borrowings required to
finance our Poly-Flex acquisition and our increased working capital requirements
and capital expenditure needs.

In fiscal 1999, interest expense was $226,000 versus $254,000 in fiscal 1998.
The reduction in expense is attributable to a lower level of average borrowings
outstanding under our revolving credit facility. Interest rates during the
period remained relatively constant.

We provided for an effective tax rate of nearly 28% for fiscal 2000, versus a
21% effective tax rate for the comparable period in the prior year. The increase
in the effective tax rate resulted from a reduced amount of available tax
credits and a greater proportion of our income being earned in higher tax
jurisdictions.

Our effective tax rate in fiscal 1999 was 21% versus 30% in fiscal 1998. In the
1999 and 1998 fiscal years, we benefited from the income generated by the
Chinese joint venture. This income was not subject to tax until fiscal 1999, and
from that time on has been subject only to one half the tax that would otherwise
be assessed, which is a rate significantly lower than U.S. rates. We also
benefited from an increase in foreign sales, the income from which is subject to
a lower rate of tax.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2000, we had net income of $6.3 million, as well as
depreciation and amortization of $4.8 million and other non-cash charges of $1.4
million increasing cash flow by $12.5 million. Cash flow was reduced by $7.8
million relating to increased working capital, resulting in a positive cash flow
from operations of $4.7 million. We used these monies, together with $35.9
million from issuance of stock, $30.6 million from bank borrowings and $1.6
million from maturing investments to purchase Poly-Flex for approximately $20.7
million, fund capital expenditures of $10.4 million and repay debt of $31.0
million.

         In fiscal 1999, we had net income of $3.0 million, as well as
depreciation and amortization of $2.9 million and other non-cash charges of $1.0
million, thus adding $6.9 million to cash flow. Cash flow was reduced by $1.9
million relating to increased working capital, resulting in a positive cash flow
from operations of $5.0 million. We used these monies, together with $5.2
million from maturing investments and available cash from the beginning of the
year, to purchase approximately $ 13.0 million in property and equipment and to
pay the approximately $ 2.7 million cash purchase price for the Dynaflex
acquisition.

         On March 1, 2000, we renegotiated our unsecured Revolving Credit
Agreement (the "Agreement") (originally dated June 22, 1994) making available up
to a total of $15,000,000 through December 31, 2001. On January 1, 2002, the
Agreement converts to a term loan with principal and interest payments due
monthly over a forty-five-month period to September 30, 2005. At the Company's
discretion, borrowings under the Agreement are either a variable rate equal to
the bank's prime rate (9.5% at June 30, 2000) or a fixed rate equal to the LIBOR
rate plus a margin that varies from 1.5% to 2.0%. The Agreement carries an
annual commitment fee of 1/4% on the average daily unused portion of the bank's
commitment. Interest is payable monthly. At June 30, 2000, the unused commitment
amounted to $15,000,000. The Agreement has restrictive covenants related to
tangible net worth, current ratio, working capital, debt service ratio, and the
ratio of total liabilities to equity.

         On March 1, 2000, we entered into a term loan agreement with a bank.
The term loan agreement consisted of a $15,000,000 credit facility, bearing
interest at LIBOR base rate plus a margin of 1.5% to 2.0%. We borrowed $15
million on the term loan for the Poly-Flex acquisition. The term loan was repaid
using the proceeds from a common stock offering and the term loan was canceled.



                                       18
<PAGE>

         In June 2000, we sold 1,452,500 shares of our common stock in a public
offering. Our proceeds were approximately $35.9 million, net of expenses
associated with the offering. We used a portion of the proceeds to repay the
outstanding indebtedness under our revolving credit agreement and term loan. The
remaining balance is being used for general corporate purposes, including
working capital.

         We believe that our cash on hand, our anticipated cash flow from
operations, and the amount available under our revolving credit facility, should
be sufficient to meet our anticipated needs for at least the next 12 months.

RECENT ACCOUNTING PRONOUNCEMENTS

         FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS - In June 1998, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The provisions of SFAS No. 133, as amended, are effective for periods beginning
after June 15, 2000. The Company is currently evaluating, and has not determined
the effect, if any, SFAS No. 133 will have on the Company's financial position
and its results of operations.

         On December 3, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenues in financial statements filed with the
SEC. The implementation date of SAB No. 101 has been delayed until no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company is currently evaluating, and has not determined the effect, if any, SAB
No. 101 will have on the Company's financial position and its results of
operations.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

         Our prospects are subject to certain uncertainties and risks. This
Annual Report on Form 10-K also contains certain forward-looking statements
within the meaning of the Federal Securities Laws. Our future results may differ
materially from the current results and actual results could differ materially
from those projected in the forward-looking statements as a result of certain
risk factors, including but not limited to those set forth below, other one-time
events and other important factors disclosed previously and from time to time in
our other filings with the Securities and Exchange Commission.

OUR OPERATING RESULTS FLUCTUATE AND MAY FAIL TO SATISFY THE EXPECTATIONS OF
PUBLIC MARKET ANALYSTS AND INVESTORS, CAUSING OUR STOCK PRICE TO DECLINE.

         Our operating results have fluctuated significantly in the past and we
expect our results to continue to fluctuate in the future. Our results may
fluctuate due to a variety of factors, including the timing and volume of orders
from customers, the timing of introductions of and market acceptance of new
products, changes in prices of raw materials, variations in production yields
and general economic trends. It is possible that in some future periods our
results of operations may not meet or exceed the expectations of public market
analysts and investors. If this occurs, the price of our common stock is likely
to decline.

OUR QUARTERLY RESULTS DEPEND UPON A SMALL NUMBER OF LARGE ORDERS RECEIVED IN
EACH QUARTER, SO THE LOSS OF ANY SINGLE LARGE ORDER COULD HARM QUARTERLY RESULTS
AND CAUSE OUR STOCK PRICE TO DROP.

         A substantial portion of our sales in any given quarter depends on
obtaining a small number of large orders for products to be manufactured and
shipped in the same quarter in which the orders are received. Although we
attempt to monitor our customers' needs, we often have limited knowledge of the
magnitude or timing of future orders. It is difficult for us to reduce spending
on short notice on operating expenses such as fixed manufacturing costs,
development costs and ongoing customer service. As a result, a reduction in
orders, or even the loss of a single



                                       19
<PAGE>

large order, for products to be shipped in any given quarter could have a
material adverse effect on our quarterly operating results. This, in turn, could
cause our stock price to decline.

BECAUSE WE SELL A SUBSTANTIAL PORTION OF OUR PRODUCTS TO A LIMITED NUMBER OF
CUSTOMERS, THE LOSS OF A SIGNIFICANT CUSTOMER OR A SUBSTANTIAL REDUCTION IN
ORDERS BY ANY SIGNIFICANT CUSTOMER WOULD HARM OUR OPERATING RESULTS.

         Historically we have sold a substantial portion of our products to a
limited number of customers. Our 20 largest customers based on sales accounted
for approximately 64% of our total revenue in fiscal 1998, 63% in fiscal 1999,
and 60% in fiscal 2000.

         We expect that a limited number of customers will continue to account
for a high percentage of our total revenues in the foreseeable future. As a
result, the loss of a significant customer or a substantial reduction in orders
by any significant customer would cause our revenues to decline and have an
adverse effect on our operating results.

IF WE ARE UNABLE TO RESPOND EFFECTIVELY TO THE EVOLVING TECHNOLOGICAL
REQUIREMENTS OF CUSTOMERS, OUR PRODUCTS MAY NOT BE ABLE TO SATISFY THE DEMANDS
OF EXISTING AND PROSPECTIVE CUSTOMERS AND WE MAY LOSE REVENUES AND MARKET SHARE.

         The market for our products is characterized by rapidly changing
technology and continuing process development. The future success of our
business will depend in large part upon our ability to maintain and enhance our
technological capabilities. We will need to develop and market products that
meet changing customer needs, and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. There can be no
assurance that the materials and processes that we are currently developing will
result in commercially viable technological processes, or that there will be
commercial applications for these technologies. In addition, we may not be able
to make the capital investments required to develop, acquire or implement new
technologies and equipment that are necessary to remain competitive. It is also
possible that the flexible interconnect industry could encounter competition
from new technologies in the future that render flexible interconnect technology
less competitive or obsolete. If we fail to keep pace with technological change,
our products may become less competitive or obsolete and we may lose customers
and revenues.

A SIGNIFICANT DOWNTURN IN ANY OF THE SECTORS IN WHICH WE SELL PRODUCTS COULD
RESULT IN A REVENUE SHORTFALL.

         We sell our flexible interconnect products principally to the
automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets. Although we serve a variety of markets to avoid
a dependency on any one sector, a significant downturn in any of these market
sectors could cause a material reduction in our revenues, which could be
difficult to replace.

IF WE FAIL TO EXPAND OUR MANUFACTURING CAPACITY, WE COULD LOSE EXISTING AND
POTENTIAL CUSTOMERS AND DAMAGE OUR COMPETITIVE POSITION.

         Our long-term competitive position depends in part on our ability to
increase and adapt our manufacturing capacity. During fiscal 2000, we completed
our expansion of the Methuen, Massachusetts and Empalme, Mexico facilities.
Additionally, we acquired 95,500 square feet of manufacturing space in Cranston,
Rhode Island and Newport, Isle of Wight, United Kingdom with the Poly-Flex
acquisition. We are currently capacity constrained in our Shanghai, China
facility, although we are addressing this by adding capacity in this facility.
We must continue to expand our manufacturing capacity to accommodate additional
customer demand, increased sales volumes and changing customer needs. In
addition to expanding our existing facilities, we may open new facilities to
expand our manufacturing capacity and increase our global presence. Such an
expansion would likely require significant capital expenditures and other
expenses and any new facilities may not operate profitability in the short term
or at all. Any failure to complete our expansions on schedule and within budget
could have a material adverse effect on our revenues and our competitive
position.



                                       20
<PAGE>

WE RELY ON A LIMITED NUMBER OF SUPPLIERS, AND ANY INTERRUPTION IN OUR PRIMARY
SOURCES OF SUPPLY, OR ANY SIGNIFICANT INCREASE IN THE PRICES OF MATERIALS,
CHEMICALS OR COMPONENTS, WOULD HAVE AN ADVERSE EFFECT ON OUR SHORT-TERM
OPERATING RESULTS.

         We purchase the bulk of our raw materials, process chemicals and
components from a limited number of outside sources. In fiscal 2000, we
purchased approximately 60% of our materials from DuPont and Sheldahl, our two
largest suppliers. We operate under tight manufacturing cycles with a limited
inventory of raw materials. As a result, although there are alternative sources
of the materials that we purchase from our existing suppliers, any unanticipated
interruption in supply from DuPont or Sheldahl, or any significant increase in
the prices of materials, chemicals or components, would have an adverse effect
on our short-term operating results.

IF OUR RECENTLY ACQUIRED BUSINESS DOES NOT GENERATE THE REVENUES WE EXPECT, HAS
UNEXPECTED SIGNIFICANT LIABILITIES, OR IS NOT SUCCESSFULLY INTEGRATED INTO OUR
EXISTING OPERATIONS, WE MAY NOT REAP THE ANTICIPATED BENEFITS OF THE ACQUISITION
AND OUR OPERATING RESULTS MAY SUFFER.

         We recently acquired Poly-Flex Circuits, Inc. and Poly-Flex Circuits
Limited in order to further diversify our product offerings and target markets,
to help support our existing customer base and to help attract and retain new
customers. The Poly-Flex business may not generate the revenues or profits we
expect, or we may find that the business has previously unknown or undisclosed
liabilities.

         We may have difficulties in assimilating the operations, technologies,
products and personnel of the Poly-Flex business into our existing business.
Integration could require capital expenditures which exceed our expectations. In
addition, efforts to integrate the business could divert our attention from
other aspects of our operations. If we fail to integrate the Poly-Flex business
effectively in a timely and non-disruptive manner, key employees of that
business may leave, which could further complicate our integration efforts and
jeopardize the anticipated benefits of the acquisition.

IF WE ACQUIRE ADDITIONAL BUSINESSES, THESE ACQUISITIONS WILL INVOLVE FINANCIAL
UNCERTAINTIES AS WELL AS PERSONNEL CONTINGENCIES, AND MAY BE RISKY AND DIFFICULT
TO INTEGRATE.

         We have completed two acquisitions in the past two years and we may
acquire additional businesses that could complement or expand our business.
Acquired businesses may not generate the revenues or profits that we expect and
we may find that they have unknown or undisclosed liabilities. In addition, if
we do make acquisitions, we will face a number of other risks and challenges,
including: The difficulty of integrating dissimilar operations or assets;
potential loss of key employees of the acquired business; assimilation of new
employees who may not contribute or perform at the levels we expect; diversion
of management time and resources; and additional costs associated with obtaining
any necessary financing.

         These factors could hamper our ability to receive the anticipated
benefits from any acquisitions we may pursue, and could adversely affect our
financial condition and our stock price.

IF WE CANNOT OBTAIN ADDITIONAL FINANCING WHEN NEEDED, WE MAY NOT BE ABLE TO
EXPAND OUR OPERATIONS AND INVEST ADEQUATELY IN RESEARCH AND DEVELOPMENT, WHICH
COULD CAUSE US TO LOSE CUSTOMERS AND MARKET SHARE.

         The development and manufacturing of flexible interconnects is capital
intensive. To remain competitive, we must continue to make significant
expenditures for capital equipment, expansion of operations and research and
development. We expect that substantial capital will be required to expand our
manufacturing capacity and fund working capital for anticipated growth. We may
need to raise additional funds either through borrowings or further equity
financings. We may not be able to raise additional capital on reasonable terms,
or at all. If we cannot raise the required funds when needed, we may not be able
to satisfy the demands of existing and prospective customers and may lose
revenue and market share.



                                       21
<PAGE>

THE ADDITIONAL EXPENSES AND RISKS RELATED TO OUR EXISTING INTERNATIONAL
OPERATIONS, AS WELL AS ANY EXPANSION OF OUR GLOBAL OPERATIONS, COULD ADVERSELY
AFFECT OUR BUSINESS.

         We own a 50.1% equity interest in a joint venture in China, which
manufactures and sells flexible circuits. We also operate a facility in Mexico
for use in the finishing, assembly and testing of flexible circuit and laminated
cable products. We recently acquired a facility in the United Kingdom where we
currently manufacture polymer thick film flexible circuits and polymer thick
film flexible circuits with surface mounted components and intend to introduce
production of laminated cable within the next year. We will continue to explore
appropriate expansion opportunities as demand for our products increases.

         Manufacturing and sales operations outside the United States carry a
number of risks inherent in international operations, including: imposition of
governmental controls, regulatory standards and compulsory licensure
requirements; compliance with a wide variety of foreign and U.S. import and
export laws; currency fluctuations; unexpected changes in trade restrictions,
tariffs and barriers; political and economic instability; longer payment cycles
typically associated with foreign sales; difficulties in administering business
overseas; labor union issues; and potentially adverse tax consequences.

         International expansion may require significant management attention,
which could negatively affect our business. We may also incur significant costs
to expand our existing international operations or enter new international
markets, which could increase operating costs and reduce our profitability.

WE FACE SIGNIFICANT COMPETITION, WHICH COULD MAKE IT DIFFICULT FOR US TO ACQUIRE
AND RETAIN CUSTOMERS.

         We face competition worldwide in the flexible interconnect market from
a number of foreign and domestic providers, as well as from alternative
technologies such as rigid printed circuits. Many of our competitors are larger
than we are and have greater financial resources. New competitors could also
enter our markets. Our competitors may be able to duplicate our strategies, or
they may develop enhancements to, or future generations of, products that could
offer price or performance features that are superior to our products.
Competitive pressures could also necessitate price reductions, which could
adversely affect our operating results. In addition, some of our competitors are
based in foreign countries and have cost structures and prices based on foreign
currencies. Accordingly, currency fluctuations could cause our dollar-priced
products to be less competitive than our competitors' products priced in other
currencies.

         We will need to make a continued high level of investment in product
research and development and research, sales and marketing and ongoing customer
service and support in order to remain competitive. We may not have sufficient
resources to be able to make these investments. Moreover, we may not be able to
make the technological advances necessary to maintain our competitive position
in the flexible interconnect market.

IF WE ARE UNABLE TO ATTRACT, RETAIN AND MOTIVATE KEY PERSONNEL, WE MAY NOT BE
ABLE TO DEVELOP, SELL AND SUPPORT OUR PRODUCTS AND OUR BUSINESS MAY LACK
STRATEGIC DIRECTION.

         We are dependent upon key members of our management team. In addition,
our future success will depend in large part upon our continuing ability to
attract, retain and motivate highly qualified managerial, technical and sales
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be successful in hiring or retaining such personnel. We
currently maintain a key person life insurance policy in the amount of $1.0
million on each of Herbert W. Pollack and Peter J. Murphy. If we lose the
service of Messrs. Pollack or Murphy or one or more other key individuals, or
are unable to attract additional qualified members of the management team, our
ability to implement our business strategy may be impaired. If we are unable to
attract, retain and motivate qualified technical and sales personnel, we may not
able to develop, sell and support our products.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITIVE POSITION
COULD BE HARMED AND OUR REVENUES COULD BE ADVERSELY AFFECTED.



                                       22
<PAGE>

         We rely on a combination of patent and trade secret laws and
non-disclosure and other contractual agreements to protect our proprietary
rights. We own 18 patents issued and have six patent applications pending in the
United States and have several corresponding foreign patent applications
pending. Our existing patents may not effectively protect our intellectual
property and could be challenged by third parties, and our future patent
applications, if any, may not be approved. In addition, other parties may
independently develop similar or competing technologies. Competitors may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. If we fail to adequately protect our proprietary rights, our
competitors could offer similar products using materials, processes or
technologies developed by us, potentially harming our competitive position and
our revenues.

IF WE BECOME INVOLVED IN A PROTRACTED INTELLECTUAL PROPERTY DISPUTE, OR ONE WITH
A SIGNIFICANT DAMAGES AWARD OR WHICH REQUIRES US TO CEASE SELLING SOME OF OUR
PRODUCTS, WE COULD BE SUBJECT TO SIGNIFICANT LIABILITY AND THE TIME AND
ATTENTION OF OUR MANAGEMENT COULD BE DIVERTED.

         Although no claims have been asserted against us for infringement of
the proprietary rights of others, we may be subject to a claim of infringement
in the future. An intellectual property lawsuit against us, if successful, could
subject us to significant liability for damages and could invalidate our
proprietary rights. A successful lawsuit against us could also force us to cease
selling, or redesign, products that incorporate the infringed intellectual
property. We could also be required to obtain a license from the holder of the
intellectual property to use the infringed technology. We might not be able to
obtain a license on reasonable terms, or at all. If we fail to develop a
non-infringing technology on a timely basis or to license the infringed
technology on acceptable terms, our revenues could decline and our expenses
could increase.

         We may in the future be required to initiate claims or litigation
against third parties for infringement of our proprietary rights or to determine
the scope and validity of our proprietary rights or the proprietary rights of
competitors. Litigation with respect to patents and other intellectual property
matters could result in substantial costs and divert our management's attention
from other aspects of our business.

MARKET PRICES OF TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE, AND OUR STOCK
PRICE MAY BE VOLATILE AS WELL.

         From time to time the U.S. stock market has experienced significant
price and trading volume fluctuations, and the market prices for the common
stock of technology companies in particular have been extremely volatile. In the
past, broad market fluctuations that have affected the stock price of technology
companies have at times been unrelated or disproportionate to the operating
performance of these companies. Any significant fluctuations in the future might
result in a material decline in the market price of our common stock.

         Following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. If we were to become involved in this type of litigation,
we could incur substantial costs and diversion of management's attention, which
could harm our business, financial condition and operating results.

THE COSTS OF COMPLYING WITH EXISTING OR FUTURE ENVIRONMENTAL REGULATIONS, AND OF
CURING ANY VIOLATIONS OF THESE REGULATIONS, COULD INCREASE OUR OPERATING
EXPENSES AND REDUCE OUR PROFITABILITY.

         We are 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, or resulting from the process of manufacturing,
our products. We cannot predict the nature, scope or effect of future regulatory
requirements to which our operations might be subject or the manner in which
existing or future laws will be administered or interpreted. Future regulations
could be applied to materials, product or activities that have not been subject
to regulation previously. The costs of complying with new or more stringent
regulations, or with more vigorous enforcement of these regulations, could be
significant.



                                       23
<PAGE>

         Environmental laws require us to maintain and comply with a number of
permits, authorizations and approvals and to maintain and update training
programs and safety data regarding materials used in our processes. Violations
of these requirements could result in financial penalties and other enforcement
actions. We could also be required to halt one or more portions of our
operations until a violation is cured. Although we attempt to operate in
compliance with these environmental laws, we may not succeed in this effort at
all times. The costs of curing violations or resolving enforcement actions that
might be initiated by government authorities could be substantial.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in U.S. and foreign interest rates and fluctuations in
exchange rates. We do not use derivative financial instruments for speculative
or trading purposes.

         As of June 30, 2000, we maintained a portion of our cash and cash
equivalents in financial instruments with purchased maturities of three months
or less. Since June 30, 2000, we maintain financial instruments with varying
maturities up to 18 months. These financial instruments are subject to interest
rate risk and will decline in value if interest rates decrease. Due to the short
duration of these financial instruments, an immediate decrease in interest rates
would not have a material adverse effect upon our financial position.

         We also have a $15,000,000 revolving credit line that bears interest,
at our choice, at our lender's prime rate or LIBOR plus a margin that varies
from 1.5% to 2.0%. Both the prime and LIBOR rates are affected by changes in
market interest rates. As of June 30, 2000, we have no outstanding balance. We
have the option to repay borrowings at anytime without penalty, other than
breakage fees in the case of prepayment of LIBOR rate borrowings, and therefore
believe that our market risk is not material.

         The remainder of our long-term debt bears interest at fixed rates and
is therefore not subject to market risk.

         Sales of Parlex Shanghai and Poly-Flex Circuits Limited are typically
denominated in the local currency, which is also each company's functional
currency. This creates exposure to changes in exchange rates. The changes in the
Chinese/U.S. and U.K./U.S. exchange rates may positively or negatively impact
our sales, gross margins and retained earnings. Based upon the current volume of
transactions in China and the United Kingdom and the stable nature of the
exchange rate between China and the U.S. and the United Kingdom and the U.S., we
do not believe the market risk is material. We do not engage in regular hedging
activities to minimize the impact of foreign currency fluctuations. Parlex
Shanghai had net assets as of March 26, 2000, which were reported in our
financial statements for the year ended June 30, 2000, of approximately $7.8
million. Poly-Flex Circuits Limited had net assets as of June 30, 2000 of
approximately $6.8 million. We believe that a 10% change in exchange rates would
not have a significant impact upon Parlex Shanghai's or Poly-Flex Circuits
Limited's financial position, results of operation or outstanding debt. As of
March 26, 2000, Parlex Shanghai had outstanding debt of $1.2 million. As of June
30, 2000, Poly-Flex Circuits Limited had no outstanding debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                       24

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
 of Parlex Corporation
Methuen, Massachusetts

We have audited the accompanying consolidated balance sheets of Parlex
Corporation and its subsidiaries (the "Company") as of June 30, 2000 and 1999,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule 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 that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Parlex Corporation and its
subsidiaries at June 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2000 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.


/s/ Deloitte & Touche LLP
Boston, Massachusetts
August 22, 2000

                                       25

<PAGE>

PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                                                            2000             1999
<S>                                                                                    <C>              <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                            $  11,949,858    $  1,175,889
  Short-term investments                                                                        --         1,606,953
  Accounts receivable - less allowance for doubtful accounts of $404,000 in 2000 and
  $255,000 in 1999                                                                        19,167,016      14,053,046
  Inventories                                                                             21,148,660      10,943,457
  Deferred income taxes                                                                    1,079,073         559,084
  Other current assets                                                                     2,781,661       1,715,225
                                                                                       -------------    ------------
           Total current assets                                                           56,126,268      30,053,654
                                                                                       -------------    ------------
PROPERTY, PLANT AND EQUIPMENT:
  Land                                                                                       893,865         468,864
  Buildings                                                                               20,240,949       7,796,488
  Machinery and equipment                                                                 50,457,494      30,756,650
  Leasehold improvements and other                                                         5,746,720       2,929,101
  Construction in progress                                                                 5,003,002      13,844,489
                                                                                       -------------    ------------
           Total                                                                          82,342,030      55,795,592
  Less accumulated depreciation and amortization                                         (28,114,968)    (23,915,018)
                                                                                       -------------    ------------
           Property, plant and equipment - net                                            54,227,062      31,880,574
                                                                                       -------------    ------------
GOODWILL - Net                                                                             4,447,358       1,123,520
                                                                                       -------------    ------------
OTHER ASSETS                                                                                 539,950         462,863
                                                                                       -------------    ------------
TOTAL ASSETS                                                                           $ 115,340,638    $ 63,520,611
                                                                                       =============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                                    $   1,482,524    $    619,206
  Accounts payable                                                                        11,292,256       8,080,085
  Accrued liabilities                                                                      4,599,549       2,592,655
                                                                                       -------------    ------------
           Total current liabilities                                                      17,374,329      11,291,946
                                                                                       -------------    ------------
LONG-TERM DEBT                                                                               360,386       1,631,782
                                                                                       -------------    ------------
OTHER NONCURRENT LIABILITIES                                                               5,932,931       2,611,942
                                                                                       -------------    ------------
MINORITY INTEREST IN PARLEX SHANGHAI                                                       3,883,416       2,651,711
                                                                                       -------------    ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, $1.00 par value - authorized, 1,000,000 shares; none issued
  Common stock, $.10 par value - authorized, 10,000,000 shares; issued,
  6,485,884 and 4,991,149 shares in 2000 and 1999, respectively                              648,588         499,115
  Additional paid-in capital                                                              60,678,009      24,568,566
  Retained earnings                                                                       27,623,632      21,288,296
  Accumulated other comprehensive income (loss)                                             (123,028)         14,878
  Less treasury stock, at cost - 210,000 shares in 2000 and 1999                          (1,037,625)     (1,037,625)
                                                                                       -------------    ------------
           Total stockholders' equity                                                     87,789,576      45,333,230
                                                                                       -------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $ 115,340,638    $ 63,520,611
                                                                                       =============    ============


</TABLE>

See notes to consolidated financial statements.

                                       26

<PAGE>

PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                      2000             1999          1998

<S>                                              <C>              <C>             <C>

REVENUES:

  Product sales                                  $  99,952,142    $ 66,372,800    $ 60,048,336
  License fees and royalty income                    1,886,602         674,483         226,835
                                                 -------------    ------------    ------------

            Total revenues                         101,838,744      67,047,283      60,275,171
                                                 -------------    ------------    ------------

COSTS AND EXPENSES:

  Cost of products sold                             76,613,787      52,784,488      47,304,136
  Selling, general and administrative expenses      14,096,704       9,715,341       8,271,704
                                                 -------------    ------------    ------------

           Total costs and expenses                 90,710,491      62,499,829      55,575,840
                                                 -------------    ------------    ------------

OPERATING INCOME                                    11,128,253       4,547,454       4,699,331

OTHER INCOME - Net                                     236,812         359,748         683,776

INTEREST EXPENSE                                      (891,805)       (226,378)       (253,509)
                                                 -------------    ------------    ------------

INCOME FROM OPERATIONS BEFORE
  PROVISION FOR INCOME TAXES AND
  MINORITY INTEREST                                 10,473,260       4,680,824       5,129,598

PROVISION FOR INCOME TAXES                          (2,906,219)       (964,032)     (1,539,514)
                                                 -------------    ------------    ------------

INCOME BEFORE MINORITY INTEREST                      7,567,041       3,716,792       3,590,084

MINORITY INTEREST                                   (1,231,705)       (697,239)       (433,110)
                                                 -------------    ------------    ------------

NET INCOME                                       $   6,335,336    $  3,019,553    $  3,156,974
                                                 =============    ============    ============

BASIC INCOME PER SHARE                           $        1.31    $        .65    $        .73
                                                 =============    ============    ============

DILUTED INCOME PER SHARE                         $        1.28    $        .63    $        .71
                                                 =============    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                       27

<PAGE>

PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999 AND 1998

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                      ADDITIONAL
                                                                COMMON STOCK            PAID-IN         RETAINED
                                                             SHARES       AMOUNT        CAPITAL         EARNINGS
<S>                                                       <C>            <C>          <C>             <C>
BALANCE, JULY 1, 1997                                      3,798,750     $379,875     $ 3,334,424     $15,111,769
  Comprehensive income:
    Net income                                                  --           --              --         3,156,974

    Other comprehensive income:
      Foreign currency translation adjustment                   --           --              --              --
      Unrealized gain on short-term investments                 --           --              --              --

    Other comprehensive income                                  --           --              --              --

  Comprehensive income                                          --           --              --              --

  Tax benefit arising from the exercise
    of stock options                                            --           --            97,702            --
  Stock offering, net of expenses                          1,000,000      100,000      20,281,799            --
  Exercise of stock options                                   51,899        5,190         158,820            --
                                                           ---------     --------     -----------     -----------
BALANCE, JUNE 30, 1998                                     4,850,649      485,065      23,872,745      18,268,743
  Comprehensive income:
    Net income                                                  --           --              --         3,019,553

    Other comprehensive income:
      Foreign currency translation adjusment                    --           --              --              --
      Unrealized gain (loss) on short-term investments          --           --              --              --

    Other comprehensive income                                  --           --              --              --

  Comprehensive income                                          --           --              --              --

  Exercise of stock options                                  140,500       14,050         604,853            --
  Tax benefit arising from the exercise of
    stock options                                               --           --            90,968            --
                                                           ---------     --------     -----------     -----------
BALANCE, JUNE 30, 1999                                     4,991,149      499,115      24,568,566      21,288,296
  Comprehensive income:
    Net income                                                  --           --              --         6,335,336

    Other comprehensive income (loss):
      Foreign currency translation adjusment                    --           --              --              --
      Unrealized gain (loss) on short-term investments          --           --              --              --

    Other comprehensive income (loss)                           --           --              --              --

  Comprehensive income                                          --           --              --              --

  Exercise of stock options                                   42,235        4,223         256,921            --
  Tax benefit arising from the exercise of
    stock options                                               --           --           132,735            --
  Stock offering, net of expenses                          1,452,500      145,250      35,719,787            --
                                                           ---------     --------     -----------     -----------
BALANCE, JUNE 30, 2000                                     6,485,884     $648,588     $60,678,009     $27,623,632
                                                           =========     ========     ===========     ===========

<CAPTION>

                                                                                 ACCUMULATED
                                                                                    OTHER
                                                                                COMPREHENSIVE   COMPREHENSIVE
                                                                 TREASURY           INCOME         INCOME
                                                                   STOCK            (LOSS)         (LOSS)           TOTAL
<S>                                                             <C>             <C>             <C>             <C>
BALANCE, JULY 1, 1997                                           $(1,037,625)     $  (4,753)                     $ 17,783,690
  Comprehensive income:
    Net income                                                         --             --        $  3,156,974       3,156,974
                                                                                                ------------
    Other comprehensive income:
      Foreign currency translation adjustment                          --             --              (3,254)         (3,254)
      Unrealized gain on short-term investments                        --             --              10,192          10,192
                                                                                                ------------
    Other comprehensive income                                         --            6,938             6,938            --
                                                                                                ------------
  Comprehensive income                                                 --             --        $  3,163,912            --
                                                                                                ============
  Tax benefit arising from the exercise
    of stock options                                                   --             --                              97,702
  Stock offering, net of expenses                                      --             --                          20,381,799
  Exercise of stock options                                            --             --                             164,010
                                                                 ------------      -------                        ----------
BALANCE, JUNE 30, 1998                                           (1,037,625)         2,185                        41,591,113
  Comprehensive income:
    Net income                                                         --             --        $  3,019,553       3,019,553
                                                                                                ------------
    Other comprehensive income:
      Foreign currency translation adjusment                           --             --              20,999          20,999
      Unrealized gain (loss) on short-term investments                 --             --              (8,306)         (8,306)
                                                                                                ------------
    Other comprehensive income                                         --           12,693            12,693            --
                                                                                                ------------
  Comprehensive income                                                 --             --        $  3,032,246            --
                                                                                                ============
  Exercise of stock options                                            --             --                             618,903
  Tax benefit arising from the exercise of
    stock options                                                      --             --                              90,968
                                                                 ------------      -------                     -------------
BALANCE, JUNE 30, 1999                                           (1,037,625)        14,878                        45,333,230
  Comprehensive income:
    Net income                                                         --             --        $  6,335,336       6,335,336
                                                                                                ------------
    Other comprehensive income (loss):
      Foreign currency translation adjusment                           --             --            (136,020)       (136,020)
      Unrealized gain (loss) on short-term investments                 --             --              (1,886)         (1,886)
                                                                                                ------------
    Other comprehensive income (loss)                                  --         (137,906)         (137,906)           --
                                                                                                ------------
  Comprehensive income                                                 --             --        $  6,197,430            --
                                                                                                ============
  Exercise of stock options                                            --             --                             261,144
  Tax benefit arising from the exercise of
    stock options                                                      --             --                             132,735
  Stock offering, net of expenses
                            --             --                          35,865,037
                                                                ------------     ---------                      ------------
BALANCE, JUNE 30, 2000                                          $(1,037,625)     $(123,028)                     $ 87,789,576
                                                                ===========      =========                      ============
</TABLE>

See notes to consolidated financial statements

                                       28

<PAGE>

PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                           2000             1999            1998
<S>                                                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                           $  6,335,336   $  3,019,553   $  3,156,974
                                                                                       ------------   ------------   ------------
  Adjustments to reconcile net income to net cash provided by operating
    activities:
      Depreciation and amortization of property, plant and equipment and other assets     4,757,235      2,943,092      2,426,831
      Gain on sale of investments available for sale                                         (1,886)        (8,306)        (8,133)
      Deferred income taxes                                                                  71,943         93,580         98,640
      Tax benefit arising from the exercise of stock options                                132,735         90,968         97,702
      Minority interest                                                                   1,231,705        697,239        433,110
      Changes in current assets and liabilities:
        Accounts receivable - net                                                        (1,905,970)    (2,529,600)    (2,116,362)
        Inventories                                                                      (7,758,203)    (1,612,413)    (2,084,180)
        Other assets                                                                       (753,118)       399,600     (1,265,878)
        Accounts payable and accrued liabilities                                          2,593,122      1,966,291      1,432,241
                                                                                       ------------   ------------   ------------
           Total adjustments                                                             (1,632,437)     2,040,451       (986,029)
                                                                                       ------------   ------------   ------------
           Net cash provided by operating activities                                      4,702,899      5,060,004      2,170,945
                                                                                       ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Parlex-Dynaflex subsidiary                                                       --       (2,620,000)          --
  Purchase of Poly-Flex subsidiary                                                      (20,682,061)          --             --
  Maturities (purchases) of investments available for sale, net                           1,606,953      5,182,517     (6,771,144)
  Additions to property, plant and equipment                                            (10,386,405)   (12,834,228)    (8,453,294)
                                                                                       ------------   ------------   ------------
           Net cash used for investing activities                                       (29,461,513)   (10,271,711)   (15,224,438)
                                                                                       ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of common shares - net                                      35,865,037           --       20,381,799
  Proceeds from bank loans                                                               30,584,673        600,000      1,000,000
  Payment of bank loans                                                                 (31,042,251)      (676,578)    (3,261,443)
  Exercise of stock options                                                                 261,144        618,903        164,010
                                                                                       ------------   ------------   ------------
           Net cash provided by financing activities                                     35,668,603        542,325     18,284,366
                                                                                       ------------   ------------   ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                    (136,020)        21,038         (3,254)
                                                                                       ------------   ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     10,773,969     (4,648,344)     5,227,619
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                              1,175,889      5,824,233        596,614
                                                                                       ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                                 $ 11,949,858   $  1,175,889   $  5,824,233
                                                                                       ============   ============   ============
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
  Liabilities assumed in acquisitions                                                  $  5,506,000   $    140,000   $       --
                                                                                       ============   ============   ============
  Property, plant and equipment acquired in exchange for accounts receivable and
    inventory                                                                          $       --     $    344,000   $       --
                                                                                       ============   ============   ============
  Property and equipment purchased under capital lease and long-term debt              $     49,500   $    730,080   $    358,930
                                                                                       ============   ============   ============
</TABLE>

See notes to consolidated financial statements.

                                       29

<PAGE>

PARLEX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS - Parlex Corporation ("Parlex" or the "Company") is a world
leader in the design and manufacture of flexible interconnect products. Parlex
produces custom flexible circuits and laminated cables utilizing proprietary
processes and patented technologies which are designed to satisfy the unique
requirements of a wide range of customers. Parlex provides its products and
engineering services to a variety of markets including automotive,
telecommunications and networking, diversified electronics, aerospace and
computer.
         BASIS OF CONSOLIDATION - The consolidated financial statements
include the accounts of Parlex, its wholly owned subsidiaries and its 50.1%
investment in Parlex (Shanghai) Circuit Co., Ltd. ("Parlex Shanghai") (see
Note 3). Parlex Shanghai and the Company's subsidiary, Parlex Asia-Pacific
Limited, are consolidated on a three-month time lag. Intercompany
transactions have been eliminated.
         FOREIGN CURRENCY TRANSLATION - The functional currency of foreign
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet date.
Results of operations are translated at average exchange rates prevailing
during each period.
         CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
short-term highly liquid investments purchased with original maturities of three
months or less.
         SHORT-TERM INVESTMENTS - The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At June 30, 2000 and 1999, the Company had
categorized all securities as "available-for-sale," since the Company may
liquidate these investments currently. In calculating realized gains and losses,
cost is determined using the specific-identification method. SFAS No. 115
requires that unrealized gains and losses on available-for-sale securities be
excluded from earnings and reported in a separate component of stockholders'
equity.
         INVENTORIES - Inventories of raw materials are stated at the lower of
cost, first-in, first-out or market. Work in process represents costs
accumulated under a job-cost accounting system, less the estimated cost of
shipments to date, in the aggregate not in excess of net realizable value. At
June 30, inventories consisted of:

<TABLE>
<CAPTION>

                                                                                     2000               1999
<S>                                                                              <C>                <C>
Raw materials                                                                    $ 8,210,422        $ 3,746,245
Work in process                                                                    9,753,004          6,620,494
Finished goods                                                                     3,896,943            576,718
Reserves for obsolete materials                                                     (711,709)            -
                                                                               -------------        -----------
Total                                                                            $21,148,660        $10,943,457
                                                                               =============        ===========
</TABLE>

                                       30

<PAGE>

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost and are depreciated using the straight-line method over their
estimated useful lives: buildings - 40 years; machinery and equipment - 5-15
years; and leasehold improvements over the terms of the lease. The Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less cost to sell.

         REVENUE RECOGNITION - Product sales are recognized upon shipment.
License fees and royalty income are recognized when earned.
         RESEARCH AND DEVELOPMENT - Research and development costs are expensed
as incurred and amounted to $4,237,000, $3,760,000 and $3,123,000 for the years
ended June 30, 2000, 1999 and 1998, respectively. These amounts are reflected in
the Company's cost of products sold.
         INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." This statement requires an asset
and liability approach to accounting for income taxes based upon the future
expected values of the related assets and liabilities. Deferred income taxes are
provided for items which are recognized in different years for tax and financial
reporting purposes.
         INCOME PER SHARE - Basic income per share is calculated on the
weighted-average number of common shares outstanding during the year. Diluted
income per share is calculated on the weighted-average number of common shares
and common share equivalents resulting from options outstanding except where
such items would be antidilutive.
         A reconciliation between shares used for computation of basic and d
ilutive income per share is as follows:

<TABLE>
<CAPTION>

                                                      2000              1999              1998
<S>                                                <C>               <C>               <C>
Shares for basic computation                       4,842,055         4,661,790         4,295,706
Effect of dilutive stock options                      98,429           109,084           169,821
                                                   ---------         ---------         ---------
Shares for dilutive computation                    4,940,484         4,770,874         4,465,527
                                                   =========         =========         =========

</TABLE>

For the years ended June 30, 2000, 1999 and 1998, potential common shares
are not included in the per-share calculations for those shares that are
antidilutive. Antidilutive potential shares not included in per-share
calculations for 2000, 1999 and 1998 were approximately 65,000, 87,250 and
73,542, respectively.

         USE OF ESTIMATES - The preparation of the Company's consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates. Estimates include reserves for accounts receivable and inventory,
useful lives of property, plant and equipment, goodwill, accrued liabilities,
including health insurance claims, and deferred income taxes. Actual results
could differ from those estimates.
         FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses approximate fair value because
of their short-term nature. The carrying amounts of the Company's debt
instruments approximate fair value because of the relative consistency of
interest rates since its issuance.

                                       31

<PAGE>

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         GOODWILL - Goodwill associated with the allocation of the purchase
price over the fair value of the assets received and liabilities assumed in
connection with the Poly-Flex and Parlex-Dynaflex business acquisitions are
being amortized on a straight-line basis over their expected lives of 10 years.
The Company evaluates the carrying value of goodwill based upon current and
anticipated undiscounted cash flows attributable to discrete operations and
recognizes an impairment when it is probable that such estimated future net
income and/or cash flows will be less than the carrying value of goodwill.
Measurement of the amount of impairment, if any, is based upon the difference
between carrying value and estimated fair value. The accumulated amortization of
goodwill totaled $220,100 and $16,800 at June 30, 2000 and 1999, respectively.
         RECLASSIFICATIONS - Certain prior period amounts have been reclassified
to conform to the current year presentation.
         STOCK-BASED COMPENSATION -The Company accounts for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion No.
25 using the intrinsic-value method as permitted by SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
the recognition of compensation expense for the fair value of stock options and
other equity instruments issued to employees and nonemployee directors. The
difference between accounting for stock-based compensation under APB Opinion No.
25 and SFAS No. 123 is disclosed in Note 9.
         FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS - In June 1998, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The provisions of SFAS No. 133, as amended, are effective for periods beginning
after June 15, 2000. The Company is currently evaluating and has not determined
the effect, if any, SFAS No. 133 will have on the Company's financial position
and its results of operations.
         On December 3, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenues in financial statements filed with the
SEC. The implementation date of SAB No. 101 has been delayed until no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company is currently evaluating and has not determined the effect, if any, SAB
No. 101 will have on the Company's financial position and its results of
operations.

                                       32

<PAGE>

2.    ACQUISITIONS

         POLY-FLEX - On March 1, 2000, pursuant to a Stock Purchase Agreement
(the "Agreement") dated as of January 21, 2000, by and among the Company and
Cookson Group plc and Cookson Investment, Inc. (together, "Cookson"), the
Company completed its acquisition of the stock of two Cookson wholly owned
subsidiaries, Poly-Flex Circuits Limited and Poly-Flex Circuits, Inc.
(collectively, "Poly-Flex"), for $19,650,000 in cash. Costs associated with
the transaction approximated $1,000,000. Under the terms of the Agreement,
the purchase price may be adjusted based upon the earnings, as defined in the
Agreement, of Poly-Flex for the 10 months ending December 31, 2000. In
addition as allowed under the Agreement, Cookson is disputing the Combined
Net asset value, as defined in the Agreement, used to determine purchase
price. Accordingly, the purchase price is subject to adjustment. The
acquisition was recorded under the purchase method of accounting, and
therefore, the purchase price has been allocated to assets acquired and
liabilities assumed based on estimated fair values. A summary of assets and
liabilities acquired, at estimated fair market value, was as follows:

<TABLE>
<CAPTION>

<S>                                                                                <C>
Accounts receivable                                                                $  3,208,000
Inventory                                                                             2,447,000
Prepaid and other assets                                                                436,623
Property, plant and equipment                                                        16,402,438
Goodwill                                                                              3,543,000
Accounts payable and accrued expenses                                                (2,551,000)
Deferred tax liabilities                                                             (2,804,000)
                                                                                   -------------
Net assets of Poly-Flex                                                            $ 20,682,061
                                                                                   =============

</TABLE>

         The results of operations of Poly-Flex are included in the consolidated
results of the Company from the acquisition date.
         The following unaudited pro forma summary presents information as if
Poly-Flex had been acquired as of the beginning of the Company's fiscal years
2000 and 1999. The pro forma amounts include certain adjustments, primarily to
recognize depreciation and amortization based on the preliminary allocation of
purchase price to Poly-Flex's net assets, interest expense associated with the
debt used to acquire Poly-Flex and adjustments for various allocated charges
from Poly-Flex's previous parent. The adjustments do not reflect any benefits
from economies which might be achieved from combining operations. The pro forma
information does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined companies:

<TABLE>
<CAPTION>

                                                       UNAUDITED
                                                2000                1999

<S>                                           <C>             <C>
Revenue                                        $116,908,000   $92,842,000
Income from operations                           10,525,000     6,312,000
Net income                                        5,680,000     3,205,000

Net income per share:
  Basic                                        $       1.17   $      0.69
  Diluted                                              1.15          0.67

Shares used to compute net income per share:
  Basic                                           4,842,000     4,662,000
  Diluted                                         4,940,000     4,771,000

</TABLE>

                                       33

<PAGE>

2.    ACQUISITIONS (CONTINUED)

         PARLEX-DYNAFLEX - On April 30, 1999, the Company established a
wholly owned subsidiary and purchased the assets of Dynaflex, a business
which produces custom flexible circuits. The acquisition has been accounted
for as a purchase business combination, and the results of Parlex-Dynaflex
are included in the consolidated results of the Company since the purchase
date, April 30, 1999. The cost of acquisition was $2,620,000, plus $140,000
of liabilities assumed, and the purchase price has been allocated to acquired
accounts receivable, inventory, property, plant and equipment and accounts
payable. Approximately $1,200,000 has been recorded as goodwill which
reflects the excess of purchase price over the fair value of assets and
liabilities acquired. Goodwill is being amortized on a straight-line basis
over 10 years. The results of operations of Dynaflex were not significant to
the Company in 1999.

3. JOINT VENTURE

         In May 1995, the Company entered into an agreement to establish a
limited liability company in the form of a joint venture in the People's
Republic of China. The Company owns 50.1% of the joint venture. The joint
venture manufactures flexible printed circuits and commenced operations in
September 1995. The joint venture had approximately $800,000 of purchases from a
minority interest partner in the joint venture.

4. CASH AND SHORT-TERM INVESTMENTS

         A summary of the Company's investments available for sale by major
security type at June 30, 1999 is as follows:

<TABLE>
<CAPTION>

                                                                 GROSS        GROSS
                                               AMORTIZED      UNREALIZED    UNREALIZED        FAIR
SECURITY TYPE                                    COST            GAINS        LOSSES          VALUE
<S>                                              <C>             <C>         <C>             <C>
Corporate debt securities                       $1,605,067       $ 1,886     $ -             $1,606,953
                                               ==========        =======       ======         =========

</TABLE>

         All corporate debt securities at June 30, 1999 have contractual
maturities of less than one year. The Company had no investments available for
sale at June 30, 2000.

5.    ACCRUED LIABILITIES

         Accrued liabilities at June 30 consisted of:

<TABLE>
<CAPTION>

                                                      2000           1999
<S>                                                <C>          <C>
Payroll and related expenses                       $2,282,970   $1,360,718
Accrued health insurance                              278,194      182,479
Commissions                                         1,237,371      467,964
Other                                                 801,014      581,494
                                                   ----------   ----------
Total                                              $4,599,549   $2,592,655
                                                   ==========   ==========
</TABLE>

                                       34

<PAGE>

6.    INDEBTEDNESS

         Long-term debt at June 30 consisted of:

<TABLE>
<CAPTION>

                                2000          1999

<S>                          <C>          <C>
Parlex Shanghai term notes   $1,205,533   $  720,000
Capital lease obligations       637,377      930,988
Revolving credit agreement         -         600,000
                             ----------   ----------
Total long-term debt          1,842,910    2,250,988
Less current portion          1,482,524      619,206
                             ----------   ----------
Long-term debt - net         $  360,386   $1,631,782
                             ==========   ==========

</TABLE>

         REVOLVING CREDIT AGREEMENT - On March 1, 2000, the Company renegotiated
its unsecured Revolving Credit Agreement (the "Agreement") (originally dated
June 22, 1994) making available up to a total of $15,000,000 through December
31, 2001. On January 1, 2002, the Agreement converts to a term loan with
principal and interest payments due monthly over a 45-month period to September
30, 2005. At the Company's discretion, borrowings under the Agreement are either
a variable ratio equal to the prime rate (9.50% at June 30, 2000) or a fixed
rate equal to the LIBOR rate plus a margin that varies from 1.5% to 2.0%. The
Agreement carries an annual commitment fee of 1/4% on the average daily unused
portion of the bank's commitment. Interest is payable monthly. At June 30, 2000,
the unused commitment amounted to $15,000,000.
         The Agreement has restrictive covenants related to tangible net worth,
current ratio, working capital, debt service ratio, and the ratio of total
liabilities to equity. The Agreement permits the Company to pay cash dividends
to the extent such payment would not cause the Company to violate the
aforementioned covenants.
         On March 1, 2000, the Company entered into a term loan (the "Term
Loan") agreement with a bank. The Term Loan agreement consisted of a $15,000,000
credit facility, bearing interest at LIBOR base rate plus a margin of 1.5% to
2.0%. The Term Loan was repaid using the proceeds from a common stock offering
(see Note 9), and the Term Loan was cancelled.
         PARLEX SHANGHAI TERM NOTES - Parlex Shanghai entered into a short-term
note bearing interest at 6.44% in November 1999. A minority interest partner in
Parlex Shanghai guarantees the short-term note. Amounts outstanding under this
short-term note total $845,533 and are included within the current portion of
long-term debt on the consolidated balance sheet for the year ended June 30,
2000.
         Parlex Shanghai has an additional term note bearing interest at 6.50%.
A minority interest partner in Parlex Shanghai guarantees the term note. Amounts
outstanding under this term note total $360,000 at June 30, 2000 and are
included within the current portion of long-term debt on the consolidated
balance sheets.
         The Company and an additional Parlex-Shanghai minority interest holder
provide cross guarantees for these term notes in direct proportion to their
respective interests in the Company.

                                       35

<PAGE>

6.    INDEBTEDNESS (CONTINUED)

         The maturities for long-term debt at June 30, 2000 are as follows:

<TABLE>
<CAPTION>

<S>                                          <C>
2001                                         $1,482,524
2002                                            239,643
2003                                            120,743
                                              ---------
                                             $1,842,910
                                              =========
</TABLE>

         Interest paid during the years ended June 30, 2000, 1999 and 1998 was
approximately $887,000, $236,000 and $115,000, respectively.
         Approximately $1,114,500 and $1,065,000 of equipment is recorded under
capital leases at June 30, 2000 and 1999, respectively. Accumulated amortization
on the capital lease equipment approximated $296,000 and $118,000 at June 30,
2000 and 1999, respectively.

7.   OTHER NONCURRENT LIABILITIES

         Other noncurrent liabilities at June 30 consisted of:
<TABLE>
<CAPTION>

                                                           2000              1999
<S>                                                     <C>               <C>
Deferred income taxes (Note 8)                          $4,898,992        $1,503,060
Deferred compensation                                    1,033,939         1,108,882
                                                        -----------        ----------
                                                        $5,932,931        $2,611,942
                                                        ==========         ==========

</TABLE>

         The timing of deferred compensation payments cannot presently be
determined. Amounts, if any, which may be paid within one year are not material.

8.    INCOME TAXES

         The provision for income taxes consisted of:
<TABLE>

<CAPTION>

                                                                  2000         1999            1998
<S>                                                           <C>            <C>          <C>
Current:
  State                                                       $  (215,692)   $(132,271)   $  (172,771)
  Federal                                                      (2,221,631)    (697,590)    (1,268,103)
  Foreign                                                        (396,953)     (40,591)         --
Deferred                                                          (71,943)     (93,580)       (98,640)
                                                                ----------     --------     ----------
Total                                                         $(2,906,219)   $(964,032)   $(1,539,514)
                                                               ===========     ========      ==========
</TABLE>

         Benefits due to research and development and investment tax credits
were not material to the provision for income taxes for each period presented.

                                       36

<PAGE>

8.    INCOME TAXES (CONTINUED)

         A reconciliation of the statutory federal income tax rate to the
effective income tax rate is as follows:

<TABLE>
<CAPTION>

                                                  2000 1999  1998

<S>                                              <C>    <C>   <C>
Statutory federal income tax rate                 34 %  34 %    34 %
State income taxes - net of federal tax benefit    2     1       2
Foreign income - not subject to taxation          (7)   (9)     (5)
Foreign sales corporation                         (2)   (3)     (1)
Tax credits                                       (1)   (1)     (1)
Other                                              2    (1)      1
                                                  --    --      --
Effective income tax rate                         28 %  21 %    30 %
                                                  ==    ==      ==
</TABLE>

      Income before provision for income taxes and minority interest consisted
of:

<TABLE>
<CAPTION>

                                                                 2000               1999              1998
<S>                                                             <C>                 <C>               <C>
Domestic                                                        $   9,327,873       $ 3,150,969       $ 4,169,556
Foreign                                                             1,145,387         1,529,855           960,042
                                                                 ------------       -----------        -----------
Total                                                           $  10,473,260       $ 4,680,824       $ 5,129,598
                                                                 ============       ===========        ===========
</TABLE>

The Company's China joint venture, Parlex Shanghai, was exempt from income
taxes for the two years ended December 31, 1998. For the next three years,
Parlex Shanghai is eligible for a 50% reduction in the statutory income
tax rate of 15%. Accordingly, income tax of 7.5% was recorded for the
three months ended March 31, 1999 and the year ended March 31, 2000. As
disclosed in Note 1, the fiscal year end for Parlex Shanghai is March 31.

         No provision for income taxes has been recorded on undistributed
earnings of Parlex Shanghai (approximately $2,398,000 at March 31, 2000) because
such amounts are considered permanently invested.
         Tax credit carryforwards consist of research and development and
investment tax credits available for state and federal purposes. To the extent
the credits are not currently utilized on the Company's tax returns, deferred
tax assets, subject to the considerations about the need for a valuation
allowance, are recognized for the carryforward amounts. Tax credits, if not
utilized, will expire in the years 2003 through 2020.

                                       37

<PAGE>

8.    INCOME TAXES (CONTINUED)

         Deferred income tax assets and liabilities at June 30 are attributable
to the following:

<TABLE>
<CAPTION>

                                                                                  2000              1999
<S>                                                                              <C>          <C>
Deferred tax liabilities:
  Depreciation                                                                   $5,327,941   $1,919,950
  Prepaid expenses                                                                   62,545       29,394
                                                                                  ---------   ----------
                                                                                  5,390,486   1,949,344
                                                                                  ---------   ----------
Deferred tax assets:
  Inventories                                                                       253,998      80,621
  Allowance for doubtful accounts                                                    85,910      76,849
  Other                                                                               9,993        --
  Accruals                                                                          253,594      168,643
  Self-insurance                                                                    100,000       72,054
  Deferred compensation                                                             464,822      443,227
  Tax credit carryforwards                                                          402,250      163,974
                                                                                  ----------   ---------
                                                                                   1,570,567   1,005,368
                                                                                  ----------   ---------
Net deferred tax liability                                                       $3,819,919   $  943,976
                                                                                  ==========    ========

</TABLE>

         Income tax payments were approximately $2,469,000, $605,000 and
$1,557,000 in 2000, 1999 and 1998, respectively.

9.    STOCKHOLDERS' EQUITY

         PREFERRED STOCK - The Board of Directors is authorized to establish one
or more series of preferred stock and to fix and determine the number and
conditions of preferred shares, including dividend rates, redemption and/or
conversion provisions, if any, preference and voting rights. At June 30, 2000,
the Board of Directors has not authorized any series of preferred stock.
         COMMON STOCK - Subsequent to the Company's year end, the Company's
stockholders approved an increase in the number of authorized shares of the
Company from 10,000,000 to 30,000,000.
         COMMON STOCK OFFERING - In June 2000, the Company sold 1,452,500 shares
of its common stock in an underwritten public offering of which 202,500 shares
were sold pursuant to an underwriters' over-allotment provision. Proceeds to the
Company approximated $35,865,000, net of expenses associated with the offering.
A portion of the proceeds have been used by the Company to repay all the
outstanding indebtedness under the Company's Revolving Credit Agreement and
$15.0 million Term Loan. The remaining balance of the net proceeds are being
used by the Company for general corporate purposes, including working capital.

                                       38

<PAGE>

9.    STOCKHOLDERS' EQUITY (CONTINUED)

         STOCK OPTION PLANS - The Company has incentive and nonqualified stock
option plans covering officers, key employees and nonemployee directors. The
options are generally exercisable commencing one year from the date of grant and
typically expire in either five or ten years, depending on the plan. The option
price for the incentive stock options and for the directors' plan is fair market
value at the date of grant. Nonemployee directors receive an automatic grant of
1,500 options annually. Additionally, grants of up to 2,250 options annually,
per director, may also be made at the discretion of the Board of Directors.
Nonqualified stock options are granted at fair market value or at a price
determined by the Board of Directors, depending on the plan. In certain cases,
the Company may, at the option of the Board of Directors, reimburse the
employees for any tax cost associated with their options.
         At June 30, 2000, there were 381,568 shares reserved for future grants
for all of the above-mentioned plans.
         The following is a summary of activity for all of the Company's stock
option plans:

<TABLE>
<CAPTION>

                                                                       WEIGHTED-
                                                                        AVERAGE
                                                    SHARES             EXERCISE
                                                     UNDER             PRICE PER            SHARES
                                                    OPTION               SHARE           EXERCISABLE
<S>                                                 <C>                <C>               <C>
July 1, 1997                                        291,034            $    4.77            191,085

  Granted                                            95,750                18.50
  Surrendered                                        (1,315)                5.13
  Exercised                                         (51,899)                3.16
                                                   ----------            -------

June 30, 1998                                       333,570                 8.96           199,375

  Granted                                            52,500                12.79
  Surrendered                                        (1,940)               12.49
  Exercised                                        (140,500)                4.41
                                                  -----------            -------

June 30, 1999                                        243,630                12.38          105,244

  Granted                                            167,000                23.79
  Surrendered                                         (5,438)               15.12
  Exercised                                          (42,235)                6.18
                                                   -----------            -------

June 30, 2000                                         362,957           $   11.97         118,832
                                                  ===========           =========
</TABLE>

                                       39

<PAGE>

9.    STOCKHOLDERS' EQUITY (CONTINUED)

         The following table sets forth information regarding options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>

                                           OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                           WEIGHTED-
                                            AVERAGE       WEIGHTED-                     WEIGHTED-
                                           REMAINING       AVERAGE                       AVERAGE
      EXERCISE            NUMBER           CONTRACTUAL    EXERCISE                      EXERCISE
       PRICES           OUTSTANDING        LIFE (YEARS)     PRICE         NUMBER          PRICE


   <S>                  <C>               <C>            <C>            <C>          <C>

   $ 5.67 - $6.67        45,707            3.29          $ 5.89          45,707       $ 5.89
    10.00 - 13.25        64,000            7.60           12.66          28,750        12.03
    15.50 - 16.25        95,000            9.03           16.18           7,500        15.50
    18.75 - 22.00        93,250            7.5            18.97          36,875        18.75
    32.75 - 36.00        65,000            9.69           34.76           -             -
-----------------     --------            ------        --------        -------       -------

  $ 5.67-$36.00         362,957            7.79         $ 18.31         118,832       $ 11.97
================      =========          ======        =========        =======       =======
</TABLE>

         As described in Note 1, the Company uses the intrinsic-value method in
accordance with APB Opinion No. 25 to measure compensation expense associated
with grants of stock options to employees. Had the Company used the fair-value
method to measure compensation, the Company's net income and diluted income per
share would have been $5,439,000 or $1.10 per share in 2000, $2,606,000 or $.55
per share in 1999, and $2,945,000 or $.66 per share in 1998.
         The fair value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model. Key assumptions used to apply this
option-pricing model are as follows:

<TABLE>
<CAPTION>

                                                            2000          1999         1998
<S>                                                        <C>            <C>         <C>
Average risk-free interest rate                             5.6%         5.5%           5.2%
Expected life of option grants                             2.5 years    2.5           2.5 years
Expected volatility of underlying stock                      74%          69%             72%
Expected dividend rate                                       None          None         None
</TABLE>

         The weighted-average fair value of options granted in 2000, 1999 and
1998 was $11.57, $5.76 and $8.34, respectively.
         The option-pricing model was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of 10 years. However, management believes
that the assumptions used and the model applied to value the awards yield a
reasonable estimate of the fair value of the grants made under the
circumstances.

                                       40
<PAGE>

9.       STOCKHOLDERS' EQUITY (CONTINUED)

         ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - The Company reports
comprehensive income (loss) in accordance with the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The components and changes in balances of accumulated other
comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>

                                                     FOREIGN                                ACCUMULATED
                                                     CURRENCY           UNREALIZED             OTHER
                                                   TRANSLATION          GAIN (LOSS) ON     COMPREHENSIVE
                                                   ADJUSTMENTS         INVESTMENTS         INCOME (LOSS)
<S>                                               <C>                  <C>                 <C>
Balance, July 1, 1997                              $ (4,753)            $  -                $ (4,753)

  Change in balance                                  (3,254)            10,192                  6,938
                                                   ---------           ---------              -------

Balance, June 30, 1998                               (8,007)            10,192                  2,185

  Change in balance                                  20,999             (8,306)                12,693
                                                   ---------            -------               --------


Balance, June 30, 1999                              12,992               1,886                 14,878

  Change in balance                               (136,020)             (1,886)              (137,906)
                                                 ----------             -------            -----------


Balance, June 30, 2000                           $(123,028)              $  -               $(123,028)
                                                 ==========             =======             ==========
</TABLE>


      A summary of the changes in unrealized gains in short-term investments is
as follows for the years ended June 30:
<TABLE>
<CAPTION>

                                                                        2000          1999           1998
<S>                                                                    <C>            <C>            <C>
Unrealized gain (loss) on short-term investments:
  Unrealized holding gains arising during the year                      $ -           $ -           $18,325

  Less reclassification adjustment for gains realized
    in net income                                                        (1,886)       (8,306)       (8,133)
                                                                      ---------      --------        -------

Net unrealized gain (loss) on short-term investments                    $(1,886)      $(8,306)      $10,192
                                                                      =========      =========       =======
</TABLE>

                                       41


<PAGE>

10.   BENEFIT PLANS

         The Company has a qualified profit-sharing retirement plan to provide
benefits to eligible employees. Annual contributions to the plan are at the
discretion of the Board of Directors and are discretionary in amounts. No
contributions were made to the plan for the years ended June 30, 2000, 1999 and
1998.
         The Company has a 401(k) Savings Plan (the "Plan") covering all
domestic employees of the Company who have three consecutive months of service
and have attained the age of 21. Matching employer contributions equal 50% of
the first 8% of employee contributions and vest 100% after three complete years
of service. The Company contributed approximately $26,000, $172,000 and $90,000
to the Plan for the years ended June 30, 2000, 1999 and 1998, respectively.

11.   COMMITMENTS AND CONTINGENCIES

         The Company leases certain property and equipment under agreements
generally with initial terms from three to five years with renewal options.
Rental expense for each of the years ended June 30, 2000, 1999 and 1998
approximated $798,000, $869,000 and $742,000, respectively. Future payments
under noncancelable capital and operating leases are:
<TABLE>
<CAPTION>

                                                                                  CAPITAL         OPERATING
                                                                                  LEASES           LEASES
<S>                                                                               <C>              <C>
2001                                                                              $317,682         $ 747,000
2002                                                                               257,356           543,000
2003                                                                               123,697           474,000
2004                                                                                  -              482,000
                                                                                      -              491,000
2005                                                                              --------        ----------


Total minimum lease payments                                                       698,735        $2,737,000
                                                                                                   ==========
Less amounts representing interest                                                 (61,358)
                                                                                  ---------

Present value of net minimum lease payments                                        637,377
Current maturities of capitalized lease obligations                                276,991
                                                                                  ---------

Portion of capitalized lease obligations due after one year                        $360,386
                                                                                   ========
</TABLE>


         From time to time, the Company is subject to various legal proceedings
and claims, either asserted or unasserted, which arise in the ordinary course of
business. While the outcome of these claims cannot be predicted with certainty,
management is not aware of any current legal matters that would have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

12. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL
OPERATIONS

         The Company operates within a single segment of the electronics
industry as a specialist in the interconnection and packaging of electronic
equipment with its product lines of flexible printed circuits, laminated cable
and related assemblies. The Company organizes itself as one segment reporting to
the chief operating decision-maker. Revenue consists of product sales, license
fees and royalty income.

                                     42

<PAGE>

12.   BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS (CONTINUED)

         The concentration of revenues by major customer is as follows:

<TABLE>
<CAPTION>

                                                              2000            1999            1998
<S>                                                           <C>             <C>             <C>
Customer A                                                     10%             15%             23%

Customer B                                                     10%             7%              2%
</TABLE>



Summarized information relating to international operations is as follows:
<TABLE>
<CAPTION>


                                                                              Year Ended June 30,
                                                                2000                1999               1998
<S>                                                             <C>                 <C>                <C>
Revenues:
  United States                                                  $59,001,502        $46,785,650        $48,521,029
  Canada                                                          17,262,614         10,671,000          6,311,000
  China                                                            5,434,875          1,929,250          1,793,030
  Europe                                                          13,186,932          5,016,674          2,390,094
  Other                                                            6,952,821          2,644,709          1,260,018
                                                                 ------------       ------------         ---------

Total revenues                                                   $101,838,744        $67,047,283        $60,275,171
                                                                  ============        ==========         ==========

The principal product group sales were:
  Flexible circuits                                              $80,047,383        $49,625,163        $44,378,680
  Laminated cables                                                19,904,759         16,747,637         15,669,656
                                                                 ------------        -----------        -----------

Product sales                                                    $99,952,142        $66,372,800        $60,048,336
                                                                  ==========         ==========         ===========

Long-lived assets:
  United States                                                  $51,652,326        $31,110,693        $18,843,351
                                                                  ==========         ==========         ==========

  China                                                          $ 3,427,673         $2,356,264         $1,829,306
                                                                   =========          =========          ==========

  Europe                                                         $ 4,134,371            -                  -
                                                                   ==========         ==========         ==========
</TABLE>

                                       43

<PAGE>

13.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

         Summarized quarterly financial data are as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>

                                                   FIRST         SECOND         THIRD         FOURTH
<S>                                                <C>           <C>            <C>           <C>
2000 QUARTERS

Revenues                                            $ 20,366       $ 24,384       $ 25,271      $ 31,818
Gross profit                                           4,702          5,782          6,366         8,375
Net income                                             1,340          1,556          1,704         1,735
Net income per share:
  Basic                                                  .28            .32            .35           .36
  Diluted                                                .28            .32            .34           .34

1999 QUARTERS

Revenues                                            $ 15,492       $ 15,354       $ 16,099      $ 20,102
Gross profit                                           2,441          2,834          3,987         5,001
Net income                                               199            540            944         1,337
Net income per share:
  Basic                                                  .04            .12            .20           .28
  Diluted                                                .04            .11            .20           .28
</TABLE>

                                                        * * * * * *

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

         None.
                                       44

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       The information required by this Item is incorporated by reference from
the information under the captions "Election of Directors", "Board of Directors
Meetings and Committees of the Board", "Executive Officers" and "Security
Ownership of Certain Beneficial Owners and Management" in our definitive proxy
statement to be filed with the Commission within 120 days of June 30, 2000.

ITEM 11.  EXECUTIVE COMPENSATION

       The information required by this Item is incorporated by reference from
the information under the captions "Compensation of Executive Officers" and
"Board of Directors Meetings and Committees of the Board" in our definitive
proxy statement to be filed with the Commission within 120 days of June 30,
2000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The information required by this Item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in our definitive proxy statement to be filed with the
Commission within 120 days of June 30, 2000.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       We retain as our general counsel the law firm of Kutchin & Rufo, P.C. to
perform legal services on our behalf. Payments made by us to Kutchin & Rufo,
P.C. in Fiscal 2000 were approximately $233,000. Edward D. Kutchin is a
shareholder in the professional corporation of Kutchin & Rufo, P.C. and is the
husband of Jill Pollack Kutchin, our Vice President - Corporate Affairs and
Clerk and the son-in-law of Herbert W. Pollack, the Chairman of the Board of
Directors.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

         (a)

         1.  Consolidated Financial Statements

         The Consolidated financial statements are filed as part of this report.

         2. Consolidated Financial Statement Schedules

                                     45

<PAGE>

      The schedule listed below is filed as part of this form 10-K and is set
forth below:
<TABLE>
<CAPTION>

                        VALUATION AND QUALIFYING ACCOUNTS
                   For the Years Ended June 30, 2000 and 1999

      Allowance for           Balance at            Charges to                     Balance at
      Bad Debts               Beginning             Cost and                       End of
                              of Year               Expenses     Deductions        Year
                              ----------            -----------  ----------        ----------
<S>                           <C>                   <C>          <C>               <C>
      June 30, 2000...        $255,000              $649,000     ($500,000)        $404,000
                              =============================================================


      June 30, 1999...        $252,000             $557,000      ($554,000)        $255,000
                              =============================================================
</TABLE>


         All other schedules are omitted because of the absence of conditions
         under which they are required or because the required information is
         included in the Consolidated Financial Statements or notes thereto.

          3.  Exhibits

      See Index to Exhibits on page 48 of this report.

         The exhibits listed below are either filed herewith or incorporated by
reference in this report.

          (b)  Reports on Form 8-K

         On May 12, 2000, we filed a report on Form 8-K reporting under Item 5
         that we had issued a press release dated May 10, 2000, announcing the
         receipt of a purchase order to provide double-sided flexible circuits
         for a high volume cellular phone application and that the award, for
         the initial production, was valued at $6.1 million.


         On May 23, 2000, we filed a report on Form 8-K/A incorporating
         unaudited pro forma combined condensed statements of operations for the
         nine months ended March 26, 2000, and for the year ended June 30, 1999,
         in each case giving retroactive effect to our acquisition of Poly-Flex
         for all periods presented. Also, included in the filing were the
         audited combined financial statements of Poly-Flex Circuits, Inc. and
         Poly-Flex Circuits Limited, for the year ended December 31, 1999.

                                     46
<PAGE>

                                   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, on September 28, 2000.

Parlex Corporation

By   /S/ HERBERT W. POLLACK
     -----------------------------
      Herbert W. Pollack, Chairman

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

            Signature                                   Title                                   Date
            ---------                                   -----                                   ----
<S>                                        <C>                                           <C>
/S/ HERBERT W. POLLACK                     Chairman of the Board                         September 28, 2000
----------------------
Herbert W. Pollack

/S/ PETER J. MURPHY                        Director and Chief Executive                  September 28, 2000
-----------------------                    Officer (Principal Executive
Peter J. Murphy                            Officer)


/S/ ROBERT A. RIETH                        Sr. Vice President and Chief                  September 28, 2000
----------------------                     Financial Officer (Principal
Robert A. Rieth                            Financial and Accounting
                                           Officer)

/S/ SHELDON A. BUCKLER                     Director                                      September 28, 2000
----------------------
Sheldon A. Buckler

/S/ RICHARD W. HALE                        Director                                      September 28, 2000
---------------------
Richard W. Hale

/S/ M. JOEL KOSHEFF                        Director                                      September 28, 2000
------------------------
M. Joel Kosheff

/S/ LESTER POLLACK                         Director                                      September 28, 2000
------------------------
Lester Pollack

/S/ BENJAMIN M. RABINOVICI                 Director                                      September 28, 2000
--------------------------
Benjamin M. Rabinovici

/S/ ROBERT A. RIETH                        Attorney-in-Fact                              September 28, 2000
--------------------------
Robert A. Rieth
</TABLE>

                                       47
<PAGE>

                                  EXHIBIT INDEX

Exhibit
   No.                                      Description
--------                                    -----------

3-A      Restated Articles of Organization as amended (dated August 2, 1983);
         (filed as Exhibits 3-A and 3-B to the Company's Registration Statement
         on Form S-1, file No. 2-85588, and incorporated herein by reference).

3-B      Articles of Amendment to Restated Articles of Organization, dated
         December 1, 1987; (filed as Exhibit 10-Q to Form 10-K for the fiscal
         year ended June 30, 1988).

3-C      Bylaws; (filed as Exhibit 3-C to the Company's Registration Statement
         on Form S-1, file No. 2-85588, and incorporated herein by reference).

3-D      Articles of Amendment to Restated Articles of Organization, dated
         October 21, 1997; (filed as Exhibit 3-D to Form 10-Q for the quarter
         ended December 28, 1997).

10-A     1985 Employees' Nonqualified Stock Option Plan dated December 2, 1985*;
         (filed as Exhibit 10-L to Form 10-K for the fiscal year ended June 30,
         1986).

10-B     Employment Agreement between Parlex Corporation and Mr. Herbert W.
         Pollack, dated May 1, 1986;* (filed as Exhibit 10-M to Form 10-K for
         the fiscal year ended June 30, 1986).

10-C     1989 Outside Directors' Stock Option Plan*; (filed as Exhibit 10-Z to
         Form 10-K for the fiscal year ended June 30, 1991).

10-D     1989 Employees' Stock Option Plan*; (filed as Exhibit 10-AA to Form
         10-K for the fiscal year ended June 30, 1991).

10-E     Chinese Joint Venture Contract, Articles of Association, and Agreement
         of Technology License and Technical Service dated May 29, 1995; (filed
         as Exhibit 10-AH to Form 10-K for the fiscal year ended June 30, 1995).
         Confidential treatment has been granted for portions of this exhibit.

10-F     Manufacturing and Sales Agreement between Samsung Electro Mechanics
         Co., Ltd. and Parlex Corporation dated September 29, 1994; (filed as
         Exhibit 10-AK to Form 10-K for the fiscal year ended June 30, 1995).
         Confidential treatment has been granted for portions of this exhibit.

10-H     License Agreement between Parlex Corporation and Polyclad Laminates,
         Inc., effective June 1, 1996; (filed as Exhibit 10-AN to Form 10-K for
         the fiscal year ended June 30, 1996). Confidential treatment has been
         granted for portions of this exhibit.

10-I     Agreement between Parlex Corporation and Allied Signal Laminate
         Systems, Inc., effective May 5, 1995; (filed as Exhibit 10-AO to Form
         10-K for the fiscal year ended June 30, 1996). Confidential treatment
         has been granted for portions of this exhibit.


<PAGE>

10-J     License Agreement between Parlex Corporation and Pucka Industrial Co.,
         Ltd., effective July 1, 1996; (filed as Exhibit 10-AP to Form 10-K for
         the fiscal year ended June 30, 1996). Confidential treatment has been
         granted for portions of this exhibit.

10-K     Agreement of Lease between PVP-Salem Associates, L.P. and Parlex
         Corporation dated August 12, 1997; (filed as Exhibit 10-L to Form 10-K
         for the fiscal year ended June 30, 1997).

10-L     Employment Agreement between Parlex Corporation and Herbert W. Pollack
         dated July 1, 1997*; (filed as Exhibit 10-M to Form 10-K for the fiscal
         year ended June 30, 1997).

10-M     Patent Assignment Agreement between Parlex Corporation and Polyonics,
         Inc. dated June 16, 1997; (filed as Exhibit 10-N to Form 10-K for the
         fiscal year ended June 30, 1997).

10-N     1996 Outside Directors' Stock Option Plan*; (filed as Exhibit 10-O to
         Form 10-K for the fiscal year ended June 30, 1997).

10-O     Shelter Service Agreement between Parlex Corporation and Offshore
         International Inc. dated March 6, 1998; (filed as Exhibit 10-O to Form
         10-K for the fiscal year ended June 30, 1998).

10-P     Commercial Loan Agreement dated November 12, 1997; (filed as Exhibit
         10-P to Form 10-K for the fiscal year ended June 30, 1998).

10-Q     Amendment to Agreement between Parlex Corporation and Allied Signal
         Laminate Systems, Inc., effective May 5, 1999;(filed as Exhibit 10-Q to
         Form 10-K for the fiscal year ended June 30, 1999).

10-R     Employment Agreement between Parlex Corporation and Peter J. Murphy,
         dated September 1, 1999;(filed as Exhibit 10-R to Form 10-K for the
         fiscal year ended June 30, 1999).

10-S     Loan Agreement dated as of March 1, 2000 between Parlex Corporation and
         Fleet National Bank (filed as Exhibit 10-S to Form 8-K dated March 15,
         2000 and filed with the Securities and Exchange Commission on March 15,
         2000).

10-T     Patent Assignment Agreement between Parlex Corporation and Polyclad
         Laminates, Inc., dated January 20, 2000; filed herewith.

21.1     Subsidiaries of the Registrant; filed herewith.

23.1     Consent of Independent Auditors; filed herewith.

24.1     Powers of Attorney; filed herewith.

27.1     Financial Data Schedule; filed herewith.

*Denotes management contract or compensatory plan or arrangement.