===========================================================================
              UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C.  20549

                   _______________________________________

                                  FORM 10-K

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

                   For the Fiscal Year Ended June 30, 2005

           [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

                   OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the Transition Period from ____ to ____

                       ______________________________

                         Commission File No. 0-12942


                             PARLEX CORPORATION

        Massachusetts                                      04-2464749
 (State or other jurisdiction                           (I.R.S. Employer
      of incorporation)                                Identification No.)

               One Parlex Place, Methuen, Massachusetts  01844
             (Address of Principal Executive Offices, 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    Yes [ ]     No [X]

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    Yes [ ]     No [X]

The aggregate market value of common stock held by non-affiliates (without
admitting that any person whose shares are not included in the calculation
is an affiliate) of the registrant as of December 31, 2004 was
approximately $24,390,683.

The number of shares outstanding of the registrant's common stock as of
September 22, 2005 was 6,488,425 shares.

                     DOCUMENTS INCORPORATED BY REFERENCE

                                    None


<PAGE>


                             INDEX TO FORM 10-K
                   FOR THE FISCAL YEAR ENDED JUNE 30, 2005

                                                                       PAGE

                                   PART 1

ITEM 1.  Business                                                        3

ITEM 2.  Properties                                                     15

ITEM 3.  Legal Proceedings                                              16

ITEM 4.  Submission of Matters to a Vote of Security Holders            16

                                   PART II

ITEM 5.  Market for Registrant's Common Equity and Related
         Stockholder Matters                                            16

ITEM 6.  Selected Consolidated Financial Data                           16

ITEM 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            18

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk     38

ITEM 8.  Financial Statements and Supplementary Data                    39

ITEM 9.  Changes in and Disagreements With Accountants on
         Accounting and Financial Disclosure                            40

ITEM 9A. Controls and Procedures                                        40

ITEM 9B. Other Information                                              40

                                  PART III

ITEM 10. Directors and Executive Officers of the Registrant             41

ITEM 11. Executive Compensation                                         44

ITEM 12. Security Ownership of Certain Beneficial Owners and
         Management and Related Stockholder Matters                     52

ITEM 13. Certain Relationships and Related Transactions                 54

ITEM 14. Principal Accountant Fees and Services                         54

                                   PART IV

ITEM 15. Exhibits and Financial Statement Schedules                     56

         SIGNATURES                                                     57


<PAGE>  2


References in this Annual Report on Form 10-K to "the Company", "we", "us"
or "our" include Parlex Corporation and its consolidated subsidiaries,
unless the context indicates otherwise.

                                   PART I

Item 1. Business
----------------

                                  Overview

We believe that we are a leading provider of flexible interconnect solutions
to the automotive, telecommunications, computer, military, medical, home
appliance, electronic identification and diversified electronics 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 circuit, flexible interconnect hybrid circuits, and
flexible interconnect assemblies.

Our objective is to be a solutions provider 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 optimum solution that
meets the cost and performance requirements of our customers.

We have a long history of providing flexible interconnect solutions to some
of the leading original equipment manufacturers (the "OEMs") in our target
markets, including Hewlett-Packard, Raytheon, Infineon, Motorola, Maytag,
Tyco, Delphi, Siemens, and Whirlpool. We also supply these products to major
electronic manufacturing services companies such as Flextronics, Solectron,
Sanmina, and JABIL. 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 15, Business
Segment, Major Customer and International Operations, to the Notes to
Consolidated Financial Statements incorporated herewith by reference.

Agreement and Plan of Merger

On August 18, 2005, we entered into an Agreement and Plan of Merger ("Merger
Agreement") with Johnson Electric Holdings Limited, a corporation organized
under the laws of Bermuda ("JE Holdings"), J.E.C. Electronics Sub One, Inc.,
a Massachusetts corporation that is wholly-owned by one or more wholly-owned
subsidiaries of JE Holdings ("Merger Sub One") and J.E.C. Electronics Sub
Two, Inc., a Massachusetts corporation that is wholly-owned by Merger Sub One
("Merger Sub Two"). Pursuant to the Merger Agreement, Merger Sub Two will
merge with and into Parlex with Parlex continuing as the surviving
corporation. Pursuant to the Merger Agreement, each outstanding share of our
common stock will be converted into the right to receive $6.75 in cash,
without interest, less any required withholding taxes. Each outstanding
share of Series A Convertible Preferred Stock will be converted into the
right to receive $80.00 (its liquidation value under the terms of the
Preferred Stock) in cash, plus any accrued and unpaid dividends, without
interest or additional dividends thereon, less any required withholding
taxes. Each outstanding option (whether vested or unvested) will be
converted into the right to receive the positive difference (if any)
between the exercise price per share of common stock subject to the option
and $6.75, without interest, less any required withholding taxes. The
consummation of the merger is subject to the approval of our stockholders as
well as customary closing conditions and requires the approval of at least
two-thirds of the outstanding shares of our common stock. The Merger
Agreement contains certain termination rights and provides that, upon the
termination of the Merger Agreement under specified circumstances, we may
be required to pay JE Holdings a termination fee equal to $2,000,000. In
the event the Merger Agreement is terminated for failure to obtain required
stockholder approval, we may be required to pay up to $400,000 of JE
Holdings' expenses. The foregoing description of the Merger Agreement does
not purport to be complete and is qualified in its


<PAGE>  3


entirety by reference to the full text of the Merger Agreement, which we
filed as Exhibit 2.1 to our Form 8-K on August 18, 2005. The Merger
Agreement was amended as of August 24, 2005 to specify that the
"Termination Date" is January 15, 2006.

Industry Background

Over the past two decades, electronic systems have become smaller, lighter
and more complex, while demand for increased performance at lower cost has
increased dramatically. 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 conventional circuits, making flexible
interconnects attractive for use in advanced, high-speed electronics.

Flexible interconnects provide an 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, such as:

*     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 rigid 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 mobile communications devices
including cellular phones, laptop computers 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 on suppliers with global sourcing capabilities. Local
sourcing can help to shorten the manufacturer's supply chain and provide
regionally competitive pricing. Our customers increasingly demand that their
suppliers provide infrastructure for local delivery of engineering,
manufacturing and sales support.


<PAGE>  4


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.

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 competitive cost. 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 multi-layer 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 materials and
manufacturing processes to produce a flexible interconnect solution that
meets our customer's objectives. We have developed materials and processes
that provide customers with improved performance at a competitive 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 one of the few volume manufacturers 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 ability 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 highly reliable and improve product
performance. Our PALFlex(R), PALCoat(R), U-Flex(R), PALCore(R) HP,
Polysolder(R) and additive print and plate technologies are examples of some
of our innovative materials and manufacturing processes.


<PAGE>  5


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 1 to 24
layers, laminated cable, flexible interconnect hybrid circuits, flexible
interconnect assemblies and, surface mount assembly capabilities. We offer
products using a variety of materials, including adhesiveless and adhesive-
based polyimide, polyester, and polymer thick film technologies. We believe
this wide product range enables us to remain the flexible interconnect
solution provider of choice to customers even when their functional
requirements change.

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(R), PALCore(R), PALCore(R) HP, PALCoat(R), Polysolder(R)
and HSI+? with the knowledge that successful development would result in
immediate market acceptance.

Diversify Customer Base across Specific Target Markets

We seek to serve a variety of markets to help mitigate the effects of
economic cycles in any one industry. We believe our diversification among the
major segments of the electronics industry provides greater insight into
emerging technological requirements. For example, we applied our proprietary
knowledge of shielding and impedance control which was developed for the
laptop computer market 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 both the east and west coasts of North
America. We established a presence in China to address the emerging flexible
circuit market throughout Asia and to produce specific products more cost-
effectively for North American and European customers. Asia continues to be
the fastest growing market for electronic manufacturing. Over the past 9
years, we have significantly expanded our China operations. We currently have
approximately 170,000 square feet of manufacturing and assembly space under
lease in Shanghai, Qingpu and Kunshan. In May 1998, we opened a facility in
Mexico that performs the finishing and, in some instances, assembly
operations for flexible interconnects manufactured at our other facilities
and shipped to North American markets. In 1999, we purchased a business in
San Jose, California to produce low to medium volumes of flexible circuits
and provide our customers with quick-turn and prototyping services. 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. In March 2000, we acquired the polymer thick film
operations of Cookson Electronics with manufacturing facilities in Rhode
Island and the United Kingdom. We believe these transactions have positioned
us to further expand our sales presence in Asia and Europe. We will continue
to explore appropriate expansion opportunities as demand for our solutions
increases.

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. See "Factors That May Affect Future Results"
within Item 7 of the "Management Discussion and Analysis of Financial
Condition and Results of Operations" section of this document for a
discussion of the inherent risks associated with our international
operations.


<PAGE>  6


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:

Telecommunications and Networking

The telecommunications and networking market includes infrastructure
equipment and subscriber equipment sub-markets. Infrastructure equipment
consists of support electronics for the distribution of voice and data
transmission. 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, increased functionality and the need to reduce
weight have dramatically driven the demand for flexible interconnects in this
sub-market. Laminated cable and single and double-sided flexible circuits are
generally used in subscriber equipment. Recent design changes to incorporate
cell phone antennas within the cellular device has opened a rapidly growing
market opportunity for Parlex.

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 personal computers, notebook displays, personal digital
assistants, mass storage devices and peripheral equipment such as scanners,
printers and docking stations. Parlex has secured a strong presence in the
printer market for circuits that employ our proprietary polysolder assembly
technology.

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, intelligent airbag deployment systems, 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.

Military

Military electronics were at one time the primary applications for flexible
circuitry. Because of product complexity and space restrictions, military
applications often require multi-layer rigid-flexible circuits. Typical
applications are navigation systems, flight controls, displays,
communications equipment and smart munitions. We believe that procurement of
flexible interconnects in this market will experience growth. We believe that
the trend toward "smart" military systems will drive demand for flexible
interconnects in this segment.

Home Appliance

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. Our
primary application today is the dishwasher market but we have recently
secured new business for the range and laundry markets.

Electronic Identification / Joint Venture with Infineon Technologies

The emerging identification and tracking market is based upon next generation
identification tags, which in some cases are attached to an antenna, emitting
radio frequency signals. Advancing technology at lower prices, increasing
cooperation among industry participants and high volume applications such as
automated fuel


<PAGE>  7


payment, ATM and credit cards, electronic ticketing, baggage handling and
parcel tracking are expected to be the growth drivers for this market. The
size, cost and performance requirements demanded by this market are expected
to drive the use of flexible circuits and assemblies in these applications.
In 2002, we entered into a multiyear agreement to provide substrates for
Infineon Technologies, the world's leading producer of smart cards, utilizing
our proprietary technology. In 2004, we entered into an agreement with an
affiliate of Infineon to create a join venture relationship with respect to
our provision of substrates to Infineon.

Diversified Electronics

The diversified electronics market encompasses many applications. Virtually
any electronic device which requires tight packaging, lightweight or high
reliability is a product that could incorporate flexible interconnects.
Typical applications include electronic scales, industrial controls, postal
metering devices/scanners and camera products.

Medical

Healthcare continues to be a rapidly growing market, particularly in North
America. Electronics have become increasingly important with trends toward
increased computing power and smaller size electronic components resulting in
medical devices that are smaller, mechanically simpler and more reliable.
Medical device companies often rely heavily on design and manufacturing
services of local manufacturing solutions providers in an effort to lower
costs, focus on core competencies and speed FDA regulatory approvals. In
addition, Parlex is uniquely positioned with proprietary technologies to
address the disposable diagnostic segment of the medical market. In fiscal
year 2005, our sales to the medical market grew by more than 24% and it now
represents our second largest market.

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 the most
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+?, 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 Shanghai, China, where a large
      percentage of our production is 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. While most
      double sided circuits are produced on polyimide film, Parlex is unique
      in offering lower cost PET (polyester) material as an alternative.


<PAGE>  8


*     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 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, provides 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 95% of the laminated cable that
we produce is insulated with polyester material, which meets or exceeds our
customers performance requirements and cost parameters. 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(R), 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(R) 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
high volume surface mount assembly. We attach surface mount components to
both copper and polymer thick film circuits with either solder paste or our
patented Polysolder(R) lead-free conductive adhesive. We can place a full
range of electronic devices, from passive components to computing devices, on
our flexible interconnects. We believe we are one of a limited number of
manufacturers who provide a seamless integration from design and initial
prototype through high volume circuit manufacturing and value added assembly.
We further believe our value added capabilities, including the use of
proprietary technologies, to be a significant differentiation versus our
competitors.

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

Flexible Circuits
-----------------
Single-Sided                           Automotive Displays
                                       Batteries for Cellular Phones
                                       Printers


<PAGE>  9


                                       Personal Digital Assistants
                                       Data Storage
                                       Cell Phone Antennas

Double-Sided                           Engine Control Units
                                       Laptop Computers
                                       Cellular Phones Engine Sensors
                                       Smart Cards

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 (RFID)

Laminated Cable                        Postage Meters
---------------                        Automotive Sound Systems
                                       Notebook Computers
                                       Industrial Controls
                                       Electronic Scanning Devices
                                       Touch Screen Displays

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
                                       Personal Computers

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:

PALCore(R) HP - PALCore(R) 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
received patents on our latest, more flexible version of PALCore(R) HP, which
entered production in January 2000.

Polysolder(R) - Polysolder(R) 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(R) has been used in
the production of polymer thick film flexible circuit assemblies for several
years. We plan to apply the Polysolder(R) process to etched


<PAGE>  10


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.

Electronic Identification Flip Chip Attachment Process - We have developed a
low-cost process that we believe will be an enabling technology in the
electronic identification 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.

Print - Plate - Through a joint development project with Nashua Corporation,
we have developed a method of printing circuit patterns using a proprietary
silver conductive ink on high-speed commercial printing presses. A
proprietary copper plating on the circuit patterns follows this process. This
technology dramatically reduces the cost of flexible circuits for certain
applications. We began marketing this technology to our customers in late
fiscal 2004 and will commence volume production in early fiscal 2005. Initial
target markets are cell phone antennas, automotive interiors and RFID
antennas.

Our Customers

Our customers are a diverse group of OEMs that serve a variety of industries.
Our largest 20 customers based on sales accounted for approximately 61% of
total revenues in 2005, 52% in 2004 and 50% in 2003.

The loss of more than one of our largest customers may have a significant
impact on our operations. However, the loss of any one customer is not
expected to have a significant impact on our business as the individual
receivable balances are closely monitored. In 2005, we had one customer that
represented more than 10% of our total revenues and no single customer
represented 10% or more of our total revenues in 2004 or 2003.

Our major end-customers include: Delphi, Hewlett-Packard, NeuroMetrix,
Whirlpool, Infineon, Maytag, Motorola, Tyco, Raytheon, Siemens, Amphenol,
Hypoguard, Intier and AVX. To support these end customers, we work closely
with major electronics manufacturing services (EMS) companies such as
Flextronics, Solectron, Sanmina, JABIL and Celestica.

Sales and Customer Service

Our sales and marketing organization is structured to support a very
geographically dispersed customer base. Our corporate sales organization is
regionally focused and provides local support to the various customer
engineering, procurement, and operations teams. We believe that a regionally-
based sales organization improves program support throughout the entire
product life cycle. Our regional sales teams are responsible for marketing
and selling the entire Parlex product offering to existing and potential
customers within their territories. These regional organizations include
direct sales engineers and independent manufacturers' representatives. Parlex
currently has sales or engineering support offices in eight locations in the
United States, two locations in Europe and three locations in Asia.

Complementing the sales force are robust product line organizations within
each of the manufacturing operations. Led by a product line manager, this
group provides technical marketing, research and development input, and
sustaining customer support for our customer base on a worldwide basis.

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:


<PAGE>  11


                                Polymer Thick Film
Etched Flexible Circuit          Flexible Circuit             Laminated Cable
-----------------------         ------------------            ---------------

       Drilling             Convert/Condition Substrate         Lamination
       Plating                     Screen Print                  Slitting
    Photo Imaging                     Diecut                 Conductor Forming
       Etching                  Conductive Adhesive          Injection Molding
      Lamination         Surface Mount/Flip Chip Assembly        Shielding
  Electrical Testing            Electrical Testing             Laser Skiving
       Assembly                                                  Assembly

During 2005, 2004 and 2003, we continued to focus on cost reduction
initiatives. Core to this strategy is relocation of high-volume low-cost
manufacturing to China and Mexico and better utilization of our excess
capacity. In January 2003, we completed the closure of our Salem, New
Hampshire facility and transfer of our laminated cable business to Methuen,
Massachusetts and Mexico. In February 2003, we completed the transfer of our
PALFlex manufacturing business to China and discontinued production in the
U.S. In 2003, we also expanded our China facilities by leasing an additional
12,000 square feet of manufacturing space in Suzhou and an additional 50,000
square feet of assembly and finishing space in Kunshan. In January 2004, we
completed a strategic reorganization of our China facilities by consolidating
our engineering intensive wet process operations in our two Shanghai
locations and relocating our assembly and finishing operations to lower cost
facilities in Kunshan. Kunshan is approximately 45 miles from our Shanghai
location. We added a third 25,000 square foot building bringing our total
Kunshan space under lease to 75,000. In May 2004, we completed the transfer
of our high volume surface mount assembly capability to China and we also
relocated our Smart Card production line to our main facility in Shanghai,
exiting our Suzhou leased space. In November 2004, we expanded our China
operations by leasing 90,000 square feet of manufacturing and assembly space
in Qingpu, China. This space is primarily targeted to support our rapidly
growing assembly business.

Five of our manufacturing facilities are certified to the international
standard ISO 9001-2000 or to the automotive standard QS 9000. One facility is
certified to the automotive standard TS 16949 and the environmental standard
ISO 14001.

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. In addition to competing with industry peers who produce flexible
circuitry (etched), laminated cable, and polymer think film products, we also
compete with alternative technology leaders in the rigid printed circuit,
wire harness and cable, and connector industries. 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, and believe that our competitive strength
is in our ability to apply technology to reduce cost and/or increase
functionality. We


<PAGE>  12


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. Our ability
to develop alternative material and process solutions continues to reduce the
inherent cost advantage rigid printed circuit manufacturing has held.

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 17 patents issued, and have 7 patent applications pending, in the
United States and several foreign countries. We have obtained federal
trademark registrations for PALFlex(R), PALCore(R), U-Flex(R), PALCoat(R),
Polysolder(R), and HSI 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.

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 2005. We estimate
that the total capital expenditures in 2006 associated with environmental
compliance will be approximately $100,000.

Employees

As of June 30, 2005, we employed approximately 590 people in the United
States. Of these employees, 496 were direct employees of Parlex and 94 worked
for interim staffing agencies. In addition, we employed approximately 79
people in Mexico, approximately 146 people in the United Kingdom and
approximately 1,701 people in China. We are not a party to any collective
bargaining agreement and we believe our relations with our employees are
good.

Available Information

Our Internet website is www.parlex.com. Information contained in our
website is not incorporated by reference into this annual report, and you
should not consider information contained in our website as part of this
annual report. You may access, free of change, our annual reports on Form
10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, plus
amendments to such reports as filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, through the
Investor Relations portion of our website as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission.


<PAGE>  13


Information relating to corporate governance at Parlex, including our
Corporate Governance Principles; Code of Ethics for our Directors and
Executive Officers; as well as other information concerning our Directors,
Executive Officers and Board Committees, including committee charters, is
available at www.parlex.com in the Corporate Governance section located
through the Investor Relations portion of our website.  In the event we
amend, or provide any waivers from, the provisions of this code of conduct,
we intend to disclose these events on our website as required by law. We
will provide any of the foregoing information without charge upon written
request to Investor Relations, Parlex Corporation, One Parlex Place,
Methuen, Massachusetts 01844.


<PAGE>  14


Item 2. Properties
------------------

Facilities

Our facilities at June 30, 2005 are:

<TABLE>
<CAPTION>
                            Approximate
Location                    Square Feet         Leased/Owned                   Description
--------                    -----------         ------------                   -----------


                           <c>          <c>                        <c>
Methuen, Massachusetts        172,000      Leased (lease expires      Corporate headquarters, product
                                           in June 2018)              and process development,
                                                                      flexible circuit and laminated
                                                                      cable manufacturing

Cranston, Rhode Island         55,000      Leased (lease expires      Polymer thick film and surface
                                           in June 2008)              mount assembly operations

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

Shanghai, China                47,000      Leased (lease expires      Single- and double-sided
                                           in August 2007)            flexible circuit manufacturing

Shanghai, China                55,000      Leased (lease expires      Single- and double-sided
                                           in August 2007)            flexible circuit manufacturing

Kunshan, China                 25,000      Leased (lease expires      Flexible circuit assembly
                                           in February 2008)          and finishing

Kunshan, China                 25,000      Leased (lease expires      Flexible circuit assembly
                                           in June 2008)              and finishing

Kunshan, China                 25,000      Leased (lease expires      Flexible circuit assembly
                                           in December 2009)          and finishing

Empalme, Sonora, Mexico        18,700      Leased (lease expires      Finishing and assembly operations
                                           in December 2005)

San Jose, California           16,800      Leased (lease expires      Prototype and quick-turn operations
                                           in December 2008)

Qingpu, China                  90,000      Leased (lease expires      Flexible circuit assembly
                                           in October 2007)           and finishing
</TABLE>

Our facilities are well maintained and suitable for the operations conducted.
We believe that the space available at our facilities is adequate to meet our
current needs.

In December 2001, one of our subsidiaries, Parlex (Shanghai) Interconnect
Products Co., Ltd. ("Parlex Interconnect"), purchased land use rights for a
parcel of land located in the People's Republic of China. The purchase price
of the land use rights was approximately $1.1 million. In July 2003, Parlex
Interconnect sold its land use rights for approximately $1.2 million.


<PAGE>  15


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.

                                   PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

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 closing sale prices for our common stock as reported on the NASDAQ
National Market.

<TABLE>
<CAPTION>
                                                          High       Low
                                                          ----       ---


                                                      <c>        <c>
Fiscal Year Ended June 30, 2005
First Quarter                                            $6.70      $5.32
Second Quarter                                           $7.90      $4.75
Third Quarter                                            $7.80      $6.07
Fourth Quarter                                           $6.35      $5.02

Fiscal Year Ended June 30, 2004
First Quarter                                            $8.63      $6.79
Second Quarter                                           $8.92      $7.62
Third Quarter                                            $9.01      $5.81
Fourth Quarter                                           $7.12      $5.98
</TABLE>

On September 22, 2005, the closing sale price of our common stock as reported
on the NASDAQ National Market was $6.67 per share and there were 80 holders
of record of our common stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we
presently intend to retain future earnings, if any, for our business. Both
our credit agreement and the Merger Agreement prohibit us from paying or
declaring any cash dividends on our common stock without the prior written
consent of the bank or JE Holdings.

Item 6. Selected Consolidated Financial Data
--------------------------------------------

The following table sets forth financial data for the last five years. This
selected financial data should be read in conjunction with the Consolidated
Financial Statements and related notes and other financial data included
elsewhere herein.

On June 30, 2005, we committed to sell certain productive assets and backlog
relating to our multi-layer flex-circuit military / aerospace / industrial
operation. In accordance with generally accepted accounting principles,


<PAGE>  16


the consolidated statements of operations for all periods reported in the
"Selected Consolidated Financial Data" have been restated to reflect the
Multilayer operation as discontinued operations.

<TABLE>
<CAPTION>
                                                              Fiscal Year Ended June 30,
                                              2005         2004         2003         2002         2001
                                              ----         ----         ----         ----         ----
                                                        (in thousands, except per share data)


                                         <c>          <c>          <c>          <c>          <c>
Consolidated Statements of Operations Data:
Revenues                                    $105,857     $ 83,482     $ 64,160     $ 55,987     $ 66,837
Cost of products sold                         86,878       67,079       55,781       53,140       58,468
                                            --------     --------     --------     --------     --------
Gross profit                                  18,979       16,403        8,379        2,847        8,369
Selling, general and administrative
 expenses                                     16,369       14,220       13,104       12,430       15,126
                                            --------     --------     --------     --------     --------

Operating income (loss) from continuing
 operations                                    2,610        2,183       (4,725)      (9,583)      (6,757)
Loss from continuing operations before
 income taxes and minority interest             (556)        (307)      (5,590)     (10,021)      (6,709)
                                            --------     --------     --------     --------     --------
Loss from continuing operations                 (843)        (428)     (12,164)      (5,796)      (3,397)
Loss from discontinued operations, net
 of income taxes                             (10,717)      (7,738)      (7,353)      (4,592)      (2,802)
                                            --------     --------     --------     --------     --------
Net loss                                    $(11,560)    $ (8,166)    $(19,517)    $(10,388)    $ (6,199)
                                            ========     ========     ========     ========     ========
Net loss attributable to common
 stockholders                               $(11,828)    $ (8,337)    $(19,517)    $(10,388)    $ (6,199)
                                            ========     ========     ========     ========     ========

Basic and diluted net loss per share
 attributable to common stockholders:
Loss from continuing operations             $  (0.17)    $  (0.09)    $  (1.93)    $  (0.92)    $  (0.54)
Loss from discontinued operations              (1.66)       (1.22)       (1.16)       (0.73)       (0.45)
                                            --------     --------     --------     --------     --------
Net loss per share attributable to
 common stockholders                        $  (1.83)    $  (1.31)    $  (3.09)    $  (1.65)    $  (0.99)
                                            ========     ========     ========     ========     ========

Weighted average shares outstanding:
Basic and diluted                              6,455        6,370        6,309        6,303        6,289
</TABLE>

<TABLE>
<CAPTION>
                                                              Fiscal Year Ended June 30,
                                              2005         2004         2003         2002         2001
                                              ----         ----         ----         ----         ----
                                                                   (in thousands)


                                         <c>          <c>          <c>          <c>          <c>
Consolidated Balance Sheet Data:
Working capital                             $ 12,310     $ 13,100     $ 12,722     $ 22,320     $ 31,016
Total assets                                  93,639       95,250       86,033      106,054      110,864
Current portion of long-term debt             17,132       12,861        3,813        3,561       10,710
Long-term debt, less current portion          13,523       10,535       10,802       12,000          119
Stockholders' equity                          37,983       49,462       51,248       70,141       81,351
</TABLE>


<PAGE>  17


Item 7. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------------
        Results of Operations
        ---------------------

The Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Consolidated Financial
Statements and related notes and other financial data included elsewhere in
this Annual Report on Form 10-K and with the discussion of the risks and
uncertainties described under the heading "Factors That May Affect Future
Results" on page 30.

Effects of Merger

The proposed merger between Parlex and Johnson Electric Holdings
Limited, described in Note 19, Subsequent Events, in our Notes to the
Consolidated Financial Statements of the 2005 Annual Report and
incorporated herein by reference, if completed, will have material effects
on the forward-looking statements contained in this report. Investors are
advised that such forward-looking statements with respect to revenues,
earnings, performance, strategies, prospects, and other aspects of the
Company's business are discussed in the proxy statement filed with the
Securities and Exchange Commission ("SEC"). Investors are urged to read the
proxy statement and any other relevant documents filed with the SEC because
they will contain important information about the proposed transaction.

Overview

We believe we are a leading supplier of flexible interconnects principally
for sale to the automotive, telecommunications and networking, diversified
electronics, military, home appliance, electronic identification medical 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 $8.2
million in property and equipment and approximately $17.6 million in research
and development to develop materials and enhance our manufacturing processes.
We believe that these expenditures will help us to meet 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.

Since 2001, we have been adversely affected by the economic downturn and its
impact on our key customers and markets. Several of these markets including
in particular, telecom infrastructure have not materially improved. In 2005
and 2004, however, we experienced sales growth in several other strategic
markets, most notably the medical, appliance and military markets.
Significant investment over the past three years has positioned us to
capitalize on a rapidly expanding China electronic manufacturing industry. In
2005 our China operations revenues increased by over 46% with associated
improvement in profitability. We have also expanded our production capacity
in China by more than doubling our manufacturing space over the past three
years.

Over the last three years we incurred losses from continuing operations of
$6.5 million and have used cash to fund operations and working capital of
$12.1 million. We have taken certain steps to improve operating margins,
including the closure of facilities, downsizing of our North American
employee base, and transfer of our manufacturing operations to lower cost
locations, such as the People's Republic of China. In addition, we have
worked closely with our lenders to manage through this difficult time and
have obtained additional capital in each of the last three years through
sale-leasebacks of selected corporate assets, the issuance of convertible
debt and preferred stock and the execution of new working capital borrowing
agreements. As a result of the difficult economic environment, we have had
difficulty maintaining compliance with the terms and conditions of certain of
our financing facilities in prior years and throughout 2005. At June 30,
2005, however, we were in compliance with all financial covenants. Based upon
our recent improvement in financial performance, we are currently, and expect
to remain, in compliance with all of our financial covenants.

We have $10.7 million in existing short-term debt associated with our Chinese
operations that we expect to refinance or repay in 2006. In the event the
proposed merger agreement is not consumated, we believe that we will be
able to obtain the necessary refinancing of this debt because of our
history of successfully refinancing our short-term Chinese borrowings and our
rapidly improving Chinese operating results. In fiscal 2005, revenues from
our Chinese operations grew 46%. We expect similar


<PAGE>  18


revenue growth and improved profitability in China during fiscal 2006.
Failure to obtain such financing may have a material adverse impact on our
operations.

We formed a Chinese joint venture, Parlex (Shanghai) Circuit Co., Ltd
("Parlex Shanghai"), in 1995 to better serve our customers that have
production facilities in Asia and to more cost-effectively manufacture
products for worldwide distribution. Effective October 22, 2001, we purchased
the 40% share of Parlex Shanghai held by one of our joint venture partners,
increasing our equity interest in Parlex Shanghai to 90.1%. Parlex Shanghai's
results of operations, cash flows and financial position are included in our
consolidated financial statements. In 2003 we completed the transfer of the
production of our automotive related products utilizing our PALFlex(R)
technology from our Methuen, Massachusetts facility to Parlex Interconnect, a
wholly-owned subsidiary of Parlex Asia Pacific Limited ("Parlex Asia"), which
is located in China. The transfer of this technology and manufacturing
capability was critical to exiting a very unprofitable North American
manufacturing business.

On August 18, 2005, we entered into a definitive agreement to sell certain
assets of our Multilayer operation to Amphenol Corporation (See Note 3,
Discontinued Operations, to the Notes to Consolidated Financial Statements).
Our Multilayer operation has incurred losses since the collapse of the
telecom infrastructure market in 2001. Over the past three years, we have
attempted to replace this lost business primarily by targeting military and
aerospace markets requiring North American manufacturing. Our strategy has
sought to consolidate a highly fragmented market through focused sales
activities and acquisition. Though we have had some success increasing
revenues during the past three years, we have been unable to obtain enough
manufacturing volume to offset our excess capacity and corresponding
unabsorbed fixed costs. In March of 2005, we began exploring alternatives
including possible sale of the Multilayer operation. We believe the sale of
the Multilayer operation at this time will allow us to return to profitability
more quickly and permit management to focus its attention on more rapidly
growing portions of our business. In June 2005, we committed to a plan to sell
our Multilayer operation. In accordance with generally accepted accounting
principles, the consolidated statements of operations for periods reported in
this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" have been adjusted to reflect this business as discontinued
operations.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that are, in management's view, most important to the
portrayal of the company's financial condition and results of operations
and most demanding of their judgment. We believe the following policies to
be critical to an understanding of our consolidated financial statements
and the uncertainties associated with the complex judgments made by us that
could impact our results of operations, financial position and cash flows.
Our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements for the year ended June 30, 2005
included in Item 8 of this Form 10-K and in Part IV, Item 15 "Exhibits
and Financial Statement Schedules".

The preparation of consolidated financial statements requires that we make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures. On an ongoing
basis, we evaluate our estimates, including those related to bad debts,
inventories, property, plant and equipment, goodwill and other intangible
assets, valuation of stock options and warrants, income taxes and other
accrued expenses, including self-insured health insurance claims. We base
our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. In
applying our accounting policies, our management uses its best judgment to
determine the appropriate assumptions to be used in the determination of
certain estimates. Actual results would differ from these estimates.

Revenue recognition and accounts receivable. We recognize revenue on product
sales when persuasive evidence of an agreement exists, the price is fixed and
determinable, delivery has occurred and there is reasonable assurance of
collection of the sales proceeds. We generally obtain written purchase
authorizations from our customers for a specified amount of product, at a
specified price and consider delivery to have occurred at the time title to
the product passes to the customer. Title passes to the customer according to
the


<PAGE>  19


shipping terms negotiated between the customer and us. License fees and
royalty income are recognized when earned. We have demonstrated the ability
to make reasonable and reliable estimates of product returns in accordance
with SFAS No. 48, "Revenue Recognition When Right of Return Exists", and of
allowances for doubtful accounts based on significant historical experience.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

Inventories. We value our raw material inventory at the lower of the actual
cost to purchase and/or manufacture the inventory or the current estimated
market value of the inventory. Work in process and finished goods are valued
as a percentage of completed cost, not in excess of net realizable value. We
regularly review our inventory and record a provision for excess or obsolete
inventory based primarily on our estimate of expected and future product
demand. Our estimates of future product demand will differ from actual demand
and, as such, our estimate of the provision required for excess and obsolete
inventory will change, which we will record in the period such determination
was made. Raw material, work in process and finished goods inventory
associated with programs cancelled by customers are fully reserved for as
obsolete. Reductions in obsolescence reserves are recognized when realized
through disposal of reserved items, either through sale or scrapping.

Impairment of Long-lived Assets. In accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," we review the carrying
value of long-lived assets when circumstances dictate that they should be
reevaluated, based upon the expected future operating cash flows of our
business. These future cash flow estimates are based on historical results,
adjusted to reflect our best estimate of future markets and operating
conditions, and are continuously reviewed based on actual operating trends.
Historically, actual results have differed, sometimes materially, from our
estimated future cash flow estimates. In the future, actual results may
differ materially from these estimates, and accordingly cause a full
impairment of our long-lived assets.

Goodwill. We recorded goodwill in connection with our acquisition of a 40%
interest in Parlex Shanghai and our 1999 acquisition of Parlex Dynaflex
Corporation ("Dynaflex"). We account for goodwill under the provisions of
SFAS No.142, "Goodwill and Other Intangible Assets". Under the provisions
of SFAS No. 142, if an intangible asset is determined to have an indefinite
useful life, it shall not be amortized until its useful life is determined
to be no longer indefinite. An intangible asset that is not subject to
amortization shall be tested for impairment annually or more frequently if
events or changes in circumstances indicate that the asset might be
impaired. Goodwill is not amortized but is tested for impairment, for each
reporting unit, on an annual basis and between annual tests in certain
circumstances. In accordance with the guidelines in SFAS No. 142, we
determined we have one reporting unit. We evaluate goodwill for impairment
by comparing our market capitalization, as adjusted for a control premium,
to our recorded net asset value. If our market capitalization, as adjusted
for a control premium, is less than our recorded net asset value, we will
further evaluate the implied fair value of our goodwill with the carrying
amount of the goodwill, as required by SFAS No. 142, and we will record an
impairment charge against the goodwill, if required, in our results of
operations in the period such determination was made. Since our market
capitalization, as adjusted, exceeded our recorded net asset value upon
adoption of SFAS No. 142 and at the subsequent annual impairment analysis
dates, we have concluded that no impairment adjustments were required at
the time of adoption or at the annual impairment analysis date. The
carrying value of the goodwill was $1,157,510 at June 30, 2005 and 2004.

Income Taxes. We determine if our deferred tax assets and liabilities are
realizable on an ongoing basis by assessing our valuation allowance and by
adjusting the amount of such allowance, as necessary. In the determination of
the valuation allowance, we have considered future taxable income and the
feasibility of tax planning initiatives. Should we determine that it is more
likely than not that we will realize certain of our net deferred tax assets
for which we previously provided a valuation allowance, an adjustment would
be required to reduce the existing valuation allowance. In addition, we
operate within multiple taxing jurisdictions and are subject to audit in
these jurisdictions. These audits can involve complex issues, which may
require an extended period of time for resolution. Although we believe that
we have adequately considered such issues, there is the possibility that the
ultimate resolution of such issues could have an adverse effect on the
results of our operations.


<PAGE>  20


Off-Balance Sheet Arrangements. We have not created, and are not party to,
any special-purpose or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating parts of our business that are not
consolidated into our financial statements. We do not have any arrangements
or relationships with entities that are not consolidated into our financial
statements that are reasonably likely to materially affect our liquidity or
the availability of capital resources, except as may be set forth below
under "Liquidity and Capital Resources." Our obligations under operating
leases are disclosed in the notes to our financial statements.

Results of Operations

The following table sets forth, for the periods indicated, selected items in
our statements of operations expressed 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 included elsewhere in
this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                             2005        2004        2003
                                                             ----        ----        ----


                                                         <c>         <c>         <c>
Revenues                                                    100.0%      100.0%      100.0%
Cost of products sold                                        82.1%       80.4%       86.9%
Gross profit                                                 17.9%       19.6%       13.1%
Selling, general and administrative expenses                 15.5%       17.0%       20.4%
Operating income (loss)                                       2.4%        2.6%       (7.3%)
Loss from continuing operations before
 income taxes and minority interest                          (0.5%)      (0.4%)      (8.7%)
Loss from continuing operations                              (0.8%)      (0.5%)     (19.0%)
Loss from discontinued operations, net of income taxes      (10.1%)      (9.3%)     (11.4%)
Net loss                                                    (10.9%)      (9.8%)     (30.4%)
Net loss attributable to common shareholders                (11.2%)     (10.0%)     (30.4%)
</TABLE>

Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004

Total Revenues. Total revenues from continuing operations for 2005 were
$105.9 million, an increase of 27% from $83.5 million in 2004. Revenues
from our China operations were approximately $53 million, an increase of
46% over the prior year. Strong growth occurred in the computer and
peripherals, automotive, wireless telecommunications and electronic
identification markets. Revenues from our foreign operations represented
63% of total sales. During 2005, we continued to expand our China value
added assembly operations. Expansion of our high volume fully automated
surface mount capabilities resulted in strong growth from Hewlett Packard,
our largest end customer. This proprietary value add capability
strengthened our competitive position within the inkjet printer flex
business while increasing our sales value per flex circuit sold. During
fiscal 2005, we continued to expand our revenues from the automotive
market. In 2003, we were forced to abandon this market in the U.S. due to
both cost and pricing pressure. Today, in China, we believe we are well
positioned competitively to re-gain market share. Electronic content in
automobiles is growing rapidly increasing the opportunity for flex
applications. We also believe that we are well positioned on several major
programs including air bag deployment seat sensors, which will enable us to
continue to grow this market. During 2005, we have significantly expanded our
wireless telecom revenue particularly through increased shipments of flex
antennas. We also believe that flex opportunities in the cell phone market
represent a significant opportunity in future periods utilizing proprietary
materials design to lower manufacturing cost.

Polymer thick film revenues increased 13% year over year to $35.7 million.
We continued to experience solid growth from both the appliance and medical
markets. Important new appliance platform design business we obtained in
January and February of 2005 should allow us to sustain this growth into
fiscal 2006. The medical market continues to be a significant long-term
opportunity requiring European and North American production. In fiscal
2005, medical revenues, primarily from disposable medical sensors,
represented 17% of our total revenues.


<PAGE>  21


Our laminated cable revenues were essentially unchanged from the prior year
at $14.5 million. Increased competition from Asian competitors continues to
have an adverse effect on large volume opportunities. We believe revenues
will improve with additional sales focus coupled with the purchase of a new
high-speed laminator. We expect to install this equipment in our Methuen
facility by the end of October 2005. The capital acquisition is expected to
provide improved pitch and tolerance capabilities while allowing us to
significantly lower our manufacturing cost.

Cost of Products Sold. Cost of products sold was $86.9 million, or 82% of
total revenues, for 2005, versus $67.1 million, or 80% of total revenues
for 2004. Increase in the cost of products sold as a percentage of total
revenues, or correspondingly a decrease in our gross margin, was in large
part driven by changes in product mix with a shift toward lower margin
assembly operations.

Gross margins improved in China from 18% of revenues to 20% in fiscal 2005.
Increases were attributable to a 46% increase in revenues and
correspondingly improved facility utilization offset by significant
increases in value-added assembly operations, which typically yield lower
gross margins. Traditional single and double-sided circuit technology
continues to face increasingly competitive pricing. Introduction of new
proprietary material designs such as the technology used in our smart card
line and our recently introduced "print plate" technology are critical to
improving margins in future periods. Raw material costs and in particular
copper prices escalated by more than 25% during the past year. Similarly,
the cost of base flexible materials, such as polyimide, rose substantially
during the year due to worldwide supply constraints. In many cases this has
forced us to increase the price of our products. Long term supply
commitments however, do not always permit price increases, at least in the
short term. Rising material costs continues to place adverse pressure on
gross margins.

Polymer thick film gross margins decreased from 17% in fiscal 2004 to 15%
for fiscal 2005. Decreases can be primarily attributed to an increase in
lower margin assembly business during fiscal 2005. Margins on assembly
activities are typically 8% to 10%, which is considerably lower than
margins on polymer thick film circuit fabrication, which typically exceeds
20%. Margins were further unfavorably impacted by increases in material
costs (particularly silver inks and polymer thick films) most of which
could not be passed on to customers through pricing increases due to
continued competitive pricing pressures in the appliance market.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $16.4 million in 2005, or 15 % of total
revenues, and $14.2 million, or 17% of total revenues, for the comparable
period in the prior year. Increases occurred in the following areas:
commissions ($800,000) primarily due to sales volume, China infra-
structure investment ($500,000), public company costs and legal costs
associated with merger and other business development related activities
($600,000).

Interest Income. Interest income was $64,000 in 2005 compared to $84,000 in
2004, and primarily consists of interest income on refunded tax payments
and interest income on our cash balances and short-term investments.

Interest and Other Expense. Interest and other expense increased by
approximately 24% to $3.2 million in 2005 from $2.6 million in 2004.
Interest and other expense for 2005 includes $1.7 million related to
amortized deferred financing costs, $326,000 for interest payable in common
stock related to the issuance of our convertible subordinated notes in July
2003 and $94,000 for derivative expense. The deferred financing costs are
associated with the sale-leaseback of our Methuen facility, our loan
agreement with our primary lender, and sale of convertible subordinated
notes. The derivative expense is related to the Change of Control feature
in our Convertible Subordinated Notes (see Note 7, to the Notes to
Consolidated Financial Statements). The balance of the interest expense
represents interest incurred on our short and long-term bank borrowings and
deferred compensation.

Our loss from continuing operations before income taxes and the minority
interest in our Chinese joint venture, Parlex Shanghai, was $556,000 in
2005 compared to $327,000 in 2004. We own 90.1% of the equity interest in
Parlex Shanghai and, accordingly, include Parlex Shanghai's results of
operations, cash flows and financial position in our consolidated financial
statements.


<PAGE>  22


Income Taxes. Our effective tax rate was approximately 28% in 2005 compared
to an effective tax rate benefit of (17%) in 2004. Our effective tax rate
is impacted by the proportion of our estimated annual income being earned
in domestic versus foreign tax jurisdictions, the generation of tax credits
and the recording of any valuation allowance. As a result of our history of
operating losses and uncertain future operating results, we determined that
it is more likely than not that certain historic and current year income
tax benefits would not be realized. Consequently, in 2003 we increased our
valuation allowance by $8.8 million resulting in an effective tax rate of
118%. In 2005, we realized and recognized $367,000 of state and federal tax
refunds.

Loss from Discontinued Operations, Net. Our Multilayer operation has
incurred losses since the collapse of the telecom infrastructure market in
2001. Over the past three years, we have attempted to replace this lost
business primarily by targeting military and aerospace markets requiring
North American manufacturing. Our strategy has sought to consolidate a
highly fragmented market through focused sales activities and acquisition.
Though we have had some success increasing revenues during the past three
years, we have been unable to obtain enough manufacturing volume to offset
our excess capacity and corresponding unabsorbed fixed costs. In March of
2005, we began exploring alternatives including possible sale of the
Multilayer operation. In June 2005, we committed to a plan to sell our
Multilayer operation. Accordingly, we presented the results of this
operation, $(10.7) million and $(7.7) million, net of tax, as a loss from
discontinued operations, net, in the accompanying statements of operations
for the years ended June 30, 2005 and 2004, respectively. The net loss from
discontinued operations for the year ended June 30, 2005 also includes a
total asset write-down of approximately $5.4 million relating to our
Multilayer operation.

Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003

Total Revenues. Total revenues for 2004 were $83.5 million, an increase of
30% from $64.2 million in 2003. Revenues from our China operations were
approximately $36 million, an increase of 65% over the prior year. Strong
growth occurred in the computer and peripherals, automotive,
telecommunications and electronic identification markets. During 2004, we
significantly expanded our China value added assembly operations which
included the transfer of our domestic high volume automated surface mount
capability to our Kunshan facility in May 2004.

Polymer thick film revenue increased 16% from $27.2 million in 2003 to
$31.6 million in 2004. Revenues from the appliance market, representing 13%
of total revenues in 2004, continued to be strong, largely driven by
laundry equipment product sales. Initial qualification was completed on two
new product opportunities (specifically, range and laundry equipment)
during the fourth quarter of 2004. Most significant increases occurred in
the medical market, primarily in disposable medical devices. Proprietary
technologies including silver-based conductive inks and gels have generated
significant new product opportunities, including disposable blood glucose
monitors and sensors to detect carpal tunnel syndrome. Worldwide, medical
revenues grew to $16.0 million in 2004 from $8.0 million in 2003. In
addition to the importance to our market diversification strategy, growth
in medical revenues is important to domestic and European facility
utilization. Laminated cable revenues were flat year over year but
increased by 22% in the second half of the year compared to the first half
of 2004, indicative of a strengthening North American electronics market.

Total revenues included licensing and royalty fees of approximately $54,000
for 2004 and $41,000 for 2003. 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.

Cost of Products Sold. Cost of products sold was $67.1 million, or 80% of
total revenues, for 2004, versus $55.8 million, or 87% of total revenues
for 2003. Revenue increases, of $18.6 million, in China and our polymer
thick film operations were responsible for gross margin increases of $12
million in 2004 compared to $7.5 million in 2003, or a year over year
increase in gross margin of 59%. China's gross margins were adversely
impacted by start-up costs associated with the initial production ramp of
our new smartcard manufacturing line. Smartcard revenues and cost of goods
sold were $1.6 million and $1.8 million respectively, in 2004. Initial
production of smartcards commenced in October 2003. Breakeven production
volumes of our smartcard business were achieved in June 2004. Margins
improved from 26% to 32% in our laminated cable operations. Material cost
reduction efforts coupled with increased utilization of lower cost Mexico
assembly and finishing capabilities contributed to improved gross margins.


<PAGE>  23


Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $14.2 million in 2004, or 17 % of total
revenues, and $13.1 million, or 20% of total revenues, for the comparable
period in the prior year. Increases occurred in the following areas:
commissions ($500,000) primarily due to volume, headcount for direct sales
and China infra-structure ($250,000), and insurance and public company
costs ($350,000).

Interest Income. Interest income was $84,000 in 2004 compared to $36,000 in
2003, and primarily consists of interest income on refunded tax payments
and interest income on our cash balances and short-term investments.

Interest and Other Expense. Interest and other expense was $2.6 million in
2004 and $900,000 in 2003. Interest and other expense for 2004 includes
$1.5 million related to amortized deferred financing costs and $343,000 for
interest payable in common stock related to the issuance of our convertible
subordinated notes in July 2003. The deferred financing costs are
associated with the sale-leaseback of our Methuen facility, our loan
agreement with our primary lender, and the sale of our convertible
subordinated notes. The balance of the interest expense represents interest
incurred on our short and long-term bank borrowings and deferred
compensation.

Our loss from continuing operations before income taxes and the minority
interest in our Chinese joint venture, Parlex Shanghai, was $327,000 in
2004 compared to $5.6 million in 2003. We own 90.1% of the equity interest
in Parlex Shanghai and, accordingly, include Parlex Shanghai's results of
operations, cash flows and financial position in our consolidated financial
statements.

Income Taxes. Our effective tax rate benefit was approximately (17%) in
2004 compared to an effective tax rate of 118% in 2003. Our effective tax
rate is impacted by the proportion of our estimated annual income being
earned in domestic versus foreign tax jurisdictions, the generation of tax
credits and the recording of any valuation allowance. As a result of our
history of operating losses and uncertain future operating results, we
determined that it is more likely than not that certain historic and
current year income tax benefits would not be realized. Consequently, in
2003 we increased our valuation allowance by $8.8 million resulting in an
effective tax rate of 118%. In 2004, we realized and recognized $317,000 of
state and federal tax refunds, recognized $89,000 of federal refunds.

Loss from Discontinued Operations, Net. Our Multilayer operation has
incurred losses since the collapse of the telecom infrastructure market in
2001. Over the past three years, we have attempted to replace this lost
business primarily by targeting military and aerospace markets requiring
North American manufacturing. Our strategy has sought to consolidate a
highly fragmented market through focused sales activities and acquisition.
Though we have had some success increasing revenues during the past three
years, we have been unable to obtain enough manufacturing volume to offset
our excess capacity and corresponding unabsorbed fixed costs. In March of
2005, we began exploring alternatives including possible sale of the
Multilayer operation. In June 2005, we committed to a plan to sell our
Multilayer business. Accordingly, we presented the results of this
operation, $(7.7) million and $(7.4) million, net of tax, as a loss from
discontinued operations, net, in the accompanying statements of operations
for the years ended June 30, 2004 and 2003, respectively.

Liquidity and Capital Resources

As of June 30, 2005, we had approximately $5.4 million in cash and short-
term investments.

Net cash used in operations during 2005 was $879,000. Net losses of $11.6
million after adjustment for depreciation and amortization, deferred income
taxes, facility exit cost, interest payable in common stock, impairments
and minority interest consumed $748,000 of operating cash. Working capital
consumed $131,000 of cash. Cash used for working capital included $797,000
for inventory, $1.5 million for accounts receivable, offset by cash
provided from increases in accounts payable of $1.2 million and $982,000
provided from refundable income taxes and other assets.

Net cash used in investing activities was $2.2 million in 2005. This was
used to purchase capital equipment and other assets. Capital expenditures
largely occurred in China and represent our investment in expanded volume
capacity both in wet process circuit fabrication and finishing / assembly
capabilities.

Cash provided by financing activities was $7.0 million during 2005. This
included $4.2 million of net repayments and borrowings on our bank debt.
During 2005, we received additional net proceeds totaling $2.3 million
associated with the sale-leaseback of our Methuen manufacturing facility,
of which $1.9 million was principal under a note receivable, $85,000 was
interest income and $275,000 was payment under an earn-out


<PAGE>  24


provision. In December, 2004, we received $1.0 million from Infineon
Technologies as a deposit for a 49% share in a joint venture agreement
relating to our smart card operations. Upon closing of the joint venture,
currently anticipated to occur in October 2005, Infineon shall contribute
additional proceeds of $2.0 million. Closing is predicated on obtaining a
business license for the joint venture company in the People's Republic of
China and other customary closing conditions. Should we be unable to close
the transaction, we are required to repay the $1.0 million deposit. Cash
used in other financing activities was $285,000. This included dividends of
$241,000 paid to our Series A Preferred stockholders.

Improved sales in the fourth quarter of fiscal 2005 significantly improved
financial performance and resulted in cash generated from operations of
$584,000. These increased sales, however, have also placed additional cash
demands on working capital with growth in account receivables. The strong
credit ratings of our large OEM and EMS customer base has allowed us to
successfully finance this growth through asset based working capital lines
of credit. In 2005, we established stand-alone financing for our China
operations through a new line of credit with Bank of China that will allow
us to continue financing our growth plans. In addition, we expanded our
borrowing capacity under our domestic working capital line with Silicon
Valley Bank to $12.0 million. See "Factors That May Affect Future Results"
on page 30 of this Annual Report on Form 10-K.

Series A Convertible Preferred Stock - On May 7, 2004 and June 8, 2004, we
completed a private placement of 40,625 shares of Series A Convertible
Preferred Stock and warrants at $80.00 per unit for proceeds of
approximately $3.0 million, net of issuance costs of approximately
$300,000. For additional information relating to the Series A Convertible
Preferred Stock, please see Note 10, Stockholder's Equity, in the Notes to
Consolidated Financial Statements.

Loan and Security Agreement (the "Loan Agreement") - We executed the Loan
Agreement with Silicon Valley Bank on June 11, 2003 and since that date
have entered into eight amendments to the Loan Agreement. As amended, the
Loan Agreement provided Silicon Valley Bank with a secured interest in
substantially all of our assets. We may borrow up to $12.0 million based on
a borrowing base of eligible accounts receivable plus the lessor of 20% of
eligible inventory or $1.0 million. Borrowings may be used for working
capital purposes only. The Loan Agreement allows us to issue letters of
credit, enter into foreign exchange forward contracts and incur obligations
using the bank's cash management services up to an aggregate limit of
$1,000,000, which reduces our availability for borrowings under the Loan
Agreement. As of June 30, 2005, we had a $1,000,000 letter of credit
outstanding. The Loan Agreement contains certain restrictive covenants,
including but not limited to, limitations on debt incurred by our foreign
subsidiaries, acquisitions, sales and transfers of assets, and prohibitions
against cash dividends, mergers and repurchases of stock without prior bank
approval. The Loan Agreement also has financial covenants, which among
other things require us to maintain $750,000 in minimum cash balances or
excess availability under the Loan Agreement.

As of June 30, 2005, we were in compliance with our financial covenants. At
June 30, 2005, we had available borrowing capacity under the Loan Agreement
of approximately $3.0 million. As the available borrowing capacity exceeded
$750,000 at June 30, 2005, none of our cash balance was subject to
restriction at June 30, 2005. The Loan Agreement is currently scheduled to
mature on July 11, 2006.

The Loan Agreement includes both a subjective acceleration clause and a
lockbox arrangement that requires all lockbox receipts to be used to pay
down the revolving credit borrowings. Accordingly, borrowings under the
Loan Agreement have been classified as current liabilities in the
accompanying consolidated balance sheets as of June 30, 2005 as required by
Emerging Issues Task Force Issue No. 95-22, " Balance Sheet Classification
of Borrowings Outstanding Under Revolving Credit Agreements that include
both a Subjective Acceleration Clause and a Lockbox Arrangement". However,
such borrowings will be excluded from current liabilities in future periods
and considered long-term obligations if: 1) such borrowings are refinanced
on a long-term basis, 2) the subjective acceleration terms of the Loan
Agreement are modified, or 3) such borrowings will not require the use of
working capital within one year.


<PAGE>  25


Parlex Shanghai Term Notes - Parlex (Shanghai) has entered into a number of
short term borrowing arrangements with several lending institutions. A
summary of the Parlex Shanghai term notes are as follows:

<TABLE>
<CAPTION>
                                                                         2005            2004
                                                                         ----            ----


                                                                   <c>             <c>
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect         $2,537,000      $2,537,000
Due January 2006 at LIBOR plus 2.5% and guaranteed by Parlex Asia      1,500,000       1,500,000
Due June 2006 at 5.58% and guaranteed by Parlex Interconnect           1,269,000       1,269,000
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect          1,027,000       1,027,000
Due April 2006 at 5.58% and guaranteed by Parlex Interconnect            725,000         725,000
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect            604,000         604,000
Due August 2004 at 5.84% and guaranteed by Parlex Interconnect                 -       1,209,000
                                                                      ----------      ----------

Total Parlex Shanghai term notes                                      $7,662,000      $8,871,000
                                                                      ==========      ==========
</TABLE>

Parlex Interconnect Term Notes - On October 28, 2004, Parlex Interconnect
entered into a $605,000 short-term bank note, due October 27, 2005, bearing
interest at 5.31% and guaranteed by Parlex Shanghai.

Parlex Asia Banking Facility - On September 15, 2004, Parlex Asia entered
into an agreement with the Bank of China for a $5.0 million banking facility
guaranteed by Parlex. Under the terms of the banking facility, Parlex Asia
may borrow up to $5.0 million based on a borrowing base of eligible account
receivables. The banking facility bears interest at LIBOR plus 2.00%.
Amounts outstanding as of June 30, 2005 totaled $2.4 million.

Finance Obligation on Sale Leaseback of Methuen Facility - In June 2003, we
entered into a sale-leaseback transaction pursuant to which we sold our
corporate headquarters and manufacturing facility located in Methuen,
Massachusetts (the "Methuen Facility") for a total purchase price of $9.0
million. The purchase price consisted of $5.35 million in cash at the
closing, a promissory note in the amount of $2.65 million (the "Promissory
Note") and up to $1.0 million in additional cash under the terms of an Earn
Out Clause (the "Earn Out"). In June 2004, we received $750,000 reducing
the principal balance of the Promissory Note to $1.9 million. On February
25, 2005, the landlord sold the Methuen Facility and paid us the remaining
principal balance due on the Promissory Note of $1.9 million and agreed to
pay the sum of $675,000 in full settlement of the Earn Out. Pursuant to the
terms of the sale of the Methuen Facility, $400,000 of the $675,000 was
placed in escrow as security for certain of our remaining lease obligations.

As the repurchase option contained in the lease and the receipt of the
Promissory Note from the buyer provide us with a continuing involvement in
the Methuen Facility, we have accounted for the sale-leaseback of the
Methuen Facility as a financing transaction. Accordingly, we continue to
report the Methuen Facility as an asset and continue to record depreciation
expense. We record all cash received under the transaction as a finance
obligation. The Promissory Note and related interest thereon, and the
$1,000,000 in additional cash under the terms of the Earn Out were recorded
as an increase to the finance obligation as cash payments were received. We
record the principal portion of the monthly lease payments as a reduction
to the finance obligation and the interest portion of the monthly lease
payments is recorded as interest expense. The closing costs for the
transaction have been capitalized and are being amortized as interest
expense over the initial 15-year lease term. Upon expiration of the
repurchase option in June 30, 2015, we will reevaluate our accounting to
determine whether a gain or loss should be recorded on this sale-leaseback
transaction.

Convertible Subordinated Notes - On July 28, 2003, we sold an aggregate
$6,000,000 of our 7% convertible subordinated notes (the "Notes") with
attached warrants to several institutional investors. We received net
proceeds of approximately $5.5 million from the transaction, after
deducting approximately $500,000 in finders' fees and other transaction
expenses. Net proceeds were used to pay down amounts borrowed under


<PAGE>  26


our Loan Agreement and utilized for working capital needs. No principal
payments are due until maturity on July 28, 2007. The Notes are unsecured.

The Notes bear interest at a fixed rate of 7%, payable quarterly in shares
of our common stock. The number of shares of common stock to be issued is
calculated by dividing the accrued quarterly interest by a conversion
price, which was initially established at $8.00 per share. The conversion
price is subject to adjustment in the event of stock splits, dividends and
certain combinations.

Interest expense is recorded quarterly based on the fair value of the
common shares issued. Accordingly, interest expense may fluctuate from
quarter to quarter. We have concluded that the interest feature does not
constitute an embedded derivative as it does not currently meet the
criteria for classification as a derivative.

We recorded accrued interest payable on the Notes of $76,113 within
stockholders' equity at June 30, 2005, as the interest is required to be
paid quarterly in the form of common stock. Based on the conversion price
of $8.00 per common share, we issued a total of 88,086 shares of common
stock from October 2003 to April 2005 in satisfaction of previously
recorded interest and issued 13,123 shares of common stock in July 2005 as
payment for the interest accrued at June 30, 2005.

The Notes contained a beneficial conversion feature reflecting an effective
initial conversion price that was less than the fair market value of the
underlying common stock on July 28, 2003. The fair value of the beneficial
conversion feature was approximately $1.035 million, which has been
recorded as an increase to additional paid-in capital and as an original
issue discount on the Notes that is being amortized to interest expense
over the 4-year life of the Notes.

We have the right to redeem all, but not less than all, of the Notes at 100%
of the remaining principal of Notes then outstanding, plus all accrued and
unpaid interest, under certain conditions. After July 28, 2006, the holder
of any of the Notes may require us to redeem the Notes in whole, but not in
part. Such redemption shall be at 100% of the remaining principal of such
Notes, plus all accrued and unpaid interest. In the event of a Change in
Control (as defined therein), the holder has the option to require that the
Notes be redeemed in whole (but not in part), at 120% of the outstanding unpaid
principal amount, plus all unpaid interest accrued. We have concluded that
the Change of Control feature constitutes an embedded derivative,
Accordingly, the increase or decrease in the fair value of the Change of
Control feature is being recorded as an expense, which may fluctuate from
period to period. Derivative expense of $93,750 relating to the Change of
Control feature was recorded for the year ended June 30, 2005.

Payments Due Under Contractual Obligations - The following table summarizes
the payments due under our contractual obligations at June 30, 2005,
adjusted to include the cash commitments associated with the 7% convertible
subordinated notes, and the effect such obligations are expected to have on
liquidity and cash flow in future periods:

<TABLE>
<CAPTION>
                                                              Payments due by period
                                   ---------------------------------------------------------------------------
      Contractual                                   Less than         1 - 3           3 - 5         More than
      Obligations                     Total           1 year          years           years          5 years
      -----------                     -----         ---------         -----           -----         ---------


                                <c>             <c>             <c>             <c>             <c>
Long-term debt obligations         $16,777,127     $16,766,727     $    10,400     $         -     $         -

Capital lease obligations,
 including Methuen
 facility finance obligation        17,400,729       1,279,176       2,639,602       2,584,034      10,897,917

Operating leases, including
 Cranston Facility                   6,241,936       1,908,430       2,923,345       1,410,161               -

Deferred compensation                  687,980         212,000         328,514         147,466               -

Convertible sub-
 ordinated notes                     6,000,000               -               -       6,000,000               -
                                   -----------     -----------     -----------     -----------     -----------

Total                              $47,107,772     $20,166,333     $ 5,901,861     $10,141,661     $10,897,917
                                   ===========     ===========     ===========     ===========     ===========
</TABLE>

In response to the worldwide downturn in the electronics industry, we have
taken a series of actions to reduce operating expenses and to restructure
operations, consisting primarily of reductions in workforce and
consolidation of manufacturing operations. During 2004, we transferred our
high volume automated surface mount assembly line from our Cranston, Rhode
Island facility to China. In August 2004, we announced a new strategic
relationship with Delphi Corporation to supply all multilayer flex and
rigid flex circuits that were previously manufactured by Delphi Corporation
in its Irvine, California facility. We continue to implement plans to
control operating expenses, inventory levels, and capital expenditures as
well as manage accounts payable and accounts receivable to enhance cash
flow and return us to profitability. In addition to disposing of our
unprofitable Multilayer operation, our plans include the following actions:
1) continuing to consolidate manufacturing facilities; 2) continuing to
transfer certain manufacturing processes from our domestic operations to
lower cost international manufacturing locations, primarily those in the
People's Republic of China; 3) expanding our products in the home
appliance, cell phone and handheld devices, medical, military and
aerospace, and electronic identification markets; and 4) continuing to
monitor general and administrative expenses.

In fiscal years 2005, 2004 and 2003, we entered into a series of
alternative financing arrangements to partially replace or supplement those
currently in place in order to provide us with additional financing to
support our current working capital needs. Working capital requirements,
particularly those to support the growth of our China operations, consumed
$131,000 of a total $879,000 of cash used in operations during 2005. In
September 2004, we secured a new $5.0 million asset based working capital
agreement with the Bank of China which provides standalone financing for
our China operations. In addition, in May and June of 2004 we received net
proceeds of approximately $3.0 million from the sale of our Series A
convertible preferred stock. In December 2004, we entered into a joint
venture agreement and related agreements with Infineon Technologies Asia
Pacific Pte Ltd. We received a $1.0 million deposit upon execution of the
agreements, and will receive an additional $2.0 million once certain
People's Republic of China government approvals are received for the new
joint venture company and the transaction closes. We anticipate closing
this transaction in October 2005 (see Note 12, to the Notes to Consolidated
Financial Statements).

Also in December 2004, we executed a loan modification with Silicon Valley
Bank ("SVB") extending the term of our loan agreement with SVB to July 2006
and increasing the borrowing limit from $10.0 million to $12.0 million. In
February 2005, the landlord for our Methuen, Massachusetts facility
completed the sale of the property to a third party. Under the terms of the
transaction, we received cash of approximately $2.2


<PAGE>  28


million. The proceeds represented repayment of the outstanding financing we
originally provided under the initial sale-leaseback transaction and a
settlement of amounts due under terms of an earn-out provision (see Note 7,
to the Notes to Consolidated Financial Statements). On August 18, 2005, we
entered into a definitive agreement to sell certain assets of our Multilayer
operation to Amphenol Corporation (See Note 3, Discontinued Operations, to
the Notes to Consolidated Financial Statements). Our Multilayer operation has
incurred losses since the collapse of the telecom infrastructure
market in 2001. Over the past three years, we have attempted to replace this
lost business primarily by targeting military and aerospace markets requiring
North American manufacturing. Our strategy has sought to consolidate a highly
fragmented market through focused sales activities and acquisition. Though we
have had some success increasing revenues during the past three years, we
have been unable to obtain enough manufacturing volume to offset our excess
capacity and corresponding unabsorbed fixed costs. In March of 2005, we began
exploring alternatives including possible sale of the Multilayer operation.
We believe the sale of the Multilayer operation at this time will allow us
to return to profitability more quickly and permit management to focus its
attention on more rapidly growing portions of our business.

During the year ended June 30, 2005, we used cash in operations of
approximately $879,000. We continue to evaluate alternative financing
opportunities to further improve our liquidity and to fund working capital
needs. We believe that our cash on hand, additional proceeds to be received
from the sale of the Multilayer operation, proceeds to be received on
closing of the Infineon joint venture transaction and the cash expected to
be generated from operations will be sufficient to enable us to meet our
operating obligations at least through September 2006. If we require
additional or new external financing to repay or refinance our existing
financing obligations or fund our working capital requirements, we believe
that we will be able to obtain such financing. Failure to obtain such
financing may have a material adverse impact on our operations. At June 30,
2005, we are in compliance, and expect to remain in compliance, with all of
our financial covenants associated with our financing arrangements.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires entities to recognize stock
compensation expense for awards of equity instruments to employees based on
the grant-date fair value of those awards (with limited exceptions). SFAS
No. 123R is effective for our first annual reporting period that begins
after June 15, 2005.  In addition, SFAS No. 123R requires that the excess
tax benefits related to stock compensation be reported as a financing cash
inflow rather than as a reduction of taxes paid in cash from operations. We
are presently evaluating the effect that SFAS No. 123R will have on our
consolidated financial statements.


<PAGE>  29


FACTORS THAT MAY AFFECT FUTURE RESULTS

The statements, analyses and other information contained or incorporated by
reference in this Annual Report on Form 10-K relating to the future
development of our business, the proposed Merger, the sale of the
Multilayer operation, and the contingencies and uncertainties to which we
may be subject, as well as other statements including "anticipate,
"believe," "plan," "estimate," "expect," "intend," "will," "should," "may,"
and other similar expressions are "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995. Such statements are made
based upon management's current expectations and beliefs concerning future
events and their potential effects on us and other future events, and
constitute forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements involve risks and uncertainties that could cause our actual
results to differ materially and could affect the proposed Merger and other
matters, they include risks relating to receiving the approval of two-
thirds of the outstanding shares of our common stock, receiving required
regulatory approvals, satisfying other conditions to the closing of the
Merger and those risks enumerated below. We do not undertake, and
specifically disclaim, any obligation to update or revise any forward-
looking information, whether as a result of new information, future
developments or otherwise.

Failure to complete the Merger could negatively impact the market price of
our common stock.

If the Merger is not completed for any reason, we will be subject to a
number of material risks, including:

      *     The market price of our common stock may decline to the extent
that the current market price of our shares reflects a market assumption
that the Merger will be completed;

      *     Costs relating to the Merger, such as legal, accounting and
financial advisory fees, and, in specified circumstances, termination and
expense reimbursement fees, must be paid even if the Merger is not
completed and will be expensed in the fiscal period in which terminations
occurs; and

      *     The diversion of management's attention from our day-to-day
business and the potential disruption to our employees and our
relationships with suppliers during the period before the completion of the
Merger, may make it difficult for us to regain our financial and market
positions if the Merger does not occur.

If the Merger is not approved by our shareholders, we will not be permitted
under Massachusetts law to complete the Merger and the Merger Agreement may
be terminated by the parties. Following such termination, depending on the
circumstances, we might be required to reimburse JE Holdings for up to
$400,000 of expenses that JE Holdings has incurred in connection with the
proposed Merger. Furthermore, if the Merger is terminated and our board of
directors seeks another merger or business combination, we may not be able
to find a party willing to pay an equivalent or better price than the price
to be paid in the proposed Merger.

Until the Merger is completed or the Merger Agreement is terminated, we may
not be able to enter into a merger or business combination with another
party at a favorable price because of restrictions in the Merger Agreement.

Unless or until the Merger Agreement is terminated, subject to specified
exceptions, we are restricted from entering into or soliciting, initiating,
proposing, encouraging or facilitating any inquiries or proposals that may
lead to a proposal or offer for an alternative transaction with any person
or entity other than JE Holdings. As a result of these restrictions, we may
not be able to enter into an alternative transaction at a more favorable
price, if at all, without incurring potentially significant liability to JE
Holdings.

Uncertainties associated with the Merger may cause Parlex to lose key
personnel.


<PAGE>  30


Our current and prospective employees may be uncertain about their future
roles and relationship with us following the completion of the Merger. This
uncertainty may adversely affect our ability to attract and retain key
management and marketing and technical personnel.

If we cannot obtain additional financing when needed, we may experience a
material adverse impact on our operations.

We may need to raise additional funds to finance our operations either
through borrowings or further equity financing. We may not be able to raise
additional capital when required on reasonable terms, or at all. The cash
expected to be generated by our current operations may not be sufficient
to enable us to meet our financing and operating obligations over the next
twelve months based on current growth plans. If we cannot raise the
required funds when needed, we may experience a material adverse impact on
our operations.

Our business has been, and could continue to be, materially adversely
affected as a result of general economic and market conditions.

We are subject to the effects of general global economic and market
conditions. Our operating results have been materially adversely affected
as a result of unfavorable economic conditions and reduced electronics
industry spending on both a domestic and worldwide basis over the past few
years. Though we have experienced some general market spending improvement
during the most recently completed fiscal quarter, should market conditions
not continue to improve, our business, results of operations or financial
condition could continue to be materially adversely affected.

We have at times relied upon waivers from our lenders and amendments or
modifications to our financing agreements to avoid any acceleration of our
debt payments. In the event that we are not in compliance with our
financial covenants in the future, we cannot be certain our lenders will
grant us waivers or execute amendments on terms that are satisfactory to
us. If such waivers are not received, our debt is immediately callable.

Since entering into our current loan arrangement with our primary lender,
Silicon Valley Bank, in June of 2003, we have requested and received
several waivers relating to our failure to comply with certain financial
covenants under our loan arrangement. In conjunction with the waivers, we
have also executed several modifications of our loan arrangement that have
primarily resulted in easing our covenant compliance requirements, but have
also increased our costs of borrowing. Although we do not believe Silicon
Valley Bank will exercise any right it may have to immediately call our
debt if we fail to comply with our financial covenants, we cannot guarantee
that they will not do so. We are currently in compliance with all of our
financial covenants, as amended.

The issuance of our shares upon conversion of outstanding convertible
notes, conversion of preferred stock and upon exercise of outstanding
warrants may cause significant dilution to our stockholders and may have an
adverse impact on the market price of our common stock.

On July 28, 2003, we completed a private placement of our 7% convertible
subordinated notes (and accompanying warrants) in an aggregate subscription
amount of $6 million. The conversion price of the convertible notes and the
exercise price of the warrants is $8.00 per share. In addition, on June 8,
2004, we completed a private placement of 40,625 shares of our Series A
Convertible Preferred Stock (the "Preferred Stock") (and accompanying
warrants), for $80.00 per share, or $3.25 million in the aggregate. Each
share of Preferred Stock may be converted at any time at the option of the
holder of the Preferred Stock for 10 shares of common stock, and the
exercise price of the warrants is $8.00 per share. For additional
information relating to the sale of the convertible subordinated notes and
related warrants, please see Note 7, to the Notes to Consolidated Financial
Statements. For additional information relating to the sale of Preferred
Stock and related warrants, please see Note 10, to the Notes to
Consolidated Financial Statements.

The issuance of our shares upon conversion of the convertible subordinated
notes and/or Preferred Stock, and exercise of the warrants, and their
resale by the holders thereof will increase our publicly traded shares.
These re-sales could also depress the market price of our common stock. We
will not control whether or when


<PAGE>  31


the holders of these securities elect to convert or exercise their
securities for common stock. In addition, the perceived risk of dilution
may cause our stockholders to sell their shares, which would contribute to
a downward movement in the stock price of our common stock. Moreover, the
perceived risk of dilution and the resulting downward pressure on our stock
price could encourage investors to engage in short sales of our common
stock. By increasing the number of shares offered for sale, material
amounts of short selling could further contribute to progressive price
declines in our common stock.

Substantial leverage and debt service obligations may adversely affect us.

We have a substantial amount of indebtedness. As of June 30, 2005, we had
approximately $30.7 million of consolidated debt of which $17.1 million is
due within one year. Our substantial level of indebtedness increases the
possibility that we may be unable to generate sufficient cash to pay when
due the principal of, interest on, or other amounts due with respect to our
indebtedness. Approximately 32% of our outstanding indebtedness bears
interest at floating rates. As a result, our interest payment obligations
on such indebtedness will increase if interest rates increase.

Our substantial leverage could have significant negative consequences on
our financial condition, results of operations, and cash flows, including:

      *     Impairing our ability to meet one or more of the financial
ratios contained in our debt agreements or to generate cash sufficient to
pay interest or principal, including periodic principal amortization
payments, which events could result in an acceleration of some or all of
our outstanding debt as a result of cross-default provisions;

      *     Increasing our vulnerability to general adverse economic and
industry conditions;

      *     Limiting our ability to obtain additional debt or equity
financing;

      *     Requiring the dedication of a substantial portion of our cash
flow from operations to service our debt, thereby reducing the amount of
our cash flow available for other purposes, including capital expenditures;

      *     Requiring us to sell debt or equity securities or to sell some
of our core assets, possibly on unfavorable terms, to meet payment
obligations;

      *     Limiting our flexibility in planning for, or reacting to,
changes in our business and the industries in which we compete; and

      *     Placing us at a possible competitive disadvantage with less
leveraged competitors and competitors that may have better access to
capital resources.

Our credit agreement and the Merger Agreement contain restrictive covenants
that could adversely affect our business by limiting our flexibility.

Our credit agreement and the Merger Agreement impose restrictions that
affect, among other things, our ability to incur additional debt, pay
dividends, sell assets, create liens, make capital expenditures and
investments, merge or consolidate, enter into transactions with affiliates,
and otherwise enter into certain transactions outside the ordinary course
of business. Our credit agreement also requires us to maintain specified
financial ratios and meet certain financial tests. Our ability to continue
to comply with these covenants and restrictions may be affected by events
beyond our control. A breach of any of these covenants or restrictions
would result in an event of default under the relevant agreement. Upon the
occurrence of a breach of our credit agreement, the lender could elect to
declare all amounts borrowed thereunder, together with accrued interest, to
be due and payable, foreclose on the assets securing our credit agreement
and/or cease to provide additional revolving loans or letters of credit,
which would have a material adverse effect on us. A breach of the covenants
contained in the Merger Agreement could entitle JE Holdings to terminate
the Merger Agreement.


<PAGE>  32


We have incurred losses in each of the last three years, and we may
continue to incur losses.

We incurred net losses in each of the last three fiscal years. We had net
losses of $11.6 million in fiscal year 2005, $8.2 million in fiscal year
2004 and $19.5 million in fiscal year 2003. Our operations may not be
profitable in the future.

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 financing. 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.

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 adversely
impact 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 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 adversely impact 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 61% of total revenues in fiscal year 2005, 52%
of total revenues in fiscal year 2004, and 50% in fiscal year 2003.

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.


<PAGE>  33


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. If we fail to keep pace with technological
change, our products may become less competitive or obsolete and we may
lose customers and revenues.

Competing technologies may reduce demand for our products.

Flexible circuit and laminated cable interconnects provide electrical
connections between components in electrical systems and are used as a
platform to support the attachment of electronic devices. While flexible
circuits and laminated cables offer several advantages over competing
printed circuit board and ceramic hybrid circuit technologies, our
customers may consider changing their designs to use these alternative
technologies in future applications. If our customers switch to alternative
technologies, our business, financial condition and results of operations
could be materially adversely affected. It is also possible that the
flexible interconnect industry could encounter competition from new
technologies in the future that render existing flexible interconnect
technology less competitive or obsolete.

We are heavily dependent upon certain target markets for domestic
manufacturing. A slowdown in these markets could have a material impact on
domestic capacity utilization resulting in lower sales and gross margins.

We manufacture our products in seven facilities worldwide, including lower
cost offshore locations such as China. However, a significant portion of
our manufacturing is still performed domestically. Domestic manufacturing
may be at a competitive disadvantage with respect to price when compared to
lower cost facilities in Asia and other locations. While historically our
competitors in these locations have produced less technologically advanced
products, they continue to expand their capabilities. Further, we have
targeted markets that have historically sought domestic manufacturing,
including the military and aerospace markets. Should we be unsuccessful in
maintaining our competitive advantage or should certain target markets also
move production to lower cost offshore locations, our domestic sales will
decline resulting in significant excess capacity and reduced gross margins.

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, military, home
appliance, electronic identification and computer markets. The worldwide
electronics industry has seen a substantial downturn since 2001 impacting a
number of our target markets. Although we serve a variety of markets to
avoid a dependency on any one sector, a significant further downturn in any
of these market sectors could cause a material reduction in our revenues,
which could be difficult to replace.

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 year 2005, we purchased
approximately 18% of our materials from Northfield Acquisition Co., doing
business as Sheldahl, and DuPont, 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


<PAGE>  34


from Sheldahl or DuPont, or any significant increase in the prices of
materials, chemicals or components, would have an adverse effect on our
short-term operating results.

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 90.1% equity interest in our investment in China, Parlex Shanghai,
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 have a facility in the United
Kingdom where we 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; foreign labor issues; wars and acts of
terrorism; and potentially adverse tax consequences. Although these issues
have not materially impacted our revenues or operations to date, we cannot
guarantee that they will not impact our revenues or operations in the
future.

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, 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.

We face risks from fluctuations in the value of foreign currency versus the
U.S. dollar and the cost of currency exchange.

While we transact business predominantly in U.S. dollars, a large portion
of our sales and expenses are denominated in foreign currencies, primarily
the Chinese Renminbi ("RMB"), the basic unit of currency issued by the
People's Bank of China. Changes in the relation of foreign currencies to
the U.S. dollar will affect our cost of sales and operating margins and
could result in exchange losses. We do not enter into foreign exchange
contracts to reduce our exposure to these risks.

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.


<PAGE>  35


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 Peter J. Murphy. If we lose the services of Mr.
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 be 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.

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
17 patents issued and have 7 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.


<PAGE>  36


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, products 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.

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.

Undetected problems in our products could directly impair our financial
results.

If flaws in design, production, assembly or testing of our products were to
occur by us or our suppliers, we could experience a rate of failure in our
products that would result in substantial repair or replacement costs and
potential damage to our reputation. Continued improvement in manufacturing
capabilities, control of material and manufacturing quality, and costs and
product testing, are critical factors in our future growth. There can be no
assurance that our efforts to monitor, develop, modify and implement
appropriate test and manufacturing processes for our products will be
sufficient to permit us to avoid a rate of failure in our products that
results in substantial delays in shipment, significant repair or
replacement costs, or potential damage to our reputation, any of which
could have a material adverse effect on our business, results of operations
or financial condition.

Our stock is thinly traded.

Our stock is thinly traded and you may have difficulty in reselling your
shares quickly. The low trading volume of our common stock is outside of
our control, and we cannot guarantee that trading volume will increase in
the near future.

We do not expect to pay dividends in the foreseeable future.

We have never paid cash dividends on our common stock and we do not expect
to pay cash dividends on our common stock any time in the foreseeable
future. In addition, the Merger Agreement and our current financing
agreements prohibit the payment of dividends. The future payment of
dividends directly depends upon our future earnings, capital requirements,
financial requirements and other factors that our board of directors will
consider. For the foreseeable future, we will use earnings from operations,
if any, to finance our growth, and we will not pay dividends to our common
stockholders. You should not rely on an investment in our common stock if
you require dividend income. The only return on your investment in our
common stock, if any, would most likely come from any appreciation of our
common stock.

We may have exposure to additional income tax liabilities.

As a multinational corporation, we are subject to income taxes in both the
United States and various foreign jurisdictions. Our domestic and
international tax liabilities are subject to the allocation of revenues and
expenses in different jurisdictions and the timing of recognizing revenues
and expenses. Additionally, the amount of income taxes paid is subject to
our interpretation of applicable tax laws in the jurisdictions in which we
file. From time to time, we are subject to income tax audits. While we
believe we have complied


<PAGE>  37


with all applicable income tax laws, there can be no assurance that a
governing tax authority will not have a different interpretation of the law
and assess us with additional taxes. Should we be assessed with significant
additional taxes, there could be a material adverse affect on our results
of operations or financial condition.

We could use preferred stock to resist takeovers, and the issuance of
preferred stock may cause additional dilution.

Our Articles of Organization authorizes the issuance of up to 1,000,000
shares of preferred stock, of which 40,625 shares are issued and
outstanding as a result of our preferred stock offering completed in June
2004. Our Articles of Organization gives our board of directors the
authority to issue preferred stock without approval of our stockholders. We
may issue additional shares of preferred stock to raise money to finance
our operations. We may authorize the issuance of the preferred stock in one
or more series. In addition, we may set the terms of preferred stock,
including:

      *     dividend and liquidation preferences;

      *     voting rights;

      *     conversion privileges;

      *     redemption terms; and

      *     other privileges and rights of the shares of each authorized
series.

The issuance of large blocks of preferred stock could possibly have a
dilutive effect to our existing stockholders. It can also negatively impact
our existing stockholders' liquidation preferences. In addition, while we
include preferred stock in our capitalization to improve our financial
flexibility, we could possibly issue our preferred stock to friendly third
parties to preserve control by present management. This could occur if we
become subject to a hostile takeover that could ultimately benefit Parlex
and Parlex's stockholders.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

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.

Interest Rate Risk

Our primary bank facility bears interest at our lender's prime rate plus
2.0%. We also have two subsidiary bank notes at LIBOR plus 2.5% and LIBOR
plus 2.0%. The prime rate is affected by changes in market interest rates.
These variable rate lending facilities create exposure for us relating to
interest rate risk; however, we do not believe our interest rate risk to be
material. As of June 30, 2005, we had an outstanding balance under our
primary bank facility of $6,044,000 and an outstanding balance of $3,903,000
under our subsidiary note. A hypothetical 10% change in interest rates would
impact interest expense by approximately $65,000 over the next fiscal year,
and such amount would not have a material effect on our financial position,
results of operations and cash flows.

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

Currency Risk

Sales of Parlex Shanghai, Parlex Interconnect, Parlex (Shanghai) Interconnect
Technologies ("Parlex Technologies"), Poly-Flex Circuits Limited and Parlex
(Europe) 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


<PAGE>  38


margins and retained earnings. We do not engage in regular hedging
activities to minimize the impact of foreign currency fluctuations. Parlex
Shanghai, Parlex Interconnect and Parlex Technologies had combined net
assets as of June 30, 2005 of approximately $24.6 million. Poly-Flex
Circuits Limited and Parlex Europe had combined net assets as of June 30,
2005 of approximately $5.9 million. We believe that a 10% change in
exchange rates would not have a significant impact upon our financial
position, results of operation or outstanding debt. As of June 30, 2005,
Parlex Shanghai and Parlex Interconnect had combined outstanding debt of
approximately $8.3 million. As of June 30, 2005, Poly-Flex Circuits Limited
had no outstanding debt.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------


<PAGE>  39


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Parlex
Corporation and subsidiaries (the "Company") as of June 30, 2005 and 2004,
and the related consolidated statements of operations, stockholders' equity
and comprehensive loss, and cash flows for each of the three years in the
period ended June 30, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, 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
subsidiaries as of June 30, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 2005 in conformity with accounting principles generally
accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
September 28, 2005


<PAGE>  F-1


PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND 2004
---------------------------------------------------------------------------

<TABLE>
<CAPTION>

ASSETS                                            2005             2004


                                           <c>              <c>
CURRENT ASSETS:
  Cash and cash equivalents                   $  5,440,062     $  1,626,275
  Accounts receivable - net of allowance
   for doubtful accounts of $1,296,609
   in 2005 and $1,337,299 in 2004               23,518,186       21,999,646
  Inventories                                   15,452,935       20,326,134
  Refundable income taxes                           41,487          380,615
  Deferred income taxes                             26,474           42,958
  Assets held for sale                           6,434,825                -
  Other current assets                           2,139,298        2,381,471
                                              ------------     ------------

      Total current assets                      53,053,267       46,757,099
                                              ------------     ------------

PROPERTY, PLANT AND EQUIPMENT - NET             37,564,771       44,979,740

INTANGIBLE ASSETS - NET                             29,818           32,746

GOODWILL - NET                                   1,157,510        1,157,510

DEFERRED INCOME TAXES                               40,000           40,000

OTHER ASSETS - NET                               1,793,475        2,283,136
                                              ------------     ------------

TOTAL                                         $ 93,638,841     $ 95,250,231
                                              ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt           $ 17,131,613     $ 12,861,077
  Accounts payable                              17,627,480       16,479,547
  Dividends payable                                 66,848           39,317
  Accrued liabilities                            5,917,158        4,277,587
                                              ------------     ------------

      Total current liabilities                 40,743,099       33,657,528
                                              ------------     ------------

LONG-TERM DEBT                                  13,523,109       10,534,679
                                              ------------     ------------

OTHER NONCURRENT LIABILITIES                       686,705        1,025,091
                                              ------------     ------------

MINORITY INTEREST IN PARLEX SHANGHAI               702,797          570,963
                                              ------------     ------------

COMMITMENTS AND CONTINGENCIES (NOTE 14)

STOCKHOLDERS' EQUITY:
  Preferred stock, $1.00 par value -
   1,000,000 shares authorized; 40,625
   shares issued and outstanding
   (aggregate liquidation preference
   of $3,316,848)                                   40,625           40,625
  Common stock, $.10 par value -
   30,000,000 shares authorized;
   6,475,302 shares issued and outstanding
   at June 30, 2005; 6,632,810 shares
   issued and 6,422,810 shares outstanding
   at June 30, 2004                                647,530          663,281
  Accrued interest payable in common stock          76,113           87,924
  Additional paid-in capital                    66,027,182       66,979,397
  Accumulated deficit                          (29,331,495)     (17,771,307)
  Accumulated other comprehensive income           523,176          499,675
  Less treasury stock, at cost - 210,000
   shares in 2004                                        -       (1,037,625)
                                              ------------     ------------
      Total stockholders' equity                37,983,131       49,461,970
                                              ------------     ------------

TOTAL                                         $ 93,638,841     $ 95,250,231
                                              ============     ============
</TABLE>

See notes to consolidated financial statements.


<PAGE>  F-2


PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
---------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                           2005             2004            2003


                                                   <c>               <c>             <c>
REVENUES                                              $ 105,857,189     $83,482,406     $ 64,159,737
                                                      -------------     -----------     ------------

OPERATING EXPENSES:
  Cost of products sold                                  86,878,201      67,079,379       55,781,499
  Selling, general and administrative expenses           16,369,391      14,219,677       13,103,626
                                                      -------------     -----------     ------------

TOTAL OPERATING EXPENSES                                103,247,592      81,299,056       68,885,125
                                                      -------------     -----------     ------------

OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS        2,609,597       2,183,350       (4,725,388)

INTEREST INCOME AND OTHER (EXPENSE)
  Interest income                                            64,486          84,494           36,338
  Interest and other expense                             (3,230,505)     (2,595,290)        (900,496)
                                                      -------------     -----------     ------------

LOSS FROM CONTINUING OPERATIONS BEFORE
 INCOME TAXES AND MINORITY INTEREST                        (556,422)       (327,446)      (5,589,546)

INCOME TAX (PROVISION) BENEFIT                             (155,080)         55,001       (6,589,583)
                                                      -------------     -----------     ------------

LOSS FROM CONTINUING OPERATIONS BEFORE
 MINORITY INTEREST                                         (711,502)       (272,445)     (12,179,129)

MINORITY INTEREST                                          (131,834)       (155,380)          14,621
                                                      -------------     -----------     ------------

LOSS FROM CONTINUING OPERATIONS                            (843,336)       (427,825)     (12,164,508)

LOSS FROM DISCONTINUED OPERATIONS
 (net of income tax benefit of $0, $0 and
 $468,919, respectively)                                (10,716,852)     (7,738,102)      (7,352,666)
                                                      -------------     -----------     ------------

NET LOSS                                              $ (11,560,188)    $(8,165,927)    $(19,517,174)
                                                      =============     ===========     ============

PREFERRED STOCK DIVIDENDS                                  (268,127)       (171,067)               -
                                                      -------------     -----------     ------------

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS          $ (11,828,315)    $(8,336,994)    $(19,517,174)
                                                      =============     ===========     ============

BASIC AND DILUTED NET LOSS PER SHARE
 ATTRIBUTABLE TO COMMON STOCKHOLDERS:
  Loss from continuing operations                     $       (0.17)    $     (0.09)    $      (1.93)
  Loss from discontinued operations                           (1.66)          (1.22)           (1.16)
                                                      -------------     -----------     ------------

NET LOSS PER SHARE ATTRIBUTABLE TO
 COMMON STOCKHOLDERS                                  $       (1.83)    $     (1.31)    $      (3.09)
                                                      =============     ===========     ============

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED               6,455,456       6,369,516        6,308,542
                                                      =============     ===========     ============
</TABLE>

See notes to consolidated financial statements.


<PAGE>  F-3


PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
---------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                  Accrued
                                                                                 Interest
                                   Preferred Stock          Common Stock        Payable In
                                  Shares     Amount      Shares      Amount    Common Stock
                                  ------     ------      ------      ------    ------------


                               <c>       <c>        <c>          <c>           <c>
BALANCE, JULY 1, 2002                  -          -    6,513,216    $651,321      $     -

Comprehensive loss:
  Net loss                             -          -            -           -            -
  Foreign currency
   translation adjustments,
   net of tax:                         -          -            -           -            -

  Comprehensive loss

  Issuance of common stock
   warrants                            -          -            -           -            -
  Exercise of stock options            -          -        9,000         900            -
                                  ------    -------    ---------    --------      -------

BALANCE, JUNE 30, 2003                 -          -    6,522,216     652,221            -

Comprehensive loss:
  Net loss                             -          -            -           -            -
  Foreign currency
   translation adjustments,
   net of tax:                         -          -            -           -            -

  Comprehensive loss

Fair value of beneficial
 conversion feature on 7%
 Convertible Subordinated Notes        -          -            -           -            -
Issuance of common stock
 warrants on 7% Convertible
 Subordinated Notes                    -          -            -           -            -
Issuance of common stock
 warrants in lieu of payment
 for services                          -          -            -           -            -
Exercise of common stock
 warrants                              -          -       75,000       7,500            -
Interest payable in
 common stock                          -          -            -           -       87,924
Interest paid in common stock          -          -       35,594       3,560            -
Issuance of Series A
 Preferred stock (net of
 issuance costs of $300,000)      40,625    $40,625            -           -            -
Fair value of common stock
 warrants issued to Series A
 Preferred Stock investors             -          -            -           -            -
Fair value of over-allotment
 rights granted to Series A
 Preferred Stock investors             -          -            -           -            -
Fair value of beneficial
 conversion feature on
 Series A Preferred Stock              -          -            -           -            -
Accretion of beneficial
 conversion feature on
 Series A Preferred Stock              -          -            -           -            -
Dividends accrued on Series
 A Preferred Stock                     -          -            -           -            -
                                  ------    -------    ---------    --------      -------

BALANCE, JUNE 30, 2004            40,625     40,625    6,632,810     663,281       87,924

Comprehensive loss:
  Net loss                             -          -            -           -            -
  Foreign currency
   translation adjustments,
   net of tax:                         -          -            -           -            -

  Comprehensive loss

Elimination of treasury stock
 due to change in law                  -          -     (210,000)    (21,000)           -
Interest payable in common stock       -          -            -           -      (11,811)
Interest paid in common stock          -          -       52,492       5,249            -
Dividends accrued on Series A
 Preferred Stock                       -          -            -           -            -
                                  ------    -------    ---------    --------      -------

BALANCE, JUNE 30, 2005            40,625    $40,625    6,475,302    $647,530     $ 76,113
                                  ======    =======    =========    ========     ========
</TABLE>

See notes to consolidated financial statements.


PARLEX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
---------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                   Retained       Accumulated
                                  Additional       Earnings          Other
                                   Paid-in       (Accumulated    Comprehensive      Treasury      Comprehensive
                                   Capital         Deficit)      Income (Loss)       Stock            Loss             Total
                                  ----------     ------------    -------------      --------      -------------        -----


                               <c>            <c>               <c>            <c>             <c>              <c>
BALANCE, JULY 1, 2002             $60,897,275    $  9,911,794      $(281,644)     $(1,037,625)                     $ 70,141,121

Comprehensive loss:
  Net loss                                  -     (19,517,174)             -                -     $(19,517,174)     (19,517,174)
  Foreign currency
   translation adjustments,
   net of tax:                              -               -        470,486                -          470,486          470,486
                                                                                                  ------------
  Comprehensive loss                                                                              $(19,046,688)
                                                                                                  ============
  Issuance of common stock
   warrants                           100,581               -              -                -                           100,581
  Exercise of stock options            51,630               -              -                -                            52,530
                                  -----------    ------------      ---------      -----------                      ------------

BALANCE, JUNE 30, 2003             61,049,486      (9,605,380)       188,842       (1,037,625)                       51,247,544

Comprehensive loss:
  Net loss                                  -      (8,165,927)             -                -     $ (8,165,927)      (8,165,927)
  Foreign currency
   translation adjustments,
   net of tax:                              -               -        310,833                -          310,833          310,833
                                                                                                  ------------
  Comprehensive loss                                                                              $ (7,855,094)
                                                                                                  ============
Fair value of beneficial
 conversion feature on 7%
 Convertible Subordinated Notes     1,035,016               -              -                -                         1,035,016
Issuance of common stock
 warrants on 7% Convertible
 Subordinated Notes                 1,035,016               -              -                -                         1,035,016
Issuance of common stock
 warrants in lieu of payment
 for services                         145,932               -              -                -                           145,932
Exercise of common stock
 warrants                             592,500               -              -                -                           600,000
Interest payable in
 common stock                               -               -              -                -                            87,924
Interest paid in common stock         251,389               -              -                -                           254,949
Issuance of Series A
 Preferred stock (net of
 issuance costs of $300,000)        2,327,375               -              -                -                         2,368,000
Fair value of common stock
 warrants issued to Series A
 Preferred Stock investors            486,000               -              -                -                           486,000
Fair value of over-allotment
 rights granted to Series A
 Preferred Stock investors             96,000               -              -                -                            96,000
Fair value of beneficial
 conversion feature on
 Series A Preferred Stock            (131,750)              -              -                -                          (131,750)
Accretion of beneficial
 conversion feature on
 Series A Preferred Stock             131,750               -              -                -                           131,750
Dividends accrued on Series
 A Preferred Stock                    (39,317)              -              -                -                           (39,317)
                                  -----------    ------------      ---------      -----------                      ------------

BALANCE, JUNE 30, 2004             66,979,397     (17,771,307)       499,675       (1,037,625)                       49,461,970

Comprehensive loss:
  Net loss                                  -     (11,560,188)             -                -     $(11,560,188)     (11,560,188)
  Foreign currency
   translation adjustments,
   net of tax:                              -               -         23,501                -           23,501           23,501
                                                                                                  ------------
  Comprehensive loss                                                                              $(11,536,687)
                                                                                                  ============
Elimination of treasury stock
 due to change in law              (1,016,625)              -              -        1,037,625                                 -
Interest payable in common stock            -               -              -                -                -          (11,811)
Interest paid in common stock         332,537               -              -                -                           337,786
Dividends accrued on Series A
 Preferred Stock                     (268,127)              -              -                -                          (268,127)
                                  -----------    ------------      ---------      -----------                      ------------

BALANCE, JUNE 30, 2005            $66,027,182    $(29,331,495)     $ 523,176      $         -                      $ 37,983,131
                                  ===========    ============      =========      ===========                      ============
</TABLE>

See notes to consolidated financial statements.


<PAGE>  F-4


PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
---------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                         2005             2004             2003


                                                                                 <c>              <c>              <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                          $(11,560,188)    $ (8,165,927)    $(19,517,174)
                                                                                    ------------     ------------     ------------
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
    Depreciation of property, plant and equipment                                      5,722,858        5,476,718        6,462,860
    Deferred income taxes                                                                 16,484          270,151        6,136,006
    Amortization of deferred loss on sale-leaseback,
     deferred financing costs and intangible assets                                    1,132,720        1,015,856           50,290
    Facility exit costs                                                                        -          (16,943)               -
    Interest payable in common stock                                                     325,975          342,872                -
    Loss on property, plant and equipment                                                 10,457                -          621,052
    Impairment of property, plant and equipment
     of Multilayer business                                                            3,471,159                -                -
    Gain on sale of China land use rights                                                      -          (86,531)               -
    Minority interest                                                                    131,834          155,380          (14,621)
    Changes in current assets and liabilities:
      Accounts receivable - net                                                       (1,501,828)      (7,988,277)       3,929,857
      Inventories                                                                       (797,446)      (3,089,396)         594,604
      Refundable income taxes                                                            367,328         (101,234)       1,530,721
      Other assets                                                                       615,707         (803,198)         488,248
      Accounts payable and accrued liabilities                                         1,185,622        1,596,760         (101,863)
                                                                                    ------------     ------------     ------------
        Net cash (used in) provided by operating activities                             (879,318)     (11,393,769)         179,980
                                                                                    ------------     ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale of China land use rights                                                                -        1,179,145                -
  Net proceeds from sale-leaseback of Poly-Flex facility                                       -                -        2,927,213
  Additions to property, plant, equipment and other assets                            (2,294,258)      (2,476,939)      (2,244,008)
                                                                                    ------------     ------------     ------------
        Net cash (used in) provided by investing activities                           (2,294,258)      (1,297,794)         683,205
                                                                                    ------------     ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from bank loans                                                           103,325,676       66,330,752       23,063,796
  Payment of bank loans                                                              (99,101,136)     (63,178,573)     (29,305,450)
  Proceeds from Methuen facility sale-leaseback note receivable                        1,900,000          750,000        5,019,219
  Proceeds from Methuen facility sale-leaseback earnout provision                        275,000                -                -
  Cash received for interest on Methuen facility sale-leaseback note receivable           85,372          134,712                -
  Payment of Methuen facility sale-leaseback financing obligation                       (192,185)        (309,064)               -
  Payment of capital lease                                                              (108,346)         (38,544)               -
  Proceeds from other notes payable                                                      179,249                -                -
  Repayment of other notes payable                                                      (116,028)               -                -
  Dividend paid to Series A Preferred Stock investors                                   (240,597)               -                -
  Receipt of joint venture deposit                                                     1,000,000                -                -
  Proceeds from convertible notes, net of issuance costs of approximately $674,000             -        5,513,697                -
  Proceeds from Series A Preferred Stock issuance, net of
   issuance costs of approximately $300,000                                                    -        2,950,000                -
  Exercise of common stock warrants                                                            -          600,000                -
  Exercise of stock options                                                                    -                -           52,530
                                                                                    ------------     ------------     ------------
        Net cash provided by (used in) financing activities                            7,007,005       12,752,980       (1,169,905)
                                                                                    ------------     ------------     ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                  (19,642)          51,335          35,218
                                                                                    ------------     ------------     ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   3,813,787          112,752         (271,502)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                           1,626,275        1,513,523        1,785,025
                                                                                    ------------     ------------     ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                              $  5,440,062     $  1,626,275     $  1,513,523
                                                                                    ============     ============     ============

SUPPLEMENTARY DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
  Property, plant, equipment and other asset purchases
   financed under capital lease obligations, long-term
   debt and accounts payable                                                        $    240,384     $    822,439     $    148,806
                                                                                    ============     ============     ============
  Interest payable in common stock                                                  $    325,975     $    342,872     $          -
                                                                                    ============     ============     ============
  Accrual of Series A Preferred Stock dividends                                     $     66,848     $     39,317     $          -
                                                                                    ============     ============     ============
  Cash paid for interest on debt                                                    $  1,854,914     $  1,371,000     $    767,000
                                                                                    ============     ============     ============
  Sale-leaseback earnout proceeds placed in escrow                                  $    400,000     $          -     $          -
                                                                                    ============     ============     ============
  Issuance of stock warrants in connection with
   issuance of convertible notes                                                    $          -     $  1,180,948     $          -
                                                                                    ============     ============     ============
  Beneficial conversion feature associated with
   convertible notes                                                                $          -     $  1,035,016     $          -
                                                                                    ============     ============     ============
  Issuance of stock warrants in connection with issuance
   of Series A Preferred Stock                                                      $          -     $    486,000     $          -
                                                                                    ============     ============     ============
  Issuance of over-allotment rights in connection with
   issuance of Series A Preferred Stock                                             $          -     $     96,000     $          -
                                                                                    ============     ============     ============
  Beneficial conversion feature associated with Series A Preferred Stock            $          -     $    131,750     $          -
                                                                                    ============     ============     ============
  Issuance of stock warrants in connection with bank debt                           $          -     $          -     $    100,581
                                                                                    ============     ============     ============
</TABLE>

See notes to consolidated financial statements.


<PAGE>  F-5


PARLEX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
---------------------------------------------------------------------------

1.    BUSINESS AND BASIS OF PRESENTATION

Business - Parlex Corporation ("Parlex" or the "Company") is a world leader
in the design and manufacture of flexible interconnect products. Parlex
produces flexible circuits, laminated cables, flexible interconnect hybrid
circuits and flexible interconnect assemblies 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,
military, home appliance, electronic identification and computer.

Potential Sale of Company - Also on August 18, 2005, the Company entered
into an Agreement and Plan of Merger with Johnson Electric Holdings
Limited, a corporation organized under the laws of Bermuda ("JE Holdings"),
J.E.C. Electronics Sub One, Inc., a Massachusetts corporation that is
wholly-owned by one or more wholly-owned subsidiaries of JE Holdings
("Merger Sub One") and J.E.C. Electronics Sub Two, Inc., a Massachusetts
corporation that is wholly-owned by Merger Sub One ("Merger Sub Two") (See
Note 19).

Basis of Presentation - As shown in the consolidated financial statements,
the Company incurred net losses of $11,560,188, $8,165,927 and $19,517,174
and used $879,318 and $11,393,769 in cash from operations and generated
$179,980 in cash from operations for the fiscal years ended June 30, 2005,
2004 and 2003, respectively. In addition, the Company had an accumulated
deficit of $29,331,495 at June 30, 2005. As of June 30, 2005, the Company
had a cash balance of $5,440,062.

In response to the worldwide downturn in the electronics industry,
management has taken a series of actions to reduce operating expenses and
to restructure operations, consisting primarily of reductions in workforce
and consolidation of manufacturing operations. During 2004, the Company
transferred its high volume automated surface mount assembly line from its
Cranston, Rhode Island facility to the People's Republic of China. In
August 2004, the Company announced a new strategic relationship with Delphi
Corporation to supply all multilayer flex and rigid flex circuits that were
previously manufactured by Delphi Corporation in its Irvine, California
facility. Management continues to implement plans to control operating
expenses, inventory levels, and capital expenditures as well as manage
accounts payable and accounts receivable to enhance cash flow and return
the Company to profitability. In addition to disposing of the Company's
unprofitable Multilayer operation, management's plans include the following
actions: 1) continuing to consolidate manufacturing facilities; 2)
continuing to transfer certain manufacturing processes from the Company's
domestic operations to lower cost international manufacturing locations,
primarily those in the People's Republic of China; 3) expanding the
Company's products in the home appliance, cell phone and handheld devices,
medical, military and aerospace, and electronic identification markets; and
4) continuing to monitor general and administrative expenses.

In fiscal years 2005, 2004 and 2003, management entered into a series of
alternative financing arrangements to partially replace or supplement those
currently in place in order to provide the Company with additional financing to
support its current working capital needs. Working capital requirements,
particularly those to support the growth of the Company's China operations,
consumed $131,000 of a total $879,000 of cash used in operations during
2005. In September 2004, the Company secured a new $5.0 million asset based
working capital agreement with the Bank of China which provides standalone
financing for its China operations. In addition, in May and June of 2004
the Company received net proceeds of approximately $3.0 million from the
sale of its Series A convertible preferred stock. In December 2004, the
Company entered into a joint venture agreement and related agreements with
Infineon Technologies Asia Pacific Pte Ltd. The Company received a $1.0
million deposit upon execution of the agreements, and will receive an
additional $2.0 million once certain People's Republic of China government
approvals are received for the new joint venture company and the
transaction closes. The Company anticipates closing this transaction in
October 2005 (see Note 12).

Also in December 2004, the Company executed a loan modification with
Silicon Valley Bank ("SVB") extending the term of its loan agreement with
SVB to July 2006 and increasing the borrowing limit from $10.0 million to
$12.0 million. In February 2005, the landlord for the Company's Methuen,
Massachusetts facility completed the sale of the property to a third party.
Under the terms of the transaction, the Company received cash of
approximately $2.2 million. The proceeds represented repayment of the
outstanding financing the Company


<PAGE>  F-6


originally provided under the initial sale-leaseback transaction and a
settlement of amounts due under terms of an earn-out provision (see Note
7).

On August 18, 2005, the Company entered into a definitive agreement to sell
certain assets of its Multilayer operation to Amphenol Corporation (See
Note 3). The Company's Multilayer operation has incurred losses since the
collapse of the telecom infrastructure market in 2001. Over the past three
years, the Company has attempted to replace this lost business primarily by
targeting military and aerospace markets requiring North American
manufacturing. The Company's strategy has sought to consolidate a highly
fragmented market through focused sales activities and acquisition. Though
the Company has had some success increasing revenues during the past three
years, the Company has been unable to obtain enough manufacturing volume to
offset its excess capacity and corresponding unabsorbed fixed costs. In March
of 2005, the Company began exploring alternatives including possible sale of
the Multilayer operation. Management believes the sale of the Multilayer
operation at this time, will allow it to return to profitability more quickly
and permit management to focus its attention on more rapidly growing portions
of its business.

During the year ended June 30, 2005, the Company used cash in operations of
approximately $879,000. Management continues to evaluate alternative
financing opportunities to further improve its liquidity and to fund
working capital needs. Management believes that the Company's cash on hand,
proceeds to be received from the sale of the Multilayer operation,
proceeds to be received on closing of the Infineon joint venture transaction
and the cash expected to be generated from operations will be sufficient to
enable the Company to meet its operating obligations at least through September
2006. If the Company requires additional or new external financing to repay
or refinance its existing financing obligations or fund its working capital
requirements, the Company believes that it will be able to obtain such
financing. Failure to obtain such financing may have a material adverse
impact on the Company's operations. At June 30, 2005, the Company is in
compliance, and expects to remain in compliance, with all of its financial
covenants associated with its financing arrangements.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation - The consolidated financial statements include the
accounts of Parlex, its wholly-owned subsidiaries and its 90.1% investment
in Parlex (Shanghai) Circuit Co., Ltd. ("Parlex Shanghai") (see Note 12).
All intercompany balances and transactions have been eliminated.

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. Management's estimates are primarily based on
historical experience. Estimates include reserves for accounts receivables,
inventory, discontinued operations, deferred taxes, assets held for sale,
useful lives of property, plant, and equipment, certain variables used to
value stock options and warrants, certain accrued liabilities including
self-insured health insurance claims, and the Company's effective tax rate.
The self-insured health claims are subject to certain individual and
aggregate stop loss limits. Actual results could differ from those
estimates.

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. Gains or losses on translation are
accumulated as a component of other comprehensive income or loss.

Cash and Cash Equivalents - Cash and cash equivalents include short-term
highly liquid investments purchased with remaining maturities of three
months or less.


<PAGE>  F-7


Inventories - Inventories of raw materials are stated at the lower of cost,
(first-in, first-out) or market. Work in process and finished goods are
valued as a percentage of completed cost, not in excess of net realizable
value. Raw material, work in process and finished goods inventory
associated with programs cancelled by customers are fully reserved for as
obsolete. Reductions in obsolescence reserves are recognized when the
underlying products are disposed of or sold.

At June 30, inventories consisted of:

<TABLE>
<CAPTION>

                                2005            2004


                         <c>             <c>
Raw materials               $ 6,897,013     $ 8,729,132
Work in process               6,858,527       9,444,722
Finished goods                4,451,970       5,049,796
                            -----------     -----------

Total cost                   18,207,510      23,223,650
Reserve for obsolescence     (2,754,575)     (2,897,516)
                            -----------     -----------
Inventory, net              $15,452,935     $20,326,134
                            ===========     ===========
</TABLE>

Inventories of $5.7 million related to discontinued operations (see Note 3)
at June 30, 2005 are included in assets held for sale in the consolidated
balance sheets.

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 - 30-40 years; machinery and equipment -
2-15 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.

At June 30, property, plant and equipment consisted of:

<TABLE>
<CAPTION>

                                                       2005             2004


                                                <c>              <c>
Land and land improvements                         $    589,872     $    589,872
Buildings                                            18,543,295       18,543,295
Machinery and equipment                              38,872,764       64,348,226
Leasehold improvements and other                      7,007,207        6,695,173
Construction in progress                              4,497,842        2,902,141
                                                   ------------     ------------

Total cost                                           69,510,980       93,078,707
Less: accumulated depreciation and amortization     (31,946,209)     (48,098,967)
                                                   ------------     ------------
Property, plant and equipment, net                 $ 37,564,771     $ 44,979,740
                                                   ============     ============
</TABLE>

Depreciation and amortization expense was $5,550,000, $5,805,000 and
$6,489,000 for years ended June 30, 2005, 2004 and 2003, respectively.

An additional $760,000 of equipment related to the discontinued operations
(see Note 3) at June 30, 2005 is included in assets held for sale in the
consolidated balance sheet.


<PAGE>  F-8


Goodwill and Other Intangible Assets - The Company recorded goodwill in
connection with its acquisition of a 40% interest in Parlex Shanghai (see
Note 12), and its 1999 acquisition of Parlex-Dynaflex ("Dynaflex"). The
Company accounts for goodwill under the provisions of SFAS No.142,
"Goodwill and Other Intangible Assets". Under the provisions of SFAS No.
142, if an intangible asset is determined to have an indefinite useful
life, it shall not be amortized until its useful life is determined to be
no longer indefinite. An intangible asset that is not subject to
amortization shall be tested for impairment annually or more frequently if
events or changes in circumstances indicate that the asset might be
impaired. Goodwill is not amortized but is tested for impairment, for each
reporting unit, on an annual basis and between annual tests in certain
circumstances. In accordance with the guidelines in SFAS No. 142, the
Company determined it has one reporting unit. The Company evaluates
goodwill for impairment by comparing Parlex's market capitalization, as
adjusted for a control premium, to its recorded net asset value. If the
Company's market capitalization, as adjusted for a control premium, is less
than its recorded net asset value, the Company will further evaluate the
implied fair value of its goodwill with the carrying amount of the
goodwill, as required by SFAS No. 142, and the Company will record an
impairment charge against the goodwill, if required, in its results of
operations in the period such determination was made. Since Parlex's market
capitalization, as adjusted, exceeded its recorded net asset value upon
adoption of SFAS No. 142 and at the subsequent annual impairment analysis
dates, the Company has concluded that no impairment adjustments were
required at the time of adoption or at the annual impairment analysis date.
The carrying value of the goodwill was $1,157,510 at June 30, 2005 and
2004.

Accumulated Other Comprehensive 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. In
2005, 2004 and 2003, changes in balances of accumulated other comprehensive
income (loss) are due to foreign currency translation adjustments.

Revenue Recognition - Revenue on product sales is recognized when
persuasive evidence of an agreement exists, the price is fixed or
determinable, delivery has occurred and there is reasonable assurance of
collection of the sales proceeds. The Company generally obtains written
purchase authorizations from its customers for a specified amount of
product, at a specified price and considers delivery to have occurred at
the time title to the product passes to the customer. Title passes to the
customer according to the shipping terms negotiated between the Company and
the customer. License fees and royalty income are recognized when earned.

Research and Development - Research and development costs are expensed as
incurred and amounted to approximately $6.0, $6.1 and $5.5 million for the
years ended June 30, 2005, 2004 and 2003, respectively. These amounts are
reflected in the Company's cost of products sold.

Stock-Based Compensation - The Company accounts for stock-based
compensation to employees and nonemployee directors 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." Under the intrinsic value method, compensation associated
with stock awards to employees and directors is determined as the
difference, if any, between the fair value of the underlying common stock
on the date compensation is measured and the price the employee or director
must pay to exercise the award. The measurement date for employee awards is
generally the date of grant. 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.


<PAGE>  F-9


Had the Company used the fair-value method to measure compensation, the
Company's net loss and basic and diluted net loss per share would have been
as follows at June 30:

<TABLE>
<CAPTION>

                                                                2005             2004            2003


                                                         <c>              <c>             <c>
Net loss attributable to common stockholders                $(11,828,315)    $(8,336,994)    $(19,517,174)
Add stock-based compensation expense
 included in reported net loss                                         -               -                -
Deduct stock-based compensation expense
 determined under the fair-value method                         (370,562)       (620,441)        (717,683)
                                                            ------------     -----------     ------------
Net loss attributable to common stockholders - pro forma    $(12,198,877)    $(8,957,435)    $(20,234,857)
                                                            ============     ===========     ============

Basic and diluted net loss per share - as reported          $      (1.83)    $     (1.31)    $      (3.09)
Basic and diluted net loss per share - pro forma                   (1.89)          (1.41)           (3.21)
</TABLE>

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>

                                              2005         2004         2003


                                        <c>          <c>          <c>
Average risk-free interest rate            3.0%         2.4 %        2.6 %
Expected life of option grants             3.5 years    3.5 years    3.5 years
Expected volatility of underlying stock    69%          73%          67%
Expected dividend rate                     None         None         None
</TABLE>

The weighted-average fair value of options granted in 2005, 2004 and 2003
was $2.98, $4.44, and $5.53, 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.

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 basis differences between assets and
liabilities for financial reporting and tax purposes and for tax loss and
credit carryforwards. Valuation allowances are established, if necessary,
to reduce the deferred tax asset to the amount that will more likely than
not be realized.

Net loss Per Share - Basic net loss per share is calculated using the
weighted-average number of common shares outstanding during the year.
Diluted net loss per share is calculated using the weighted-average number
of common shares and common share equivalents resulting from outstanding
options and warrants except where such items would be antidilutive.


<PAGE>  F-10


The net loss attributable to common stockholders for each period is as
follows:

<TABLE>
<CAPTION>

                                                                               2005            2004             2003


                                                                       <c>              <c>             <c>
Net loss                                                                  $(11,560,188)    $(8,165,927)    $(19,517,174)
Dividends accrued on Series A Preferred Stock                                 (268,127)        (39,317)               -
Accretion of beneficial conversion feature on Series A Preferred Stock               -        (131,750)               -
                                                                          ------------     -----------     ------------
Net loss attributable to common stockholders                              $(11,828,315)    $(8,336,994)    $(19,517,174)
                                                                          ============     ===========     ============
</TABLE>

A reconciliation between shares used for computation of basic and dilutive
net loss per share is as follows:

<TABLE>
<CAPTION>

                                                    2005         2004         2003


                                              <c>          <c>          <c>
Shares for basic computation                     6,455,456    6,369,516    6,308,542
Effect of dilutive stock options and warrants            -            -            -
                                                 ---------    ---------    ---------

Shares for dilutive computation                  6,455,456    6,369,516    6,308,542
                                                 =========    =========    =========
</TABLE>

Antidilutive shares were not included in the per-share calculations for the
years ended 2005, 2004 and 2003 due to the reported net losses for those
years. Antidilutive shares totaled approximately 1,150,150; 1,052,000 and
533,000 in 2005, 2004 and 2003, respectively. All antidilutive shares
relate to outstanding stock options except for 484,625 antidilutive shares
in 2005 and 2004, and 25,000 antidilutive shares in 2003 relating to
warrants issued in connection with certain debt and equity financings (see
Note 10).

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 and cash
equivalents, 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 since the
majority of long-term debt bears interest at a rate similar to the
prevailing market rate.

Reclassifications - Certain prior period amounts have been reclassified to
conform to the current year presentation, primarily due to discontinued
operations.

Recently Issued Accounting Pronouncements - In December 2004, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123R, "Share-Based
Payment." SFAS No. 123R is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation," and supersedes Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. SFAS No. 123R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. SFAS No. 123R requires entities to recognize stock
compensation expense for awards of equity instruments to employees based on
the grant-date fair value of those awards (with limited exceptions). SFAS
No. 123R is effective for the Company's first annual reporting period that
begins after June 15, 2005. In addition, SFAS No. 123R requires that the
excess tax benefits related to stock compensation be reported as a
financing cash inflow rather than as a reduction of taxes paid in cash from
operations. The Company is presently evaluating the effect that SFAS No.
123R will have on its consolidated financial statements.

3.    DISCONTINUED OPERATIONS

On June 30, 2005, the Company committed to sell certain productive assets
and backlog relating to its flex-circuit military / aerospace / industrial
business (the "Multilayer operation"). Accordingly, the Multilayer operation
has been reflected as discontinued operations in the accompanying
consolidated statements of operations for all periods presented.

On August 17, 2005, the Company entered into an Asset Purchase Agreement
(the "Asset Purchase Agreement") consummating the sale of the open purchase
orders (the "Purchase Orders") and associated tooling, data, product


<PAGE>  F-11


drawings and files relating to the Multilayer operation for $1,551,500 and
the assumption of certain liabilities related thereto at closing. The Asset
Purchase Agreement further provides that the buyer (i) may acquire, in its
sole discretion, some or all of the equipment related to the Multilayer
Business for a purchase price of up to $816,903 and (ii) shall purchase
from Parlex in the future all raw materials, components, hardware,
packaging materials, semi finished products and work in progress that are
necessary to manufacture the multilayer product for the Purchase Orders.

Under the terms of the Asset Purchase Agreement, the Company may provide
certain transition assistance including, but not limited to, continuation
of certain manufacturing activities as requested by the buyer under a
contract manufacturing arrangement to assist in the completion of the
Purchase Orders. The transition period is not to exceed ninety (90) days
following the closing. Under terms of the agreement, Parlex agreed to a
three year non-compete for manufacture and sale of multilayer circuits in
the military, aerospace, and industrial markets.

In connection with the sale of the Multilayer operation, the Company
conducted a review of the Multilayer Business' assets as of June 30, 2005
and concluded that the carrying value of inventory exceeded its net
realizable value by approximately $1.9 million and the carrying value of
property and equipment exceeded its fair value less costs to sell by
approximately $3.5 million as of that date. Accordingly, the Company
recorded total asset write-downs of approximately $5.4 million in the year
ended June 30, 2005 relating to its Multilayer Business, which are recorded
in the loss from discontinued operations in the consolidated statements of
operations.

Summary operating results of the Multilayer operation are as follows:

<TABLE>
<CAPTION>

                                                               2005            2004            2003


                                                       <c>              <c>              <c>
Revenues                                                  $ 16,170,667     $12,056,535     $18,661,414
                                                          ============     ===========     ===========

Loss from discontinued operations                         $(10,716,852)    $(7,738,102)    $(7,821,585)
Income tax benefit on loss from
 discontinued operations                                             -               -         468,919
                                                          ------------     -----------     -----------
Loss from discontinued operations, net of income taxes    $(10,716,852)    $(7,738,102)    $(7,352,666)
                                                          ============     ===========     ===========
</TABLE>

As of June 30, 2005, the Company had assets held for sale of approximately
$6.4 million representing inventory of $5.7 million and equipment of
$760,000.

4.    INTANGIBLE ASSETS, NET

Intangible assets at June 30 consisted of:

<TABLE>
<CAPTION>

                              2005         2004


                         <c>          <c>
Patents                     $ 58,560     $ 58,560
Accumulated amortization     (28,742)     (25,814)
                            --------     --------

Intangible assets, net      $ 29,818     $ 32,746
                            ========     ========
</TABLE>

The Company has reassessed the remaining useful lives of the intangible
assets, which consist only of patent costs, at June 30, 2005 and determined
the useful lives are appropriate in determining amortization expense.
Amortization expense for the years ended June 30, 2005, 2004 and 2003 was
$2,928, $4,645 and $25,822, respectively.


<PAGE>  F-12


The estimated amortization expense, for each of the fiscal years subsequent
to June 30, 2005 is as follows:

<TABLE>
<CAPTION>

                  Amortization Expense
                  --------------------
                        Patents
                        -------


                     <c>
2006                    $ 2,928
2007                      2,928
2008                      2,928
2009                      2,928
2010                      2,928
Thereafter               15,178
                        -------

Total                   $29,818
                        =======
</TABLE>

5.    OTHER ASSETS

Other assets at June 30 consisted of:

<TABLE>
<CAPTION>

                                                                                  2005           2004


                                                                            <c>            <c>
Deferred loss on sale-leaseback of Poly-Flex Facility, net                     $  812,842     $1,087,606
Deferred financing costs on sale-leaseback of Methuen facility (see Note 7)       463,575        361,700
Deferred financing costs on the Loan and Security Agreement (see Note 7)          360,346        267,722
Deferred financing costs on Convertible Subordinated Notes (see Note 7)           673,930        673,930
Other                                                                              91,702        160,650
                                                                               ----------     ----------
Total cost                                                                      2,402,395      2,551,608
Less: accumulated amortization                                                   (608,920)      (268,472)
                                                                               ----------     ----------
Total Other Assets, net                                                        $1,793,475     $2,283,136
                                                                               ==========     ==========
</TABLE>

In 2003, Poly-Flex sold its operating facility in Cranston, Rhode Island
and entered into a five-year lease of the Poly-Flex Facility with the
buyer. The Company did not record an immediate loss on the transaction
since the fair value of the Poly-Flex Facility exceeded the net book value
of the facility at the time of sale. However, approximately $1.374 million
of excess net book value over the sales price was recorded as a deferred
loss and included in Other Assets - Net on the consolidated balance sheets.
The deferred loss is being amortized to lease expense over the five-year
lease term. Amortization of the deferred loss, reported as a component of
rent expense, for the years ended June 30, 2005, 2004 and 2003 was
$274,764, $274,764 and $11,448, respectively.

Amortization of deferred financing costs for the years ended June 30, 2005,
2004 and 2003 was $340,448, $266,710 and $1,762, respectively.


<PAGE>  F-13


6.    ACCRUED LIABILITIES

Accrued liabilities at June 30 consisted of:

<TABLE>
<CAPTION>

                                    2005          2004


                              <c>           <c>
Payroll and related expenses     $1,588,294    $1,139,867
Professional fees                   448,487       151,030
Facility exit costs                 128,990       136,952
Accrued health insurance            358,037       399,922
Commissions                         757,465       639,336
Deposit from customers            1,039,473             -
Other                             1,596,412     1,810,480
                                 ----------    ----------

Total                            $5,917,158    $4,277,587
                                 ==========    ==========
</TABLE>

In June 2002, management committed to a plan to consolidate, exit and
relocate certain of its manufacturing operations and accrued $1,480,000
related to these exit activities at June 30, 2002. In January 2003, upon
exiting the facility, the Company wrote-down the value of the leasehold
improvements at its Salem, New Hampshire facility to zero to reflect its
abandonment of such assets. The Company's lease agreement, for which
certain costs were accrued under this plan, was scheduled to terminate on
June 30, 2007. However, in June 2003, the Company exercised its right to
terminate the lease early as of June 30, 2004 and paid the related lease
early termination fee.

The following is a summary of the facility exit costs activity during 2003,
2004 and 2005:

<TABLE>
<CAPTION>

                                   Facility                    2003 Activity                    Facility
                                  Exit Costs     ----------------------------------------      Exit Costs
                                   Accrued         Cash           Asset         Change          Accrued
                                June 30, 2002    Payments      Write-offs    in Estimates    June 30, 2003
                                -------------    --------      ----------    ------------    -------------


                               <c>            <c>           <c>              <c>             <c>
Lease costs                       $  656,000     $(216,145)    $       -        $     -         $439,855
Leasehold improvements               573,767             -      (573,767)             -                -
Facility refurbishment costs         141,233             -             -          2,433          143,666
Lease termination penalty            109,000      (106,567)            -         (2,433)               -
                                  ----------     ---------     ---------        -------         --------
Total                             $1,480,000     $(322,712)    $(573,767)       $     -         $583,521
                                  ==========     =========     =========        =======         ========

<CAPTION>

                                   Facility                    2004 Activity                    Facility
                                  Exit Costs     ----------------------------------------      Exit Costs
                                   Accrued         Cash           Asset         Change          Accrued
                                June 30, 2003    Payments      Write-offs    in Estimates    June 30, 2004
                                -------------    --------      ----------    ------------    -------------


                               <c>            <c>           <c>              <c>             <c>
Lease costs                       $439,855       $(456,798)    $      -         $16,943         $      -
Facility refurbishment costs       143,666          (6,714)           -               -          136,952
                                  --------       ---------     --------         -------         --------
Total                             $583,521       $(463,512)    $      -         $16,943         $136,952
                                  ========       =========     ========         =======         ========
</TABLE>

During fiscal 2004, lease costs of $456,798 for the Salem, New Hampshire
facility, consisting of rent expense and utilities for the period July 1,
2003 through June 30, 2004, were paid and charged to the facility exit
costs accrual.


<PAGE>  F-14


<TABLE>
<CAPTION>

                                   Facility                    2005 Activity                    Facility
                                  Exit Costs     ----------------------------------------      Exit Costs
                                   Accrued         Cash           Asset         Change          Accrued
                                June 30, 2004    Payments      Write-offs    in Estimates    June 30, 2005
                                -------------    --------      ----------    ------------    -------------


                               <c>            <c>           <c>              <c>             <c>
Facility refurbishment costs      $136,952       $(7,962)      $       -        $      -        $128,990
</TABLE>

During fiscal 2005, refurbishment costs of $7,962 were paid and charged to
the facility exit costs accrual. The remaining accrued facility exit costs
at June 30, 2005 represents the estimated costs to refurbish the facility.
The Company expects to pay the balance of the accrued facility exit costs
by the end of fiscal 2006.

7.    INDEBTEDNESS

Long-term debt at June 30 consisted of:

<TABLE>
<CAPTION>

                                                                2005           2004


                                                         <c>            <c>
Loan and Security Agreement                                 $ 6,044,340    $ 3,618,091
Parlex Shanghai term notes                                    7,662,569      8,870,792
Parlex Interconnect term note                                   604,120              -
Parlex Asia banking facility                                  2,402,501              -
Finance obligation on sale-leaseback of Methuen Facility      8,377,432      5,909,245
Convertible Subordinated Notes                                5,015,609      4,404,351
Other                                                           548,151        593,277
                                                            -----------    -----------
Total long-term debt                                         30,654,722     23,395,756
Less: current portion of long-term debt                      17,131,613     12,861,077
                                                            -----------    -----------
Long-term debt                                              $13,523,109    $10,534,679
                                                            ===========    ===========
</TABLE>

A summary of the current portion of our long-term debt described above is
as follows:

<TABLE>
<CAPTION>

                                                                2005           2004


                                                         <c>
Loan and Security Agreement                                 $ 6,044,340    $ 3,618,091
Parlex Shanghai term notes                                    7,662,569      8,870,792
Parlex Interconnect term note                                   604,120              -
Parlex Asia banking facility                                  2,402,501              -
Finance obligation on sale-leaseback of Methuen Facility        153,685        263,849
Convertible Subordinated Notes                                   93,750              -
Other                                                           170,648        108,345
                                                            -----------    -----------

Total current portion of long-term debt                     $17,131,613    $12,861,077
                                                            ===========    ===========
</TABLE>

The scheduled maturities for long-term debt, excluding sale lease back and
capital lease obligations, at June 30, 2005 are $17,131,613 in fiscal year
2006, $313,969 in fiscal 2007, $5,338,549 in fiscal 2008 and $413,523 in
fiscal 2009.

Interest paid during the years ended June 30, 2005, 2004 and 2003 was
approximately $1,854,914, $1,371,000 and $767,000, respectively.


<PAGE>  F-15


The weighted average interest rate on the Company's short-term borrowings
as of June 30, 2005 and 2004 is 6.379% and 5.561%, respectively.

Loan and Security Agreement (the "Loan Agreement") - The Company executed
the Loan Agreement with Silicon Valley Bank on June 11, 2003 and since that
date has entered into eight amendments to the Loan Agreement. As amended,
the Loan Agreement provided Silicon Valley Bank with a secured interest in
substantially all of the Company's assets. The Company may borrow up to
$12,000,000, based on a borrowing base of eligible accounts receivable plus
the lessor of 20% of eligible inventory or $1.0 million. Borrowings may be
used for working capital purposes only. The Loan Agreement allows the
Company to issue letters of credit, enter into foreign exchange forward
contracts and incur obligations using the bank's cash management services
up to an aggregate limit of $1,000,000, which reduces the Company's
availability for borrowings under the Loan Agreement. As of June 30, 2005,
the Company had a $1,000,000 letter of credit outstanding. The Loan
Agreement contains certain restrictive covenants, including but not limited
to, limitations on debt incurred by its foreign subsidiaries, acquisitions,
sales and transfers of assets, and prohibitions against cash dividends,
mergers and repurchases of stock without prior bank approval. The Loan
Agreement also has financial covenants, which among other things require
the Company to maintain $750,000 in minimum cash balances or excess
availability under the Loan Agreement.

On December 22, 2004, the Company executed a Seventh Loan Modification
Agreement (the "Seventh Modification Agreement") with Silicon Valley Bank.
The Seventh Modification Agreement increased the Company's maximum
borrowings to $12.0 million based upon a borrowing base of eligible
accounts receivable plus the lesser of 20% of eligible inventory or $1.0
million. The Seventh Modification Agreement reduced the interest rate on
borrowings to the bank's prime rate (6.00% at June 30, 2005) plus 2.00%
(decreasing to prime plus 1.25% after two consecutive quarters of positive
operating income and to prime plus 0.50% after two consecutive quarters of
positive net income, respectively). The Seventh Modification Agreement
changed the EBITDA requirement to $500,000 on a three month trailing basis
as of the period ending December 31, 2004 and each month thereafter until
May 31, 2005 and to $750,000 on a three month trailing basis as of the
period ended June 30, 2005 and each month thereafter. The Seventh
Modification Agreement also extended the maturity date of the Loan
Agreement from July 11, 2005 to July 11, 2006. On May 10, 2005, the Company
executed an Eighth Loan Modification Agreement (the "Eighth Modification
Agreement") with Silicon Valley Bank. The Eighth Modification Agreement
changed the EBITDA requirement to $1.00 on a monthly basis as of the period
ended April 30, 2005 and May 31, 2005 and $750,000 on a trailing three
month basis as of the period ended June 30, 2005 and each month thereafter.
As of June 30, 2005, the Company was in compliance with its financial
covenants and expects to be so in 2006. At June 30, 2005, the Company had
available borrowing capacity under the Loan Agreement of approximately $3.0
million. As the available borrowing capacity exceeded $750,000 at June 30,
2005, none of the Company's cash balance was subject to restriction at June
30, 2005. The Loan Agreement is currently scheduled to mature on July 11,
2006.

The Loan Agreement includes both a subjective acceleration clause and a
lockbox arrangement that requires all lockbox receipts to be used to pay
down the revolving credit borrowings. Accordingly, borrowings under the
Loan Agreement are classified as current liabilities in the accompanying
consolidated balance sheets as of June 30, 2005 as required by Emerging
Issues Task Force Issue No. 95-22, " Balance Sheet Classification of
Borrowings Outstanding Under Revolving Credit Agreements that include both
a Subjective Acceleration Clause and a Lockbox Arrangement". However, such
borrowings will be excluded from current liabilities in future periods and
considered long-term obligations if: 1) such borrowing are refinanced on a
long-term basis, 2) the subjective acceleration terms of the Loan Agreement
are modified, or 3) such borrowings will not require the use of working
capital within one year.


<PAGE>  F-16


Parlex Shanghai Term Notes - Parlex (Shanghai) has entered into a number of
short term borrowing arrangements with several lending institutions. A
summary of the Parlex Shanghai term notes at June 30 are as follows:

<TABLE>
<CAPTION>

                                                                        2005          2004


                                                                  <c>           <c>
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect        $2,537,000    $2,537,000
Due January 2006 at LIBOR plus 2.5% and guaranteed by Parlex Asia     1,500,000     1,500,000
Due June 2006 at 5.58% and guaranteed by Parlex Interconnect          1,269,000     1,269,000
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect         1,027,000     1,027,000
Due April 2006 at 5.58% and guaranteed by Parlex Interconnect           725,000       725,000
Due March 2006 at 5.58% and guaranteed by Parlex Interconnect           604,000       604,000
Due August 2004 at 5.84% and guaranteed by Parlex Interconnect                -     1,209,000
                                                                     ----------    ----------

Total Parlex Shanghai term notes                                     $7,662,000    $8,871,000
                                                                     ==========    ==========
</TABLE>

Parlex Interconnect Term Notes - On October 28, 2004, Parlex Interconnect
entered into a $605,000 short-term bank note, due October 27, 2005, bearing
interest at 5.31% and guaranteed by Parlex Shanghai.

Parlex Asia Banking Facility - On September 15, 2004, Parlex Asia entered
into an agreement with the Bank of China for a $5.0 million banking facility
guaranteed by Parlex. Under the terms of the banking facility, Parlex Asia
may borrow up to $5.0 million based on a borrowing base of eligible account
receivables. The banking facility bears interest at LIBOR plus 2.00%.
Amounts outstanding as of June 30, 2005 totaled $2.4 million.

Finance Obligation on Sale Leaseback of Methuen Facility - In June 2003,
Parlex entered into a sale-leaseback transaction pursuant to which it sold
its corporate headquarters and manufacturing facility located in Methuen,
Massachusetts (the "Methuen Facility") for a total purchase price of $9.0
million. The purchase price consisted of $5.35 million in cash at the
closing, a promissory note in the amount of $2.65 million (the "Promissory
Note") and up to $1.0 million in additional cash under the terms of an Earn
Out Clause (the "Earn Out"). In June 2004, Parlex received $750,000 reducing
the principal balance of the Promissory Note to $1.9 million. On February 25,
2005, the landlord sold the Methuen Facility and paid the Company the
remaining principal balance due on the Promissory Note of $1.9 million and
agreed to pay the sum of $675,000 in full settlement of the Earn Out. Pursuant
to the terms of the sale of the Methuen Facility, $400,000 of the $675,000 was
placed in escrow as security for certain of the Company's remaining lease
obligations.

As the repurchase option contained in the lease and the receipt of the Note
from the buyer provided Parlex with a continuing involvement in the Methuen
Facility, Parlex has accounted for the sale-leaseback of the Methuen
Facility as a financing transaction. Accordingly, the Company continues to
report the Methuen Facility as an asset and continues to record
depreciation expense. The Company records all cash received under the
transaction as a finance obligation. The Promissory Note and related interest
thereon, and the cash due under the terms of the Earn Out were recorded as an
increase to the finance obligation as cash payments were received. The Company
records the principal portion of the monthly lease payments as a reduction to
the finance obligation and the interest portion of the monthly lease payments
is recorded as interest expense. The closing costs for the transaction have
been capitalized and are being amortized as interest expense over the
initial 15-year lease term. Upon expiration of the repurchase option in
June 30, 2015, the Company will reevaluate its accounting to determine
whether a gain or loss should be recorded on this sale-leaseback
transaction.

Convertible Subordinated Notes - On July 28, 2003, Parlex sold an aggregate
$6.0 million of its 7% convertible subordinated notes (the "Notes") with
attached warrants to several institutional investors. The Company received
net proceeds of approximately $5.5 million from the transaction, after
deducting approximately $500,000 in finders' fees and other transaction
expenses. Net proceeds were used to pay down


<PAGE>  F-17


amounts borrowed under the Company's Loan Agreement and utilized for
working capital needs. No principal payments are due until maturity on July
28, 2007. The Notes are unsecured.

The Notes bear interest at a fixed rate of 7%, payable quarterly in shares
of Parlex common stock. The number of shares of common stock to be issued
is calculated by dividing the accrued quarterly interest by a conversion
price, which was initially established at $8.00 per share. The conversion
price is subject to adjustment in the event of stock splits, dividends and
certain combinations.

Interest expense is recorded quarterly based on the fair value of the
common shares issued. Accordingly, interest expense may fluctuate from
quarter to quarter. The Company has concluded that the interest feature
does not constitute an embedded derivative as it does not currently meet
the criteria for classification as a derivative.

The Company recorded accrued interest payable on the Notes of $76,113
within stockholders' equity at June 30, 2005, as the interest is required
to be paid quarterly in the form of common stock. Based on the conversion
price of $8.00 per common share, the Company issued a total of 88,086
shares of common stock from October 2003 to April 2005 in satisfaction of
previously recorded interest and issued 13,123 shares of common stock in
July 2005 as payment for the interest accrued at June 30, 2005.

The Notes contained a beneficial conversion feature reflecting an effective
initial conversion price that was less than the fair market value of the
underlying common stock on July 28, 2003. The fair value of the beneficial
conversion feature was approximately $1.035 million, which has been
recorded as an increase to additional paid-in capital and as an original
issue discount on the Notes that is being amortized to interest expense
over the 4-year life of the Notes.

The Company has the right to redeem all, but not less than all, of the Notes
at 100% of the remaining principal of Notes then outstanding, plus all accrued
and unpaid interest, under certain conditions. After July 28, 2006, the holder
of any of the Notes may require the Company to redeem the Notes in whole, but
not in part. Such redemption shall be at 100% of the remaining principal of
such Notes, plus all accrued and unpaid interest. In the event of a Change in
Control (as defined therein), the holder has the option to require that the
Notes be redeemed in whole (but not in part), at 120% of the outstanding
unpaid principal amount, plus all unpaid interest accrued. The Company has
concluded that the Change in Control feature constitutes an embedded
derivative. Accordingly, the increase or decrease in the fair value of the
Change in Control feature is being recorded as an expense, which may fluctuate
from period to period. Derivative expense of $93,750 relating to the Change in
Control feature was recorded during the year ended June 30, 2005.

8.    OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities at June 30 consisted of:

<TABLE>
<CAPTION>

                                     2005         2004


                                <c>         <c>
Deferred income taxes (Note 9)     $157,427    $  321,111
Deferred compensation               529,278       703,980
                                   --------    ----------

                                   $686,705    $1,025,091
                                   ========    ==========
</TABLE>

Deferred compensation of $212,000 at June 30, 2005 ($182,000 at June 30,
2004) is to be paid within one year and is included within accrued
liabilities in the respective consolidated balance sheets.


<PAGE>  F-18


9.    INCOME TAXES

Loss from continuing operations before income taxes and minority interest
consisted of:

<TABLE>
<CAPTION>

                2005            2004            2003


                         <c>             <c>
Domestic    $(5,428,673)    $(1,936,850)    $(5,515,107)
Foreign       4,872,251       1,609,404         (74,439)
            -----------     -----------     -----------

Total       $  (556,422)    $  (327,446)    $(5,589,546)
            ===========     ===========     ===========
</TABLE>

The benefit (provision) for income taxes related to continuing operations
consisted of:

<TABLE>
<CAPTION>

                                                     2005            2004            2003


                                   <c>        <c>             <c>             <c>
Current:
                                        State    $    19,335     $   (71,746)    $         -
                                      Federal              -               -          37,450
                                      Foreign        242,945         (81,942)        (22,108)
                                                 -----------     -----------     -----------
                                                     262,280        (153,688)         15,342
Deferred:
                                        State       (455,318)       (147,057)       (309,118)
                                      Federal     (1,163,445)     (1,010,106)     (1,064,739)
                                      Foreign       (107,200)         32,711               -
                                                 -----------     -----------     -----------
                                                  (1,725,963)     (1,124,452)     (1,373,857)
Tax Credits:
                                        State        314,997         938,079         219,717
                                      Federal        450,000         855,226         (74,057)
                                                 -----------     -----------     -----------
                                                     764,997       1,793,305         145,660

Tax Benefit from (Utilization of)
 Net Operating Loss Carryforwards:
                                        State        379,202         506,408         396,335
                                      Federal      2,354,244       1,166,993       3,044,441
                                      Foreign              -        (230,151)              -
                                                 -----------     -----------     -----------
                                                   2,733,446       1,443,250       3,440,776

Valuation Allowance                               (1,879,680)     (1,903,414)     (8,817,504)
                                                 -----------     -----------     -----------

Total                                            $   155,080     $    55,001     $(6,589,583)
                                                 ===========     ===========     ===========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                  2005      2004     2003


                                                              <c>       <c>       <c>
Statutory federal income tax rate                                 (34)%     (34)%    (34)%
State income taxes, net of federal tax benefit                     98       131       (3)
Tax credits                                                      (137)     (577)      (9)
Foreign income taxed at lower rates                              (287)      (82)       3
Change in valuation allowance on U.S. net deferred tax assets     337       581      158
Other                                                              51        (2)       3
                                                                 ----      ----      ---

Effective income tax rate                                          28%       17%     118%
                                                                 ====      ====      ===
</TABLE>

No provision for U.S. income taxes has been recorded on the undistributed
earnings of the Company's subsidiary, Poly-Flex Circuits Limited
(approximately $721,000 at June 30, 2005), because such amounts are
considered permanently invested.


<PAGE>  F-19


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

<TABLE>
<CAPTION>

                                                       2005             2004


                                               <c>              <c>
Deferred tax assets:
  Inventories                                     $  1,061,489     $  1,128,602
  Allowance for doubtful accounts                      131,323          287,290
  Accruals                                             458,595          564,341
  Deferred compensation                                267,968          332,854
  Domestic net operating loss carryforwards         18,032,448       15,599,347
  Foreign allowances for doubtful accounts              26,474           82,958
  Valuation allowance                              (23,125,882)     (17,071,986)
  Impairments of property, plant and equipment       2,097,572
  Tax credit carryforwards                           5,765,631        4,642,715
  Other                                                113,972          132,435
                                                  ------------     ------------

                                                     4,829,590        5,698,556
                                                  ------------     ------------

Deferred tax liabilities:
  Depreciation                                       4,545,479        5,416,100
  Deferred loss on sale leaseback                      316,602          423,630
  Prepaid expenses                                      97,928           96,445
  Other                                                    534              534
                                                  ------------     ------------

                                                     4,960,543        5,936,709
                                                  ------------     ------------

Net deferred tax liability                        $    130,953     $    238,153
                                                  ============     ============
</TABLE>

As a result of its history of operating losses and uncertain future
operating results, the Company determined during the year ended June 30,
2003 that it was more likely than not that certain historic and current
year income tax benefits would not be realized. Consequently, the Company
established a valuation allowance against all of its U.S. deferred tax
assets in that year and has not given recognition to these tax assets in
the accompanying financial statements at June 30, 2005. Upon a favorable
change in the operations and financial condition of the Company that
results in a determination that it is more likely than not that all or a
portion of the net deferred tax assets will be utilized, all or a portion
of the valuation allowance previously provided for will be eliminated.

Tax credit carryforwards consist primarily 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. Research
and development tax credits, if not utilized, will expire in the years 2008
through 2024. The Company's investment credits do not expire and can be
carried forward indefinitely.

At June 30, 2005, the Company has recorded net deferred tax assets of
$26,474 related to foreign temporary differences and net deferred tax
liabilities of $157,427 consisting of depreciation timing differences
related to foreign jurisdictions.

At June 30, 2005, the Company has available federal and state net operating
loss carryforwards of approximately $44,991,000 and $44,555,000,
respectively, expiring beginning in 2022 and 2006, respectively.

Income tax payments of approximately $33,938, relating to certain state
jurisdictions, and approximately $227,680, relating to foreign jurisdictions,
were made in 2005. Income tax refunds of approximately $367,328, $317,337 and
$1,489,000 were received in 2005, 2004 and 2003, respectively. The income tax
refunds are primarily due to tax credit refunds and the carryback of the
Company's 2003 and 2002 state and federal net operating losses to prior
years' tax periods.


<PAGE>  F-20


10.   STOCKHOLDERS' EQUITY

Series A Convertible Preferred Stock - On May 7, 2004 and June 8, 2004, the
Company completed a private placement of 40,625 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and warrants
at $80.00 per unit for proceeds of approximately $3.0 million, net of
issuance costs of approximately $300,000. In connection with the private
placement, investors received rights to purchase additional shares of the
Series A Preferred Stock (the "Over-Allotment Right"). The warrants are
exercisable immediately and entitle holders to purchase 203,125 shares of
common stock at an exercise price of $8.00 per share (subject to adjustment
for certain dilutive events) and expire on May 7, 2007 and June 8, 2007.

The Series A Preferred Stock may be converted in whole or in part at any
time by the holders at an initial conversion price of $8.00 per share.
The Series A Preferred Stock is redeemable at the Company's option on the
third anniversary of the closing, upon 30 days notice to the holders, in
whole but not in part, at $80.00 per share (subject to adjustment for
certain dilutive events) together with all accrued but unpaid dividends to
the redemption date. The Series A Preferred Stockholders have no voting
rights, except with respect to certain limited matters that directly impact
the Series A Preferred Stock.

The initial conversion price of $8.00 is adjusted for certain dilutive
events. The Series A Preferred Stock is subject to mandatory conversion
if the Company's common stock price closes above $12.00 per share for
twenty (20) consecutive trading days.

The Series A Preferred Stock is entitled to receive cumulative dividends at
an annual rate of 8.25% ($6.60 per share), payable quarterly in cash or
shares of common stock or a combination of cash and stock at the election
of the Company. In the event the Company does not exercise its right to
redeem the Series A Preferred Stock on the third anniversary, the dividend
rate shall increase to 14% ($11.20 per share) per annum payable quarterly
exclusively in cash.

The Preferred Stock also entitles the holders thereof to a preferential
payment in the event of the Company's voluntary or involuntary liquidation,
dissolution or winding up. Specifically, in any such case, the holders of
Preferred Stock shall be entitled to be paid, out of the Company's assets
that are available for distribution to our shareholders, the sum of $80.00
per share of Preferred Stock held, or $3.25 million, plus all accrued and
unpaid dividends thereon, prior to any payments being made to holders of
our common stock. The $80.00 per share liquidation preference payment
amount is subject to equitable adjustment for stock splits, stock
dividends, combinations, reorganizations and similar events effecting the
shares of Preferred Stock.

The Over-Allotment Right, which has now expired, allowed each investor to
purchase additional shares of Series A Preferred Stock in an amount up to
20% of the original purchase and on the same terms as the original
purchase.

As the original price of $80.00 included a share of Series A Preferred
Stock, a warrant to purchase five shares of common stock and the Over-
Allotment Right, the Company used the relative fair value method to record
the transaction. Accordingly, $2.668 million, $486,000 and $96,000 of the
gross proceeds were attributed to the 40,625 shares of Series A Preferred
Stock, the 203,125 common stock warrants and the Over-Allotment Right,
respectively. Since 38,750 shares of Series A Preferred Stock were issued
for an effective purchase price of $6.56 per share, which was lower than
the fair market value of the common stock at the date of closing, the
investors realized a beneficial conversion feature of approximately
$131,750. Accordingly, the beneficial conversion feature and the relative
fair value of the warrants and Over-Allotment Right have been recorded as
an increase to additional paid-in capital. The beneficial conversion
feature was immediately accreted.


<PAGE>  F-21


Common Stock Warrants - The Company has issued common stock warrants in
connection with certain financings. All warrants are currently exercisable.
The following table summarizes information about common stock warrants
outstanding to lenders and investors at June 30, 2005:

<TABLE>
<CAPTION>

                              Weighted-Average
Fiscal Year       Number          Exercise          Expiration
  Granted      Outstanding          Price              Date
-----------    -----------    ----------------      ----------


              <c>                <c>           <c>
2003              25,000            $6.89         June 10, 2008
2004             225,000             8.00         July 28, 2007
2004              31,500             8.00         July 28, 2008
2004             193,750             8.00         May 7, 2007
2004               9,375             8.00         June 8, 2007
                 -------            -----

Total            484,625            $7.94
                 =======            =====
</TABLE>

Upon execution of the Loan Agreement on June 11, 2003, the Company issued
warrants for the purchase of 25,000 shares of its common stock to Silicon
Valley Bank at an initial exercise price of $6.89 per share. The exercise
price is subject to future adjustment under certain conditions, including
but not limited to, stock splits and stock dividends. The fair value of the
warrants on June 11, 2003 was approximately $100,600, which was recorded as
a deferred financing cost and is being amortized to interest expense over
the life of the Loan Agreement. Amortization expense for the years ended
June 30, 2005 and 2004 was $47,496 and $50,300, respectively.

In connection with the sale of the Convertible Subordinated Notes, the
investors and the investment adviser received warrants to purchase 331,500
shares of common stock, at an initial exercise price of $8.00 per share.
The exercise price of the warrants is subject to adjustment in the event of
stock splits, dividends and certain combinations. The relative fair value
of the warrants issued to the investors and to the investment adviser on
July 28, 2003 was approximately $1.0 million and $146,000, respectively.
The relative fair value of the warrants was recorded as an increase in
additional paid-in capital and as original issuance discount recorded
against the carrying value of the Notes. In December 2003, one of the
investors exercised their warrants to purchase 75,000 shares of Parlex
common stock and the Company received proceeds of $600,000. The original
issue discount is being amortized to interest expense over the 4-year life
of the Note and totaled $289,200 and $258,700 for the years ended June 30,
2005 and 2004, respectively.

In connection with the sale of the Series A Convertible Preferred Stock,
the investors received common stock purchase warrants for an aggregate of
203,125 shares of common stock at an initial exercise price of $8.00 per
share. The conversion price of the Preferred Stock and the exercise price
of the Warrants are subject to adjustment in the event of stock splits,
dividends and certain combinations.

Treasury Stock - Effective July 1, 2004, companies incorporated in
Massachusetts became subject to the Massachusetts Business Corporation Act
("Chapter 156D"). Chapter 156D provides that shares that are reacquired by
a company become authorized but unissued shares. As a result, Chapter 156D
eliminates the concept of "treasury shares". Accordingly, shares previously
reported as treasury stock by the Company have been redesignated, at an
aggregate cost of approximately $1.0 million, as authorized but unissued
shares. This aggregate cost has been allocated to the common stock's par
value and additional paid-in capital.

Stock Option Plans - The Company has incentive and nonqualified stock
option plans covering officers, key employees and non-employee 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. Non-employee
directors receive an automatic grant of 1,500 options annually with the
exception of Mr. Lynn Davis, who does not receive any such grant.
Additionally, grants of up to 2,250 options annually, per director, may
also be made at the discretion of the Board of Directors. No discretionary
grants were made to the directors in 2005, 2004 or 2003. Nonqualified stock
options may be granted at fair market value or at a price determined by the
Board of Directors, depending on the plan. No options awarded to date by
the Board of


<PAGE>  F-22


Directors have been granted at an exercise price that is less than the fair
market value of the common stock at the date of grant.

At June 30, 2005, there were 642,668 shares reserved for future issuance
upon exercise of grants under its plans.

The following is a summary of activity for all of the Company's stock
option plans:

<TABLE>
<CAPTION>

                         Options                   Options
                       Outstanding               Exercisable
                  --------------------    ------------------------
                             Weighted-                   Weighted-
                              Average                     Average
                  Shares      Exercise                    Exercise
                  Under      Price Per       Shares      Price Per
                  Option       Share      Exercisable      Share


              <c>           <c>          <c>            <c>
July 1, 2002     470,750       $14.63       229,370         15.56

  Granted        126,150        11.21
  Surrendered    (80,125)       18.90
  Exercised       (9,000)        5.84
                 -------       ------

June 30, 2003    507,775        13.26       253,115         14.51

  Granted         91,000         8.40
  Surrendered    (31,000)       12.30
                 -------       ------

June 30, 2004    567,775       $12.54       346,838        $13.83

  Granted        132,500         5.99
  Surrendered    (34,750)       12.32
                 -------       ------

June 30, 2005    665,525       $11.24       397,692        $13.34
                 =======       ======
</TABLE>

The following table sets forth information regarding options outstanding at
June 30, 2005:

<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


                  <c>               <c>          <c>        <c>          <c>
$ 4.95 - $ 6.91      142,000           8.4          $ 5.99      12,000      $ 6.05
  8.39 -  10.48      135,000           7.6            9.04      59,500        9.43
 11.37 -  13.25      261,275           5.8           12.17     198,942       12.27
 15.50 -  16.25       63,250           4.0           16.18      63,250       16.18
 18.75 -  19.13       62,000           2.3           18.78      62,000       18.78
          22.00        2,000           4.9           22.00       2,000       22.00
                     -------           ---          ------     -------      ------
$ 5.67 - $22.00      665,525           6.2          $11.24     397,692      $13.34
                     =======           ===          ======     =======      ======
</TABLE>


<PAGE>  F-23


11.   RELATED PARTY TRANSACTION

The Company purchased $580,000 of equipment in fiscal 2003, from a company
in which a then executive officer of Parlex had a financial interest.
Effective February 24, 2003, the executive officer was no longer employed
by the Company. As of June 30, 2004, all amounts owed for equipment
purchases from this party had been paid. There were no transactions with
this party during fiscal 2005.

12.   JOINT VENTURES

Infineon - On December 22, 2004, Parlex entered into a Joint Venture
Agreement (amended March 28, 2005), Stock Transfer Agreement and License
Agreement (collectively, the "Agreements") with Infineon Technologies Asia
Pacific Pte. Ltd ("Infineon"), a wholly-owned subsidiary of Infineon
Technologies AG. Pursuant to the Agreements, Infineon will purchase, for an
aggregate $3.0 million, a 49% interest in a new entity formed by Parlex.
Under the terms of the Agreements, as amended to date, the Company is
required to obtain certain governmental approvals from the People's
Republic of China with respect to establishing the new entity, and be able
to consummate the transaction no later than October 31, 2005 (the "Outside
Closing Date").

Upon execution of the Agreements, the Company received a deposit of an
aggregate $1.0 million of the total purchase price. Specifically, Infineon
paid $500,000 to the Company as consideration for the License Agreement,
pursuant to which the Company granted Infineon a license relating to
certain proprietary technology used in connection with the business to be
operated by the joint venture. Infineon also paid $500,000 of the $2.5
million to be payable to the Company under the Stock Transfer Agreement,
with the remaining $2.0 million to be paid at closing. In the event the
transaction is not consummated on or before the Outside Closing Date, the
Company is required to repay the $1.0 million, or Infineon shall be
entitled to offset such amount against certain Company invoices submitted
to Infineon.

Parlex Shanghai - On October 22, 2001, the Company executed an agreement
(the "Agreement") to purchase a 40% joint venture interest in Parlex
Shanghai, bringing the Company's interest to 90.1%. The Agreement required
the Company to pay the sum of $2.2 million. The purchase price was
allocated to acquired accounts receivable, inventory, property, plant and
equipment, accounts payable, accrued liabilities and debt, and resulted in
goodwill of approximately $251,000. Prior to the acquisition, a
distribution of retained earnings was declared based upon each joint
venture partners' proportional share of Parlex Shanghai's registered
capital as of December 30, 2000. Minority interest in the consolidated
statements of operations represents the minority shareholder's share of the
income or loss of Parlex Shanghai. The minority interest in the
consolidated balance sheets reflect the original investment, net of any
distributions, by these minority shareholders in Parlex Shanghai, along
with their proportional share of the earnings or losses of Parlex Shanghai.

13.   BENEFIT PLAN

The Company sponsors 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. Effective September 1, 2001, the Company
suspended the employer matching contribution. There were no Company
contributions to the Plan for the years ended June 30, 2005, 2004, and
2003.

14.   COMMITMENTS AND CONTINGENCIES

Leases - The Company leases certain property and equipment under agreements
generally with initial terms from three to five years with renewal options.
As discussed in Note 5 and 7, the Company entered into two sale-leaseback
transactions where the Company sold two facilities on June 10, 2003 to an
unaffiliated third party and leased them back. As a result of provisions in
the sale and leaseback agreement for the Methuen facility that provides for
continuing involvement by the Company, the Company has accounted for the
sale-leaseback of the Methuen Facility as a finance obligation. Since the
Company has no continuing involvement in the leaseback of the Poly-Flex
facility, the Company has accounted for the leaseback utilizing sale-
leaseback accounting.


<PAGE>  F-24


Accordingly, the Company has recorded a deferred loss on the sale and will
account for all of its payments as an operating lease. The deferred loss
will be amortized to lease expense over the initial 5-year lease term.

Rental expense approximated $1,627,000, $1,332,000 and $1,198,000 for the
years ended June 30, 2005, 2004 and 2003, respectively. Amortization of the
deferred loss, reported as a component of rent expense, for the years ended
June 30, 2005, 2004 and 2003 was $274,764, $274,764 and $11,448,
respectively. Future payments under noncancelable leases as of June 30,
2005, including payments related to the two sale-leasebacks are:

<TABLE>
<CAPTION>

                                               Finance Obligation      Operating Leases
                                                (Methuen Facility    (Poly-Flex Facility
                                                and other leases)     and other leases)


                                                <c>                   <c>
2006                                               $ 1,279,176           $1,908,430
2007                                                 1,285,426            1,743,183
2008                                                 1,354,176            1,180,162
2009                                                 1,309,034              861,628
2010                                                 1,275,000              548,533
Thereafter                                          10,897,917                    -
                                                   -----------            ---------

Total minimum lease payments                        17,400,729           $6,241,936
                                                                         ==========
Less amounts representing interest                  (8,538,365)
                                                   -----------

Present value of net minimum lease payments        $ 8,862,364
                                                   ===========
</TABLE>

Litigation - 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.

Executive Employment Agreements - Three executives of the Company have
entered into employment agreements with the Company which require, among
others, that the Company continue to pay a portion of the executive's
salary to the executive's designated beneficiary for a specified period of
time in the event of the death of the executive. The Company maintains key
life insurance for only one of the three executives. The Company has not
accrued or paid any amounts related to this benefit in any year in the
three years ended June 30, 2005.

15.   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, the Chief Executive Officer. Revenue
consists of product sales, and license fees and royalty income.

In 2005, the Company had one customer which individually accounted for 10%
or more of the Company's revenues. In 2004 and 2003, the Company had no
customers which individually accounted for 10% or more of the Company's
revenues.

One of its customers accounted for more than 10% of accounts receivable in
2005 and no customer accounted for 10% or more of accounts receivable in
2004 or 2003.


<PAGE>  F-25


Summarized information for continuing operations is as follows:

<TABLE>
<CAPTION>

                                                             Year Ended June 30,
                                                     2005            2004           2003


                                              <c>             <c>            <c>
Revenues:
  United States                                  $ 46,909,641    $39,252,606    $36,282,158
  Canada                                              337,039        187,933        167,450
  People's Republic of China                       17,764,673      4,689,568      3,599,446
  Europe                                           14,875,463     14,943,031     11,254,308
  Asia (excluding People's Republic of China)      24,053,284     20,895,959     11,469,844
  Other                                             1,917,089      3,513,309      1,386,531
                                                 ------------    -----------    -----------

Total revenues                                   $105,857,189    $83,482,406    $64,159,737
                                                 ------------    -----------    -----------

The principal product group sales were:
Flexible circuits                                $ 91,701,649    $68,399,088    $49,293,068
Laminated cables                                   14,155,540     15,083,318     14,866,669
                                                 ------------    -----------    -----------

Total revenues                                   $105,857,189    $83,482,406    $64,159,737
                                                 ------------    -----------    -----------

Long-lived assets:

  United States                                  $ 21,290,970    $31,255,215    $33,520,640
                                                 ------------    -----------    -----------

  China                                          $ 17,227,101    $14,671,085    $14,466,382
                                                 ------------    -----------    -----------

  United Kingdom                                 $  2,067,503    $ 2,566,832    $ 2,943,770
                                                 ------------    -----------    -----------
</TABLE>

16.   UNAUDITED QUARTERLY FINANCIAL DATA

Summarized unaudited quarterly financial data for the two most recent
fiscal years are as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>

                                                   First       Second      Third      Fourth
2005 Quarters


                                               <c>         <c>         <c>         <c>
Revenues (1)                                      $28,362     $26,131     $24,059     $27,305
Gross profit (1)                                    5,444       4,627       3,255       5,653
Net loss attributable to common stockholders         (866)     (1,515)     (2,342)     (7,105)
Net loss per share:
  Basic and diluted                                 (0.13)      (0.24)      (0.36)      (1.10)

2004 Quarters

Revenues (1)                                      $17,144     $20,886     $19,705     $25,747
Gross profit (1)                                    3,238       4,165       3,828       5,172
Net (loss) attributable to common stockholders     (2,087)     (1,927)     (2,590)     (1,733)
Net (loss) per share:
  Basic and diluted                                 (0.33)      (0.30)      (0.41)     (0.27)

<FN>
<F1>  Revenues and gross profits have been restated from previously filed
      quarterly reports on Form 10-Q to reflect the discontinued operations
      at June 30, 2005 (see Note 3).
</FN>
</TABLE>


<PAGE>  F-26


17.   SUPPLEMEMTAL INFORMATION

Information with regard to certain valuation and qualifying accounts is as
follows:

                      VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended June 30, 2005, 2004 and 2003

<TABLE>
<CAPTION>

                                                    Additions
                             Balance at     Charges to     Charges to                      Balance at
                             Beginning       Cost and         Other                          End of
                             of Year         Expenses       Accounts       Deductions         Year
                             ------------------------------------------------------------------------

Allowance for Bad Debts


                          <c>            <c>           <c>             <c>             <c>
June 30, 2005                $ 1,337,299    $  408,930    $          -    $  (449,620)    $ 1,296,609
June 30, 2004                    949,261       659,083               -       (271,045)      1,337,299
June 30, 2003                  1,215,178       527,598               -       (793,515)        949,261
-----------------------------------------------------------------------------------------------------

Inventory Obsolescence

June 30, 2005                $ 2,897,516             -               -       (142,941)    $ 2,754,575
June 30, 2004                  2,973,724       186,340               -       (262,548)      2,897,516
June 30, 2003                  3,521,701     1,240,208               -     (1,788,185)      2,973,724
</TABLE>

19.   SUBSEQUENT EVENTS

On August 18, 2005, the Company entered into an Agreement and Plan of
Merger, dated as of August 18, 2005 (the "Merger Agreement"), with Johnson
Electric Holdings Limited, a corporation organized under the laws of
Bermuda ("JE Holdings"), J.E.C. Electronics Sub One, Inc., a Massachusetts
corporation that is wholly-owned by one or more wholly-owned subsidiaries
of JE Holdings ("Merger Sub One"), and J.E.C. Electronics Sub Two, Inc., a
Massachusetts corporation that is wholly-owned by Merger Sub One ("Merger
Sub Two") (collectively, "Johnson"). Pursuant to the Merger Agreement,
Merger Sub Two will merge with and into the Company (the "Merger"), with
the Company continuing as the surviving corporation.

Pursuant to the Merger Agreement, at the effective time of the Merger, each
outstanding share of common stock, par value $0.10 per share, of the
Company (the "Shares"), other than any Shares owned by the Company or
Johnson or any direct or indirect wholly-owned subsidiary of the Company or
JE Holdings, or by any stockholders who are entitled to and who properly
exercise appraisal rights under Massachusetts law, will be converted into
the right to receive $6.75 in cash, without interest, less any required
withholding taxes. Each outstanding share of the Company's Series A
Convertible Preferred Stock, par value $1.00 per share, will be converted
into the right to


<PAGE>  F-27


receive $80.00 (its liquidation value under the terms of the Preferred
Stock) plus any accrued and unpaid dividends, in cash, without interest or
additional dividends thereon, less any required withholding taxes. Each
outstanding option (whether vested or unvested) will be converted into the
right to receive the positive difference (if any) between the exercise
price per share of common stock subject to the option and $6.75, without
interest, less any required withholding taxes.

The Merger Agreement contains certain termination rights and provides that,
upon the termination of the Merger Agreement under specified circumstances,
the Company may be required to pay JE Holdings a termination fee equal to
$2,000,000. In the event the Merger Agreement is terminated for failure to
obtain required stockholder approval, the Company may be required to pay JE
Holdings' expenses up to $400,000.


<PAGE>  F-28


Item 9. Changes In and Disagreements With Accountants on Accounting and
-----------------------------------------------------------------------
        Financial Disclosure
        --------------------

None.

Item 9A. Controls and Procedures
--------------------------------

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports that we are
required to file under the Securities and Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our principal executive officer
and our principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. Management necessarily applied its
judgment in assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable assurance
regarding management's control objectives. Management believes that there
are reasonable assurances that our controls and procedures will achieve
management's control objectives.

We have carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15 as of June 30, 2005. Based upon the foregoing, our Chief
Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Parlex (and its consolidated subsidiaries)
required to be included in our Exchange Act reports.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

Item 9B. Other Information
--------------------------

Not applicable.


<PAGE>  40


                                  PART III

Item 10. Directors and Executive Officers of Registrant
-------------------------------------------------------

Our Directors and Executive Officers

Our Restated Articles of Organization provide for a Board of Directors
consisting of seven members divided into three classes and elected by
stockholders for staggered terms of three years each. Of the current total
of seven directors, three Class I Directors have terms expiring at the 2007
Annual Meeting, two Class II Directors have terms expiring at the 2005
Annual Meeting and two Class III Directors have terms expiring at the 2006
Annual Meeting.

Class I Directors:
(term of office to expire with the annual meeting of stockholders to be
held in 2007)

Lester Pollack (age 72).

Mr. Pollack has been Managing Director of Centre Partners Management LLC, a
private investment firm, since 1986 and was a Managing Director of Lazard
Freres & Co. LLC from 1986 to 1998. As of January 1, 2001, he became a
Limited Managing Director of Lazard Freres & Co. LLC, an investment banking
firm. Mr. Pollack is a director of American Seafoods Group, LLC, Bank Leumi
USA, Center Pacific LLC, KAZ, Inc. and is a director emeritus of U.S.
Bancorp. Mr. Pollack is the brother of Herbert W. Pollack, Parlex's
Chairman. He has been a member of our Board of Directors since 1970.

Richard W. Hale (age 67).

Mr. Hale has been President and Chief Executive Officer of VXI Corporation,
a manufacturer of electronic products for the telephone and computer
industry, since April 1998. He was President and Chief Executive Officer of
Watson Technologies, Inc., a manufacturer of electronic products, from 1996
to March 1998. In addition, he has been Chairman and Chief Executive
Officer of Hale Industries, Inc., a private investment firm, since August
1993. From 1988 to July 1993, he was Executive Vice President and Chief
Operating Officer and a member of the Board of Directors of M/A-Com, Inc.
He has been a member of our Board of Directors since February 1995.

Lynn J. Davis (age 58)

Mr. Davis was appointed to the Board of Directors on October 20, 2003. In
March 2005, he became President, Chief Operating Officer and a member of
the Board of Directors of August Technology Corporation. Mr. Davis has been
a general partner of Tate Capital Partners Fund, LLC, a private investment
firm, since August 2002. He was President and Chief Operating Officer of
ADC Telecommunications, Inc., a manufacturer of communication hardware and
software, for most of 2001, and was the President of the Broadband
Connectivity Group of ADC Telecommunications, Inc. from 1991 to February
2001. Mr. Davis is also a director of Flexsteel Industries, Inc. and
Superconductor Technologies, Inc., and chairman of the Board of Directors
of Infrared Solutions, Inc.


<PAGE>  41


Class II Directors:
(term of office to expire with the annual meeting of stockholders to be
held in 2005)

Peter J. Murphy (age 56).

Mr. Murphy has been our President since July 1, 1995, and on July 1, 1997,
was elected to the office of Chief Executive Officer. He was our Chief
Operating Officer and Executive Vice President from May 1994 to July 1995
and Vice President and General Manager of Flexible Circuit Products from
February 1993 to May 1994. Mr. Murphy initially served as Assistant to the
President from December 1992 to February 1993. From 1989 to December 1992,
he was President of Teledyne Electro-Mechanisms, a manufacturer of flexible
circuits. He has been a director of Parlex since 1994.

Russell D. Wright (age 58).

Mr. Wright was President, Chief Operating Officer and a Director of NSTAR,
a major energy delivery company, from September 1999 until his retirement
in December 2001. Prior to joining NSTAR, he was President and Chief
Executive Officer of Commonwealth Energy System, a major energy delivery
company, from May 1998 to September 1999. From 1993 through May 1998, Mr.
Wright was President of Utility Operations, a division of Commonwealth
Energy System, and from 1987 to 1993 he was Chief Financial Officer of
Commonwealth Energy System. Mr. Wright is a director of Reed and Barton
Corporation.

Class III Directors:
(term of office to expire with the annual meeting of stockholders to be
held in 2006)

Herbert W. Pollack (age 78).

Mr. Pollack has served as Chairman of our Board of Directors since it was
founded in 1970. He was our President from 1970 to July 1, 1995, Chief
Executive Officer from 1970 to June 1997 and Treasurer from 1970 to March
2000. Mr. Pollack is the brother of Lester Pollack, another member of our
Board of Directors.

Sheldon Buckler (age 74).

Dr. Buckler has been Chairman of the Board of Lord Corporation, a provider
of specialty mechanical and chemical products, since January 2000. He was
Chairman of the Board of Trustees of the Massachusetts Eye and Ear
Infirmary, a Harvard Medical School teaching hospital, from 1996 through
2002. He was Chairman of the Board of Commonwealth Energy System, a
supplier of energy products, from May 1995 to September 1999, and an
employee and officer of Polaroid Corporation from 1964 until his retirement
as Vice Chairman in May 1994. Dr. Buckler has been a member of our Board of
Directors since February 1995.

Our Audit Committee

The Audit Committee, consisting of Messrs. Buckler, Hale and Wright held
four meetings during fiscal 2005. The Audit Committee reviews our internal
controls. It also meets with our financial personnel as well as our
independent auditors. The Audit Committee reviews the scope and results of
the professional services provided by our independent auditors and the fees
charged for such services and makes such recommendations to the Board as it
deems appropriate, including recommendations as to the appointment of
independent auditors. The Audit Committee is composed entirely of
independent non-employee directors.


<PAGE>  42


The Board of Directors has determined that all of the members of the Audit
Committee are "financially literate", as that term is defined by NASDAQ
National Market rules. In addition, the Board has determined that at least
one member of the Audit Committee qualifies as an "audit committee
financial expert," as that term is defined in the regulations promulgated
under the Securities Act of 1933, as amended. Mr. Russell Wright, the
Chairman of the Audit Committee, is an audit committee financial expert as
defined by the rules of the SEC.

Executive Officers:

Our executive officers and a description of their business experience
backgrounds (except Herbert W. Pollack and Peter J. Murphy, whose
backgrounds are described above) are as follows:

<TABLE>
<CAPTION>
        Name              Age          Position with the Company
        ----              ---          -------------------------


                       <c>      <c>
Herbert W. Pollack        78       Chairman of the Board of Directors
Peter J. Murphy           56       President, Chief Executive Officer and
                                   Director
Jonathan R. Kosheff       45       Chief Financial Officer and Treasurer
David Price               42       Vice President and General Manager-
                                   Parlex Polymer Flexible Circuits/Surface
                                   Mount Assembly Operations
Eric F. Zanin             40       Vice President-Marketing and Sales
Thibaud LeSeguillon       39       Vice President-Laminated Cable and
                                   Multilayer Business
</TABLE>

Mr. Kosheff joined us in July 2002 as Chief Financial Officer and
Treasurer. From 1993 to 2001, Mr. Kosheff held a variety of financial and
operational positions including Executive Vice President of Operations,
Vice President of Finance and Administration for the Products Group and
Director of Finance for PictureTel Corporation, a provider of video
conference products and services.

Mr. Price joined us in April 1995 as the Assembly Operations Manager for
the Poly-Flex Circuits Polymer Thick Film Operation. In January 1997, he
became VP of Research and Development for Poly-Flex. In March of 2003, he
was appointed Chief Technology Officer for Parlex. In July of 2004, Mr.
Price assumed responsibility for our worldwide Polymer Thick Film
Operations. Prior to joining us, he was Manufacturing Engineering Manager
for Bull Electronics' U.S. printed circuit board assembly operation.

Mr. Zanin joined us in September 1994 as a sales engineer. In March 1995,
Mr. Zanin became Regional Sales Manager and was appointed Director of Sales
and Marketing in November 1998. In March 1999 he was appointed a divisional
Vice President of Sales and Marketing and became Vice President-Sales and
Marketing in August 2000.

Mr. LeSeguillon joined us in May 2001 as Director of International
Business. In October 2001, Mr. LeSeguillon was appointed Vice President-
Worldwide Laminated Cable Business. In June 2003, he assumed responsibility
for our Multilayer operations. Prior to joining Parlex, he was General
Manager of Axon Cable Inc., a manufacturer of cable and cable assemblies.


<PAGE>  43


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers to file reports of holdings and transactions in
Parlex shares with the SEC. To our knowledge, each of our directors and
executive officers met all applicable filing requirements during fiscal 2005.

Parlex Policies on Business Conduct and Ethics

Our Business Ethics and Conduct Booklet sets forth Parlex's standards for
ethical conduct that are expected of all of our directors, officers and
employees. We have also adopted a supplemental Code of Ethics that applies
to our directors and principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. A copy of the Code of Ethics was filed with the
Securities and Exchange Commission as an exhibit to our Annual Report on
Form 10-K for fiscal 2004, and is also available at www.parlex.com in the
Corporate Governance section located through the Investor Relations portion
of our website.  You may also request a free copy of these materials by
writing to the Investor Relations Department, Parlex Corporation, One
Parlex Place, Methuen, MA 01844. We intend to disclose any amendments to,
or waivers from, our Code of Ethics on our website.

Item 11. Executive Compensation
-------------------------------

Compensation of Executive Officers
  The following table shows, for the fiscal years ending June 30, 2005,
2004, and 2003, all compensation earned or paid to our Chief Executive
Officer and each of our four most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 in each year for all
services rendered in all capacities.

                         SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                  Long-Term
                                                                Compensation
                                      Annual Compensation          Awards
                                     ---------------------    -----------------
                                                                 Securities
                                                                 Underlying
Name and                                                        Stock Options          All Other
Principal Position          Year     Salary($)    Bonus($)    (Number of Shares)    Compensation($)
------------------          ----     ---------    --------    ------------------    ---------------


                         <c>      <c>            <c>            <c>                <c>
Herbert W. Pollack(1)       2005     $218,640       -                 -               $141,971(2)
 Chairman                   2004      218,640                                          148,416(2)
                            2003      218,640                                          142,415(2)

Peter J. Murphy(3)          2005     $275,040       -              25,000                    -
 President and Chief        2004      275,040                      17,000
 Executive Officer          2003      275,040                         -

Jonathan R. Kosheff(4)      2005     $200,016       -              15,000                    -
 Chief Financial Officer    2004      200,016                      15,000
                            2003      188,605                      25,000


<PAGE>  44


Thibaud LeSeguillon(5)      2005     $140,016       -               5,000                    -
 Vice President-            2004      135,012                       8,000
 Laminated Cable and        2003      120,000                       5,000
 Multilayer Business

David Price(6)              2005     $122,558       -               5,000                    -
 VP & GM-Parlex
 Polymer Flexible
 Circuits/Surface
 Mount Assembly
 Operations

<FN>
________________
<F1>  For a description of the employment agreement between Parlex and Mr.
      Pollack, see "Employment Agreements and Change of Control Agreements
      with Named Executive Officers" below.
<F2>  The amounts constitute deferred compensation payments under the terms
      of a Deferred Compensation Agreement previously entered into with
      Parlex.
<F3>  For a description of the employment agreement between Parlex and Mr.
      Murphy, see "Employment Agreements and Change of Control Agreements
      with Named Executive Officers" below.
<F4>  For a description of the employment agreement between Parlex and Mr.
      Kosheff, see "Employment Agreements and Change of Control Agreements
      with Named Executive Officers" below.
<F5>  For a description of the change of control agreement between Parlex
      and Mr. LeSeguillon, see "Employment Agreements and Change of Control
      Agreements with Named Executive Officers" below.
<F6>  Mr. Price became an executive officer for reporting purposes for the
      first time in fiscal year 2005 and, therefore, no information is
      reported for earlier years. For a description of the change of
      control agreement between Parlex and Mr. Price, see "Employment
      Agreements and Change of Control Agreements with Named Executive
      Officers" below.
</FN>
</TABLE>

Employment Agreements and Change of Control Agreements with Named Executive
Officers

Herbert Pollack, Chairman. Parlex and Mr. Pollack are parties to an
employment agreement, dated October 1, 2003, that will expire by its terms
on September 30, 2006. Pursuant to this agreement, in the event of a change
of control, Mr. Pollack may elect, in his sole discretion, to receive from
Parlex an amount equal to the aggregate amount accrued to Mr. Pollack's
deferred compensation account, including interest, held by Parlex for Mr.
Pollack since May 1982, and all compensation to be paid to Mr. Pollack
under the agreement through September 30, 2006. As of September 30, 2005,
Mr. Pollack's benefit payment under the terms of the change of control
provision would be $811,824. The payment is to be made within 30 days of
receipt of written notice from Mr. Pollack exercising his rights.

Peter J. Murphy, President and Chief Executive Officer. Parlex and Mr.
Murphy are parties to an employment agreement, dated September 1, 2002,
that has been amended twice to date. As amended, the employment agreement
will expire by its terms on August 31, 2006. The agreement provides for
compensation and benefits and acceleration of unvested stock options in the
event of a change of control. With respect to cash severance payments, the
agreement provides that if Mr. Murphy is terminated without Cause (as
defined in the agreement) within 60 days prior to, or


<PAGE>  45


seven months after, the effective date of a change of control, he will be
entitled to an amount equal to 24 months of base salary at the rate in
effect immediately before his termination date. Assuming Mr. Murphy's rate
of compensation at such point was identical to his current compensation, he
would be entitled to a payment of $550,080. He will also receive
professional outplacement services in an amount not to exceed $50,000 and
payment of health care benefits in effect on his termination date for a
period of 24 months. In addition, all unvested stock options will
immediately become fully vested and exercisable for a period of 90 days
from the date of his termination. Under the agreement, Mr. Murphy also has
the option, commencing at any time following six months after the effective
date of a change of control, but prior to the end of the term of the
agreement, to terminate the agreement. In the event Mr. Murphy exercises
such option, he will be entitled to receive compensation, for a period of
12 months from the date he terminates the agreement, at the monthly rate of
compensation in effect immediately before this termination date, as well as
the payment of health care benefits. Assuming Mr. Murphy's rate of
compensation at such point was identical to his current compensation, he
would be entitled to a payment of $275,040. All of Mr. Murphy's unvested
options will also become immediately vested, and he may exercise such
options for a period up to 90 days following his election to terminate the
agreement.

Jonathan R. Kosheff, Chief Financial Officer. Parlex and Mr. Kosheff are
parties to an employment agreement, dated September 1, 2002, that has been
amended twice to date. As amended, the employment arrangement will expire
by its terms on August 31, 2006. The agreement is identical in all
substantive respects with Mr. Murphy's, described above, except as follows.
In the event of Mr. Kosheff's termination without Cause (as defined in the
agreement), he will be entitled to an amount equal to 18 months of
compensation at the rate of compensation in effect immediately before his
termination date. Assuming Mr. Kosheff's rate of compensation at such point
was identical to his current compensation, he would be entitled to a
payment of $315,000. He will also receive professional outplacement
services in an amount not to exceed $25,000 and payment of health care
benefits in effect on his termination date for a period of 18 months.
Assuming Mr. Kosheff elected to terminate his employment at any time
following six months after the effective date of the change of control, and
assuming a rate of compensation at such point identical to his current
compensation, he would be entitled to a payment of $210,000.

Thibaud LeSeguillon, Vice President - Laminated Cable and Multilayer
Business. Parlex entered into a change of control agreement with Mr.
LeSeguillon on July 21, 2004. The agreement provides for compensation and
benefits and acceleration of unvested stock options upon a change of
control. With respect to cash severance payments, the agreement provides
that if Mr. LeSeguillon is terminated without Cause (as defined in the
agreement) within 60 days prior to, or seven months after, the effective
date of a change of control, he will be entitled to an amount equal to 12
months of compensation at a rate equal to the greater of his monthly base
compensation at (a) the effective date of the agreement or (b) the
termination date, subject to certain adjustments. Assuming Mr.
LeSeguillon's rate of compensation at such point was identical to his
current compensation, he would be entitled to a payment of $140,016. He
shall also receive payment of health care benefits in effect on his
termination date for a period of 12 months. In addition, all unvested stock
options will immediately become fully vested and exercisable for a period
of 90 days from the date of his termination. Under the agreement, Mr.
LeSeguillon also has the option, beginning six months and ending seven
months after the effective date of a change of control, to terminate the
agreement for "good reason," as defined therein. In the event Mr.
LeSeguillon exercises such option, he will be entitled to receive
compensation, for a period of 6 months, at a rate of compensation equal to
the greater of his monthly base compensation at (a) the effective date of
the agreement or (b) the termination date, subject to certain adjustments.
All of Mr. LeSeguillon's unvested options will also become


<PAGE>  46


immediately vested, and he may exercise such options for a period up to 90
days following his election to terminate the agreement. Assuming Mr.
LeSeguillion's current rate of compensation is in effect, in the event that
the agreement is terminated by Mr. LeSeguillon with good reason, the
aggregate cash benefits payable to Mr. LeSeguillon would be approximately
$70,008.

David Price, Vice President and General Manager, Parlex Polymer Flexible
Circuits/Surface Mount Assembly Operations. Parlex entered into a change of
control agreement with Mr. Price on July 21, 2004. The agreement provides
for compensation and benefits and acceleration of unvested stock options
upon a change of control. With respect to cash severance payments, the
agreement provides that if Mr. Price is terminated without Cause (as
defined in the agreement) within 60 days prior to, or seven months after,
the effective date of a change of control, he shall be entitled to an
amount equal to 9 months of compensation at a rate equal to the greater of
his monthly base compensation at (a) the effective date of the agreement or
(b) the termination date, subject to certain adjustments. Assuming Mr.
Price's rate of compensation at such point was identical to his current
compensation, he would be entitled to a payment of $93,600. He shall also
receive payment of health care benefits in effect on his termination date
for a period of 9 months. In addition, all unvested stock options shall
immediately become fully vested and exercisable for a period of 90 days
from the date of his termination. Under the agreement, Mr. Price also has
the option, beginning six months and ending seven months after the
effective date of a change of control, to terminate the agreement for "good
reason", as defined therein. In that event Mr. Price exercises such option,
he shall be entitled to receive compensation, for a period of 6 months, at
a rate of compensation equal to the greater of his monthly base
compensation at (a) the effective date of the agreement or (b) the
termination date, subject to certain adjustments. All of Mr. Price's
unvested options shall also become immediately vested, and he may exercise
such options for a period up to 90 days following his election to terminate
the agreement. Assuming Mr. Price's current rate of compensation is in
effect, in the event that the agreement is terminated by Mr. Price with
good reason, the aggregate cash benefits payable to Mr. Price would be
approximately $62,400.

Option Grants in Last Fiscal Year

The following table sets forth information relating to stock option grants
to the named executive officers during fiscal year 2005. Pursuant to
applicable Securities and Exchange Commission regulations, the amounts
shown under the heading "Potential Realizable Value" are based on
arbitrarily assumed annualized rates of stock price appreciation of five
percent and ten percent, compounded annually, from the date of grant to the
end of the ten-year option term. Actual stock appreciation on options
exercised are dependent on the future performance of our Common Stock and
overall stock market conditions. There can be no assurance that these
values will be achieved.


<PAGE>  47


<TABLE>
<CAPTION>
                                                                                      Potential Realizable Value
                                                                                      at Assumed Annual Rates of
                                                                                     Stock Price Appreciation for
                                                Individual Grants                      Ten-Year Option Term (3)
                            ------------------------------------------------------   ----------------------------
                            Number of    Percent of Total
                            Securities       Options
                            Underlying     Granted to
                             Options        Employees      Exercise
                             Granted        in Fiscal        Price      Expiration
       Name                    (#)         Year 2005(1)    ($/Share)       Date             5%         10%
       ----                 ----------   ---------------   ---------    ----------          --         ---


                          <c>              <c>            <c>        <c>               <c>        <c>
Herbert W. Pollack                 -             -               -         -                   -           -
Peter J. Murphy(2)            25,000          18.9%          $6.00      8/24/2014         94,334     239,061
Jonathan R. Kosheff(2)        15,000          11.3%          $6.00      8/24/2014         56,601     143,437
Thibaud LeSeguillon(2)         5,000           3.8%          $6.00      8/24/2014         18,867      47,812
David Price(2)                 5,000           3.8%          $6.00      8/24/2014         18,867      47,812

<FN>
________________
<F1>  The total number of options granted in fiscal 2005 under our option
      plan was 132,500.
<F2>  The shares were granted under the 2001 Option Plan, at an exercise
      price equal to the fair market value of our stock on the date of
      grant and become exercisable in increments of 25% over the first four
      years of the ten year period, the first 25% becoming exercisable one
      year after the grant date.
<F3>  Potential Realizable Values assume that the price of the Common Stock
      is equal to the exercise price shown for each particular option on
      the date of grant and appreciates at the annual rate shown
      (compounded annually) from the date of grant until the end of the 10-
      year term of the option. These amounts are reported net of the option
      exercise price, but before any taxes associated with exercise or
      subsequent sale of the underlying stock. The actual value, if any, an
      option holder may realize will depend on the extent, if any, to which
      the stock price exceeds the exercise price on the date the option is
      exercised and also will depend on the option holder's continued
      employment by us throughout the vesting period. The actual value to
      be realized by the option holder may be greater or less than the
      values estimated in this table.
</FN>
</TABLE>

Aggregated Option Exercises in Fiscal Year 2005 and Fiscal Year-End Option
Values

The following table sets forth information relating to the aggregate
exercised and unexercised stock options held by the named executive
officers during fiscal year 2005 and the value of their unexercised stock
options as of June 30, 2005.

<TABLE>
<CAPTION>
                                                           Number of Securities           Value of Unexercised
                              Shares                      Underlying Unexercised              In-The-Money
                             Acquired                      Options at 6/30/05(#)        Options at 6/30/05($)(1)
                                on           Value      ---------------------------   ---------------------------
     Name                   Exercise(#)   Realized($)   Exercisable   Unexercisable   Exercisable   Unexercisable
     ----                   -----------   -----------   -----------   -------------   -----------   -------------


                              <c>          <c>         <c>           <c>               <c>            <c>
Herbert W. Pollack               -            -                -             -             -              -
 Chairman

Peter J. Murphy                  -            -           98,750(2)      6,250(2)         (3)            (3)
 President and Chief                                       4,250(4)     37,750(4)         (3)            (3)
 Executive Officer

Jonathan R. Kosheff              -            -           16,250(4)      38,750(4)        (3)            (3)
 Chief Financial Officer

Thibaud LeSeguillon              -            -           11,875(2)         625(2)        (3)            (3)
 Vice President-                 -            -            4,500(4)      13,500(4)        (3)            (3)
 Laminated Cable and
 Multilayer Business

David Price                      -            -             4,125(2)        625(2)        (3)            (3)
 Vice President & GM              -           -             3,250(4)     10,750(4)        (3)            (3)
  Parlex Polymer Flexible
  Circuits/Surface
  Mount Assembly Operations


<PAGE>  48


<FN>
________________
<F1>  The "value of unexercised in-the-money options at June 30, 2005" was
      calculated by determining the difference between the fair market
      value of the underlying Common Stock at June 30, 2005 (closing price
      of our Common Stock on the NASDAQ National Market on June 30, 2005,
      was $5.80 per share) and the exercise prices of the stock options. An
      option is "in-the-money" when the fair market value of the underlying
      Common Stock exceeds the exercise price of the option.
<F2>  These shares were granted under the 1989 Option Plan.
<F3>  The exercise prices of these options were in excess of the closing
      market price of our Common Stock on June 30, 2005.
<F4>  These shares were granted under the 2001 Option Plan.
</FN>
</TABLE>

Report of the Compensation Committee on Executive Compensation

The Committee

The Compensation Committee (the "Committee") is currently comprised of
Messrs. Buckler, Hale and Davis. This is the committee of our board of
directors that is responsible for establishing the compensation of the
Chief Executive Officer and setting policy for compensation of our senior
officers, as well as administering various employee stock option plans. The
Committee is composed of three independent directors.

Compensation Philosophy

The Committee maintains a philosophy that executive compensation levels
should be competitive and consistent with interconnect industry standards
to enable us to attract, motivate and retain executive officers of
outstanding ability who are capable of making significant contributions
which are critical to our success. The Committee believes that such
compensation also should be meaningfully related to both an individual's
job performance, as measured by the achievement of qualitative objectives,
and our performance, as measured by its profitability, the value created
for our stockholders and the realization of our short and long-term
strategic goals. Our compensation policies are designed to attract and
retain talented managers and motivate such managers to enhance our
performance, thereby building value into our business. We also seek to
align the interests of its executives with the long-term interests of
stockholders in the enhancement of stockholder value through stock option
awards that can result in the ownership of our Common Stock.

At present, compensation of our executive officers is composed of the
following elements: annual base salary, annual performance incentives in
the form of cash bonuses and long-term performance incentives in the form
of stock option awards under the 2001 Employees Stock Option Plan.

Base Salary

The Committee's general approach to compensating executive officers is to
pay cash salaries competitive with industry standards based upon the
individual's experience and past and potential contribution to our success.
In determining industry standards, the Committee compares compensation
levels paid by a self-selected group of interconnect industry companies
that compete in our line of business. Such compensation information is
obtained from various publicly available sources.

The Committee also believes that compensation should be meaningfully
related to the value created by individual executive officers for the
stockholders. Accordingly, the Committee considers the quality of an
individual executive's contribution to our overall profitability and


<PAGE>  49


success in determining the executive's salary. The Committee reviews on an
annual basis the salaries of its executive officers in light of the
foregoing factors. We believe that the base salaries of our executive
officers have been at or below the median of the base salaries for
executive officers in the interconnect industry.

Annual Incentives

We have traditionally paid executive performance bonuses once a year,
usually during the first quarter of the following fiscal year for which the
bonus is earned. Bonuses are traditionally based on both individual
performance and our overall performance. There were no performance bonuses
paid to executive officers in fiscal year 2005.

Stock Options

Stock options are used as the primary long-term incentive vehicle. The
Committee believes that reliance upon such incentives is advantageous to us
because they foster a long-term commitment by the recipient to us and
motivate the employees to seek to improve the long-term market performance
of our stock. Thus, stock option grants provide an incentive for the
executive to manage our business from the perspective of an owner with an
equity stake in the business. During fiscal year 2005, the Board authorized
the grant of stock options under both the 1996 Director Plan and the 2001
Employees' Stock Option Plan to certain executive officers and other key
employees. Stock option grants to executive officers are discretionary and
reflect the relative value of the individual's position as well as the
current performance and continuing contribution of that individual to
Parlex. The Board does not utilize any specific formula for determination
of option grants.

Compensation of the Chief Executive Officer

As described in the section above entitled "Employment Agreements and
Change of Control Agreements with Named Executive Officers", Mr. Murphy has
an employment agreement with us whereby Mr. Murphy's annual base salary is
$275,040.

Benefits

We provide medical, life insurance and profit sharing benefits to the
executive officers that generally are available to all of our employees.

Section 162(m) of the Internal Revenue Code

Section 162(m) of the Internal Revenue Code of 1986 (the "Code") limits a
company's ability to take a deduction for federal tax purposes for certain
compensation paid to its executives. We currently expect that all
compensation payable to executive officers during fiscal year 2005 will be
deductible by us for federal income tax purposes. The Committee's policy
with respect to compensation to be paid to executive officers is to
structure compensation payments to executive officers so as to be
deductible under Section 162(m).

                                       COMPENSATION COMMITTEE

                                       Sheldon Buckler, Chairman
                                       Richard W. Hale
                                       Lynn J. Davis


<PAGE>  50


Compensation Committee Interlocks and Insider Participation

None of our Compensation Committee members has ever been a Parlex employee.

Mr. Davis was appointed to our Board of Directors on October 20, 2003 to
replace Dr. Benjamin Rabinovici, who resigned from the Board on such date.
Mr. Davis is a principal of Tate Capital Partners, a private investment
firm that purchased $400,000 of our 7% convertible subordinated notes (the
"Notes"). In 2003, we sold an aggregate of $6 million original principal
amount of the Notes to five institutional investors, including Tate Capital
Partners. Our net proceeds from this transaction, after deduction for fees
and transaction costs, were approximately $5.5 million. The Notes bear
interest at a fixed rate of 7%, payable quarterly in shares of our common
stock, and are convertible into shares of our common stock at an initial
conversion price of $8.00 per share. The Notes are junior to the
indebtedness due to our primary lender, as well as two banks that have
extended loans to our subsidiaries. The Notes mature on July 28, 2007.

The investors in the Notes also received warrants to purchase shares of our
common stock at an initial exercise price of $8.00 per share (the
"Warrants"). Tate Capital Fund's purchase of $400,000 of Notes entitled
them to obtain up to 50,000 shares of our common stock upon conversion of
their Note, and up to 20,000 shares upon exercise of their Warrant. Both
the conversion price of the Notes and the exercise price of the Warrants
may be adjusted in the event of certain corporate transactions that result
in dilution to the stockholders.

Finally, the Notes provide their holders with the ability to require us to
repurchase their Notes at 120% of the issuance amount in the event of a
Change of Control, as such term is defined in the Notes. The consummation
of the Merger will constitute a Change of Control under the Notes.

Director Compensation

Employee directors do not receive any additional compensation for serving
as a director. Each outside director received a $10,000 annual retainer for
his services, plus $1,500 for each of the four quarterly directors'
meetings he attended, except Mr. Davis, who does not receive the annual
retainer, but does receive $1,500 for each meeting he attends.

Stock Performance Graph

The following Stock Performance Graph compares the cumulative total
shareholder return on our Common Stock for a five year period (July 1, 2000
to June 30, 2005) with the cumulative total return of the CRSP Total Return
Index for the NASDAQ National Market and a group of peer companies. The
companies included in the peer group are Innovex Inc., Merix Corporation
and TTM Technologies, Inc. The Performance Graph assumes the investment of
$100 on July 1, 2000, in our Common Stock, in the NASDAQ National Market
companies and in the peer group and also assumes the reinvestment of all
dividends. The returns for each company in the peer group have been
weighted to reflect stock market capitalization.

               COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
      PARLEX CORPORATION, NASDAQ NATIONAL MARKET INDEX, AND PEER GROUP

<TABLE>
<CAPTION>
               6/00      6/01       6/02       6/03       6/04       6/05
               ----      ----       ----       ----       ----       ----


            <c>      <c>        <c>        <c>        <c>        <c>
Parlex         $100     $23.43     $28.72     $18.26     $15.43     $13.77
NASDAQ         $100     $55.64     $38.73     $43.17     $54.44     $54.80
Peer Group     $100     $50.01     $29.92     $34.26     $53.62     $33.22
</TABLE>


<PAGE>  51


Item 12. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
         Related Stockholder Matters
         ---------------------------

The following table sets forth certain information regarding the beneficial
ownership of Parlex Common Stock as of September 22, 2005, by: (i) each
person who is known by us to beneficially own more than 5% of the
outstanding Common Stock; (ii) each of our directors; (iii) our Chief
Executive Officer and the next four most highly compensated current
executive officers; and (iv) all of our directors and executive officers as
a group.

Unless otherwise indicated in the footnotes, the address for each executive
officer and director is c/o Parlex Corporation, One Parlex Place, Methuen,
MA  01844.

<TABLE>
<CAPTION>
                                           Shares of
                                          Common Stock    % of Outstanding
                                          Beneficially      Common Stock
Stockholder                                 Owned(1)     Beneficially Owned
-----------                               ------------   ------------------


                                        <c>                <c>
Beneficial owners of 5% or more:
Van Den Berg Management, Inc. (2)          1,007,000          15.52%
Dubuque Bank and Trust Company (3)           605,993           9.34%
Needham & Company, L.L.C. (4)                572,500           8.82%
Dimensional Fund Advisors Inc. (5)           546,500           8.42%
Laurence W. Lytton (6)                       366,182           5.64%

Executive officers and directors:
Herbert W. Pollack (7)(8)(9)                 583,404           8.99%
Peter J. Murphy (7)(8)(10)                   164,500           2.49%
Lynn J. Davis (7)(11)                         76,748           1.17%
Lester Pollack (7)(12)                        64,620             *
Jonathan R. Kosheff (8)(13)                   30,000             *
Sheldon Buckler (7)(14)                       24,000             *
Richard W. Hale (7)(15)                       22,500             *
Thibaud LeSeguillon (8)(16)                   21,500             *
David Price(8)(17)                            11,500             *
Russell D. Wright (7)(18)                      5,500             *
All directors and officers
  as a group (eleven persons) (19)         1,025,422          15.01%

<FN>
________________
(*)   Less than one percent.
<F1>  For purposes of this table, the number of shares beneficially owned
      by each director, director nominee, executive officer and stockholder
      is determined under rules promulgated by the SEC, and the information
      is not necessarily indicative of beneficial ownership for any other
      purpose. Under such rules, beneficial ownership includes any shares
      as to which the individual has sole or shared voting power or
      investment power and also any shares which the individual has the
      right to acquire within 60 days after September 22, 2005, through the
      exercise of any stock option, conversion option or similar right
      ("Presently Exercisable Options"). The inclusion herein of such
      shares, however, does not constitute an admission that the named
      stockholder is a direct or indirect beneficial owner of such shares.
      Unless otherwise indicated, each person or entity named in the table
      has sole voting power and investment power (or shares such power with
      his or her spouse) with respect to all shares of Common Stock listed
      as owned by such person or entity.
<F2>  The shares shown as owned by Van Den Berg Management, Inc. are as
      reported by Van Den Berg Management, Inc. in a Statement on Schedule
      13F with respect to its holdings of Common Stock as of June 30, 2005.
      The address for Van Den Berg Management, Inc. is 805 Las Cimas
      Parkway, Suite 430, Austin, TX  78746.
<F3>  The shares shown as owned by Dubuque Bank & Trust Company are as
      reported by Dubuque Bank & Trust Company in a Statement on Schedule
      13F with respect to its holdings of Common Stock as of June 30, 2005.
      The address for Dubuque Bank & Trust Company is 1398 Central Avenue,
      Dubuque, IA 52001.
<F4>  The shares shown as owned by Needham & Company, L.L.C. ("Needham")
      represent the aggregate number of shares of the Company's common
      stock owned by Needham and various of its affiliates, assuming the
      conversion or exercise of all securities held by such entities.
      Specifically, Needham directly owns an aggregate 187,500 shares,
      consisting of 125,000 shares receivable upon conversion of


<PAGE>  52


      shares of Parlex Series A Convertible Preferred Stock owned by
      it, and 62,500 shares underlying a warrant held by it.  Needham is
      also the parent company of Needham Investment Management, L.L.C.
      ("NIM"), which has shared power to direct the vote and disposition of
      200,000 shares held by a series of Needham Funds, Inc. ("NFI").
      Needham is also a limited partner of Needham Management Partners,
      L.P. ("NMP"), which is the general partner of, and deemed to have
      investment discretion over, four mutual funds owning an aggregate
      185,000 shares.  Needham disclaims beneficial ownership of the shares
      owned by NFI and NMP, and those managed by NIM.  George A. Needham
      may be deemed to beneficially own and have shared power to direct the
      vote and disposition of (i) the Presently Exercisable Options owned
      by Needham by virtue of his position as Chairman of Needham Group,
      Inc., the corporate parent of Needham, (ii) the shares held by NFI by
      virtue of his position as President and Chief Executive Officer of
      NFI, and (iii) the shares owned by NMP by virtue of his position as a
      General Partner of NMP.  Mr. Needham disclaims beneficial ownership
      of the shares owned by Needham, NFI and NMP.  James K. Kloppenburg
      may be deemed to beneficially own and have shared power to direct the
      vote and disposition of (i) the shares held by NFI by virtue of his
      position as a portfolio manager of NIM, which serves as the
      investment advisor to NFI, and (ii) the shares held by NMP by virtue
      of his position as a General Partner of NMP.  Mr. Koppenburg may,
      therefore, be deemed to beneficially own an aggregate 385,000, or
      5.93%, of the Company's outstanding shares.  Mr. Kloppenburg
      disclaims beneficial ownership of the shares managed by NIM and the
      shares owned by NMP.  The shares shown as managed by NIM and owned by
      NMP are as reported on a Schedule 13F filed by each such entity with
      respect to its beneficial ownership of common stock as of June 30,
      2005.  The address for Needham & Company, L.L.C. is 445 Park Avenue,
      New York, New York 10022.
<F5>  The shares shown as owned by Dimensional Fund Advisors Inc. are as
      reported by Dimensional Fund Advisors Inc. in a Statement on Schedule
      13F with respect to its holdings of Common Stock as of June 30, 2005.
      The address for Dimensional Fund Advisors Inc. is 1299 Ocean Avenue,
      Santa Monica, CA 90401.
<F6>  The shares shown as owned by Laurence W. Lytton are as reported on a
      Schedule 13G filed by the stockholder, dated February 9, 2005.  The
      address for Mr. Lytton is 28 Sherwood Place, Scarsdale, NY 10583.
<F7>  Denotes a director of Parlex.
<F8>  Denotes an executive officer of Parlex.
<F9>  The shares shown as owned by Herbert W. Pollack include 158,045
      shares, of which he disclaims beneficial ownership, owned directly by
      his wife, Sandra Pollack.
<F10> The shares shown as owned by Mr. Murphy include 119,750 shares which
      he has the right to acquire pursuant to Presently Exercisable Options
      under Parlex's 1989 Employees' Stock Option Plan (the "1989 Option
      Plan") and 2001 Employees' Stock Option Plan (the "2001 Option
      Plan").
<F11> The shares shown as owed by Mr. Davis include 50,000 shares that Tate
      Capital Partners Fund, of which Mr. Davis is a principal, may receive
      upon conversion of a convertible note, and 20,000 shares underlying a
      warrant held by Tate Capital Partners Fund.  In addition, Tate
      Capital Partners Fund has received 6,748 shares of common stock as
      interest payments upon the note outstanding. Mr. Davis disclaims
      beneficial ownership of shares owned by the Tate Capital Partners
      Fund in excess of his proportionate interest in the fund.  Mr. Davis'
      address is Tate Capital Partners Fund, LLC, 3600 Minnesota Drive,
      Suite 525, Minneapolis, MN  55435.
<F12> The shares shown as owned by Lester Pollack include 19,500 shares
      which he has the right to acquire pursuant to Presently Exercisable
      Options under Parlex's 1989 Director Plan and Parlex's 1996 Director
      Plan.  Mr. Pollack's address is c/o Centre Partners Management LLC,
      30 Rockefeller Plaza, New York, NY  10020.
<F13> The shares shown as owned by Mr. Kosheff include 30,000 shares which
      he has the right to acquire pursuant to Presently Exercisable Options
      under Parlex's 2001 Option Plan.
<F14> The shares shown as owned by Dr. Buckler include 22,500 shares which
      he has the right to acquire pursuant to Presently Exercisable Options
      under Parlex's 1989 Director Plan and Parlex's 1996 Director Plan.
<F15> The shares shown as owned by Mr. Hale include 22,500 shares which he
      has the right to acquire pursuant to Presently Exercisable Options
      under Parlex's 1989 Director Plan and Parlex's 1996 Director Plan.
      Mr. Hale's address is c/o VXI Corporation, One Front Street,
      Rollinsford, NH 03869.


<PAGE>  53


<F16> The shares shown as owned by Mr. LeSeguillon include 21,500 shares
      which he has the right to acquire pursuant to Presently Exercisable
      Options under Parlex's 1989 Option Plan and 2001 Option Plan.
<F17> The shares shown as owned by Mr. Price include 11,500 shares which he
      has the right to acquire pursuant to Presently Exercisable Options
      under Parlex's 2001 Option Plan.
<F18> The shares shown as owned by Mr. Wright include 1,000 shares owned by
      a family trust of which Mr. Wright and his wife serve as co-trustees,
      and 4,500 shares which he has the right to acquire pursuant to
      Presently Exercisable Options under Parlex's 1989 Director Plan.
      Mr. Wright disclaims beneficial ownership of the shares owned by the
      trust.
<F19> The number of shares shown as beneficially owned by officers and
      directors include 342,750 shares that they have the right to acquire
      pursuant to Presently Exercisable Options.  In addition to the
      directors and executive officers listed in the table, the total
      shares owned by officers and directors includes a total of 21,150
      shares that Mr. Eric Zanin, Vice President - Sales and Marketing,
      owns or has the right to acquire pursuant to Presently Exercisable
      Options.
</FN>
</TABLE>

Equity Compensation Plan Information

The following table sets forth certain information with respect to the number
of securities issued and issuable under all of our existing equity
compensation plans at June 30, 2005:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
Plan Category           Number of securities    Weighted-average        Number of securities
                        to be issued upon       exercise price of       remaining available
                        exercise of             outstanding options,    for future issuance
                        outstanding options,    warrants and rights     under equity plan
                        warrants and rights                             compensation plans
                                                                        (excluding securities
                                                                        reflected in column
                                                                        (a))
---------------------------------------------------------------------------------------------
                                 (a)                     (b)                     (c)
---------------------------------------------------------------------------------------------


                            <c>                     <c>                     <c>
Equity compensation            665,525                 $11.24                  642,668
 plans approved by
 security holders(1)
---------------------------------------------------------------------------------------------
      Total                    665,525                                         642,668
---------------------------------------------------------------------------------------------

<FN>
<F1>  (1) Each of our equity compensation plans has been approved by our
      security holders.
</FN>
</TABLE>

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 year 2005 were approximately $434,581. Edward D.
Kutchin is a shareholder in the professional corporation of Kutchin &
Rufo, P.C., is our corporate clerk and the son-in-law of Herbert W.
Pollack, the Chairman of our Board of Directors.

Item 14. Principal Accountant Fees and Services
-----------------------------------------------

We have regularly employed Deloitte & Touche LLP for the auditing of our
consolidated financial statements and other purposes since our
incorporation in 1970. The following is a summary of the fees billed by
Deloitte & Touche LLP to us for professional services rendered for the
fiscal years ended June 30, 2005 and 2004.


<PAGE>  54


<TABLE>
<CAPTION>
Fee Category                   Fiscal 2005 fees       Fiscal 2004 fees
------------                   ----------------       ----------------


                                 <c>                  <c>
Audit Fees                          $631,726             $476,979
Audit-Related Fees                  $ 23,352             $ 73,603
Tax Fees                            $131,851             $216,711
All Other Fees                             -                    -
                                    --------             --------

Total Fees                          $786,929             $767,293
                                    ========             ========
</TABLE>

Audit Fees. Audit fees consist of fees billed for professional services
rendered for the audit of the our consolidated financial statements and
review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by Deloitte &
Touche LLP in connection with statutory and regulatory filings or other
engagements.

Audit-Related Fees. Audit-related fees consist of fees billed for assurance
and related services that are reasonably related to the performance of the
audit or review of our consolidated financial statements and are not
reported under "Audit Fees". These services include employee benefit plan
audits, attest services that are not required by statute or regulation, and
consultations concerning financial accounting and reporting standards.

Tax fees. Tax fees consist of fees billed for professional services for tax
compliance, tax advice and tax planning. These services include assistance
regarding federal, state and international tax compliance, tax audit
defense customs and duties, acquisitions and international tax planning.

All Other Fees. All other fees consist of fees billed by Deloitte & Touche
LLP for services rendered to Parlex, other than the services described
above under "Audit Fees" and "Audit-related fees" and "Tax fees".

Audit committee pre-approval of fees. The audit committee charter, as
revised, requires that the Audit Committee pre-approve all audit and non-
audit services provided to us by its independent auditors, subject to the
de minimis exemption provided by SEC regulations for non-audit services.

The audit committee has established a policy relating to the pre-approval
of all audit and non-audit services that are to be performed by our
independent auditors. Under the policy, the Audit Committee may pre-approve
engagements on a case-by-case basis or on a class basis if the relevant
services are predictable and recurring. In addition to those services that
the auditor is prohibited from providing under applicable law, the policy
prohibits the provision of tax services in any case in which the fees
payable are contingent on the results of the services provided.

Pre-approvals for classes of services are granted at the start of each
fiscal year. In considering pre-approvals on a class basis, the Audit
Committee reviews a description of the scope of services falling within
each class and imposes specific budgetary guidelines that are largely based
on historical costs. Pre-approvals granted on a class basis are effective
for the applicable fiscal year.

Any audit or permitted non-audit service that is not included in an
approved class, or for which total fees are expected to exceed the relevant
budgetary guideline, must be pre-approved on an individual basis. Pre-
approval of any individual engagement may be granted not more than one year
before commencement of the relevant service. Pre-approvals of services that
may be provided over a period of years must be reconsidered each year in
light of all the facts and circumstances, including compliance with the
pre-approval policy and the compatibility of the services with the
auditor's independence.


<PAGE>  55


                                   Part IV

Item 15. Exhibits and Financial Statement Schedules
---------------------------------------------------

      (a)

            1.    Consolidated Financial Statements

                  The Consolidated Financial Statements are filed as part
                  of this report.

            2.    Consolidated Financial Statement Schedules

                  All 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.

      (b)   Exhibits

            An index of exhibits that are a part of this Form 10-K appears
            following the signature page and is incorporated herein by
            reference.


<PAGE>  56


                                 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, 2005.

                                       Parlex Corporation

                                       By / s / Peter J. Murphy
                                          ---------------------------------
                                          Peter J. Murphy,
                                          Chief Executive Officer,
                                          President and Director

Each person whose signature appears below constitutes and appoints Herbert
W. Pollack, Peter J. Murphy, and Jonathan R. Kosheff, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, for him and in his name,
place, and stead, and in any and all capacities, to sign this annual report
on Form 10-K of Parlex Corporation and any amendments thereto, and to file
the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be
done in and about the premises, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.

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


                              <c>                               <c>
/ s / Herbert W. Pollack         Chairman of the Board             September 28, 2005
------------------------------
Herbert W. Pollack

/ s / Peter J. Murphy            Chief Executive Officer,          September 28, 2005
------------------------------   President and Director
Peter J. Murphy                  (Principal Executive Officer)

/ s / Jonathan R. Kosheff        Treasurer and                     September 28, 2005
------------------------------   Chief Financial Officer
Jonathan R. Kosheff              (Principal Financial and
                                 Accounting Officer)

/ s / Sheldon A. Buckler         Director                          September 28, 2005
------------------------------
Sheldon A. Buckler

/ s / Lynn J. Davis              Director                          September 28, 2005
------------------------------
Lynn J. Davis

/ s / Richard W. Hale            Director                          September 28, 2005
------------------------------
Richard W. Hale

/ s / Lester Pollack             Director                          September 28, 2005
------------------------------
Lester Pollack

/ s / Russell D. Wright          Director                          September 28, 2005
------------------------------
Russell D. Wright
</TABLE>


<PAGE>  57


                                EXHIBIT INDEX

The exhibits listed below are filed with or incorporated by reference in
the Annual Report on Form 10-K.

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

  2.1       Agreement and Plan of Merger, dated as of August 18, 2005 among
            Johnson Electric Holdings Limited, J.E.C. Electronics Sub One,
            Inc., J.E.C. Electronics Sub Two, Inc., and Parlex Corporation
            (filed as Exhibit 2.1 to our Current Report on Form 8-K dated
            August 18, 2005).

  2.2       Amendment No. 1 to the Agreement and Plan of Merger, dated as
            of August 24, 2005 among Johnson Electric Holdings Limited,
            J.E.C. Electronics Sub One, Inc., J.E.C. Electronics Sub Two,
            Inc., and Parlex Corporation (filed as Exhibit 2.1 to our
            Current Report on Form 8-K dated August 31, 2005).

  2.3       Asset Purchase Agreement, dated as of August 17, 2005 among
            Parlex Corporation and Amphenol Corporation (filed as Exhibit
            2.1 to our Current Report on Form 8-K dated August 19, 2005).

  3.1       Restated Articles of Organization as amended (dated August 2,
            1983) (filed as Exhibits 3-A and 3-B to our Registration
            Statement on Form S-1, File No. 2-85588).

  3.2       Articles of Amendment to Restated Articles of Organization,
            dated December 1, 1987 (filed as Exhibit 10-Q to our Annual
            Report on Form 10-K for the fiscal year ended June 30, 1988).

  3.3       Bylaws (filed as Exhibit 3-C to our Registration Statement on
            Form S-1, File No. 2-85588).

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

  3.5       Articles of Amendment to Restated Articles of Organization,
            dated August 30, 2000 (filed as Exhibit 3.5 to our Annual
            Report on Form 10-K for fiscal year ended June 30, 2003).

  3.6       Certificate of Vote of Directors establishing Series A
            Convertible Preferred Stock (filed as Exhibit 3.1 to our
            Current Report on Form 8-K dated May 7, 2004).

  4.1       Warrant, dated June 11, 2003, issued to Silicon Valley Bank
            (filed as Exhibit 4-A to our Current Report on Form 8-K dated
            June 11, 2003).

  4.2       Securities Purchase Agreement dated July 28, 2003 between
            Parlex Corporation and the Investors named therein (filed
            as Exhibit 4-C to our Current Report on Form 8-K dated
            June 28, 2003).

  4.3       Form of 7% Convertible Subordinated Note (filed as Exhibit 4-D
            to our Current Report on Form 8-K dated June 28, 2003).

  4.4       Form of Stock Purchase Warrant to Purchase Shares of Common
            Stock, issued to each of the Investors (filed as Exhibit 4-E to
            our Current Report on Form 8-K dated June 28, 2003).


<PAGE>  58


  4.5       Form of Stock and Warrant Purchase Agreement dated May 7, 2004
            between Parlex Corporation and the purchasers of Parlex's
            Series A Preferred Stock (filed as Exhibit 4.1 to our Current
            Report on Form 8-K dated May 7, 2004).

  4.6       Form of Warrant to Purchase Common Stock issued to each of the
            purchasers of Parlex's Series A Preferred Stock (filed as
            Exhibit 4.2 to our Current Report on Form 8-K dated May 7,
            2004).

  4.7       Form of Stock Purchase Warrant to purchase shares of Common
            Stock issued to Investec and its affiliates (filed as Exhibit
            4.3 to our Registration Statement on Form S-3 filed June 9,
            2004).

 10.1       1989 Outside Directors' Stock Option Plan* (filed as Exhibit
            10-Z to our Annual Report on Form 10-K for the fiscal year
            ended June 30, 1991).

 10.2       1989 Employees' Stock Option Plan* (filed as Exhibit 10-AA to
            our Annual Report on Form 10-K for the fiscal year ended June
            30, 1991).

 10.3       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 our Annual Report on Form
            10-K for the fiscal year ended June 30, 1995). Confidential
            treatment has been granted for portions of this exhibit.

 10.4       1996 Outside Directors' Stock Option Plan* (filed as Exhibit
            10-O to our Annual Report on Form 10-K for the fiscal year
            ended June 30, 1997).

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

 10.6       Parlex Corporation 2001 Employees' Stock Option Plan* (filed as
            Exhibit 10-V to our Quarterly Report on Form 10-Q for the
            quarter ended December 30, 2001).

 10.7       Employment Agreement between Parlex Corporation and Peter J.
            Murphy, dated September, 2002 (filed as Exhibit 10.11 to our
            Annual Report on Form 10-K for the fiscal year ended June 30,
            2003).

 10.8       Lease, dated June 12, 2003, by and between Taurus Methuen, LLC,
            as landlord, and Parlex Corporation, as tenant, for the
            premises located at One Parlex Place, Methuen, Massachusetts
            (filed as Exhibit 10-GG to our Current Report on Form 8-K dated
            June 11, 2003).

 10.9       Lease, dated June 12, 2003, by and between Taurus Cranston,
            LLC, as landlord, and Poly-Flex Circuits, Inc., as tenant, for
            the premises located at 28 Kenney Drive, Cranston, Rhode Island
            (filed as Exhibit 10-HH to our Current Report on Form 8-K dated
            June 11, 2003).


<PAGE>  59


 10.10      Loan and Security Agreement, dated June 11, 2003, by and among
            Silicon Valley Bank, as lender, and Parlex Corporation, Poly-
            Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10-II to our Current Report on Form
            8-K dated June 11, 2003).

 10.11      Loan Modification Agreement, dated September 23, 2003, by and
            among Silicon Valley Bank, as lender, and Parlex Corporation,
            Poly-Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10.21 to our Annual Report on Form
            10-K for the year ended June 30, 2005).

 10.12      Second Loan Modification Agreement, dated February 18, 2004, by
            and among Silicon Valley Bank, as lender, and Parlex
            Corporation, Poly-Flex Circuits, Inc. and Parlex Dynaflex
            Corporation, as borrowers (filed as Exhibit 10.1 to our
            Quarterly Report on Form 10-Q for the quarter ended March 28,
            2004).

 10.13      Third Loan Modification Agreement, dated March 28, 2004, by and
            among Silicon Valley Bank, as lender, and Parlex Corporation,
            Poly-Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10.2 to our Quarterly Report on
            Form 10-Q for the quarter ended March 28, 2004).

 10.14      Fourth Loan Modification Agreement, dated May 10, 2004, by and
            among Silicon Valley Bank, as lender, and Parlex Corporation,
            Poly-Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10.3 to our Quarterly Report on
            Form 10-Q for the quarter ended March 28, 2004).

 10.15      Fifth Loan Modification Agreement, dated June 25, 2004, by and
            among Silicon Valley Bank, as lender, and Parlex Corporation,
            Poly-Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10.18 to our Annual Report
            on Form 10-K for the fiscal year ended June 30, 2004).

 10.16      Sixth Loan Modification Agreement, dated September 24, 2004, by
            and among Silicon Valley Bank, as lender, and Parlex
            Corporation, Poly-Flex Circuits, Inc. and Parlex Dynaflex
            Corporation, as borrowers (filed as Exhibit 10.23 to our Annual
            Report on Form 10-K for the fiscal year ended June 30, 2004).

 10.17      Seventh Loan Modification Agreement, dated December 22, 2004,
            by and among Silicon Valley bank, as lender, and Parlex
            Corporation, Poly-Flex Circuits, Inc. and Parlex Dynaflex
            Corporation, as borrowers (filed as Exhibit 10.1 to our
            Quarterly Report on Form 10-Q for the quarter ended December
            31, 2004).

 10.18      Eighth Loan Modification Agreement, dated May 10, 2005, by and
            among Silicon Valley bank, as lender, and Parlex Corporation,
            Poly-Flex Circuits, Inc. and Parlex Dynaflex Corporation, as
            borrowers (filed as Exhibit 10.1 to our Quarterly Report on
            Form 10-Q for the quarter ended March 31, 2005).

 10.19      Employment Agreement between Parlex Corporation and Herbert W.
            Pollack dated October 1, 2003* (filed as Exhibit 10.22 to our
            Annual Report on Form 10-K for the fiscal year ended June 30,
            2003).

 10.20      Employment Agreement between Parlex Corporation and Jonathan R.
            Kosheff dated September 1, 2002* (filed as Exhibit 10.1 to our
            Quarterly Report on Form 10-Q for the quarter ended September
            28, 2003).

 10.21      First Amendment to Employment Agreement between Parlex
            Corporation and Peter J. Murphy, dated July 21, 2004* (filed
            as Exhibit 10.21 to our Annual Report on Form 10-K for
            the fiscal year ended June 30, 2004).


<PAGE>  60


 10.22      First Amendment to Employment Agreement between Parlex
            Corporation and Jonathan R. Kosheff, dated July 21, 2004*
            (filed as Exhibit 10.22 to our Annual Report on Form 10-K
            for the fiscal year ended June 30, 2004).

 10.23      Joint Venure Agreement, dated December 22, 2004, by and between
            Parlex Asia Pacific Ltd. and Infineon Technologies Asia Pacific
            Pte Ltd. (filed as Exhibit 10.1 to our Current Report on Form
            8-K dated December 29, 2004).

 10.24      Stock Transfer Agreement, dated December 22, 2004, by and among
            Parlex Corporation, Parlex Asia Pacific Ltd. and Infineon
            Technologies Asia Pacific Pte Ltd. (filed as Exhibit 10.2 to
            our Current Report on Form 8-K dated December 29, 2004).

 10.25      License Agreement, dated December 22, 2004, by and among Parlex
            Corporation and Infineon Technologies Asia Pacific Pte Ltd.
            (filed as Exhibit 10.3 to our Current Report on Form 8-K dated
            December 29, 2004).

 10.26      Change of Control Agreement, dated July 21, 2004 by and between
            Parlex Corporation and Thibaud LeSeguillon* (filed as Exhibit
            10.1 to our Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2004).

 10.27      Form of Stock Option Grant Agreement under Parlex Corporation's
            1989 Employees' Stock Option Plan* (filed as Exhibit 10.3 to
            our Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2004).

 10.28      Form of Stock Option Grant Agreement under Parlex Corporation's
            1996 Outside Directors' Stock Option Plan* (filed as Exhibit
            10.4 to our Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2004).

 10.29      Form of Stock Option Grant Agreement under Parlex Corporation's
            2001 Employees' Stock Option Plan* (filed as Exhibit 10.1 to
            our Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2004).

 10.30      First Amendment to Lease, dated June 29, 2004, by and between
            Taurus Methuen LLC, as landlord, and Parlex Corporation, as
            tenant (filed as Exhibit 10.2 to our Quarterly Report on Form
            10-Q for the quarter ended March 31, 2005).

 10.31      Second Amendment to Lease, dated February 18, 2005, by and
            between Taurus Methuen LLC, as landlord, and Parlex
            Corporation, as tenant (filed as Exhibit 10.3 to our Quarterly
            Report on Form 10-Q for the quarter ended March 31, 2005).

 10.32      First Amendment to Joint Venture Agreement, dated March 28,
            2005, by and between Parlex Asia Pacific Ltd and Infineon
            Technologies Asia Pacific Pte. Ltd (filed as Exhibit 10.4 to
            our Quarterly Report on Form 10-Q for the quarter ended March
            31, 2005).

 10.33      Second Amendment to Employment Agreement, dated as of September
            1, 2005, by and between Parlex Corporation and Peter J. Murphy*
            (filed as Exhibit 10.1 to our Current Report on Form 8-K dated
            September 1, 2005).

 10.34      Second Amendment to Employment Agreement, dated as of September
            1, 2005, by and between Parlex Corporation and Jonathan R.
            Kosheff* (filed as Exhibit 10.1 to our Current Report on Form
            8-K dated September 1, 2005).


<PAGE>  61


 10.35      Amendment to Change of Control Agreement, dated July 21,
            2005, by and between Parlex Corporation and Thibaud
            LeSeguillon* (filed herewith).

 10.36      Change of Control Agreement, dated July 21, 2004, by and
            between Parlex Corporation and David Price* (filed herewith).

 10.37      Amendment to Change of Control Agreement, dated June 30,
            2005, by and between Parlex Corporation and David Price* (filed
            herewith).

 10.38      Change of Control Agreement, dated July 21, 2004, by and between
            Parlex Corporation and Eric Zanin* (filed as Exhibit 10.2 to our
            Quarterly Report on Form 10-Q for the quarter ended September
            30, 2004).

 10.39      Amendment to Change of Control Agreement, dated July 21, 2005, by
            and between Parlex Corporation and Eric Zanin* (filed herewith).

 21.1       Subsidiaries of the Registrant (filed herewith).

 23.1       Consent of Registered Independent Public Accounting Firm (filed
            herewith).

 24.1       Powers of Attorney (filed herewith as part of the signature
            page hereto).

 31.1       Certification of Registrant's Chief Executive Officer required
            by Rule 13a-14(a) (filed herewith).

 31.2       Certification of Registrant's Chief Financial Officer required
            by Rule 13a-14(a) (filed herewith).

 32.1       Certification of Registrant's Chief Executive Officer pursuant
            to 18 U.S.C. 1350 (furnished herewith).

 32.2       Certification of Registrant's Chief Financial Officer pursuant
            to 18 U.S.C. 1350 (furnished herewith).


*     Denotes management contract or compensatory plan or arrangement.

**    As contemplated by SEC Release No. 33-8212, these exhibits are
      furnished with this Annual Report on Form 10-K and are not deemed
      filed with the Securities and Exchange Commission and are not
      incorporated by reference in any filing of Parlex Corporation under
      the Securities Act of 1933 or Securities Exchange Act of 1934,
      whether made before or after the date hereof and irrespective of any
      general incorporation language in such filings.


<PAGE>  62