Item 1.	Business
General
	Sheldahl is a leading producer of high quality flexible printed 	circuitry and flexible laminates principally for sale to the 	automotive electronics and datacommunications markets. Flexible 	circuitry is used to provide 	electrical connections between 	components and electronic systems and also as a substrate to 	support electronic devices. Flexible circuits consist of polyester 	or polyimide film to which copper foil is laminated and processed 	through various imaging, etching and plating processes.
	Flexible circuits can be further processed by surface mount 	attachment of electronic components to produce an interconnect 	assembly. Flexible circuits provide advantages over rigid printed 	circuit boards by accommodating packaging contour and motion and 	reducing size and weight.
	The Company recently introduced three high performance products 	based on proprietary thin film technology: Novaclad(r), ViaGrid(r) 	and high density substrates. These emerging products provide 	substantial benefits compared to traditional flexible circuits, 	including the capability for very fine circuit traces (down to 1 	mil, or .001") as well as greater heat tolerance and dissipation. 	The Company has designed its Novaclad and ViaGrid products to be 	used as a base material for high performance printed circuits. 	The Company has developed its high density substrates to enable 	integrated circuit ("IC") manufacturers to package future generations 	of ICs economically by attaching the silicon die to a high density 	substrate manufactured by the Company or other circuitry manufacturers 	using the Company's Novaclad or ViaGrid products. As ICs are 	becoming increasingly powerful, they produce more heat and require 	a greater number of connections to attach the silicon die, placing 	substantially greater demands on IC packaging materials. The 	Company is investing approximately $45 million in an advanced 	production facility in Longmont, Colorado ("Longmont Facility").
Products
	Novaclad. Novaclad is a thin and flexible adhesiveless copper 	laminate used in the design and manufacture of flexible 	interconnects and high density substrates. Novaclad consists of 	a polyimide film onto which copper has been deposited on both sides, 	in a vacuum, without an adhesive. After the vacuum deposition 	process, additional copper is plated onto the laminate to achieve 	a desired thickness of copper ranging from 5 microns to 35 microns 	(a micron is one-millionth of a meter). Novaclad provides a number 	of important benefits when compared to traditional adhesive-based 	laminates, including the capability for finer circuit traces (down 	to 1 mil, or .001") and corresponding higher circuit density, 	greater heat tolerance and dissipation, improved signal speed 	and impedance control, increased dimensional stability, resistance 	to chemicals and greater durability. Because of these 	characteristics, the Company believes that Novaclad is a cost- 	effective, high-performance solution for a broad range of 	interconnect systems, especially high density substrates for IC 	packages and multi-chip modules. In fiscal 1996, the Company sold 	$15.6 million of Novaclad-based flexible circuits, primarily for 	harsh, under-the-hood automotive applications where Novaclad's 	heat tolerance and chemical resistance characteristics provide 	superior performance.
	ViaGrid. ViaGrid is a higher-value-added form of Novaclad with 	pre-drilled small holes, or vias, measuring down to 1 mil (.001") 	in diameter. ViaGrid is designed to be sold in rolls or sheets 	to printed circuit manufacturers as a base material for the 	manufacture of high density substrates. The vias, which are 	plated through with copper, enable the transmission of electrical 	currents between the two sides of the laminate. The combination 	of thin copper traces and very small vias permits the design of 	circuits that are up to six times more dense than current flexible 	circuitry technology. Because of its adhesiveless character, 	ViaGrid provides all of the benefits of Novaclad. Additionally, 	ViaGrid is pre-coated with a photoresist. The combination of 	these characteristics allow circuit fabricators the opportunity 	to eliminate several costly processing steps in the manufacture of 	printed circuits.
	The Company will market ViaGrid in both standard and custom via 	arrays. Design software has been developed with Mentor Graphics 	Corporation through a consortium sponsored by the Advanced Research 	Projects Agency of the U.S. Government (the "ARPA Consortium"). 	This software, in addition to Mentor Graphics' professional design 	services, will allow printed circuit manufacturers to design the 	layout of their circuitry around the standard via array, thus 	providing a less expensive solution than a custom via array. 	Custom via arrays can be designed using Mentor Graphics MCM Station(R) 	software and manufactured with the Company's laser via generation 	process. The Company believes ViaGrid provides solutions for 	a variety of applications, including high density interconnects, 	IC packages and multi-chip modules. The Company believes there 	is also an opportunity for rigid printed circuit manufacturers 	to mount ViaGrid-based circuits to rigid circuit boards and to 	use ViaGrid as an interlayer in multilayer circuit boards, in a 	cost effective manner for applications requiring dense circuitry.
	High Density Substrates. The Company uses ViaGrid in the manufacture 	of high density substrates primarily for IC packages. The material 	properties of ViaGrid allow for the design of very dense circuitry 	patterns which enable IC designers to improve the processing 	capabilities of ICs by increasing the number of connections to 	the silicon die in a similar or reduced amounts of physical space, 	while reducing the cost per connection.
	The Company's high density substrates enhance signal speed as 	traces are very smooth and fine while the dimensional stability 	of the substrate is maintained. These features allow the Company's 	high density substrates to be designed into ball grid array, pin 	grid array and other high density IC packages.
	The Company's strategy is to target the high density segment of 	the market for IC packaging and multichip module applications 	where circuit densities using ViaGrid can be reduced to as small 	as 1 mil (.001") traces and vias. As the market for high density 	substrates develops and creates a demand for alternate manufacturing 	capabilities, the Company will consider licensing the manufacturing 	process of its high density substrates to leverage the market 	demand for its ViaGrid product.
	Z-Link. The Company produces a proprietary Z-Link adhesive product 	that interconnects two electrical layers and is used in the 	fabrication of multilayer circuits. The Z-Link adhesive conducts 	electricity in only one direction, the "Z" or vertical direction. 	The Company, through the ARPA Consortium, is working to further 	develop the Z-Link technology for use in multichip modules. 	See "Research and Development".
	Flexible Printed Circuitry and Interconnect Systems. The Company 	manufactures flexible printed circuitry and interconnect systems 	using traditional adhesive-based and emerging Novaclad laminates. 	The Company's flexible printed circuitry is typically manufactured 	in an efficient roll-to-roll process from polyester or polyimide 	film to which copper is laminated. The laminate is processed 	through various imaging, etching and plating processes and then 	selectively protected with a dielectric covering to produce a 	flexible printed circuit. Automated screen printing and photo 	imaging processes produce single-sided and double-sided flexible 	circuits, with lines and spaces down to 8 mils (.008") in width. 	The Company uses its emerging Novaclad laminate to produce high 	performance flexible circuits primarily for demanding under-the- 	hood automotive applications which require greater circuit density, 	enhanced heat and chemical resistance and dimensional stability. 	In fiscal 1996, Novaclad-based products represented approximately 	$15.6 million, or 13.7%, of the Company's net sales.
	All of the Company's flexible printed circuits are electronically 	tested prior to shipping. Additionally, the Company offers value- 	added processing, including surface mount assembly, wave soldering, 	connector and terminal staking, custom folding, stiffening, 	application of pressure-sensitive adhesive and hand soldering, 	in order to deliver a ready-to-use interconnect system to the end 	customer. The Company's targets applications where increased 	performance, reduced size and weight, ability to accommodate 	packaging contours or a reduction in the number of assembly steps 	is desired to reduce the customer's overall cost. Flexible 	printed circuitry and interconnect systems, including Novaclad- 	based products, accounted for $86.1 million, or 75.5%, of the 	Company's net sales for fiscal 1996.
	Flexible Laminates. The Company's flexible laminate products 	consist of adhesive-based tapes and other flexible laminates used 	in a variety of applications in the datacommunications market, 	moisture barrier tape and flat cable tape used in automobile air 	bag systems, splicing tape used in the manufacture of commercial 	and industrial sandpaper belts and thermal insulating blankets 	used primarily in the aerospace/defense market for satellites. 	The Company produces its flexible laminates using coating, 	laminating and vacuum metalizing processes. Coating involves 	applying chemicals or adhesives to a thin flexible material 	shield laminating consists of combining two or more materials 	through application of heat and pressure. Vacuum metalizing 	typically involves placing a metal onto a thin film, foil or 	fabric, by evaporation, sputtering or pattern deposition. The 	Company's flexible laminates provide extended flexibility, strength, 	conductivity, durability and heat dissipation. The Company 	consumes approximately one-half of the flexible laminates it 	produces in the manufacture of flexible printed circuitry and 	interconnect systems. 	Flexible laminates accounted for $24.6 million, or 21.6%, of the 	Company's net sales for fiscal 1996.
	Miscellaneous Fabricated Products. Based on the Company's 	historical expertise in developing unique applications for a 	variety of materials, the Company also designs and manufactures 	special fabrications employing technical capabilities of 	thermoforming, embossing, sealing, slitting and sheeting. The 	Company's fabricated products include static shielding materials, 	insulation blankets, environmental closures, space inflatables 	and multilayer insulation and are primarily for use in the 	aerospace/defense and datacommunications markets. Miscellaneous 	fabricated products accounted for $3.2 million, or 2.8%, of the 	Company's net sales for fiscal1996.
Sales and Customer Support
	The Company's sales and customer support efforts are directed by 	nine lead product managers who are responsible for defining target 	markets and customers, strategic product planning and new product 	introduction. These product managers supervise a sales force of 	13 account managers and over 60 engineers, technicians and 	customer support personnel. The Company employs a team approach 	led by account managers who work extensively with the Company's 	customers at the design stage, seeking to influence product 	designs and applications, particularly in the automotive and 	emerging datacommunications product areas. The Company believes 	that its close ties with customers at all stages of a project 	distinguish it from many competitors who manufacture products 	according to customer specifications without providing significant 	design, technical or consulting services. Account managers also 	coordinate appropriate design, research and development, 	engineering, order fulfillment and other personnel to support 	customer needs. To supplement its direct sales efforts, the 	Company uses domestic and international distributors. The 	cornerstone of the Company's sales and customer support strategy 	is to provide superior customer service, from prompt and 	efficient technical support to rapid processing and delivery of 	prototype and production orders through its electronic data 	interchange and just-in-time delivery capabilities.
	Automotive Electronics. In the automotive electronics market, the 	Company has enjoyed increasing sales through its strategy of working 	very closely with its customers beginning at the design stage. In 	1989, the Company opened a technical design and sales office in 	Detroit, Michigan, which is currently staffed with 15 engineers, 	designers and sales personnel in order to provide automotive 	customers with comprehensive support. In fiscal 1996, 12.2%, 	13.6% and 8.6% of the Company's net sales went to multiple 	sourcing locations of Ford Motor Company, Motorola, Inc. and 	Molex Corporation, respectively. The Company also provides 	products, through first tier suppliers, to Chrysler and the U.S. 	operation of Honda and Toyota.
	International. The Company works with European manufacturers 	and suppliers and has had a sales presence in Europe since 	February 1992, including its current sales office in Frankfurt, 	Germany. The Company supplements its direct sales efforts with 	independent manufacturers' representatives and distributors in 	Europe and Asia, principally for flexible laminates. The 	Company's export sales during fiscal years 1994, 1995 and 1995 	were $7.6 million, $11.1 million and $12.0 million, respectively.
Manufacturing
	The Company manufactures and assembles its products in Northfield, 	Minnesota, Aberdeen and Britton, South Dakota, and Longmont, 	Colorado. The Company focuses on quality in its manufacturing 	efforts, and believes that its vertically-integrated manufacturing 	capabilities enhance its ability to control product quality. The 	Company has been a qualified supplier to various automotive 	manufacturers for many years and has received ISO 9001 certification 	in our Minnesota facilities and ISO 9002 certification in our South 	Dakota facilities.
	Current Products. The Company uses a continuous roll-to-roll 	manufacturing process to produce a large volume of high-quality 	flexible laminates efficiently using coating, laminating and 	vacuum metalizing techniques. The Company consumes approximately 	one-half of the flexible laminates it produces for the manufacture 	of printed circuitry and interconnect systems. The Company 	converts flexible laminates into printed circuitry principally 	by screen printing and etching an image onto a flexible laminate 	and by photoimaging and developing circuit patterns onto flexible 	laminates. The Company believes its flexible circuit manufacturing 	equipment at its Northfield, Minnesota, facilities has the capacity 	to support substantial production increases with only selective 	incremental capital investment. The Company processes certain of 	its flexible printed circuitry into interconnect systems. Process 	capabilities include surface mount assembly, wave soldering, 	connector and terminal staking, custom folding, stiffening, 	application of pressure-sensitive adhesive and hand soldering. 	Substantially all of these interconnect assembly functions are 	performed at the Company's facility in Aberdeen and Britton, 	South Dakota.
	Emerging Products. To manufacture its emerging products, the 	Company is constructing and equipping the Longmont facility, based 	on the results of its testing and production activities at a pilot 	plant in Longmont established in July 1994. In August 1995, the 	Company completed construction of the 102,000 square foot building 	for the Longmont facility. The manufacturing process at the 	Longmont facility includes a series of integrated roll-to-roll 	processes consisting of metalization, via generation, plating, 	photoimaging, developing, selective etching and electrical testing. 	The initial annual production capacity of the new facility is 	expected to be approximately 2.0 million square feet of Novaclad, 	approximately 250,000 square feet of ViaGrid and approximately 	500,000 square feet of high density substrates. The facility 	has been designed to allow for expansion in increments of 	approximately 500,000 square feet of finished product, consisting 	of varying amounts of ViaGrid and high density substrates. The 	Company's investment in the Longmont facility, including the site, 	building and equipment purchased or leased by the Company, is 	expected to total approximately $45 million.
	China Joint Venture. The Company currently has no foreign 	manufacturing or assembly operations. However, in August 1995, 	the Company entered into various agreements to form a joint venture 	in Jiujiang Jiangxi, China with Jiangxi Changjiang Chemical Plant 	and Hong Kong Wah Hing (China) Development Co., Ltd. Under the 	agreements, the Company licensed certain technology to the joint 	venture. Providing certain technical support, the Company has 	received a 20% ownership interest in the joint venture and will 	receive cash payments totaling up to $900,000 upon completion of 	certain milestones, and a royalty on products sold by the joint 	venture. The joint venture is being established to manufacture 	flexible adhesive-based laminates and associated cover film tapes 	in China. Under the terms of the agreements, the joint venture 	will market these products in China, Taiwan, Hong Kong and Macau 	and the Company will market the products produced by the joint 	venture in all other markets. The Company expects manufacturing 	under this joint venture to commence in late fiscal 1997.
Research and Development
	Sheldahl's recent research and development efforts, through its 38-person 	research and development team, have focused on opportunities presented by 	the demand for higher density and thinner packaging for electronic devices. 	The Company has also identified within its core technologies other 	opportunities for participation in the trend towards miniaturization 	within the electronics industry and has pursued these opportunities 	independently and through various consortia.
	In fiscal 1994, the ARPA Consortium was organized to develop a 	high-density, low-cost multichip module utilizing Novaclad as the 	base material. The ARPA Consortium is comprised of a vertically- 	integrated team of non-	competing companies, including four 	systems integrators (Silicon Graphics, Inc., Wireless Access, Inc., 	Hughes Missile Systems Company and Delco Electronics), a materials 	manufacturer (Sheldahl) and an assembly company (Jabil Circuit, 	Inc.). The ARPA Consortium has achieved various milestones, 	including validation of each of the essential processes for 	production of the Company's high-density substrates as a base 	material for low-cost multichip modules. In September 1995, ARPA 	agreed to extend its commitment to the consortium for the expansion 	of development of this technology using the Company's Z-Link 	adhesive or other multilayering technologies. In addition to the 	ARPA Consortium, the Company also participates in various other 	consortia, including consortia managed by National Semiconductor 	and formed to develop (i) low-cost plastic packaging and (ii) an 	IC attachment technique for a silicon die without using wires, 	known as a "flip chip".
	In August 1994, Sheldahl acquired a significant minority ownership 	interest in Sidrabe Joint Stock Company ("Sidrabe"), a newly 	privatized vacuum deposition developmental company located in 	Riga, Latvia for an investment of $453,000. Sidrabe historically 	was a developmental agency for the former Soviet Union's military 	and aerospace programs, specializing in the design and production 	of vacuum deposition equipment. With the Company's ownership 	position in Sidrabe, the Company received worldwide rights to some 	key elements of Sidrabe technology and the Company has access to 	Sidrabe's scientific and technical personnel with extensive 	product and process expertise. The Company has also purchased 	certain manufacturing equipment from Sidrabe.
Suppliers
	The Company qualifies strategic suppliers through a Vendor 	Certification Program which limits the number of suppliers to those 	who provide the Company with the best total value and quality. The 	Company closely monitors product quality and delivery schedules. 	During the last five years, the Company has not experienced 	significant shortages of raw materials. The Company currently 	depends, however, on one supplier for the polyimide film which 	serves as a base for the Company's Novaclad, ViaGrid and high 	density substrate products. This supplier currently manufactures 	this polyimide film at a single manufacturing facility. In 	addition, the Company has experienced delays in delivery of certain 	laser via generation equipment currently available from only one 	supplier. Certain other materials and plating processes used by 	the Company in the manufacture of its products are currently 	obtained from single sources.
Competition
	The Company's business is highly competitive with principal 	competitive factors being product quality, performance, price 	and service. The Company believes its vertical integration, 	which allows it to control product quality and manufacturing 	efficiencies better than many of its competitors, is a competitive 	advantage. Sheldahl's competitors include materials suppliers, 	flexible and rigid circuit manufacturers, as well as electronics 	manufacturers who product their own materials and interconnect 	systems. Some of the Company's competitors have substantially 	greater financial and other resources than the Company. The 	Company's primary competitors with respect to its flexible printed 	circuitry and interconnect systems include Pressac Limited (a U.K. 	company) and Parlex Corp. in the automotive electronics market 	and Mektec corp., Fujikura Ltd. (a Japanese company) and ADFlex 	Solutions, Inc. in the datacommunications market. The Company's 	primary competition for its flexible laminate products include 	Rogers Corporation and GTS Flexible Materials, Ltd. (a U.K. company).
	The Company's Novaclad, ViaGrid and high density substrates compete 	with substrates produced through several alternative processes. 	These competing products include single-sided, polyimide-based, 	etched copper laminate produced using various methods of production 	by Minnesota Mining and Manufacturing, Inc., International 	Business Machines Corporation and several Japanese companies. 	The Company believes the production processes required for each 	of these competing substrates, which include copper sputtering, 	manual drilling and traditional etching techniques, are inherently 	more expensive than the Company's method of production and result 	in products that are not as easily utilized as the Company's 	emerging products in the design and production of higher-density 	IC packages. The Company's emerging products also compete with 	ceramic packaging products produced by companies such as Coors 	Electronic and Kyocera of Japan, although the Company believes 	these products are more expensive than the Company's substrate 	products, and with BTU resin-based substrates supplied by companies 	such as produced by Amkor Electronics and Tessera, which the 	Company believes are limited in their ability to accommodate 	increased circuit densities beyond current levels. The Company 	expects these and other competitors will continue to refine their 	processes or develop new products that will compete on the basis 	of cost and performance with the Company's emerging products. Backlog
	The Company's backlog consists of those orders for which the Company 	has delivery dates. Automotive customers typically provide for 	four to six weeks of committed shipments while datacommunications 	customers generally provide for up to eight weeks of committed 	shipments. The Company's backlog of unshipped orders as of 	August 30, 1996, and September 1, 1995, was approximately $26.1 	million and $26.2 million, respectively. Generally, most orders 	in backlog are shipped during the following three months. Because 	of the Company's quick turn of orders to work-in-process, the 	timing of orders, delivery intervals, customer and product mix 	and the possibility of customer changes in delivery schedules, 	the Company's backlog at any particular date may not be 	representative of actual sales for any succeeding period.
Proprietary Technology
	The Company owns three united States patents for Novaclad and the 	processes for making Novaclad and five additional applications are 	pending. Applications are pending for foreign patents on Novaclad 	in Japan, Canada and the European Patent Office. In addition, the 	Company has one United States patent and one Canadian patent 	elating to its Z-Link adhesive product and has been informed that 	two additional United States patents relating to Z-Link have been 	allowed. Federal trademark registrations have been obtained on 	Novaclad(r), ViaGrid(r), Flexbase(r), Novaflex(r), and Z-Link(r). 	Sheldahl also relies on internal security and secrecy measures and 	on confidentiality agreements for protection of trade secrets and 	proprietary know-how. There can be no assurance that Sheldahl's 	efforts to protect its intellectual property will be effective 	to prevent misappropriation or that others may not independently 	develop similar technology. The Company believes that it 	possesses adequate proprietary rights to the technology involved 	in its products and that its products, trademarks and other 	intellectual property rights do not infringe upon the proprietary 	rights of third parties.
	The Company was named as a defendant in a patent infringement 	matter regarding its Novaclad products which was dismissed for 	lack of jurisdiction in January 1994 and which has not been 	commenced elsewhere. There can be no assurance that this 	plaintiff or others will not bring other actions again the Company. 	The Company is also aware of a patent which may cover certain 	plated through holes of double-sided circuits made of the Company's 	Novaclad materials. Although no claims have been made against the 	company under this patent, the owner of the patent may attempt to 	construe the patent broadly enough to cover certain Novaclad 	products manufactured currently or in the future by the Company. 	The Company believes that prior commercial art and conventional method 	would allow the Company to prevail in the event any such claim is 	made under this patent. Any action commenced by or against the 	Company could be time consuming and expensive and could result 	in requiring the Company to enter into a license agreement or 	cease manufacture of any products ultimately determined to 	infringe such patent.
Environmental Regulations
	Sheldahl is subject to various federal, state and local 	environmental laws relating to the Company's operations. The 	Company's manufacturing and assembly facilities are registered 	with the U.S. Environmental Protection Agency and are licensed, 	where required, by state and local authorities. The Company has 	agreements with licensed hazardous waste transportation and 	disposal companies for transportation and disposal of its 	hazardous wastes generated at its facilities. The Longmont 	facility has been specifically designed to reduce water usage 	in the manufacturing process and employs a sophisticated waste 	treatment system intended to substantially reduce discharge streams. 	Compliance with federal and state environmental laws and regulations 	did not have a material effect on the Company's capital 	expenditures, earnings or competitive position during fiscal 1996. 	Similarly, fiscal 1997 capital expenditures to comply with such 	laws and regulations are not expected to be material. The Company 	believes it is in material compliance with federal and state 	environmental laws and regulations.
Employees
	As of October 1996, the Company employed approximately 1,087 people 	in the United States and Europe, including 910 in production, 80 in 	sales, marketing, application engineering and customer support, 42 	in research and development and 55 in administration. The 	production staff consists principally of full-time workers employed 	in the Company's four currently operating manufacturing and assembly 	plants. In Northfield, Minnesota, production workers 	(approximately 427) are represented by the Union of Needletrade, 	Industrial and Textile Employees, formerly the Amalgamated Clothing 	and Textile Workers Union (the "Union"), which has been the 	bargaining agent since 1963. The Company has a three-year 	collective bargaining agreement with the Union which expires in 	November 1997. The Company has never experienced a work stoppage 	and believes that its employee relations are good.
Item 2.
Item 2. Properties.
	The Company owns two manufacturing facilities totaling 305,000 square 	feet and a 20,000 square foot administration and sales support office 	in Northfield, Minnesota. The Company also owns the 102,000 square 	foot facility in Longmont, Colorado. The Company leases a 30,000 	square foot assembly facility in Aberdeen, South Dakota and owns a 	30,000 square foot assembly facility in Britton, South Dakota. The 	Company also leases a 3,000 square foot technical sales and design 	office in Detroit, Michigan. Management believes that all 	facilities currently in use are generally in good condition, well- 	maintained and adequate for their current operations. The Company 	also leases a production facility in Irvine, California which 	is has subleased.
Item 3.
Item 3. Legal Proceedings
	The Company's operations expose it to the risk of certain legal and 	environmental claims in the normal course of business. The Company 	believes that these matters will not have a material adverse effect 	on the Company's results of operations or financial condition.
Item 4.
Item 4. Submission of Matters to a Vote of Securities Holders
	None
Item 4A. Executive Officers
	The executive officers of the Company are as follows:
Name			Age		Position
James S. Womack		68		Chairman of the Board and Director
James E. Donaghy	62		President, Chief Executive Officer 					and Director
Edward L. Lundstrom	46		Executive Vice President
John V. McManus		49		Vice President - Finance and 					Assistant Secretary
Beverly M. Brumbaugh	61		Vice President - Human Resources 					and Corporate Excellence
Keith L. Casson		57		Vice President - Micro Products
Gregory D. Closser	44		Vice President - Flexible Interconnects
Roger D. Quam		50		Vice President - Composite Materials
Ronald G. Rumpsa	61		Vice President - Materials
Gerald E. Magnuson	65		Secretary and Director
James S. Womack joined the Company in 1956 and served as President of the Company from 1971 to 1988 and as Chief Executive Officer from 1971 to 1991. He became a director of the Company in 1968 and was elected Chairman of the Board in 1988. Mr. Womack is a director of General Securities, Inc. and Zytec Corp.
James E. Donaghy joined the Company in 1988 as its President and Chief Operating Officer. He has served as President and Chief Executive Officer since 1991, and has been a director of the Company since 1988. Between 1958 and 1988, Mr. Donaghy held various positions at Dupont Company, most recently as Director of Planning and Development for Dupont Electronics Group. Mr. Donaghy's experiences with Dupont Company included worldwide responsibility for its connector and electronic materials business. Mr. Donaghy is a director of Hutchinson Technology, Inc. and the Institute of Printed Circuitry.
Edward L. Lundstrom joined the Company in 1976 and has served in several capacities since that time, including Vice President, Treasurer, General Manager of Circuit Division and Vice President - Sales and Marketing. He has been Executive Vice President since September 1995, with responsibilities for corporate marketing, core process redesign, information systems and new business development, with particular emphasis on geographic areas outside the United States. Mr. Lundstrom is a director of Research, Inc.
John V. McManus joined the Company in 1972 and has served as Vice President - - Finance and Assistant Secretary since 1991. From 1987 to 1991, he served as Corporate Controller.
Beverly M. Brumbaugh joined the Company in 1961 and has served in several capacities since that time, including Director of Human Resources and Industrial Relations. He has been Vice President - Human Resources and Corporate Excellence since 1989. Mr. Brumbaugh is the former chairman of the American Electronics Association Minnesota Council for Quality. He is currently a member of the Manufactures Alliance where he serves on both the Human Resources and Quality Councils.
Keith L. Casson joined the Company in 1968 and has served as Vice President - - Micro Products since September 1996. He has served as Vice President - Research and Development since September 1993, with responsibility since September 1995 for deployment of the emerging products in the Longmont facility. Prior to September 1993, he held various positions with the Company, including Automotive/Consumer Market Manager, Director of Business Development and Director of Interconnect Systems Research and Development. Mr. Casson is a member of the Institute of Printed Circuitry.
Gregory D. Closser joined the Company in 1978 and has served as Vice President - Flexible Interconnects since September 1995. From 1983 to 1989, he held the position of Quality Director. From 1989 to 1993, he was the General Manager of Interconnect Manufacturing. From 1993 to 1995 he was Vice President - Interconnect Operations.
Roger D. Quam joined the Company in 1969 and has served in several capacities since that time, including Business Manager of Engineered Products and Vice President of Engineered products. He has served as Vice President - Composite Materials since September 1995, previously servicing as Vice President - Materials Operations and Aviation Products beginning in 1988.
Ronald G. Rumpsa joined the company in 1989 and has served as Vice President - - Materials since September 1993. From 1989 to 1993, he held the position of Corporate Director of Materials.
Gerald E. Magnuson has served as Secretary of the Company since 1962 and a director since 1975. Mr. Magnuson is Of Counsel to the law firm of Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota, and a director of Munsingwear, Inc., Research, Incorporated and Washington Scientific Industries, Inc.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
	The Common Stock is listed on the Nasdaq National Market under the 	symbol "SHEL". The following table sets forth the high and low sales 	prices of the Common Stock for the period indicated, as reported on 	the Nasdaq National Market.
							High	Low
	Fiscal Year Ended September 1, 1995:
	First Quarter					14	10 1/4 	Second Quarter					15 1/2	11 	Third Quarter					15 1/4	10 1/2 	Fourth Quarter					19 1/4	11 3/4
	Fiscal Year Ended August 30, 1996:
	First Quarter					21 1/4	14 3/4 	Second Quarter					23 3/8	16 1/4 	Third Quarter					31 1/8	18 1/8 	Fourth Quarter					28 1/2	15 7/8
	On October 24, 1996, the last reported sales price of the Common Stock 	was $15 1/2. As of this date, there were approximately 1,500 record 	holders of the Company's Common Stock and an estimated additional 	2,600 shareholders who held beneficial interests in shares of 	Common Stock registered in nominee names of banks and brokerages 	houses.
	Pursuant to its current credit agreement, the Company is restricted 	from declaring or paying cash dividends without the consent of the 	Company's lenders. The Company has never declared or paid any 	dividends on its Common Stock. The Company currently intends to 	retain any earnings for use in its operations and expansion of its 	business and therefore does not anticipate paying any cash dividends 	in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
	The following selected consolidated financial data should be read in 	conjunction with the Company's Consolidated Financial Statements and 	notes thereto included elsewhere herein the "Management's Discussion 	and Analysis of Financial condition and Results of Operations". The 	consolidated statements of operations data presented below as of 	and for the fiscal years ended September 2, 1994, September 1, 1995 	and August 30, 1996 and the consolidated balance sheet data as of 	September 1, 1995 and August 30, 1996 have been derived from the 	Company's Consolidated Financial Statements included elsewhere in 	this report, which have been audited by Arthur Andersen LLP, 	independent public accountants. The statements of operations 	data set forth below for the years ended August 28, 1992 and 	August 27, 1993 and the balance sheet data set forth below at 	August 28, 1992, August 27, 1993 and September 2, 1994 are 	derived from audited financial statements not included herein.
							Fiscal year ended 					(In thousands, except per share data)
					8/28/92	8/27/93	9/2/94	9/1/95	8/30/96
	Statements of Operations Data: 	Net sales			$83,977	$82,102	$88,346	$95,216	$114,120 	Cost of sales			 68,476	 66,360	 69,273	 74,752	 89,171 					 ______	 ______	 ______ ______	 ______ 	Gross profit			 15,501	 15,742	 19,073 20,464	 24,949 					______	______	______	______	 ______ 	Expenses: 	 Sales and marketing		 7,648	 7,274	 8,014 9,090	 9,254 	 General and administrative	 4,090	 4,029	 4,153	 3,895	 5,129 	 Research and development	 2,171	 1,929	 2,366	 2,270	 2,755 	 Interest	 		 1,366	 1,023	 946	 875	 539 					 ______	 ______	 ______	 ______	 ______ 	 Total expenses		 15,275	 14,255	 15,479	 16,130	 17,677 					 ______	 ______	 ______	 ______	 ______ 	Income before continuing 	 operations Before provision 	 for income taxes		 226	1 ,487	 3,594	 4,334	 7,272 	Provision for income taxes	 52	 50	 800	 1,200	 2,500 					 ______	 ______	 ______	 ______	 ______ 	Income from continuing 	 operations			 174	 1,437	 2,794	 3,134	 4,772 					 ======	 ======	 ======	 ======	 ====== 	Cumulative effect of change 	 in method of Accounting for 	 income taxes(1)		 -	 -	 1,422	 -	 - 	Cumulative effect of change 	 in method of accounting for 	 post retirement benefits(2)	 -	 -	 (875)	 -	 - 	Loss from discontinued 	 operation(3)	 		 -	 -	 (525)	 -	 - 					 ______	 ______	 ______	 ______	 ______ 	Net income (loss)		 $174	 $1,437	 $2,816	 $3,134	 $4,772 					 ______	 ______	 ______	 ______	 ______ 	Income (loss) per share: 	 Continuing operations		 $0.04	 $0.29	 $0.52	 $0.45	 $0.55 	 Effect of accounting changes 	 for Income taxes(1)		 -	 - .26	 -	 - 	 Effect of accounting changes 	 for post retirement 	 benefits(2)			 -	 - (.16) -	 - 	Discontinued operations(3)	 -	 - (.10) -	 - 					 ______	 ______	 ______	 ______	 ______ 	Net income (loss) per share	 $0.04	 $0.29	 $0.29	 $0.52	 $0.55 					 ======	 ======	 ======	 ======	 ====== 	Weighted average common 	 shares and common share 	 equivalents outstanding	 4,829	 4,950	 5,418	 6,925	 8,686 					 ======	======	======	======	 ======
	Fiscal year ended
					8/28/92	8/27/93	9/2/94	9/1/95	8/30/96
Balance Sheet Data: 	Working capital			$10,708	$11,314	$15,942	$16,332	$ 22,051 	Total assets			 42,425	 44,783	 60,320	 94,186	 115,887 	Long-term debt, excluding 	 current portion		 9,960	 11,433	 7,963	 33,864	 21,858 	Total shareholders' 	 investment			 17,937 19,448	 36,482	 40,952	 75,337 ____________________
	(1)	Effective August 28, 1993, the Company adopted Statement of 		Financial Accounting Standards No. 109, "Accounting for Income 		Taxes". See Note 6 of Notes to Consolidated Financial 		Statements.
	(2)	Effective August 28, 1993, the Company adopted Statement of 		Financial Accounting Standards no. 106, "Employers' Accounting 		for Post Retirement Benefits Other Than Pensions". See Note 7 		of Notes to consolidated Financial Statements.
	(3)	In fiscal 1994, the Company increased its reserve for 		discontinued operation by $525,000, net of income tax benefits. 		See Note 8 of Notes to Consolidated Financial Statements.
Item 7.
Item 7.	Management's Discussion and Analysis of Financial Condition and Results 	of Operations
General
	Sheldahl is a leading producer of advanced laminate materials and 	materials-based components, primarily for sale to the automotive 	electronics and datacommunications markets. The Company's basic 	materials technology was originally developed for the United States 	space program.
	In 1989, the Company developed a business strategy focused on achieving 	a leading position supplying the automotive electronics market with 	flexible interconnects based on the Company's core materials 	technologies. 	Management believed the automotive market provided growth opportunities 	due to increasing electronic content of automobiles as manufacturers 	focused on enhancing vehicle performance while reducing weight and 	overall vehicle costs. The Company targets specific automotive 	customers that it has identified as leaders in the drive to increase 	the electronic content of automobiles. As a result of this business 	strategy, the Company's sales to automotive customers increased from 	$13.9 million in fiscal 1989 to $79.0 million in fiscal 1996, a 	compound annual growth rate of 27%, while the Company's sales to 	other markets declined from $57.0 million in fiscal 1989 to $35.1 	million in fiscal 1996.
	Concurrent with the Company's strategic shift to focus on the 	automotive electronics market in 1989, Sheldahl began to focus 	its research and development expenditures on new opportunities. 	As a result, in 1992 the Company patented its Novaclad high 	performance adhesiveless flexible laminate. The features of Novaclad 	allow circuitry designers to increase circuit density for integrated 	circuit (IC) packaging and other interconnect solutions. The Company 	also developed ViaGrid, a higher-value form of Novaclad with pre- 	drilled small holes that allow printed circuit manufacturers to 	produce flexible interconnects that are up to six times more dense 	than current technology. The Company also uses ViaGrid in the 	manufacture of chip-carrier substrates primarily for IC packages.
	In fiscal 1994, a consortium was organized by the Advanced Research 	Projects Agency (ARPA) of the U.S. Department of Commerce to develop 	a high-density, low-cost multichip module utilizing Novaclad as the 	substrate material. The ARPA consortium, comprised of a vertically- 	integrated team of non-competing companies, has achieved various 	milestones, including validation of each of the essential processes 	for production of the Company's chip-carrier substrates as the base 	material for low-cost multichip modules.
	In June 1994, with the assistance of funding from ARPA, the Company 	established a prototype production facility, and late in calendar year 	1994, began construction of its new manufacturing facility in 	Longmont, Colorado, for the production of Novaclad, ViaGrid and chip- 	carrier substrates (micro products) in commercial quantities. The 	Company expected commercial production to begin at the Longmont 	facility by April 1996.
	However, a variety of factors, including equipment delivery delays, 	product specification changes, and supporting process issues, resulted 	in a nine-month delay in the full production ramp-up, which is now 	expected to commence in the second quarter of fiscal 1997. During 	the delay, the Company has been working with leading customers, 	including Texas Instruments, ASAT, Inc. and Motorola, in production 	validation and product acceptance.
	The adverse financial impact of the production delay at the Micro 	Products facility, combined with the resulting need to continue 	operation of the prototype facility, has been and will continue to 	be significant. Net of ARPA consortium funding, the expenses of the 	Company's Micro Products facility totaled $4.2 million in fiscal 1996. 	Once fully operational, projected expenses, including depreciation, 	are expected to approach $4 million per quarter. Therefore, volume 	production and the related sales revenue upon successful customer 	acceptance will be essential to reduce the impact of the ongoing 	operating costs of the Company's Micro Products division.
	In total, the Company used ARPA consortium funding to offset expenses 	of $3.1 million, $5.0 million, and $3.2 million in fiscal years 1994, 	1995, and 1996, respectively. Based on remaining milestones, 	additional funding assistance from the ARPA consortium and another 	consortium related to low-cost plastic packaging and flip chips is 	expected to total approximately $700,000 through August 1997.
	The Company expects to continue to make substantial investments in 	production capabilities to support its strategy of increasing 	penetration of the automotive electronics market and commercializing 	its emerging Novaclad, ViaGrid and chip-carrier substrate products 	for the datacommunications market. During fiscal years 1994, 1995, 	and 1996, the Company made capital expenditures of approximately 	$26.0 million to increase the production capabilities of its current 	operations. Through fiscal 1996, the Company made capital expenditures 	exceeding $45.0 million in connection with the Micro Products 	production and pilot facilities.
	The Company has capitalized expenditures related to building, equipping 	and financing the new production facility; however, costs to operate the 	pilot facility, net of the ARPA consortium funding, have been charged to 	operations as incurred.
	On September 5, 1995, the Company sold its aviation lighting product 	line to The B.F.Goodrich Company for approximately $2.6 million, 	enabling the Company to focus on its emerging products, flexible 	interconnects and flexible laminates operations. The aviation 	lighting product line generated sales of $3.6 million in fiscal year 	1995 and was insignificant to the overall operations of the Company.
Results of Operations
	The following table shows the percentage of net sales represented by 	certain line items from the Company's consolidated statements of 	operations for the periods indicated:
	Fiscal Years Ended
				August 30,	September 1,	September 2, 				 1996		 1995	 1994
	Net sales			100.0%		100.0%		100.0% 	Cost of sales	 		 78.1	 	 78.5	 	 78.4 					______		______		______ 	Gross profit	 		 21.9	 	 21.5	 	 21.6 					______		______		______ 	Expenses: 	 S & M			 8.1		 9.5		 9.1 	 G & A			 4.5		 4.1		 4.7 	 R & D			 2.4		 2.4		 2.6 	 Interest 	 		 .5	 	 .9		 1.1 					______		______		______ 	Total expenses	 		 15.5	 	 16.9	 	 17.5 					______		______		______ 	Income from continuing 	 operations before provision 	 for income taxes		 6.4		 4.6		 4.1 	Provision for income taxes	 2.2	 	 1.3	 	 1.0 					______		______		______ 	Income from continuing 	 operations	 		 4.2%	 	 3.3%	 	 3.1% 					======		======		======
Net Sales. The table below shows, for the periods indicated, the Company's sales to various markets (in thousands):
						Fiscal Years Ended
				August 30, 1996	Sept 1, 1995	Sept 2, 1994
				Amount	%	Amount	%	Amount	%	
Automotive			$78,984	69.2%	$51,919	 54.5%	$46,737	 52.9% Datacommunications		 11,193	 9.8%	 16,860	 17.7%	 18,380 20.8% Aerospace/Defense		 10,585	 9.3%	 12,150	 12.8%	 10,452	 11.8% Industrial			 8,843	 7.7%	 8,221	 8.6%	 7,438	 8.4% Consumer	 		 4,515	 4.0%	 6,066	 6.4%	 5,339	 6.1% 				_______	______	______	______	______	______ Net sales		 $114,120	100.0%	$95,216	100.0%	$88,346	100.0% 				=======	======	======	======	======	======
	The Company's net sales increased $18.9 million, or 20%, in fiscal 1996 	and $6.9 million, or 8%, in fiscal 1995. These increases resulted 	primarily from increased sales to automotive customers and were 	partially offset by decreased sales to datacommunication and aerospace/ 	defense customers. The automotive market sales increased $27.1 million, 	or 52%, in fiscal 1996 and $5.2 million, or 11%, in fiscal 1995. 	These increases were due to a continued successful effort to penetrate 	the automotive electronics market through the use of creatively 	designed flexible interconnects and laminate materials in dashboard 	instrumentation, on-board computers in the engine compartment, air 	bags, and power distribution units. The growth rate of automotive- 	related sales declined in fiscal 1995 from previous years, as the 	Company's customers delayed production of certain new automotive 	components. This caused the Company to delay production start-up of 	certain	major new flexible interconnect products. The Company enjoys 	a favorable position in targeted segments of the automotive market, 	and has increased sales revenue in that market at an average annually 	compounded rate of over 27% since 1989. Automotive market sales 	represented 69% of Company sales in 1996 compared to 55% in 1995.
	Datacommunications sales declined $5.7 million, or 34%, in fiscal 1996 	and $1.5 million, or 8%, in fiscal 1995. Declining sales to the 	datacommunications market were primarily due to the Company's decision 	to focus more of its sales and marketing efforts on automotive 	applications. Flexible interconnect sales accounted for 84% of the 	decline in fiscal 1996 as printer and laptop computer sales slowed. 	Laminate material sales to the datacommunications market declined 	$800,000 in fiscal 1996. After adjusting for the sale of the Company's 	aviation lighting products line, the Company's sales to the aerospace/ 	defense market increased $2.1 million, or 24%, from $8.5 million in 	fiscal 1995 to $10.6 million in fiscal 1996. Aerospace/defense sales 	for fiscal 1995 were up $1.6 million, or 24%, due to an increased 	demand for multilayer insulation blankets for satellites. The 	aerospace sales growth reflects the use of the Company's core 	materials technology in thermal control applications such as 	spacecraft and commercial satellite insulation.
	Industrial and consumer market sales for 1996 declined slightly, from 	$14.3 million in fiscal 1995 to $13.4 million in fiscal 1996, after 	increasing slightly from $12.8 million in fiscal 1994. Although 	Sheldahl has not specifically focused on these markets, the Company's 	laminate materials and flexible interconnect products have developed 	small but well-established market niches for specific applications 	over an extended period of time.
	The table below shows, for periods indicated, the Company's sales by 	major product lines (in thousands).
	Fiscal Years Ended
				August 30, 1996	Sept 1, 1995	Sept 2, 1994
				Amount	%	Amount	%	Amount	%	
Flexible interconnects		$86,146	 75.5%	$64,398	 67.6%	$61,566	 69.7% Laminate materials		 24,627	 21.6%	 24,067	 25.3%	 21,264	 24.1% Fabricated devices		 3,182	 2.8%	 3,135	 3.3%	 1,963	 2.2% Aviation components	 -	 -	 3,616	 3.8%	 3,553	 4.0% Chip-carrier substrates		 165	 .1%	 -	 -	 -	 - 				_______	______	______	______	______	______ Total			 $114,120	100.0%	$95,216	100.0%	$88,346	100.0% 				=======	======	======	======	======	======
	The Company's sales growth in fiscal 1996 reflects a $21.7 million, or 	34%, increase in flexible interconnect sales. Flexible interconnect 	sales comprised 75% of total revenue in 1996, compared with 68% in 	1995. Sales of laminate materials remained steady at $24.6 million 	in fiscal 1996, or 22% of total revenue. At $3.2 million, sales of 	fabricated devices also remained relatively constant in fiscal 1996. 	Sales of chip-carrier substrates totaled $165,000 in fiscal 1996, 	reflecting sales of prototype and pre-qualification product from 	the Company's Micro Products pilot facility.
	Gross Profit. The Company's gross profit increased $4.5 million, or 	22%, in fiscal 1996 and $1.4 million, or 7%, in fiscal 1995. As a 	percent of sales, gross profit for fiscal years 1996, 1995, and 1994 	was relatively consistent at 22%. In fiscal 1996, gross profit was 	adversely affected by $4.0 million in operating costs for the Micro 	Products division in Longmont. Without these costs, which provided 	virtually no revenues, gross margin would have been $28.9 million, 	or 25% of sales. The increase in gross profit in fiscal years 1996 	and 1995 was related to increased flexible interconnect sales, 	primarily to the automotive market, as well as improved material 	yield and labor productivity made possible by the Company's 	substantial capital investments in its core product lines over the 	last several years. The Company's gross profit for its core product 	lines, including laminate materials and flexible interconnects, 	increased $8.7 million on a sales increase of $18.7 million. This 	means that $0.46 for each added sales dollar contributed to improving 	gross profit in 1996, compared to $0.26 in fiscal 1995 on sales 	growth of $6.8 million.
	Funding received by the Company from the ARPA consortium is reflected 	as a reduction to cost of sales and totaled $1.8 million, $3.8 million, 	and $1.8 million in fiscal years 1996, 1995, and 1994, respectively. 	The awarding of these funds was based on the completion of various 	milestones, including process validation for each essential process 	in the production of chip-carrier substrates for IC packages using 	the Company's patented Novaclad material.
	Sales and Marketing Expenses. Sales and marketing expenses increased 	$164,000, or 2%, in fiscal 1996 and $1.1 million, or 13%, in fiscal 	1995. The increased costs to support the Company's micro products 	have been offset by sales expense savings related to the September 	1995 sale of the Hoskins aviation lighting product line. As a 	percentage of net sales, sales and marketing expenses were 8% in 	fiscal 1996, 10% in fiscal 1995, and 9% in fiscal 1994.
	General and Administrative Expenses. Gross general and administrative 	expenses increased $836,000, or 18%, to $5.4 million in fiscal 1996 and 	decreased $25,000, or 1%, to $4.6 million in fiscal 1995. ARPA credits 	applied to general and administrative expenses were $265,000, $663,000, 	and $430,000 in fiscal years 1996, 1995, and 1994, respectively, 	resulting in net general and administrative expenses of $5.1 million, 	$3.9 million, and $4.2 million in fiscal years 1996, 1995, and 1994, 	respectively.
	The table below shows, for the periods indicated, the Company's general 	and administrative expenses (in thousands):
						Fiscal Years Ended
				August 30,	September 1,	September 2, 				 1996		 1995	 1994
Gross expense			$ 5,394		$ 4,558		$ 4,583 ARPA funding	 		 (265)	 	 (663)	 	 (430) 				 ______	 	 ______		 ______ Net expense			$ 5,129		$ 3,895		$ 4,153 				 ======		 ======		 ====== Percent of sales		 4.5%		 4.1%		 4.7%
	The increase in general and administrative expenses in fiscal 1996 	reflects an increase in professional services, miscellaneous employee 	benefits, and incentive compensation expense.
	Research and Development Expenses. Gross research and development 	expenses increased $1.1 million, or 39%, in fiscal 1996 to $4.1 	million and decreased $237,000, or 8%, in fiscal 1995. ARPA credits 	applied to research and development expenses were $1.3 million, 	$611,000, and $752,000 in fiscal years 1996, 1995, and 1994, 	respectively, resulting in net research and development expenses 	of $2.8 million, $2.3 million, and $2.4 million in fiscal years 1996, 	1995, and 1994, respectively. The level of the ARPA consortium 	funding will be significantly reduced in fiscal 1997 as consortium 	efforts are completed.
	The table below shows, for the periods indicated, the Company's research 	and development expenses (in thousands):
						Fiscal Years Ended
				August 30,	September 1,	September 2, 				 1996		 1995	 1994
Gross expense			$ 4,010		$ 2,881		$ 3,118 ARPA funding	 		(1,255)	 	 (611)	 	 (752) 				 ______		 ______	 	 ______ Net expense			$ 2,755		$ 2,270		$ 2,366 				 ======		 ======		 ====== Percent of sales		 2.4%		 2.4%		 2.6%
	The increase in gross research and development expenses in fiscal 1996 	was principally due to additional staffing, material testing, travel, 	and consulting and professional costs, primarily supporting the start- 	up of the Company's Micro Products division and related ARPA consortium 	milestones.
	Interest Expense. Gross interest expense increased to $2.4 million in 	fiscal 1996 from $2.1 million in fiscal 1995 and $1.4 million in fiscal 	1994, as the Company's borrowing to support capital expenditures 	increased.
	The following shows a breakdown of interest expense for the fiscal years 	indicated (in thousands):
				August 30,	September 1,	September 2, 				 1996		 1995	 1994
Gross interest			$ 2,388		$ 2,090		$ 1,351 Capitalized interest		(1,605)	 	(1,215)		 (405) Investment income	 	 (244)	 -	 - 				 ______		 ______		 ______ Net expense			$ 539		$ 875		$ 946 				 ======		 ======		 ====== Percent of sales		 .5%		 .9%		 1.1%
	Capitalized interest increased from $405,000 in fiscal 1994 to $1.2 	million	in fiscal 1995 and $1.6 million in fiscal 1996. The Company's 	capitalized interest costs during fiscal years 1995 and 1996 were 	related to capital investments for production equipment processes to 	enhance capacity and the construction of the Micro Products plant and 	equipment. On November 21, 1995, the Company completed a secondary 	public offering of common stock from which it received net proceeds 	of $29.0 million. The net proceeds were used to reduce outstanding 	indebtedness, with the remainder invested in high-grade, short-term 	interest bearing debt securities resulting in investment income of 	$244,000 in fiscal 1996. The resulting net interest expense in fiscal 	1996 was $539,000. Net interest expense was $875,000 and $946,000 in 	fiscal years 1995 and 1994, respectively.
	Income Taxes. The Company's effective tax rate was 34%, 28%, and 22% 	for fiscal years 1996, 1995, and 1994, respectively. The increase in 	the 1996 effective tax rate resulted from the elimination of the 	research and development tax credit from July 1995 through June 1996 	and lower foreign sales corporation (FSC) tax benefits. In prior 	years, these rates differed from the federal statutory rate primarily 	because of state income taxes, benefits from research and development 	credits, and FSC benefits.
Discontinued Operation
	On May 27, 1994, the Company sold its idle Nashua, New Hampshire, 	facility for an amount less than the recorded value. In addition, 	the Company revised its estimate of the costs it expected to incur 	related to its move from leased facilities in Orange County, 	California. The consolidated statement of operations for fiscal 	1994 reflects a charge of $525,000, net of income tax benefits of 	$175,000, to reserve for the losses related to these events. As 	of September 1, 1995, there were no remaining obligations with 	respect to the Company's discontinued operation. See Note 8 of Notes 	to Consolidated Financial Statements.
Liquidity and Capital Resources
	Net capital expenditures in fiscal years 1996, 1995, and 1994 were 	$24.9 million, $32.2 million and $13.8 million, respectively, of 	which $45.2 million was for building and equipping the new Micro 	Products facility. The remaining capital expenditures were used to 	expand manufacturing capacity for the Company's core laminate 	materials and flexible interconnect operations. Over the past three 	fiscal years, the Company has financed its capital expenditures 	through equity proceeds of $45.2 million from public offerings of 	common stock and stock option exercises, debt financing of $7.7 	million, and cash flow from operations of $18.1 million. The 	Company expects capital expenditures in fiscal 1997 to be approximately 	$25 million. The Company believes that its cash flow from operations 	and funds available under its current revolving credit agreement 	will be sufficient to meet its operating and investment needs through 	fiscal 1998.
	During fiscal 1996, the Company amended and restated its revolving 	credit agreement with Norwest Bank Minnesota, N.A., Harris Trust and 	Savings Bank, and NBD Bank, N.A. The amended and restated credit 	agreement provides the Company with a $35.0 million revolving line 	of credit. The line of credit is secured by the Company's 	inventories, accounts receivable, and fixed assets. Interest accrued 	under the line of credit is at the prime or LIBOR rates. During 	fiscal 1996, the weighted average interest rate was 8.24%. As of 	August 30, 1996, the Company's outstanding borrowings under this 	revolving credit agreement were $15.2 million and the weighted 	average interest rate was 7.75%.
Financial Derivatives
	The Company has limited foreign currency risks from its international 	sales. 	Major contracts have "risk sharing" arrangements with the 	customer, allowing repricing in the event of long-term and/or 	significant foreign currency fluctuations.
	To deal with short-term fluctuations, the Company will use a variety of 	natural and contractual hedging techniques from time to time to 	prudently reduce, but not eliminate, its exposure to foreign 	currency fluctuations. Historical transactions have not been material 	in nature. The Company expects its foreign currency contracts to 	increase during fiscal 1997 and will increase its hedging activities 	accordingly.
Effect of Changes in Accounting Principles
	The Company adopted Statement of Financial Accounting Standards No. 	109, "Accounting for Income Taxes" (SFAS No. 109), effective August 	28, 1993. The adoption of SFAS No. 109 resulted in a cumulative one- 	time favorable adjustment of $1.4 million. The Company also adopted 	Statement of Financial Accounting Standards No. 106, "Employers' 	Accounting for 	Postretirement Benefits Other Than Pensions" (SFAS No. 106). The Company 	provides certain medical and other postretirement benefits to qualified 	employees. The adjustment made in the first quarter of fiscal 1994 	resulted in a cumulative one-time charge against income of $875,000, net 	of income tax benefits of $525,000. Effective September 3, 1994, the 	Company adopted Statement of Financial Accounting Standards No. 112, 	"Employers' Accounting for Postemployment Benefits" (SFAS No. 112). The 	effect of adoption of SFAS No. 112 did not have a significant impact on 	the Company. See Notes 6 and 7 of Notes to Consolidated Financial 	Statements.
New Accounting Pronouncements
	In March 1995, the Financial Accounting Standards Board issued Statement 	of Financial Accounting Standards No. 121, "Accounting for Impairment of 	Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 	121). The Company will be required to adopt SFAS No. 121 in fiscal 1997 	and expects that its adoption will not have a significant impact on the 	Company's operating results or financial condition.
	In October 1995, the Financial Accounting Standards Board issued 	Statement of Financial Accounting Standards No. 123, "Accounting 	for Stock-Based Compensation." This statement encourages, but does 	not require, a fair value-based method of accounting for employee 	stock options, the sale of stock under any company's employee stock 	purchase plan, or similar equity instruments. The Company has elected 	to continue to measure compensation cost under Accounting Principles 	Board Opinion No. 25, "Accounting for Stock Issued to Employees" as 	was previously required, and to comply with pro forma disclosure of 	net income and earnings per share as if the fair value-based method 	of accounting had been applied, beginning in fiscal 1997.
Cautionary Statement 	 	Statements included in this management's discussion and analysis of 	financial condition and results of operations, in the letter to 	shareholders, elsewhere in this annual report, in the Company's Form 	10-K and in future filings by the Company with the Securities and 	Exchange Commission, in the Company's press releases, and oral 	statements made with the approval of an authorized executive officer 	that are not historical, or current facts are "forward-looking 	statements" made pursuant to the safe harbor provisions of the 	Private Securities Litigation Reform Act of 1995. Certain risks 	and uncertainties could cause actual results to differ materially 	from historical earnings and those presently anticipated or projected. 	The Company wishes to caution readers not to place undue reliance on 	any such forward-looking statements, which speak only as of the date 	made. The following important factors, among others, in some cases 	have affected and in the future could affect the Company's actual 	results and could cause the Company's actual financial performance 	to differ materially from that expressed in any forward-looking 	statement: (i) the Company's ability to begin full production at 	its Micro Products facility is dependent upon product validation and 	product acceptance of the Company's micro products, neither of which 	has occurred; (ii) delays in achieving full volume production at 	the Micro Products facility will have a material adverse impact on 	the Company's results of operations; (iii) a general downturn in the 	automotive market, the Company's principal market, could have a 	material adverse effect on the demand for the electronic components 	supplied by the Company to its customers; and (iv) the extremely 	competitive conditions that currently exist in the automotive and 	datacommunications markets are expected to continue, including 	development of new technologies, the introduction of new products, 	and the reduction of prices. The foregoing list should not be 	construed as exhaustive and the Company disclaims any obligation 	subsequently to revise any forward-looking statements to reflect 	the events or circumstances after the date of such statements or 	to reflect the occurrence of anticipated or unanticipated events.
Item 8.
Item 8. Financial Statements and Supplementary Data
	The Consolidated Financial Statements are listed under Item 14 of 	this report. Unaudited quarterly financial data for fiscal 1995 and 	1996 is set forth in Note 12 to the Consolidated Financial Statements 	included with this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants
	None
PART III
Pursuant to General Instruction G(3) Registrant omits Part III, Items 10 (Directors and Executive Officers of Registrant), 11 (Executive Compensation), 12 (Security Ownership of Certain Beneficial Owners and Management) and 13 (Certain Relationships and Related Transactions), except that portion of Item 10
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)	Documents filed as a part of the report: 								 Form 10-K 								 Page Reference 1.	Consolidated Financial Statements:
	Report of Independent Public Accountants		
	Consolidated Statements of Operations for the Fiscal Years 	Ended august 30, 1996, September 1, 1995 and September 2, 1994
	Consolidated Balance Sheets as of august 30, 1996 	and September 1, 1995					
	Consolidated Statements of Changes in Shareholders' Investment 	for the Fiscal Years August 30, 1996, September 1, 1995 and 	September 2, 1994					
	Consolidated Statements of Cash Flows for the Fiscal Years Ended 	August 30, 1996, September 1, 1995 and September 2, 1994
	Notes to Consolidated Financial Statements		
2.	Consolidated Financial Statement Schedules 								 Form 10-K 	Description						 Page Reference
	Schedule II - Valuation and Qualifying Accounts			S-1
(b)	Reports on Form 8-K
	None.
(c)	Exhibits and Exhibit Index
Exhibit No.	Description
3.1	Amended and Restated Articles of Incorporation, incorporated by 	reference from exhibit 3.1 of the Registrant's Form 10-Q for the 	quarter ended December 2, 1994.
3.2	Bylaws, as amended, incorporated by reference from Exhibit 3.2 of the 	Registrant's Registration Statement on form S-2 (File No. 33-79266).
4.1	Stock Purchase Agreement Relating to Purchase of Sheldahl Stock dated 	March 12, 1987 between the Registrant and Sumitomo Bakelite Co., Ltd., 	as amended through January 9, 1991, incorporated by reference from 	Exhibit C(4) of Registrant's Form 8-K filed January 22, 1991.
4.2	Amendment No. 4 to Stock Purchase Agreement Relating to Purchase of 	Sheldahl Stock dated January 3, 1994, incorporated by reference from 	Exhibit 4.2 of the Registrant's Registration Statement on Form S-2 	(File No. 33-79266).
4.3	Rights Agreement dated as of June 16, 1996 between the Company and 	Norwest Bank Minnesota, N.A., is incorporated by reference to Exhibit 	1 to the Company's Form 8-A dated June 20, 1996.
10.1	1987 Stock Option Plan, incorporated by reference from Exhibit 10.1 of 	the Registrant's Form 10-K for the fiscal year ended August 27, 1993.
10.2	1994 Stock Option Plan, incorporated by reference from Exhibit 10.1 of 	the Registrant's Form 10-Q for the quarter ended December 2, 1994.
10.3	Consulting Agreement dated August 17, 1988 between James S. Womack and 	Sheldahl, Inc. incorporated by reference from Exhibit 10.2 of the 	Registrant's Form 10-K for the fiscal year ended August 27, 1993.
10.4	Form of Employment (change of control) Agreement for Executive Officers 	of the Registrant.
10.5	Employment (change of control) Agreement between James E. Donaghy and 	the Registrant dated March 1, 1988, as amended August 21, 1996.
10.6	Sales Agreement Relating to Japanese Sales dated March 12, 1987 between 	the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by 	reference from Exhibit C(2) of the Registrant's Form 8-K filed March 	25, 1987.
10.7	Sales Agreement Relating to United States Sales dated March 12, 1987 	between the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by 	reference from Exhibit C(3) of the Registrant's Form 8-K filed March 	25, 1987.
10.8	Amendment Number One to Sales Agreement Relating to Japanese Sales 	dated January 9, 1991 between the Registrant and Sumitomo Bakelite Co., 	Ltd., incorporated by reference from Exhibit C(2) of the Registrant's 	Form 8-K filed January 22, 1991.
10.9	Amendment Number One to Sales Agreement Relating to United States Sales 	dated January 9, 1991 between Sheldahl, Inc. and Sumitomo Bakelite Co., 	Ltd., incorporated by reference from Exhibit C(3) of the Registrant's 	Form 8-K filed January 22, 1991.
10.10	Amended and Restated Cross License Agreement dated November 1, 1993 	between the Registrant and Sumitomo Bakelite Co., Ltd. incorporated by 	reference from Exhibit 10.5 of the Registrant's Form 10-K for the 	fiscal year ended September 2, 1994.
10.11	Lease dated June 15, 1989 between Aberdeen Development Corporation and 	the Registrant, incorporated by reference from Exhibit 10.13 of the 	Registrant's Form 10-K for the fiscal year ended August 27, 1993.
10.12	Lease Agreement dated May 1, 1994 between 345 Partnership and the 	Registrant, incorporated by reference from Exhibit 10.13 of the 	Registrant's Registration Statement on Form S-2 (File No. 33-79266).
10.13	Amended and Restated Credit and Security Agreement dated November 24, 	1993 among the Registrant, Norwest Bank Minnesota, N.A., and Harris 	Trust and Savings Bank, incorporated by reference from Exhibit 4.1 of 	the Registrant's Form 10-K for the fiscal year ended August 27, 1993.
10.14	Second Amendment to Amended and Restated Credit and Security Agreement 	dated May 12, 1994 among the Registrant, Norwest Bank Minnesota, N.A., 	Harris Trust and Savings Bank, incorporated by reference from Exhibit 	10.1 of the Registrant's Form 10-Q for the second quarter ended March 	3, 1995.
10.15	Third Amendment to Amended and Restated Credit and Security Agreement 	dated January 24, 1995 	among the Registrant, Norwest Bank Minnesota, 	N.A., Harris Trust and Savings Bank, and NBD Bank, N.A., incorporated 	by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the 	quarter ended March 3, 1995.
10.16	Loan Authorization dated October 1, 1994 between South Dakota Board of 	Economic Development Registrant, incorporated by reference from 	Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended 	February 25, 1994.
10.17	Agreement Relating to Employment dated October 1, 1994 between the 	South Dakota Board of Economic Development and the Registrant, 	incorporated by reference from Exhibit 10.2 of the Registrant's 	Form 10-Q for the quarter ended February 25, 1994.
10.18	Promissory Note dated October 4, 1993 due to the South Dakota Board of 	Economic Development, incorporated by reference from Exhibit 10.3 of 	the Registrant's Form 10-Q for the quarter ended February 25, 1994.
10.19	Note Purchase Agreement dated as of August 31, 1995 between the 	Registrant and Northern Life Insurance Company, incorporated by 	reference to Exhibit 10.19 to Registrant's Form 10-K for the fiscal 	year ended September 1, 1995.
10.20	Agreement dated January 10, 1994 between the MCM-L Consortium and the 	Advanced Projects Research Agency, incorporated by reference from 	Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended 	February 25, 1994.
10.21	Articles of Collaboration dated November 30, 1993 for the MCM-L 	Consortium, incorporated by reference from Exhibit 10.5 of the 	Registrant's Form 10-Q for the quarter ended February 25, 1994.
10.22	Joint Marketing Agreement dated June 14, 1995 between the Registrant 	and Mentor Graphics Corporation incorporated by reference from 	Exhibit 10.22 of the Registrant's Form 10-K for the fiscal year 	ended September 1, 1995.
10.23	Agreement relating to Joint Venture dated August 1, 1995 between 	Registrant, Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing 	(China) Development Co., Ltd. and Jiujiang Flex Co., Ltd. incorporated 	by reference from Exhibit 10.23 of the Registrant's Form 10-K for the 	fiscal year ended September 1, 1995.
10.24	Agreement relating to payments dated August 1, 1995 between Registrant 	and Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing (China) 	Development Co., Ltd. and Jiujiang Flex Co., Ltd. incorporated by 	reference from Exhibit 10.24 of the Registrant's Form 10-K for the 	fiscal year ended September 1, 1995.
10.25	Manufacturing Agreement dated August 1, 1995 between Registrant and 	Jiujiang Flex Co., Ltd. incorporated by reference from Exhibit 10.25 	of the Registrant's Form 10-K for the fiscal year ended 	September 1, 1995.
10.26	Marketing and License Agreement dated August 1, 1995 between Registrant 	and Jiujiang Flex Co., Ltd. incorporated by reference from Exhibit 	10.26 of the Registrant's Form 10-K for the fiscal year ended 	September 1, 1995.
10.27	Technology Development Agreement dated August 15, 1995 between Low Cost 	Flip Chip Consortium and the Advanced Projects Research Agency 	incorporated by reference from Exhibit 10.27 of the Registrant's Form 	10-K for the fiscal year ended September 1, 1995.
10.28	Articles of Collaboration dated July 10, 1995 for the Low Cost Flip 	Chip Consortium incorporated by reference from Exhibit 10.28 of the 	Registrant's Form 10-K for the fiscal year ended September 1, 1995.
10.29	Technology Development Agreement dated March 23, 1995 between Plastic 	Packaging Consortium and the Advanced Projects Research Agency 	incorporated by reference from Exhibit 10.29 of the Registrant's Form 	10-K for the fiscal year ended September 1, 1995.
10.30	Articles of Collaboration dated March 17, 1995 for the Plastic 	Packaging Consortium incorporated by reference from Exhibit 10.30 	of the Registrant's Form 10-K for the fiscal year ended September 	1, 1995.
10.31	License Agreement dated June 20, 1994 between Sidrabe and Registrant 	incorporated by reference from Exhibit 10.31 of the Registrant's Form 	10-K for the fiscal year ended September 1, 1995.
10.32	Amendment One to License Agreement dated September 14, 1994 between 	Sidrabe and Registrant incorporated by reference from Exhibit 10.32 of 	the Registrant's Form 10-K for the fiscal year ended September 1, 1995.
10.33	Fourth Amendment to Amended and Restated Credit and Security Agreement 	dated January 29, 1996 	among the Registrant, Norwest Bank Minnesota, 	N.A., Harris Trust and Savings Bank, and NBD Bank, N.A., incorporated 	by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the 	quarter ended March 3, 1995.
10.34	Fifth Amendment to Amended and Restated Credit and Security Agreement 	dated March 1, 1996 among the Registrant, Norwest Bank Minnesota, 	N.A., Harris Trust and Savings Bank, and NBD Bank, N.A., incorporated 	by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the 	quarter ended March 3, 	1995.
11	Statement Regarding Computation of Per Share Earnings.
18	Statement Regarding Accounting Change.
22	Subsidiary of Registrant.
23	Consent of Independent Public Accountants.
27	Financial Data Schedule
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.
Dated: November 5, 1996			SHELDAHL, INC.
					By:	/s/ James E. Donaghy										James E. Donaghy, President 						and Chief Executive Officer
	Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on November 5, 1996 and in the capacities indicated.
(Power of Attorney)
	Each person whose signature appears below constitutes and appoints James E. Donaghy and John V. McManus as such person's true and lawful attorneys- in-fact and agents, each acting alone, with full power of substitution and resubmission, for such person and in such person's name, place and stead, in any and all capacities, to sign any of all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other d ocuments in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all said attorneys-in-fact an agents, each acting alone, or such person's substitute or substitutes may lawfully do or cause to be done by virtue thereof.
By	/s/ James S. Womack		Chairman of the Board and Director 	James S. Womack
By	/s/ James E. Donaghy		President, Chief Executive Officer 			James E. Donaghy	and Director 					(principal executive officer)
By	/s/ John V. McManus		Vice President - Finance 	John V. McManus			(principal financial and accounting 				officer)
By	/s/ John G. Kassakian		Director 	John G. Kassakian
By	/s/ Gerald E. Magnuson		Director 	Gerald E. Magnuson
By	/s/ William B. Miller		Director 	William B. Miller
By	/s/ Kenneth J. Roering		Director 	Kenneth J. Roering
By	/s/ Richard S. Wilcox		Director 	Richard S. Wilcox
By	/s/ Beekman Winthrop		Director 	Beekman Winthrop
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Sheldahl, Inc.:
We have audited the accompanying consolidated balance sheets of Sheldahl, Inc. (a Minnesota corporation) and Subsidiary as of August 30, 1996 and September 1, 1995 and the related consolidated statements of operations, changes in shareholders' investment and cash flows for each of the three fiscal years in the period ended August 30, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sheldahl, Inc. and Subsidiary as of August 30, 1996 and September 1, 1995 and the results of their operations and their cash flows for each of the three fiscal years in the period ended August 30, 1996 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic consolidatedfinancial statements taken as a whole. The schedule listed in the index toconsolidated financial statements is presented for purposes of complying with theSecurities and Exchange Commission's rules and are not part of the basic financialstatements. This schedule has been subjected to the auditing procedures appliedin the audit of the basic financial statements and, in our opinion, fairly statesin all material respects the financial data required to be set forth thereinin relation to the basic financial statements taken as a whole. 							ARTHUR ANDERSEN LLP
Minneapolis, Minnesota October 11, 1996 				Page
			Sheldahl, Inc. and Subsidiary 			Consolidated Statements of Operations 			(in thousands, except per share data)
					For The Fiscal Years Ended 				August 30,	September 1,	September 2, 				 1996		 1995		 1994
Net sales			$114,120	$95,216		$88,346
Cost of sales			 89,171	 74,752	 	 69,273 				 ______	 ______		 ______ Gross profit	 		 24,949	 20,464	 	 19,073 				 ______	 ______		 ______ Expenses:	 	S & M			 9,254	 9,090		 8,014 	G & A			 5,129	 3,895		 4,153 	R & D			 2,755	 2,270		 2,366 	Interest 	 	 539	 875	 	 946 				 ______	 ______		 ______ 	Total expenses	 	 17,677	 16,130	 	 15,479 				 ______	 ______		 ______
Income from continuing operations 	before provision for income 	taxes and cumulative effect 	of changes in methods of 	accounting		 7,272		 4,334		 3,594
Provision for income taxes	 2,500	 	 1,200	 	 800 				 ______		 ______		 ______
Income from continuing operations 	before cumulative effect 	of changes in methods of 	accounting		 4,772		 3,134		 2,794
Cumulative effect of change in 	method of accounting for 	income taxes (Note 6)	 -		 -		 1,422
Cumulative effect of change in 	method of accounting for 	postretirement benefits 	(Note 7)		 -		 -		 (875)
Loss from discontinued operation Note 8)		 	 -	 -	 	 (525) 				 ______		 ______		 ______ Net income			$ 4,772		$ 3,134		$ 2,816 				 ======		 ======		 ====== Income per common share: 	Continuing operations	$ .55	$ .45	$ .52 	Accounting change 	- income taxes		 -	 -	 .26 	Accounting change 	- postretirement 	 benefits		 -	 -	 (.16) 	Discontinued operation	 -	 -	 (.10) 				 ______		 ______	______ Net income per common share	$ .55		 $ .45	$ .52 				 ======		 ======	====== Weighted average common shares 	and common share 	 equivalents outstandin 8,686		 6,925	 5,418 				 ======		 ======	======
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			Sheldahl, Inc. and Subsidiary 			Consolidated Balance Sheets 		(in thousands, except share and per share data)
							August 30, Sept 1, 							 1996		 1995 Assets Current assets: 	Cash and cash equivalents			$ 904	$ 1,045 	Accounts receivable, net of allowances 		for doubtful accounts of $244 in 1996 		and $267 in 1995			 21,091	 17,637 	Inventories					 11,525	 12,509 	Deferred taxes	 				 1,660	 849 	Prepaid expenses and other current assets	 390	 732 							 ______	 ______ 		Total current assets	 		 35,570	 32,772 							 ______	 ______ Plant and equipment: 	Land and buildings				 24,718	 15,924 	Machinery and equipment				 64,754	 52,748 	Construction in progress			 37,650	 32,654 	Accumulated depreciation			 (47,630)	(41,471) 							 ______	 ______ 		Net plant and equipment	 		 79,492	 59,855 							 ______	 ______
Other assets	 	 				 	825	 1,559 							 ______	_ _____ 							 $115,887	$94,186 							 ======	 ====== Liabilities and Shareholders' Investment Current liabilities: 	Current maturities of long-term debt		 $ 466	$ 4,179 	Accounts payable				 9,824	 9,113 	Accrued salaries				 1,390	 1,262 	Other accrued liabilities	 		 1,839	 1,886 							 ______	 ______ 		Total current liabilities	 	 13,519	 16,440 							 ______	 ______ Long-term debt	 					 21,858	 33,864 							 ______	 ______ Other non-current liabilities	 			 2,269	 2,683 							 ______	 ______ Deferred taxes	 					 2,904	 247 							 ______	 ______ Commitments and contingencies (Notes 5 and 7)			 -	 - Shareholders' investment: 	Preferred stock, $1.00 par value, 500,000 shares 		authorized, none outstanding			 -	 - 	Common stock, $.25 par value, 20,000,000 shares 		authorized; 8,912,695 and 6,831,576 shares 		outstanding			 	 2,228	 1,708 	Additional paid-in capital			 51,404	 22,311
	Retained earnings	 			 21,705	 16,933 							 ______	 ______ 		Total shareholders' investment	 	 75,337	 40,952 							 ______	 ______ 							 $115,887	$94,186 							 ======	 ======
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			Sheldahl, Inc. and Subsidiary 	Consolidated Statements of Changes in Shareholders' Investment For the Fiscal Years Ended Sept 2, 1994, Sept 1, 1995 and August 30, 1996 			(in thousands, except share data)
				 Common Stock		Addtl		 Total 							Paid-In	Retained Share 				Shares	 Amount	Capital	Earnings Invest
Balance August 27, 1993		4,810,995 $1,203	$ 7,262	$10,983	 $19,448
	Net income			-	-	 -	 2,816	 2,816 	Stock options exercised	 83,124 21	 333	 -	 354 	Net proceeds from 	 common stock offering	1,696,250 424	 13,440	 -	 13,864 				 ________ _____	 _____	 _____	 _____
Balance September 2, 1994	6,590,369 1,648	 21,035	 13,799	 36,482
	Net income			-	-	 -	 3,134	 3,134 	Stock options exercised	 241,207 60	 1,276	 -	 1,336 				 ________ _____	 _____	 _____	 _____ Balance September 1, 1995	6,831,576 1,708	 22,311	 16,933	 40,952
	Net income			-	-	 -	 4,772	 4,772 	Stock options exercised	 68,619 17	 599	 -	 616 	Net proceeds from common 	 stock offering	2,012,500 503	 28,494	 -	 28,997 				 ________ _____	 ______	 _____	 _____ Balance August 30, 1996		8,912,695 $2,228	$51,404	$21,705	 $75,337 				 ======== =====	 ======	 ======	 ======
				Page
			Sheldahl, Inc. and Subsidiary 			Consolidated Statements of Cash Flows 				(in thousands)
						For The Fiscal Years Ended 					 August 30,	 Sept 1,	Sept 2, 					 1996	 1995	 1994
Operating activities: 	Net income				$ 4,772	 $ 3,134	$ 2,816 	Adjustments to reconcile net income to 	 net cash provided by operating 	 activities: 		Depreciation and amortization	 6,783	 4,845	 4,014 		Cumulative effect of accounting 		changes				 -	 -	 (547) 		Deferred income tax provision	 1,846	 1,008	 565 		Loss from discontinued operation -		-	 525 	Net change in other operating activities: 		Accounts receivable		(3,454)	 (3,174)	(1,029) 		Inventories			 984	 (1,941)	(1,246) 		Prepaid expenses and other 		 current assets		 342	 (254)	 (175) 		Other assets			 734	 (635)	 (533) 		Accounts payable and accrued 		 liabilities			 (708)	 (481)	 366 		Other non-current liabilities	 (414)	 (188)	 156 						 ______	 ______	 ______ 	Net cash provided by operating 	 activities				 10,885	 2,314	 4,912 						 ______	 ______	 ______ Investing activities: 	Capital expenditures, net		(24,920) (32,182)	(13,841) 	Net cash flow used in discontinued 	 operation	 		 -	 (489)	 (1,044) 						 ______	 ______	 ______ 	Net cash used in investing activities	(24,920) (32,671)	(14,885)
Financing activities: 	Net borrowings (repayments) under 	 revolving credit facility		(15,290) 10,533	 (9,233) 	Net proceeds from other long-term debt	 - 23,466	 11,000 	Repayments of other long-term debt	 (429) (5,941)	 (4,446) 	Net proceeds from of stock offering	 28,997	 -	 13,864 	Net proceeds from stock option exercises 616 1,336	 354 			 			 ______ ______	 ______ 	Net cash provided by financing activities 13,894 29,394	 11,539 						 ______ ______	 ______ 	Net increase (decrease) in cash and cash 	 equivalents				 (141) (963)	 1,566
Cash and cash equivalents at beginning of period 1,045 2,008	 442 						 ______ ______	 ______ Cash and cash equivalents at end of period	$ 904 $ 1,045	 $ 2,008 						 ====== ======	 ====== Supplemental cash flow information: 	Interest paid				$ 2,221 $ 2,204	 $ 1,266 						 ====== ======	 ====== 	Income taxes paid			$ 131 $ 114	 $ 60 						 ====== ======	 ======
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				Sheldahl, Inc. and Subsidiary 			Notes to Consolidated Financial Statements
(1)	 Business Description and Fiscal Year:
	Sheldahl, Inc. (the Company) is a leading producer advanced laminate 	materials and materials-based components, primarily for sale to the 	automotive electronics and datacommunications markets. The Company 	primarily sells to original equipment manufacturers in the United 	States,	Europe, and the Pacific Rim. The Company's fiscal year ends 	on the Friday closest to August 31. Fiscal years 1996 and 1995 	consisted of 52 weeks. Fiscal year 1994 consisted of 53 weeks.
(2)	Summary of Significant Accounting Policies:
	Basis of Presentation -
	The consolidated financial statements have been prepared in accordance 	with Generally Accepted Accounting Principles and include the accounts 	of the Company and its subsidiary. All significant intercompany 	accounts have been eliminated. The preparation of financial statements 	in conformity with generally accepted accounting principles 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 date of the financial statements and the 	reported amounts of revenues and expenses during the reporting 	period. Actual results could differ from those estimates.
	Significant Customers -
	The Company's largest customers accounted for sales of $15,549,000 	and $13,944,000 in 1996, $15,053,000 in 1995, and $13,771,000 in 1994. 	No other customers accounted for more than 10% of net sales.
	Export Sales -
	The Company had export sales of $11,968,000 in 1996, $11,100,000 in 	1995, and $7,592,000 in 1994.
	Revenue Recognition -
	The Company recognizes revenue principally as products are shipped. In 	addition, the Company grants credit to customers and generally does not 	require collateral or any other security to support amounts due.
	Inventories -
	Inventories are stated at the lower of cost or market, with cost 	determined on the first-in first-out (FIFO) method. Cost included 	the cost of materials, direct labor, and applicable manufacturing 	overhead. During the fourth quarter of fiscal 1996, the Company 	changed its method of accounting for inventories from the last-in 	first-out (LIFO) method to the FIFO method. Management believes 	that the change in accounting for inventories is preferable because 	it will more accurately measure operating results by reflecting the 	effect of productivity improvements in cost of sales and to better 	match current costs and revenues. The impact of the change was not 	material to the Company.
	The components of inventories are as follows (in thousands):
					August 30,	September 1, 					 1996		 1995
	Raw material			$ 2,599		$ 3,930 	Work-in-process			 5,572		 5,205 	Finished goods	 		 3,354	 	 3,374 					 ______		 ______ 	Total				$11,525		 $12,509 					 ======		 ====== 	Plant and Equipment -
	Plant and equipment are stated at cost and include expenditures that 	increase the useful lives of existing plant and equipment. The cost of 	major plant and equipment additions includes interest capitalized 	during the acquisition period. Interest capitalized totaled $1,605,000 	in 1996, $1,215,000 in 1995, and $405,000 in 1994. Maintenance, 	repairs, and minor renewals are charged to operations as incurred. 	When plant and equipment are disposed of, the related cost and 	accumulated depreciation are removed from the respective accounts 	and any gain or loss is reflected in the results of operations.
	For financial reporting purposes, plant and equipment are depreciated 	principally on a straight-line basis over the estimated useful lives 	of 20 to 40 years for buildings and 3 to 15 years for machinery and 	equipment.For income tax reporting purposes, straight-line and 	accelerated depreciation methods are used.
	Income Taxes -
	Deferred income taxes are provided for temporary differences between 	the financial reporting basis and tax basis of the Company's assets 	and liabilities at currently enacted tax rates.
	Earnings Per Share -
	Earnings per share is computed based on the weighted average number of 	common and equivalent shares outstanding during each period presented.
	New Accounting Pronouncements -
	In March 1995, the Financial Accounting Standards Board issued 	Statement of Financial Accounting Standards No. 121, "Accounting for 	Impairment of Long-Lived Assets and for Long-Lived Assets to be 	Disposed of" (SFAS No. 121), adoption of which is required for fiscal 	years beginning after December 31, 1995. Although the Company has not 	fully analyzed the effects of SFAS No. 121, the Company expects that 	its ultimate adoption will not have a significant impact on the 	Company's operating results or financial condition.
	In October 1995, the Financial Accounting Standards Board issued 	Statement of Financial Accounting Standards No. 123, "Accounting for 	Stock-Based Compensation". This statement encourages, but does not 	require, a fair value-based method of accounting for employee stock 	options, the sale ofstock under the Company's employee stock purchase 	plan, or similar equity instruments. The Company has elected to 	continue to measure compensation cost under Accounting Principles 	Board Opinion No. 25, "Accounting for Stock Issued to Employees" as 	was previously required, and to comply with proforma disclosure of 	net income and earnings per share as if the fair value based method 	of accounting had been applied, beginning in fiscal 1997.
(3)	Financing:
	Long-term debt consisted of the following (in thousands):
							August 30,	Sept 1, 							 1996		 1995
Revolving credit agreement				$15,243		$30,533
Note payable to insurance company, secured by real estate mortgage interest, at 8.3% with monthly payments of $52, including principal and interest, remaining balance due September 2002					 5,555		 5,700
Note payable to Economic Development Agency, secured by $825 standby letter of credit, interest at 2.0% with monthly payments of $9, including principal and interest, remaining balance due October 1998				 728		 833
Note payable to a bank, secured by real estate mortgage, interest at 8.0% with monthly payments of $9, including principal and interest through February 1999			 240		 326
Other	 						 558	 	 651 							 ______		 ______ 							 22,324		 38,043 Less current maturities	 				 (466)	 	(4,179) 							 ______		 ______ 							$21,858		$33,864 							 ======		 ======
	During fiscal 1996, the Company renegotiated its revolving credit 	agreement, resulting in a $35 million revolving line of credit. This 	line of credit is secured by the Company's inventories, accounts 	receivable, real estate, and equipment. Commitment fees are charged at 	0.25% of the unused portion of the line of credit. Interest accrues at 	the prime or LIBOR rates. During fiscal 1996, the weighted average 	interest rate under revolving credit agreements was 8.24%. As of August 	30, 1996, borrowings under the revolver were $15,243,000 at a weighted 	average interest rate of 7.75% and $19,757,000 was unused and available. 	The revolving credit agreement expires on December 31, 1998.
	The Company's debt agreements contain various restrictive covenants 	which, among other things, require the Company to maintain defined 	consolidated net worth levels, financial ratios and minimum coverage 	ratios, and call for the pledging of certain assets. These agreements 	also restrict additional indebtedness, capital expenditures, and cash 	dividends. The Company was in compliance, or has obtained waivers, with 	respect to these covenants for the fiscal year ended August 30, 1996.
	Future maturities of debt are as follows (in thousands):
	Fiscal 1997			$ 466 	Fiscal 1998			 390 	Fiscal 1999			 16,025 	Fiscal 2000			 220 	Fiscal 2001			 239 	Thereafter	 		 4,984 					 ______ 					$22,324 					 ====== (4)	Stock Options:
	The shareholders of the Company have approved stock option plans (the 	Plans) for officers, other full-time key salaried employees, and non- 	employee directors of the Company, to reward outstanding performance 	and enable the Company to attract and retain key personnel. Under the 	Plans, options are granted at an exercise price equal to the fair 	market value of the Company's common stock at the date of grant, 	vest over a six-month to three-year period, and are generally 	exercisable for five or ten years. The Plans also provide for 	automatic grants of 1,000 non-qualified stock options to each non- 	employee director of the Company on the date that each such director 	is elected or re-elected to the Board of Directors, and expire, to 	the extent not already exercised, 30 days after termination of 	service as a Director. As of August 30, 1996, the Plans authorize the 	future granting of options to purchase up to 118,000 shares of common 	stock.
Stock option transactions during 1994, 1995, and 1996 are summarized as follows:
	Shares	Price per Share
	Outstanding at August 27, 1993		700,642	$4.875 to $8.750 		Granted				205,777	$9.000 to $12.000 		Exercised		 (150,442)	$5.000 to $7.625 					 _______ 	Outstanding at September 2, 1994	755,977	$4.875 to $12.000 		Granted				 84,777	$13.000 to $16.500 						_______ 		Exercised	 	 (271,046)	$5.000 to $12.000 	Outstanding at September 1, 1995	569,708	$4.875 to $16.500 		Granted				475,090	$16.500 to $22.125 		Exercised	 	 (68,888)	$4.875 to $16.500 		Lapsed	 			(5,000)	$18.375 						_______ 	Outstanding at August 30, 1996	 	970,910	$5.000 to $22.125 			=======
	Options exercisable were 569,660 as of August 30, 1996, 391,931 as of 	September 1, 1995, and 655,977 as of September 2, 1994.
The options outstanding as of August 30, 1996 expire as follows:
				Number of Options 	Fiscal Years		That Expire
	1997			 48,445 	1998			 7,000 	1999			 7,000 	2000			 7,000 	2001			 58,145 	2002			100,000 	2003			 69,033 	2004			142,284 	2005			 68,913 	2006			463,090 				_______ 				970,910 				====== (5)	Commitments and Contingencies:
	Lease Commitments -
	The Company has noncancelable operating lease commitments for certain 	manufacturing facilities and equipment that expire at various dates 	through 2001. Minimum rent commitments under operating leases are 	$2,330,000 in 1997, $2,047,000 in 1998, $1,953,000 in 1999, $1,048,000 	in 2000, and $257,000 in 2001. In accordance with the terms of the 	lease agreements, the Company is required to pay maintenance and real 	estate taxes related to the leased property. Operating lease expense 	relating to continuing operations was $2,353,000 in 1996, $2,394,000 	in 1995, and $2,128,000 in 1994.
	Employment Agreements -
	The Company has employment with various officers which are renewable 	in successive one-year terms after August 21, 1999, requiring minimum 	severance benefits following a change in control of the Company, as 	defined.
	Litigation -
	The nature of the Company's operations expose it to the risk of certain 	legal and environmental claims in the normal course of business. 	Although the outcome of these matters cannot be determined, management 	believes that final disposition of these matters will not have a 	material adverse effect on the Company's operating results or 	financial condition.
(6)	Income Taxes:
	Effective August 28, 1993, the Company adopted Statement of Financial 	Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 	109), under which deferred income tax assets and liabilities are 	recognized for the differences between financial and income tax 	reporting bases of assets and liabilities based on enacted tax rates 	and laws. Net income for 1994 was increased by $1,422,000, or $0.26 	per share, for the cumulative effect of this accounting change.
	The provision for income taxes from continuing operations consisted of 	the following (in thousands):
					August 30,	Sept 1,		Sept 2, 					 1996		 1995		 1994
	Currently payable		$ 654		$ 192		$ 235 	Deferred			 1,846	 	 1,008	 	 565 					 ______		 ______		 ______ 	 Provision for income taxes	 $2,500		 $1,200		$ 800 					 ======		 ======		 ======
	A reconciliation from the provision for income taxes using the 	statutory federal income tax rate to the provision for income taxes 	is as follows (in thousands):
					August 30,	Sept 1,		Sept 2, 					 1996		 1995		 1994
	Federal statutory rates		$2,472		$1,474		$1,222 	Tax benefit of foreign sales 	 corporation			 (182)		 (222)		 (133) 	Research and development tax 	 credits			 -		 (200)		 (210) 	State income taxes, net of 	 federal benefit		 90		 37		 42 	Other			 120	 	 111	 	 (121) 					______		______		______ 					$2,500		$1,200		$ 800 					======		======		======
	As of August 30, 1996, the Company had net operating loss carryforwards 	of $102,000 and income tax credit carryforwards of approximately 	$1,309,000 that expire through 2009.
	Temporary differences and carryforwards which result in net deferred 	income taxes as of August 30, 1996 and September 1, 1995 were as 	follows (in thousands):
							August 30,	Sept 1, 							 1996		 1995
	Deferred tax assets (liabilities) 		Income tax credit carryforwards		$ 1,309	$ 1,138 		Post retirement benefits		 499	 494 		Inventories				 436	 433 		Deferred compensation			 411	 349 		Medical reserves			 170	 131 		Vacation reserve			 126	 120 		Net operating loss carryforwards	 102	 1,246 		Bad debts reserve			 100 	 99 		Other	 				 302	 423 							 ______	 ______ 		Deferred tax assets	 		 3,455	 4,433 							 ______	 ______ 		Deferred tax liabilities - depreciation	 (4,494)	 (3,376) 							 ______	 ______ 		Valuation allowance	 		 (205)	 (455) 							 ______	 ______ 		Net deferred taxes			$(1,244)	 $ 602 			======	======
	A valuation allowance is provided when it is more likely than not that 	some portion of the deferred tax assets will not be realized. The 	Company has established a valuation allowance for a portion of the 	net operating loss and income tax credit carryforwards and other items 	due to the uncertainty related to their ultimate realization. The 	reduction in the valuation allowance during 1996 was due to the 	expiration of certain income tax credit carryforwards.
(7)	Pension and Post Retirement Benefits:
	 Defined Benefit Plan -
	The Company sponsors a defined benefit pension plan covering 	substantially all hourly employees of the Company's Northfield, 	Minnesota, facility (the Northfield Plan). Pension costs are funded 	in compliance with the Employee Retirement Income Security Act of 1974. 	Net periodic pension cost is as follows (in thousands):
					 August 30,	 Sept 1,	Sept 2, 						1996	 1995	 1994
	Service cost				$ 184	 $ 164	$ 163 	Interest cost on projected benefit 	 obligation				 337		286	 262 	Return on plan assets			(282)	 (232)	 (89) 	Net amortization and deferral	 	 61	 45	 (81) 					 ______	 ______	______ 		Net periodic pension cost	$ 300	 $ 263	$ 255 					 ======	 ======	======
	Funding information with respect to the Northfield Plan is as follows 	(in thousands):
						August 30,	September 1, 						 1996		 1995 	Actuarial present value of: 		Vested benefit obligation	$4,217		$4,200 						 =====		 ===== 		Accumulated benefit obligation	$4,282		$4,281 						 =====		 ===== 		Projected benefit obligation	$4,451		$4,552 						 =====		 ===== 		Plan assets at fair value	$4,291		$3,556 						 =====		 ===== 	Projected benefit obligation in excess 	 of plan assets			$ 160		$ 996 	Unrecognized transition amount		 (60)		 (70) 	Unrecognized prior service cost		 (715)		 (760) 	Unrecognized net gain	 		 915	 	 100 						 _____		 _____ 		Accrued pension cost		 300		 266 		Additional minimum liability	 -	 459 						 _____		 _____ 			Net pension liability	$ 300		$ 725 						 =====		 =====
	The accumulated benefit obligation is the actuarial present value of 	all vested and non-vested benefits for employee service before July 1, 	1995. The projected benefit obligation is the accumulated benefit 	obligation increased to include expected increases in the plan's flat 	dollar benefit. The projected benefit obligation was determined using 	an assumed discount rate of 8.0% in 1996 and 7.5% in 1995. The assumed 	long-term rate of return on assets is 8.0% in 1996 and 7.5% in 1995. 	Plan assets consist principally of cash equivalents, bonds, and common 	stock.
	An additional minimum liability is included in other non-current 	liabilities in the accompanying consolidated balance sheet as of 	September 1, 1995. This additional liability is an estimate of cash 	contributions required to be made to the plan in the future. An asset 	of $459,000 related to this liability is included in other assets in 	the accompanying consolidated balance sheet as of September 1, 1995.
	Employee Savings Plan -
	The Company has an employee savings plan covering all employees who 	meet certain age and service requirements and who are not participants 	in the Northfield Plan.
	The Company's contribution to the employee savings plan equals 2.0% of 	the participant's salary. The Company also matches participants' 	voluntary contributions to the plan. This matching contribution is 	subject to Company earnings on a quarterly basis and is limited to 	4.0% of each participant's salary. The Company's expense related to 	the employee savings plan was $1,014,000 in 1996, $900,000 in 1995, 	and $674,000 in 1994.
	Postretirement Benefits -
	In December 1990, the Financial Accounting Standard Board issued 	Statement of Financial Accounting Standards No. 106, "Employers' 	Accounting for Postretirement Benefits Other than Pensions" (SFAS 	No. 106). SFAS No. 106 requires that the expected cost of these 	benefits be charged to expense during the years that the employees 	render service.
	The Company adopted SFAS No. 106 on August 28, 1993 and recorded a 	one-time charge of $875,000, or $.16 per share, net of income tax 	benefits of $525,000 in the accompanying statement of operations. 	The Company's plan, which is unfunded, provides medical and life 	insurance benefits for select employees. These employees, who retire 	after age 40 with 20 years or more service, have access to the same 	medical plan as active employees.
	Net periodic postretirement benefit cost is as follows (in thousands):
						August 30,	September 1, 						 1996		 1995
	Service cost				$ 33		$ 30 	Interest cost on accumulated 	 benefit obligation	 	 	 66	 	 54 						_____		_____ 		Net periodic postretirement 		 benefit cost			$ 99		$ 84 						=====		=====
	Funding information related to the Company's plan is as follows 	(in thousands):
						August 30,	September 1, 						 1996		 1995
	Accumulated benefit obligation		$ 1,347		$ 1,364 	Plan assets at fair value	 	 -	 	 - 						 ______		 ______ 	 Projected benefit obligation 		 in excess of plan assets	 1,347		 1,364 	Unrecognized net gain	 	 -	 	 (28) 						 ______		 ______ 		Accrued postretirement benefits	$ 1,347		$ 1,336 						 ======		 ======
	An 11.5% annual rate of increase in the health care cost trend rate 	was assumed with rates decreasing gradually to 6.0% by 2007, and 	remaining at that level thereafter. The health care cost trend rate 	assumption has an effect on the amounts reported. Increasing the 	assumed health care cost trend rate assumption by one percentage point 	would increase accumulated postretirement benefit obligation by 3.1% 	and the net periodic postretirement benefit cost by 2.1% each year. 	The discount rate used in determining the accumulated postretirement 	benefit obligation was 8.0% as of August 30, 1996 and 7.5% as of 	September 1, 1995.
(8)	Discontinued Operation:
	On May 27, 1994, the Company sold its idle Nashua, New Hampshire, 	facility for an amount less than the recorded value. In addition, 	the Company revised its estimate of the costs it will incur related 	to the abandonment of leased facilities in Orange County, California. 	The consolidated statement of operations for 1994 reflects a charge 	of $525,000, net of income tax benefits of $175,000, to reserve for 	the losses related to these events. As of August 30, 1996, there are 	no remaining obligations with respect to the Company's discontinued 	operation.
(9)	Consortium for the Development of Multi-Chip Modules (MCMs):
	On January 10, 1994, the Company entered into a consortium agreement 	sponsored by the Advanced Projects Research Agency (ARPA), a United 	States Government Agency. The purpose of the consortium is to 	accelerate the development and commercialization of the Company's 	chip-carrier substrates for multi chip modules (MCMs). As a 	consortium member, the Company expects to receive approximately 	$12.2 million in funding through August of 1997 from ARPA to further 	test, design, and develop the manufacturing processes for the Company's 	Novaclad-based chip-carrier substrates and Z-Link(R) products, which 	are to be used in constructing MCMs. The Company incurred 	$3,235,000 in 1996, $5,030,000 in fiscal 1995, and $3,079,000 in 	fiscal 1994 in costs related to this project that were reimbursable 	by ARPA. As of August 30, 1996, $8,333,000 of these costs have been 	reimbursed by the consortium, with the remaining $3,011,000 included 	in accounts receivable in the accompanying consolidated balance sheet.
(10)	Joint Venture:
	In August 1995, the Company entered into various agreements to form a 	joint venture in Juijiang Jiangxi, China with Jiangxi Changjiang 	Chemical Plant and Hong Kong Wah Hing (China) Development Co., Ltd. 	Under the agreements, the Company has licensed certain technology to 	the joint venture and is providing certain technical support. In 	return, the Company has received a 20% ownership interest in the 	joint venture and will receive $900,000 in cash over a three-year 	period, subject to completion of certain milestones; and royalties, 	based upon a percentage of products sold by the joint venture, as 	defined. The joint venture has been established to manufacture 	flexible adhesive-based copperclad laminates and associated cover 	film tapes in China. Under the terms of the agreements, the joint 	venture will market these products in China, Taiwan, Hong Kong, and 	Macau, and the Company will market the products produced by the joint 	venture in all other markets. The Company has received $545,000 in 	cash from the joint venture since its inception.
(11)	Quarterly Results of Operations (Unaudited):
	The consolidated results of operations for the four quarters of 1996 	and 1995 are as follows (in thousands, except per share data):
							Fiscal 1996
					First	Second	Third	Fourth	Total
	Net sales			$26,097	$28,954	$29,690	$29,379	$114,120 	Cost of sales 	 	 and expenses			 24,874	 26,630	 27,589	 27,755	 106,848 					 ______	 ______	 ______	 ______	 _______ 	Income from continuing 	 operations before 	 provision for income 	 taxes			 1,223	 2,324	 2,101	 1,624 7,272 	Provision for income 	 taxes	 		 365	 700	 630	 805	 2,500 					 ______	 ______	 ______	 ______	 _______ 	Net income			$ 858	$ 1,624	$ 1,471	$ 819	$ 4,772 					 ======	 ======	 ======	 ====== =======
	Net income per common 	 share			$ 0.12	$ 0.18	$ 0.16	$ 0.09	 $ 0.55 					 ======	 ======	 ====== ======	 ======
							Fiscal 1995
					First	Second	Third	Fourth	Total
	Net sales			$21,088	$21,960	$25,203	$26,965	$95,216 	Cost of sales and 	 expenses			 20,377	 21,782	 24,123	 24,600	 90,882 					 ______	 ______	 ______	 ______	 ______ 	Income from continuing 	 operations before 	 provision for income 	 taxes			 711	 178	 1,080 2,365	 4,334 	Provision for income 	 taxes	 		 192	 43	 300	 665	 1,200 					 ______	 ______	 ______	 ______	 ______ 	Net income			$ 519	$ 135	$ 780	$ 1,700	$ 3,134 					 ======	 ======	 ======	 ======	 ======
	Net income per common 	 share			$ 0.08	$ 0.02	$ 0.11	$ 0.24	$ 0.45 					 ======	 ======	 ======	 ======	 ======