SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (X)		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 	OR ( )		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended May 30, 1997	Commission File Number: 0-45 	SHELDAHL, INC. 	(exact name of registrant as specified in its charter) Minnesota 41-0758073 State or other jurisdiction of	 (IRS Employer Identification Number) incorporation or organization) Northfield, Minnesota 	55057 Address of principal executive offices)	(zip code) Registrant's telephone number, including area code: (507) 663-8000 As of June 12, 1997, 8,991,747 shares of the Registrant's common stock were outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: PART I: FINANCIAL INFORMATION SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited 	Nine Months Ended 	May 30, 	May 31, (in thousands, except for per share data)	1997 	1996 Net sales	 	$78,273 	$84,741 Cost of sales	 69,964 	 66,150 			_______ 	_______ Gross profit	 8,309 	 18,591 			_______ 	_______ Expenses: Sales and marketing 	6,833 	6,894 General and administrative 	4,997 	3,748 Research and development 	3,302 	1,853 Interest 	708 	448 		_______ 	_______ Total expenses 	15,840 	12,943 	_______ 	_______ Income (loss) before income taxes 	(7,531) 	5,648 Benefit (provision) for income taxes 	2,560 	(1,695) 			_______ 	_______ Net income (loss) 	$(4,971) 	$ 3,953 		 	======= 	======= Net income (loss) per share 	$(0.56) 	$0.46 	 		======= 	======= Weighted average common shares and common share equivalents outstanding 	8,952 	8,524 			======= 	======= SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited 	Three Months Ended 	May 30, 	May 31, (in thousands, except for per share data) 	1997 	1996 Net sales 		$27,593 	$29,690 Cost of sales 	24,865 	23,219 			_______ 	_______ Gross profit 	2,728 	6,471 			_______ 	_______ Expenses: Sales and marketing 	2,227 	2,359 General and administrative 	1,697 	1,299 Research and development 	983 	653 Interest 	412 	59 	 	_______ 	_______ Total expenses 	5,319 	4,370 	_______ 	_______ Income (loss) before income taxes 	(2,591) 	2,101 Benefit (provision) for income taxes 	880 	(630) 			_______ 	_______ Net income (loss) 	$(1,711) 	$1,471 			======= 	======= Net income (loss) per share 	$(0.19) 	$0.16 			======= 	======= Weighted average common shares and common share equivalents outstanding 	8,989 	9,199 			======= 	======= SHELDAHL, INC. CONSOLIDATED BALANCE SHEETS ASSETS (unaudited) (In thousands) 	May 30, 	August 30, 	1997 	1996 Current assets: Cash and cash equivalents 	$ 1,292 	$ 904 Accounts receivable, net 	18,227 	21,091 Inventories	 12,875 	11,525 Prepaid expenses and other current assets 	433 	390 Deferred taxes 	2,750 	1,660 		_______ 	_______ Total current assets 	35,577 	35,570 	_______ 	_______ Construction in process 	29,888 	37,650 Land and buildings 	26,155 	24,718 Machinery and equipment 	95,728 	64,754 Less: accumulated depreciation 	(53,852) 	(47,630) 		_______ 	_______ Net plant and equipment 	97,919 	79,492 	_______ 	_______ Other assets 	824 	825 		_______ 	_______ 			$134,320 	$115,887 			======= 	======= LIABILITIES AND SHAREHOLDERS INVESTMENT Current liabilities: Current maturities of long-term debt 	$ 3,372 	$ 466 Accounts payable 	10,139 	9,824 Accrued compensation 	1,464 	1,390 Other accruals 	2,446 	1,839 		_______ 	_______ Total current liabilities 	17,421 	13,519 	_______ 	_______ Long-term debt 	41,934 	21,858 		_______ 	_______ Other non-current liabilities 	2,305 	2,269 		_______ 	_______ Deferred taxes 	1,435 	2,904 	 	_______ 	_______ Shareholders investment: Common stock 	2,249 	2,228 Additional paid-in capital 	52,242 	51,404 Retained earnings 	16,734 	21,705 	_______ 	_______ Total shareholders investment 	71,225 	75,337 	_______ 	_______ 	$134,320 	$115,887 	======= 	======= SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited 		Nine Months Ended (in thousands) 	May 30, 	May 31, 	1997	 1996 Operating activities: Net income (loss) 	$ (4,971) 	$ 3,953 Adjustments to reconcile net income to net cash provided by operating 	 activities: Depreciation and amortization 	7,378 	4,838 Deferred income taxes 	(2,559) 	724 Net change in other operating activities: Accounts receivable 	2,864 	(1,712) Inventories 	(1,350) 	531 Prepaid expenses and other current assets 	(43) 	345 Other assets 	1 	(73) Accounts payable and accrued liabilities 	996 	1,557 Other non-current liabilities 	36 	(68) 	_______ 	_______ Net cash provided by operating activities 	2,352 	10,095 			_______ 	_______ Capital expenditures, net 	(25,805) 	 (20,298) 			_______ 	_______ Financing activities: Borrowings (repayments) under revolving credit facilities, net 	22,625 	(19,258) Proceeds of long-term debt 	791 	- Repayments of long-term debt 	(434) 	(361) Issuance of common stock 	- 	29,049 Proceeds of stock option exercises 	859 	776 		_______ 	_______ Net cash provided by financing activities 	23,841 	10,206 			_______ 	_______ Increase (decrease) in cash 	388 	 3 Cash at beginning of period 	904 	1,045 			_______ 	_______ Cash at end of period 	$ 1,292 	$ 1,048 			======= 	======= Supplemental cash flow information: Income taxes paid 	$ 266 	$ 132 		======= 	======= Interest paid 	$ 1,961 	$ 1,845 		======= 	======= SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited These condensed and unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these condensed unaudited consolidated financial statements reflect all adjustments, of a normal and recurring nature, necessary for a fair statement of the interim periods, on a basis consistent with the annual audited financial statements. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although these disclosures should be considered adequate, the Company strongly suggests that these condensed unaudited financial statements be read in conjunction with the financial statements and summary of significant accounting policies and notes thereto included in the Company's latest annual report on Form 10-K. 1)	Inventories, which are valued at the lower of first-in first-out cost or market, consists of (in thousands): 	May 30, 1997 	August 30, 1996 Raw materials 	$ 3,393 	$ 2,599 Work-in-process 	6,060 	5,572 Finished goods 	3,422 	3,354 	_______ 	_______ 	$12,875 	$11,525 	======= 	======= SHELDAHL, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED OPERATING RESULTS AND FINANCIAL CONDITION Nine Months Ended May 30, 1997 and May 31, 1996 General ________ Sheldahl is a leading producer of advanced laminate materials and materials- based components, primarily for sale to the electronic segments of 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 efforts on new opportunities. As a result, in 1992 the Company patented its Novaclad high performance adhesiveless flexible laminate. The features of Novacladr 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. Background: ARPA and Longmont Financial Impact _______________________________________________ In fiscal 1994, a consortium was organized by the Advanced Research Projects Agency (ARPA) of the US Department of Defense 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 delay in the full production ramp-up, which is now expected to commence in the fourth quarter of fiscal 1997. The Company's fiscal 1997 financial results through the nine months ended May 30, 1997, have been adversely affected by the absorption of overhead and development expenses without yet achieving commercial scale production and sales of the new Novaclad-based high-density chip-carrier substrates produced in Longmont, Colorado. The Company is actively engaged in what is expected to be the final stages of pre-production and customer validation with substrate designs for Motorola, ASAT and Texas Instruments. Net of ARPA funding, the direct impact of fixed facility costs and salary expenses for production and technical support has adversely impacted pretax operating income by $10.3 million or approximately $0.73 per share on an after tax basis for the nine months ended May 30, 1997. The pretax impact on operating income for the three months ending May 30, 1997, was $4.4 million or approximately $0.32 per share on an after tax basis. Total Company Performance _________________________ The Company's net sales decreased $6.5 million or 7.6% to $78.3 million for the nine months ended May 30, 1997. The decrease is reflected in automotive market sales, which were adversely affected by inventory adjustments related to last fall's industry collective bargaining negotiations. The impact to the Company was realized by above normal shipments in Quarter IV of fiscal 1996 and a sharp reduction in shipments in late Quarter I and early Quarter II as inventory levels were adjusted. Additionally, there have been numerous automotive industry work stoppages, particularly over the last three months, that have impacted the Company's sales of automotive laminate and flex circuitry products. Sales By Market _______________ (in thousands) 	May 30, 	May 31, 	Gross 	Percent 	1997 	 1996 	Change 	Change 	______ 	______ 	______ 	______ Automotive 	$53,555 	$59,541 	$(5,986) 	(10.1%) Datacommunications 	8,670 	8,470 	200 	2.4% Aerospace/Defense 	6,801 	7,291 	(490) 	(6.7%) Industrial 	6,047 	6,341 	(294) 	(4.6%) Consumer 	3,200 	3,098 	102 	(3.3%) 	_______ 	_______ 	_______ 	_______ 	$78,273 	$84,741 	$(6,468) 	(7.6%) 	======= 	======= 	======= 	======= The Company enjoys a favorable position in targeted segments of the automotive market including dash board instrumentation, on-board computers in the engine compartment, air bags and power distribution. The ability to provide cost effective designs and low cost production has enabled the Company to enhance and grow its market position by 27% annually over the last seven years. The Company will continue to focus resources to service this market with its full line of products. The Company's sales to the datacommunications market increased 2.4% to $8.7 million for the first nine months of fiscal 1997. Flexible circuitry and laminated materials comprised nearly all the product sold to this market. The Company, through its development of its Novaclad laminate material, has invested in significant new manufacturing capacity to expand its product offering by producing high-density chip-carrier substrates for IC packages. Year-to-date, sales of chip-carriers total $325,000. The Company will continue its effort to develop a market position in the chip-scale and high- density segments of this IC packaging market. Product utilization of such IC packages would include portable hand-held devices such as cellular phones and pagers as well as high performance product such as work stations and servers. Sales of the Company's products to the other served markets reflect normal fluctuations of product mix and order releases by our customers. Through Quarter III, the sales by all products as a percentage of total sales remained virtually unchanged with 74% flexible interconnect, 23% laminated materials, 2.5% fabricated devices, and 0.5% chip-carrier substrates. Gross Profit ____________ The Company's gross profit for the nine months ended May 30, 1997, decreased $10.3 million or 55% to $8.3 million and 10.6% of sales. Gross profit from existing businesses was materially affected by the decline in automotive market sales which adversely impacted gross profit by $3.3 million and changes in product mix reduced margins by $0.9 million. The remaining decline in existing business gross profit is attributable to increases in factory overhead, principally depreciation and maintenance of $3.1 million attributable, in part, to expanded capacity to manufacture Novaclad laminates. In total, year-to-date gross margin from existing business declined $7.3 million as compared to last year. 	May 30, 1997 	May 31, 1996 	 _____________ 	____________ (in 	Existing	 Micro	 Total	 Existing	 Micro	 Total millions)	 Business 	Products 	Company 	Business 	Products 	Company 	________ 	________ 	_______ 	________ 	________ 	_______ Sales 	$78.0 	$ 0.3 	$78.3 	$84.6 	$ 0.1 	$84.7 Cost of sales 	62.3 	7.6 	70.0 	61.7 	4.4 	66.1 	_____ 	_____ 	_____ 	_____ 	_____ 	_____ Gross profit 	$15.7 	$(7.3) 	$ 8.3 	$22.9 	$(4.3) 	$18.6 	===== 	===== 	===== 	===== 	===== 	===== 	20.1% 	- 	10.6% 	27.0% 	- 	21.9% 	===== 	===== 	===== 	===== 	===== 	===== Micro Product business provides chip-carrier substrates to the IC packaging industry. Through fiscal 1997, the Company has completed installing and validating each manufacturing process. Further initial pre-production volume of high-density chip-carrier substrates are at levels below breakeven. Year- to-date, overhead costs total $7.6 million. Since fiscal 1994, the Company has received funding through an ARPA consortium to assist in developing base material and manufacturing processes for high-density substrates for IC packages and multi-chip modules. ARPA funding credited to overhead declined $1.3 million from $1.4 million for the nine months ended May 31, 1996, to $75,000 for the nine months ended May 30, 1997. On a forward looking basis, minimal additional ARPA funding is anticipated to offset factory related costs since the ARPA milestones are substantially completed. Based on anticipated product mix and projected variable cost of high density substrates, the Company projects production cost breakeven at approximately $6 million in sales per quarter for the Micro Products business. Sales and Marketing Expense ___________________________ Sales and marketing expense for the nine months ended May 30, 1997, totaled $6.8 million, virtually unchanged from $6.9 million for the same period last year. The Company expects to increase its sales expense in support of Micro Products in periods ahead as demand for sales support and design services escalate. As a percent of net sales, expenses increased to 8.7% from 8.1% for the nine months ended in fiscal years 1997 and 1996, respectively. General and Administrative __________________________ Gross general and administrative expenses increased $1.0 million or 26% for the nine months ended May 30, 1997, over the same period for fiscal 1996. The principal areas of increase were in salary expense of $488,000 in support of improving the Company's information systems plus added expense for insurance, travel, education, and depreciation. As a percent of sales, general and administrative expenses were 6.4% of sales in 1997 compared to 4.4% in 1996. (in thousands) 	May 30, 1997 	May 31, 1996 	____________ 	____________ Gross expenses - G & A 	$ 4,997 	$ 3,961 ARPA funding 	- 	(213) 	_______ 	_______ Net expenses 	$ 4,997 	$ 3,748 	======= 	======= % of sales 	6.4% 	4.4% 	======= 	======= Research and Development ________________________ Gross research and development expenses increased $1.2 million or 44% for the nine months ended May 30, 1997, as compared to the nine months ended May 31, 1996. ARPA credits from the consortium and other ARPA related projects totaled $509,000 for the current year-to-date versus $791,000 for the comparable period in 1996. The increase in research and development expenses was principally due to additional staffing, outside testing and consulting, and travel, primarily in support of the Company's Micro Products business and ARPA consortium milestones. On a forward looking basis, additional ARPA funding of $240,000 in support of development efforts is anticipated through November 1997. (in thousands) 	May 30, 1997 	May 31, 1996 	____________ 	____________ Gross expenses - R & D 	$ 3,811 	$ 2,644 ARPA funding 	(509) 	(791) 	_______ 	_______ Net expenses 	$ 3,302 	$ 1,853 	======= 	======= % of sales 	4.2% 	2.2% 	======= 	======= Interest Expense ________________ Approximately 60% of interest capitalized during the construction period relates to the Longmont facility. Total capital expenditures through May 30, 1997, total $25.8 million compared to $20.3 million for the nine months ended May 31, 1996. Interest expense is shown in the table below. (in thousands) 	May 30, 1997 	May 31, 1996 	____________ 	____________ Gross interest 	$ 1,961 	$ 1,947 Capitalized interest 	(1,253) 	(1,255) Investment income 	- 	(244) 	_______ 	_______ Net expenses 	$ 708 	$ 448 	======= 	======= % of sales 	0.9% 	0.5% 	======= 	======= Income taxes were provided at 34% for the nine months ended May 30, 1997, and 30% for the nine months ended May 31, 1996. As a result, net loss for the nine months ended May 30, 1997, was $5.0 million or $0.56 per share. This compares to net income for the nine months ended May 31, 1996, of $4.0 million or $0.46 per share. Of this $1.02 per share decline, approximately $0.53 is related to Longmont operations and related ARPA activities and $0.49 is related to the fall off of existing business performance. Three Months Ended May 30, 1997 and May 31, 1996 The Company's net sales decreased $2.1 million or 7% to $28.0 million for the three months ended May 30, 1997. Work stoppages primarily at certain Chrysler and General Motors factories caused a reduction in automotive market sales. The Company believes the affect of these work stoppages may continue into the fourth quarter. The Company's sales to the datacommunications market increased 14% to $3.3 million for the three months ended May 30, 1997. Chip-carrier substrates increased $135,000 or 177% to $211,000. The Company's standard flexible circuitry and laminated materials products accounted for the remaining increase. Sales to all other markets reflect normal quarterly demand fluctuations. Sales By Market _______________ (in thousands) 	May 30, 	May 31, 	Gross 	Percent 	1997 	1996 	Change 	Change 	______ 	______ 	______ 	______ Automotive 	$19,272 	$20,628 	$(1,356) 	(7%) Datacommunications 	3,233 	2,842 	391 	14% Aerospace/Defense 	2,015 	2,684 	(669) 	(25%) Industrial 	2,019 	2,146 	(156) 	(7%) Consumer 	1,054 	1,390 	(336) 	(24%) 	_______ 	_______ 	_______ 	_______ 	$27,593 	$29,690 	$(2,096) 	(7%) 	======= 	======= 	======= 	======= Gross Profit ____________ Gross profit for the quarter decreased $3.7 million or 58% from $6.5 million for the three months ended May 31, 1996, to $2.7 million for the three months ended May 30, 1997. As a percentage of sales, gross profit was 22.6% in 1996 and 9.8% in 1997. As explained in the nine month analysis, two major factors accounted for the decline in gross profit. The first factor is the $2.2 million in additional operating expenses incurred by the Company's Micro Products facility. The second factor is the reduced level of existing business sales principally to the automotive market and a slight increase in facility and depreciation costs. 	May 30, 1997 	May 31, 1996 	_____________ 	____________ (in 	Existing 	Micro 	Total 	Existing 	Micro 	Total millions) 	Business 	Products 	Company 	Business 	Products 	Company 	________ 	________ 	_______ 	________	 ________ 	_______ Sales 	$27.4 	$ 0.2 	$27.6 	$29.6 	$ 0.1 	$29.7 Cost of sales 	21.2 	3.7 	24.9 	21.7 	1.5 	23.2 	_____ 	_____ 	_____ 	_____ 	_____ 	_____ Gross profit 	$ 6.2 	$(3.5) 	$ 2.7 	$ 7.9 	$(1.4) 	$ 6.5 	===== 	===== 	===== 	===== 	===== 	===== 	22.6% 	- 	9.8% 	26.7% 	- 	21.9% 	===== 	===== 	===== 	===== 	===== 	===== The Company's existing business performance to gross margin by quarter are as follows: 	Three months Ended	Ended Nine Months Ended _________________________ ________ 	Nov 29, 	Feb 28, 	May 30, 	May 30, (in millions) 	1996 	1997 	1997 	1997 	______ 	______ 	______ 	______ Sales 	$24.3 	$26.3 	$27.4 	$78.0 Cost of sales 	20.5 	20.6 	21.2 	62.3 	_______ 	_______ 	_______ 	_______ Gross profit 	$ 3.8	 $ 5.7 	$ 6.2 	$15.7 	======= 	======= 	======= 	======= 	15.6% 	21.6% 	22.7% 	20.1% As seen on the above chart, existing business revenues, as well as gross margins, have continued to improve. The increase in sales volume plus improving manufacturing performance contributes to improved gross profit. Sales and marketing expenses decreased $132,000 or 6% from $2.3 million for the three months ended May 31, 1996, to $2.2 million for the three months ended May 30, 1997. Sales and marketing expenses totaled 8% of sales in both periods. General and administrative expenses increased $398,000 or 31% from $1.3 million for the three months ended May 31, 1996, to $1.7 million for the three months ended May 30, 1996. The increases were due to a variety of expenses including salaries, consulting, and depreciation primarily incurred to support improved information systems. General and administrative expenses total 6% of sales for the three months ended May 30, 1997, and 4.3% of sales for the three months ended May 31, 1996. Research and development expenses increased $330,000 or 51% from $652,000 for the three months ended May 31, 1996, to $983,000 for the three months ended May 30, 1997. The increase is a combination of increased salaries and outside consulting and testing services supporting the Micro Products business and final ARPA milestones. Research and development expenses totaled 3.5% of sales for the three months ended May 30, 1997, and 2.2% in sales for the three months ended May 31, 1996. Interest costs and activities for the noted period are detailed below: (in thousands) 	May 30, 1997 	May 31, 1996 	Change 	____________ 	____________ 	______ Gross interest expense 	$ 811 	$ 398 	$ 413 Capitalized interest 	(399) 	(339) 	(60) 	______ 	______ 	______ 	$ 412 	$ 59 	$ 353 	====== 	====== 	====== During the current quarter, significantly higher borrowings accounted for the increase in gross interest costs. At May 31, 1996, total borrowings were $18.4 million while at May 30, 1997, total borrowings were $45.3 million. Income taxes were applied at 34% in the three months ended May 30, 1997, and at 29% in the three months ended May 31, 1996. As a result, net loss for the three months ended May 30, 1997 was $1.7 million or $0.19 per share. This compares to net income of $1.5 million or $0.16 per share for the three months ended May 31, 1996. Of this $0.35 per share change, approximately $0.24 is attributable to Longmont operations and related ARPA consortium activities, and approximately $0.11 is attributable to the decline in performance of the existing business. Financial Condition ___________________ During the quarter ended May 30, 1997, the Company's lenders authorized the Company to borrow an additional $12 million in the form of a separate revolving note. Except for expiring on December 31, 1997, all terms and conditions of this "extended" facility are the same as those of the primary revolving facility. Combined, the Company's credit lines total $47 million. $12 million expires on December 31, 1997, while $35 million expires on December 31, 1998. Total borrowings as of May 30, 1997, were $37.9 million and $9.1 million was available to the Company. Interest rates on borrowings under these facilities averaged 8.5% on May 30, 1997. The Company is pursuing additional debt financing and in conjunction with the additional debt, it is anticipated the revolving credit facility will be restructured. The current ratio declined from 2.63 at August 30, 1996, to 2.04 at May 30, 1997, reflecting the nearly $3 million of credit facility borrowings recorded as a current liability. Prospective Information _______________________ Significant events are currently taking place and will continue to take place during the next several months. The most significant will be the expected production ramp up at the Micro Products business. The Company's ability to generate significant revenues with acceptable production costs will be critical. Failure to do so will result in continued losses from this facility. The ARPA funded consortium will be completing its purpose and minimal additional funding is expected throughout the remainder of fiscal 1997. The Company has no obligation to any member after the consortium objectives and related ARPA fundings are completed. Only normal business relationships will remain among the members of the ARPA consortium. Finally, the Company has begun a complete upgrade and replacement of all information technology systems. This renewal is required to support the Company's plans for growth and changes in major business processes. The approximately $12-15 million program is expected to be completed by the end of fiscal 1998. The Company plans to finance this program by executing capitalized lease instruments and debt financing as well as cash generated from operations. Other Factors _____________ The Company has foreign currency risks from some of 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, from time-to-time, will use a variety of natural and contractual hedging techniques 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 and will increase its hedging activities accordingly. The recent strength of the dollar against the German Mark and the French Franc has caused reduced margins on sales contracted in these currencies. These reduced margins may continue through fiscal 1997. Cautionary Statement ____________________ The statements included herein which are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Factors which could cause actual results to differ materially from those anticipated by some of the statements made herein include, but are not limited to, the Company's ability to achieve full volume production at its Micro Products facility and other factors detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended August 30, 1996. PART II - OTHER INFORMATION SHELDAHL, INC. AND SUBSIDIARY FORM 10-Q Item 6.	Exhibits and Reports on Form 8-K A)	Exhibits 10.1 Sixth Amendment to Amended and Restated Credit and Security Agreement dated November 1, 1996, among Norwest Bank, Harris Bank, NBD Bank and Sheldahl, Inc. 10.2 Seventh Amendment to Amended and restated Credit and Security Agreement dated April 4, 1997, among Norwest Bank, Harris Bank, NBD Bank and Sheldahl, Inc. 11	Statement regarding computation of earnings per share 27	Financial data schedule B)	Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended May 30, 1997. 	SIGNATURES Pursuant to the requirements 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. SHELDAHL, INC. (Registrant) Dated: June 23, 1997	 By	/s/ James E. Donaghy President and Chief Executive Officer Dated: June 23, 1997	 By	/s/ John V. McManus Vice President, Finance