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Table of Contents

Table of Contents

Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

On October 21, 2003, HEI, Inc. issued a press release regarding results for the fourth quarter and fiscal year ended August 31, 2003. A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

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 hereunto duly authorized.

MINNEAPOLIS, October 21, 2003 — HEI, Inc. (Nasdaq: HEII, www.heii.com) today announced results for the fourth quarter and fiscal year 2003, which ended August 31st.

Net sales for the fourth quarter were $12,289,000 as compared with $6,108,000 for the fourth quarter of the previous year. Net sales for the fiscal year were $38,440,000 compared with $28,532,000 for fiscal 2002. The quarter and fiscal year included net sales of $5,380,000 and $14,429,000, respectively, from HEI’s Advanced Medical Division, which was acquired by HEI on January 24, 2003 from Colorado MEDtech, Inc. Fourth quarter and year-end results were affected by a one-time, non-cash charge of $331,000, for the impairment of certain long-lived assets and a non-cash charge of $160,000 for unrecoverable expenses paid on behalf of the former CEO. Taking into account these charges, the net loss for the fourth quarter was $827,000 or 12 cents per share fully diluted, compared with a net loss of $2,602,000 or 43 cents per share fully diluted for the same period a year ago. The fourth quarter 2002 loss included a non-cash charge of $1,754,000 for the establishment of a deferred tax valuation allowance. For the fiscal year, the Company incurred a net loss of $4,629,000 or 70 cents per share compared with a net loss of $3,892,000 or 65 cents per share for fiscal 2002.

Commenting on the results, Chief Executive Officer Mack Traynor said “Fourth quarter operating results, excluding the asset impairment charge, improved from the prior quarter by $154,000. Despite the continued losses, HEI generated cash flows from operating activities of $870,000 during the fourth quarter of 2003 and had significant borrowing capacity available on our $3,000,000 line of credit. We are continuing to lower our quarterly sales breakeven point by reducing our expense base. We anticipate that these actions will speed our progress to profitability.”

Traynor added, “The Company remains strong with a backlog of $18,645,000 at year end. We are focused on the creation of one HEI, a single entity serving large OEMS with design and manufacturing capabilities. We are starting to take full advantage of our combined businesses by providing a fully integrated, medical oriented, outsource solution from component through hardware to software. In fiscal 2004, we are resolved to take the necessary actions to first improve profitability and cash flow through leaner operations and second to increase revenue with a stronger sales emphasis.”

The Company will hold a conference call to discuss the annual results of fiscal 2003 on October 30, 2003, at 4:00 p.m. Eastern Time (3:00 p.m. Central Time). This call is being web cast and can be accessed via the HEI’s web site at www.heii.com. The call will be recorded and be available after the call at this same location on the web page.

HEI, Inc. designs, develops and manufactures microelectronics, subsystems, systems, connectivity and software solutions for OEMs engaged in the medical equipment and medical device, hearing, communications and RFID industries. HEI provides its customers with a single point of contact that can take an idea from inception to a fully functional, cost effective and manufacturable product utilizing innovative design solutions and by the application of state-of-the-art materials, processes and manufacturing capabilities.

FORWARD LOOKING INFORMATION
Information in this news release, which is not historical, includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements contained in this press release, including the implementation of business strategies, including a stronger sales emphasis; growth of specific markets; improved results, profitability, cash flow and revenues; and estimated HEI revenues, cash flow and profits, are forward looking statements. All of such forward-looking statements involve risks and uncertainties including, without limitation, continuing adverse business and market conditions, the ability of HEI to secure and satisfy customers, the availability and cost of materials from HEI’s suppliers, HEI’s ability to satisfy financial or other obligations or covenants set forth in its banking agreements, adverse competitive developments, change in or cancellation of customer requirements, the integration of the Advanced Medical Division, collection of outstanding debt, HEI’s ability to succeed on the merits and defend against litigation, and other risks detailed from time to time in HEI’s SEC filings. HEI undertakes no obligation to update these statements to reflect ensuing events or circumstances, or subsequent actual results.


			August 31, 2003			August 31, 2002

Assets
Current assets:
	Cash and cash equivalents		$	806		$	2,372
	Restricted cash			—			1,000
	Accounts receivable, net			6,314			3,533
	Inventories, net			6,864			4,027
	Other current assets			403			383

Total current assets				14,387			11,315

Property and equipment:
	Land			216			216
	Building and improvements			4,316			4,316
	Fixtures and equipment			21,137			21,259
	Accumulated depreciation			(15,769	)		(14,439	)

Net property and equipment				9,900			11,352

Developed technology, net				341			—
Security deposits				1,580			—
Other long-term assets				295			322

Total assets			$	26,503		$	22,989

Liabilities and Shareholders’ Equity
Current liabilities:
	Line of credit		$	490		$	1,589
	Current maturities of long-term debt			263			2,441
	Accounts payable			3,951			1,815
	Warranty reserve			122			200
	Accrued liabilities			3,676			901

Total current liabilities				8,502			6,946

Other long-term liabilities, less current maturities:
		Other long-term liabilities		2,121			—
		Long-term debt		2,689			1,473
Total other long-term liabilities, less current maturities				4,810			1,473

Total liabilities				13,312			8,419

Shareholders’ equity:
	Undesignated stock; 5,000 shares authorized; none issued			—			—
	Common stock, $.05 par; 10,000 shares authorized; 7,012 and 6,012 shares issued and outstanding			352			301
	Paid-in capital			18,951			16,349
	Accumulated deficit			(5,443	)		(814	)
	Notes receivable			(669	)		(1,266	)

Total shareholders’ equity				13,191			14,570

Total liabilities and shareholders’ equity			$	26,503		$	22,989

HEI, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)

Three Months Ended August 31,

Years Ended August 31,

2003

2002

2003

2002

Net sales

12,289

6,108

38,440

28,532

Cost of sales

9,184

5,033

31,327

23,375

Gross profit

3,105

1,075

7,113

5,157

Operating expenses:

Selling, general and administrative

2,592

1,354

7,639

5,335

Research, development and engineering

748

571

2,580

2,516

Impaired assets

331

—

331

—

Operating loss

(566

)

(850

)

(3,437

)

(2,694

)

Other expenses:

Former officer note / receivable write off

(160

)

—

(841

)

—

Bank fees

—

(181

)

—

Other income (expense), net

(101

)

(191

)

(106

)

Loss before income taxes

(827

)

(848

)

(4,650

)

(2,800

)

Income tax expense (benefit)

—

1,754

(21

)

1,092

Net loss

($827

)

($2,602

)

($4,629

)

($3,892

)

Net loss per common share

Basic

($0.12

)

($0.43

)

($0.70

)

($0.65

)

Diluted

($0.12

)

($0.43

)

($0.70

)

($0.65

)

Weighted average common shares outstanding

Basic

7,046

6,012

6,629

5,992

Diluted

7,046

6,012

6,629

5,992

Three Months Ended

August 31, 2003

May 31, 2003

Pro forma

As Reported

Adjustments

Pro forma

As Reported

Adjustments

Pro forma

Net sales

12,289

—

12,289

12,517

—

12,517

Cost of sales

9,184

—

9,184

9,983

—

9,983

Gross profit

3,105

—

3,105

2,534

—

2,534

Operating expenses:

Selling, general and administrative

2,592

—

2,592

2,178

—

2,178

Research, development and engineering

748

—

748

745

—

745

Impaired assets

331

(1)

(331

)

—

Operating loss

(566

)

331

(235

)

(389

)

—

(389

)

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Minnesota	0-10078	41-0944876

(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)


	Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
	Item 12. Results of Operations and Financial Condition.
SIGNATURES
EX-99.1 Press Release

October 21, 2003

/s/ Douglas Nesbit

Douglas Nesbit
Its: Chief Financial Office


Date of Report (Date of earliest event reported):		October 21, 2003


99.1		Press Release dated October 21, 2003, regarding results for the fourth quarter and fiscal year ended August 31, 2003 of HEI, Inc.


Headquarters & Microelectronics Division - -Advanced Medical Division - -High Density Interconnect Division RF Identification and Smart Card Division		PO Box 5000, 1495 Steiger Lake Lane, Victoria, MN 55386 4801 North 63rd Street, Boulder CO 80301 610 South Rockford Drive, Tempe, AZ 85281 1546 Lake Drive West, Chanhassen, MN 55317


	Not Applicable.


	Not Applicable.


CONTACTS:		For Immediate Release