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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
                                      ****
                                   FORM 10-KSB
                                      ****

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for fiscal year ended August 31, 1996.
                           ---------------

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the transition period from           to       .
                               ---------    ------
Commission File Number 0-10078
                       -------

                                    HEI, INC.
                          ----------------------------
                 (Name of Small Business Issuer in Its Charter)

Minnesota                                             41-0944876
---------                                             ----------
(State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation or organization)

P.O. Box 5000, 1495 Steiger Lake Lane, Victoria, MN    55386
---------------------------------------------------    -----
(Address of principal executive offices)               (Zip Code)

Issuer's telephone number, including area code:  (612)443-2500
                                                 -------------

Securities registered pursuant to Section 12(b) of the Exchange Act:  None
                                                                      ----

Securities registered pursuant to Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $.05 PER SHARE
                     --------------------------------------
                                (Title of Class)

                         RIGHTS TO PURCHASE COMMON STOCK
                         -------------------------------
                                (Title of Class)

Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X    No    .
   ---     ---

Indicate if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB.  [X]

HEI, Inc. revenues for the fiscal year ended August 31, 1996 were $20,680,000.

The aggregate market value as of November 1, 1996 (based on the closing price as
reported by The Nasdaq National Market) of the voting stock held by non-
affiliates was approximately $35,000,000.

As of November 1, 1996, 4,072,427 Common Shares (par value $.05) were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the fiscal year ended August
31, 1996 are incorporated by reference into Parts I and II.  Portions of the
Proxy Statement for Registrant's Annual Meeting of Shareholders to be held
January 22, 1997 are incorporated by reference in Part III.

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HEI, Inc. is referred to herein as the Company, unless the context indicates
otherwise.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

(a)  BUSINESS DEVELOPMENT
     HEI, Inc., a Minnesota corporation, was incorporated as Hybrid Electronics
     Inc. in 1968 and changed its name to HEI, Inc. in 1969.

(b)  BUSINESS OF THE COMPANY

     PRINCIPAL PRODUCTS AND SERVICES - HEI, Inc. is a designer and manufacturer
     of ultraminiature microelectronic devices and high technology products
     incorporating these devices.  HEI's custom-built microelectronics are
     employed in medical, industrial and computer markets.  The light pen
     product line, which represented a minor part of the Company's sales, was
     sold in August 1996 to FTG Data Systems.

     DISTRIBUTION METHODS - HEI sells through its Company-employed sales force
     based at corporate headquarters.

     SOURCES AND AVAILABILITY OF RAW MATERIALS - There are many sources of raw
     material supplies available nationally and internationally for Company
     operations.  The manufacture of Company products involves assembly of
     components purchased from a wide variety of vendors.  The Company's
     business is not dependent on any single supplier.

     DEPENDENCE ON SINGLE OR FEW CUSTOMERS - Following is the approximate
     percentage of the Company's sales to major customers which accounted for
     more than 10% of total sales in fiscal years 1996, 1995 and 1994.


     Customer            1996      1995      1994
     --------            ----      ----      ----
     Customer A          38%       12%       19%
     Customer B          16%
     Customer C          10%
     Customer D                    27%
     Customer E                    30%       49%

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     COMPETITION - In each of its product lines, the Company has significant
     competition, including users who may produce their own alternative devices.
     The Company obtains new business by identifying customer needs and
     engineering its products to meet those needs.  It competes on the basis of
     engineering expertise, quality, service and price to obtain new and repeat
     orders.

     RESEARCH AND DEVELOPMENT - The estimated amount spent on Company-sponsered
     research and development activities was approximately $849,000, $754,000
     and $679,000 for the years ended August 31, 1996, 1995 and 1994.

     EMPLOYEES - At August 31, 1996, the Company employed 131 full-time and 19
     temporary persons.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company owns a 48,000 square foot facility for administration and production
in Victoria, Minnesota, which was completed in August 1981.  The facility was
expanded during fiscal 1996 from the original 25,000 square feet with an
addition of 23,000 square feet to increase production capacity.  Also, the
Company leases, with an option to buy, a facility of 11,600 square feet in Sauk
Centre, Minnesota.  The lease was renewed for 3 years in fiscal 1993.



ITEM 3.  LEGAL PROCEEDINGS

There are no legal proceedings pending against the Company or its properties.



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

None.

                                      - 3 -

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                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information called for by Item 5 is incorporated by reference from the
Annual Report on page 16.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

The information called for by Item 6 is incorporated by reference from the
Annual Report on pages 4-5.

ITEM 7.  FINANCIAL STATEMENTS

The information called for by Item 7 is incorporated by reference from the
Annual Report on pages 6-14 as follows:

                                                       Page in
                                                       Annual Report:
                                                       --------------

Balance Sheet as of August 31, 1996 and 1995           6

Statement of Operations for the Years Ended
  August 31, 1996, 1995 and 1994                       7

Statement of Changes in Shareholders' Equity
  for the Years Ended August 31, 1996, 1995 and 1994   8

Statement of Cash Flows for the Years Ended
  August 31, 1996, 1995 and 1994                       9

Notes to Financial Statements                          10-13

Report of Independent Accountants                      14



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                      - 4 -

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                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

The information regarding directors called for by Item 9 is contained in the
Proxy Statement under the caption "Election of Directors."

The following is a list of HEI, Inc. executive officers, their ages, positions
and offices as of November 1, 1996.

NAME                     AGE  POSITION
----                     ---  --------

Eugene W. Courtney       60   President, Chief Executive Officer

Jerald H. Mortenson      62   Vice President of Finance and Administration,
                              Chief Financial Officer and Treasurer

Dale A. Nordquist        42   Vice President of Sales and Marketing

BUSINESS EXPERIENCE

EUGENE W. COURTNEY became President and Chief Executive Officer of the Company
in June 1990.  He had served as Executive Vice President and Operating Officer
since August 1988 and has served as a Director since 1989.  From 1980 to 1988,
Mr. Courtney served as Vice President and Group Vice President of National
Computer Systems.

JERALD H. MORTENSON joined the Company in March 1990.  Prior thereto he had
spent ten years with CTS Fabri-tek, first as Chief Financial Officer and the
last five years as Group President.

DALE A. NORDQUIST joined the Company on July 16, 1981 as Western Regional
Manager.  In December 1986, he was appointed Vice President of Sales.


ITEM 10.  EXECUTIVE COMPENSATION

The information called for by Item 10 is contained in the Proxy Statement under
the captions "Executive Compensation" and "Proposal No. 1 Election of
Directors."

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item 11 is incorporated in the Proxy Statement
under the caption "Shares and Principal Shareholders."

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:  See Exhibit Index on Page 7

(b)  Reports files on Form 8-K:  No reports on Form 8-K were filed during the
     fourth quarter of the fiscal year ended August 31, 1996.

                                      - 5 -

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SIGNATURES


In accordance with Section 13 or 15(c) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized

HEI, Inc.

BY:       /s/ Eugene W. Courtney
          -----------------------------------
          Eugene W. Courtney, President and Chief Executive Officer

Date:     November 8, 1996




In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.


/s/ Eugene W. Courtney                                 November 8, 1996
-----------------------------------------------        ----------------
Eugene W. Courtney, Director                                Date

/s/ Jerald H. Mortenson
-----------------------------------------------
Jerald H. Mortenson, Vice President of Finance         November 8, 1996
and Administration, Chief Financial Officer and        ----------------
Treasurer                                                   Date

/s/ Craig E. Roble                                     November 8, 1996
-----------------------------------------------        ----------------
Craig E. Roble, Company Controller                          Date

/s/ Robert L. Brueck                                   November 8, 1996
-----------------------------------------------        ----------------
Robert L. Brueck, Director                                  Date

/s/ William R. Franta                                  November 8, 1996
-----------------------------------------------        ----------------
William R. Franta, Director                                 Date

/s/ Kenneth A. Schoen                                  November 8, 1996
-----------------------------------------------        ----------------
Kenneth A. Schoen, Director                                 Date

/s/ Frederick M Zimmerman                              November 8, 1996
-----------------------------------------------        ----------------
Frederick M Zimmerman, Director                             Date

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                                  EXHIBIT INDEX
                                                                 Page Number or
(a)  EXHIBIT NUMBER      Description                             Incorporated by
     --------------      -----------                             Reference
                                                                 ---------
          3.1            Restated Articles of Incorporation,
                         as amended.                             Note 1

          3.2            Bylaws, as amended.                     Note 2

          4.1            Rights Agreement dated May 27, 1988
                         between HEI, Inc. and Norwest Bank
                         Minnesota, N.A., as amended.            Note 3

          4.2            Credit Agreement with Norwest Bank
                         Minnesota, N.A. dated March 7, 1995.    Note 4

          4.3a           Credit Agreement with Norwest Bank
                         Minnesota, N.A. dated April 1, 1996.    Note 5

          4.3b           Current Note and Security Agreement
                         with Norwest Bank Minnesota, N.A.
                         dated April 1, 1996.                    Note 5

          4.4a           Reimbursement Agreement by and
                         between HEI, Inc. and Norwest Bank,
                         Minnesota, N.A. dated April 1, 1996.    Note 5

          4.4b           Mortgage Security Agreement Fixture
                         Financing Statement and Assignment of
                         Leases and Rents by HEI, Inc. as
                         Mortgagor to Norwest Bank, Minnesota,
                         N.A. as Mortgagee dated April 1, 1996.  Note 5

          4.4c           Security Agreement by HEI, Inc. in
                         favor of Norwest Bank, Minnesota, N.A.
                         dated April 1, 1996.                    Note 5

         10.1a           Lease between Sauk Centre
                         Opportunities Incorporated and HEI,
                         Inc. dated October 16, 1978 (the
                         Lease).                                 Note 6

         10.1b           Second Addendum to the Lease, dated
                         May 31,1988.                            Note 2

         10.1c           Third Addendum to the Lease, dated
                         June 1, 1993.                           Note 7

         10.2            Form of Indemnification Agreement
                         between HEI and officers and
                         directors.                              Note 8

        *10.3            HEI 1989 Omnibus Stock Compensation
                         Plan adopted April 3, 1989, as amended
                         to date (1989 Plan).

        *10.4            1991 Stock Option Plan for
                         Non-employee Directors, as amended
                         to date.

        *10.5            Form of Non-qualified Stock Option
                         agreement between HEI and executive
                         officers under 1989 Plan.               Note 9

        *10.6            Form of Incentive Stock Option
                         agreement between HEI and executive
                         officers under 1989 Plan.               Note 9

         13              Annual Report to Shareholders for
                         the year ended August 31, 1996.

         23              Consent of Independent Accountants.

         27              Financial Data Schedule.

                                      - 7 -
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Notes to Exhibits above:

[1]  Filed as an exhibit to Annual Report on Form 10-K for the year ended August
     31, 1990, and incorporated herein by reference.

[2]  Filed as an exhibit to Annual Report on Form 10-K for the year ended August
     31, 1988, and incorporated herein by reference.

[3]  Filed as an exhibit to Registration Statement on Form 8-A filed May 31,
     1988, as amended by Form 8 filed June 27, 1988, and incorporated herein by
     reference.

[4]  Filed as an exhibit to Form 10-QSB for the quarter ended February 25, 1995,
     and incorporated herein by reference.

[5]  Filed as an exhibit to Form 10-QSB for the quarter ended June 1, 1996, and
     incorporated herein by reference.

[6]  Filed as an exhibit to a Registration Statement of the Company on Form S-18
     which was filed with the SEC on February 23, 1981, and incorporated herein
     by reference.

[7]  Filed as an exhibit to Annual Report on Form 10-KSB for the year ended
     August 31, 1993, and incorporated herein by reference.

[8]  Filed as an exhibit to Registration Statement on Form S-2 (SEC no. 
     33-37285) filed October 15, 1990, and incorporated herein by reference.

[9]  Filed as an exhibit to Form 10-K for the year ended August 31, 1989, and
     incorporated herein by reference.



* Denotes management contract or compensation plan or arrangement.

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