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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
Commission file number 000-22166
 AETRIUM INCORPORATED
  MINNESOTA
    
    41-1439182(State of incorporation)
    
    (I.R.S. employer identification no.)
 2350 Helen StreetNorth St. Paul, Minnesota
    
    55109
    
    (651) 770-2000(Address of principal executive
    
    (Zip code)
    
    (Registrants telephone number)offices)
 Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
 o þ
 o þ
 þ o
 o
 o o þ
 o þ




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##### 



Form 10-K
 For the fiscal year ended December 31, 2005
 TABLE OF CONTENTS
 PART IITEM 1.
    
    BUSINESS
    
    
    1ITEM 1A.
    
    RISK FACTORS
    
    
    9ITEM 2.
    
    PROPERTIES
    
    
    11ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    12ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    12ITEM 4A.
    
    EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    13PART IIITEM 5
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    15ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    16ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    24ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    24ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    24ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    25ITEM 9B.
    
    OTHER INFORMATION
    
    
    25PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    26ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    26ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    26ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    26ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    27PART IVITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    28Commercial LeaseIndependent Registered Public Accounting Firm's ConsentCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906




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PART I
  
 ITEM 1. BUSINESS.
 Overview
   
    
    Test Handler Products. In terms of revenue, this is our largest product line. Our
broad line of test handler products incorporates thermal conditioning, contacting and
automated handling technologies to provide automated handling of ICs and discrete
electronic devices during production test cycles. We also offer change kits to adapt
our test handlers to different device package configurations or to upgrade installed
equipment for enhanced performance. Change kits represent a significant part of our
revenue.
    
    Semiconductor Automation Products. Our primary line of semiconductor automation
products is sold to semiconductor manufacturers and is used to automate the loading and
unloading of burn-in boards. We also sell semiconductor automation products to original
equipment manufacturers, or OEMs, to be incorporated as the automated handling
components of such OEMs own proprietary equipment for a variety of other IC processing
requirements, such as marking, lead scanning, and lead trim and form.
    
    Reliability Test Equipment. The primary focus of our reliability test products is
to provide IC manufacturers with structural performance data to aid in the evaluation
and improvement of IC designs and manufacturing processes to increase IC yield and
reliability.




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www.aetrium.com
 Financial Information About Segments
  2




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Test Handler Products
   TM
    Gravity Feed Test Handlers
   3




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
    
    55V6 Series.First introduced in 2002, our 55V6 Series of single and dual
site gravity feed test handlers for analog and logic IC applications addresses a wide
range of IC packages, including SOPs and MLPs. The 55V6 Series offers a small
footprint, a vertical backplane that can accommodate any size of test head, and our
high speed test site actuator that we believe offers significant throughput advantages
over our competition, depending upon device test times and thermal conditioning
requirements.
    
    55V8 Series.Our recently introduced 55V8 Series of quad site gravity feed
test handlers for analog and logic IC applications addresses a wide range of IC
packages, including SOPs and MLPs. The 55V8 Series offers the advantages of the 55V6
Series, including our high speed test site actuator.
    
    5050 Series. Our 5050 Series of gravity feed test handlers for analog and
logic IC applications addresses a wide range of SOP package types. In addition to
single test site capability, we offer dual test site and quad test site capability
within our 5050 Series of handlers.
 Turret Based Test Handlers
   
    
    Model 5800.We introduced the Model 5800 Integrated Test Handler in 2000.
It has eight stations, and can be configured for up to four test sites. It operates at
temperatures ranging from ambient to +150 degrees C, and can be configured for tube
input and tube output.
    
    Model 8832.We introduced the Model 8832 Integrated Test Handler in 2000.
It has 32 stations, which provide a high degree of flexibility in integrating
additional device process
functions into the handler. It can be configured for up to eight test sites and,
optionally, for tube or tray input and tube or tray output.
 4




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Change Kits, Upgrades and Spare Part s
  Semiconductor Automation Products
    Reliability Test Equipment
  5




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Competition
      Manufacturing and Supplies
  6




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Customers
  Sales and Marketing
     7




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Research and Development
  
    
    completing development of and beta testing the 55V8 Series quad test site
gravity feed handlers;
    
    developing eight test site capability for the 55V Series of test handlers;
    
    extending our turret based test handler product line;
    
    developing and beta testing the sixteen-head model burn in board
loader/unloader for the 4800 Series; and
    
    developing additional test capabilities for our 1164 Series of reliability
test equipment for the latest generations of copper, gate oxide and transistor device
technologies.
   Intellectual Property
  8




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Backlog
  Employees
  Financial Information About Geographic Areas
  
 ITEM 1A. RISK FACTORS.
  Market Fluctuations in the Semiconductor Industry
  9




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Successful Development and Introduction of New Products and Product Improvements
  Reliance on Significant Customers
  Impact of Competitive Markets
  Fixed Cost Constraints on Reduction of Expenses
  Impact of Cost Reduction Actions
  10




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Impact of Changes in Securities Laws and Regulations
  Reduction in the Sales Efforts by our Current Distributors
  Risks Inherent in our International Sales
  Supply of Significant Components for our Products
  
 ITEM 2. PROPERTIES.
   
    
    We vacated a 30,000 square foot facility that is adjacent to our North St.
Paul facility in June 2001 when we consolidated our North St. Paul operations into a
single building. As of
 11




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December 31, 2005, approximately two-thirds of this space was subleased to third parties.
This facility was under a lease that expired in February 2006.
    
    We vacated a 45,000 square foot facility in Poway, California in 2000.
This lease expires in January 2010. This space is currently subleased to third
parties. We remain liable under the lease on a contingent basis.
 
 ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  12




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##### Table of Contents



ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
  Name
    
    Age
    
    PositionJoseph C. Levesque
    
    
    61
    
    
    Chairman of the Board, President and Chief Executive OfficerDouglas L. Hemer
    
    
    59
    
    
    Chief Administrative Officer, Secretary and DirectorDaniel M. Koch
    
    
    52
    
    
    Vice President  Worldwide SalesJohn J. Pollock
    
    
    46
    
    
    Vice President  General Manager, North St. Paul OperationsKeith E. Williams
    
    
    62
    
    
    President  Dallas OperationsPaul H. Askegaard
    
    
    54
    
    
    TreasurerTimothy G. Foley
    
    
    46
    
    
    Vice President  Manufacturing, North St. Paul OperationsDean K. Hedstrom
    
    
    56
    
    
    Vice President  Engineering, North St. Paul Operations
 Mr. Levesque
 Mr. Hemer
 Mr. Koch
 Mr. Pollock
 Mr. Williams
 13




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Mr. Askegaard
 Mr. Foley
 Mr. Hedstrom
 14




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES
OF EQUITY SECURITIES.
 Market Information
  First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterFiscal 2005
    
    High
    
    $
    4.05
    
    
    $
    3.19
    
    
    $
    4.10
    
    
    $
    5.15Low
    
    $
    2.79
    
    
    $
    2.02
    
    
    $
    2.57
    
    
    $
    2.44Fiscal 2004
    
    High
    
    $
    5.82
    
    
    $
    9.55
    
    
    $
    7.43
    
    
    $
    5.69Low
    
    $
    2.94
    
    
    $
    4.72
    
    
    $
    4.11
    
    
    $
    3.40
 Holders
  Dividends
  Securities Authorized for Issuance Under Equity Compensation Plans
  Recent Sale of Unregistered Securities
  Issuers Purchases of Equity Securities
  15




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ITEM 6. SELECTED FINANCIAL DATA.
  Five Year Summary
(in thousands, except per share data)
 Year ended December 31,
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Statement of operations data:Net sales
    
    $
    16,407
    
    
    $
    27,789
    
    
    $
    14,089
    
    
    $
    12,688
    
    
    $
    20,014Income (loss) from operations
    
    
    (2,092
    ) 1
    
    
    3,468
    1
    
    
    (1,600
    )1,3
    
    
    (3,336
    )1,4
    
    
    (11,143
    )1,6Income (loss) before cumulative effect of
a change in accounting principle
    
    
    (1,922
    )1
    
    
    3,403
    1,2
    
    
    (1,559
    )1,3
    
    
    (2,806
    )1,4
    
    
    (10,669
    )1,6Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,486
    ) 5
    
    
    Net income (loss)
    
    
    (1,922
    )1
    
    
    3,403
    1,2
    
    
    (1,559
    )1,3
    
    
    (9,292
    )1,4,5
    
    
    (10,669
    )1,6Income (loss) per share before cumulative
effect of a change in accounting principle:Basic
    
    $
    (0.20
    )
    
    $
    0.35
    
    
    $
    (0.16
    )
    
    $
    (0.30
    )
    
    $
    (1.13
    )Diluted
    
    $
    (0.20
    )
    
    $
    0.34
    
    
    $
    (0.16
    )
    
    $
    (0.30
    )
    
    $
    (1.13
    )Net income (loss) per share:Basic
    
    $
    (0.20
    )
    
    $
    0.35
    
    
    $
    (0.16
    )
    
    $
    (0.98
    )
    
    $
    (1.13
    )Diluted
    
    $
    (0.20
    )
    
    $
    0.34
    
    
    $
    (0.16
    )
    
    $
    (0.98
    )
    
    $
    (1.13
    )Weighted average common shares
outstanding:Basic
    
    
    9,634
    
    
    
    9,589
    
    
    
    9,477
    
    
    
    9,476
    
    
    
    9,438Diluted
    
    
    9,634
    
    
    
    10,113
    
    
    
    9,477
    
    
    
    9,476
    
    
    
    9,438
 December 31,
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Balance sheet data:Total assets
    
    $
    18,445
    
    
    $
    20,835
    
    
    $
    16,469
    
    
    $
    18,081
    
    
    $
    29,386Long-term debt, less current portion
    
    
    98
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    
 
 1.
    
    As a result of the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, we recorded no goodwill amortization expense in
2005, 2004, 2003 and 2002. Goodwill amortization expense amounted to
$0.7 million in 2001.2.
    
    Includes a $0.1 million gain on a claim settlement and a $0.2 million
loss on the sale of marketable securities. See Note 6 to the
Consolidated Financial Statements.3.
    
    Includes a $0.1 million restructuring charge.4.
    
    Includes a $0.7 million goodwill impairment charge.5.
    
    Includes a $6.5 million goodwill impairment charge recorded as a
cumulative effect of a change in accounting principle upon the
adoption of SFAS No. 142, Goodwill and Other Intangible Assets.6.
    
    Includes pre-tax charges of $3.7 million for inventory excess and
obsolescence charges and $2.2 million for charges related to
restructuring costs and asset write-downs. 16




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview:
       17




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Critical Accounting Policies and Estimates:
  Revenue Recognition
  Accounts Receivable
  18




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Inventories
  Identifiable Intangible Assets
  Warranty Obligations
  Income Tax Accounting
  19




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Results of Operations
  2005
    
    2004
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    50.7
    
    
    
    43.2
    
    
    
    47.2Gross profit
    
    
    49.3
    
    
    
    56.8
    
    
    
    52.8Operating expenses:Selling, general and administrative
    
    
    43.0
    
    
    
    31.4
    
    
    
    45.4Research and development
    
    
    19.1
    
    
    
    12.9
    
    
    
    18.8Total operating expenses
    
    
    62.1
    
    
    
    44.3
    
    
    
    64.2Income (loss) from operations
    
    
    (12.8
    )
    
    
    12.5
    
    
    
    (11.4
    )Interest income (expense), net
    
    
    .9
    
    
    
    .2
    
    
    
    .3Other income (expense), net
    
    
    
    
    
    
    (.3
    )
    
    
    Income (loss) before income taxes
    
    
    (11.9
    )
    
    
    12.4
    
    
    
    (11.1
    )Income tax expense (benefit)
    
    
    (.2
    )
    
    
    .2
    
    
    
    Net income (loss)
    
    
    (11.7
    )%
    
    
    12.2
    %
    
    
    (11.1
    )%
 Net Sales:
  2005
    
    2004
    
    2003Test handler products
    
    
    41
    %
    
    
    56
    %
    
    
    52
    %Reliability test equipment products
    
    
    24
    
    
    
    21
    
    
    
    20Semiconductor automation products
    
    
    8
    
    
    
    6
    
    
    
    11Change kits and spare parts
    
    
    27
    
    
    
    17
    
    
    
    17Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   20




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Gross Profit:
  Selling, General and Administrative Expenses:
  Research and Development Expenses:
  Interest Income, Net:
  21




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Other (Expense), Net:
  Income Tax Expense (Benefit):
  Financial Condition, Liquidity and Capital Resources:
   22




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23




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Payments Due By PeriodContractual Obligations
    
    Total
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010Non-cancellable operating leases
    
    $
    2,453
    
    
    $
    686
    
    
    $
    643
    
    
    $
    558
    
    
    $
    522
    
    
    $
    44Bank loan payments (assuming an
interest rate of 7.5%)
    
    
    152
    
    
    
    44
    
    
    
    44
    
    
    
    44
    
    
    
    20
    
    
    
    Purchase order commitments
    
    
    2,643
    
    
    
    2,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    5,248
    
    
    $
    3,373
    
    
    $
    687
    
    
    $
    602
    
    
    $
    542
    
    
    $
    44
  Recent Accounting Pronouncements
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
  24




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ITEM 9A. CONTROLS AND PROCEDURES.
  
 ITEM 9B. OTHER INFORMATION.
  25




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PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 Directors of the Registrant
  Executive Officers of the Registrant
  Compliance with Section 16(a) of the Exchange Act
  Identification of Audit Committee; Audit Committee Financial Expert
  Code of Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  26




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  27




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) 1. Financial Statements of Registrant.
  Description
    
    Page(s)Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Financial Statements:Consolidated Statements of Operations
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Changes in Shareholders Equity
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6  F-17
 (a) 2. Financial Statement Schedule of Registrant.
 Schedule II  Valuation and Qualifying Accounts
    
    
    S-1
  (a) 3. Exhibits.
 Form
10-K.
 If you were one of our shareholders on March 31, 2006 and you want a copy of any of the
exhibits listed or referred to in the Exhibit Index, we will furnish it to you at a reasonable cost
upon your written request sent to Aetrium Incorporated, 2350 Helen Street, North St. Paul,
Minnesota 55109, Attn.: Shareholder Relations.
  1.
    
    Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.6 to our Form 10-KSB for the year ended December 31, 1993)
(File No. 0-22166).2.
    
    Form of Non-Statutory Stock Option Agreement (incorporated by
reference to Exhibit 10.7 our Form 10-KSB for the year ended December
31, 1993) (File No. 0-22166).
 28




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3.
    
    1993 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.2 to our Annual Report on Form 10-K for year ended December
31, 1997) (File No. 0-22166).4.
    
    Salary Savings Plan (incorporated by reference to Exhibit 10.3 to our
Registration Statement on Form SB-2) (File No. 33-64962C).5.
    
    Employment Agreement dated April 1, 1986 between Joseph C. Levesque
and us (incorporated by reference to Exhibit 10.6 to our Registration
Statement on Form SB-2) (File No. 33-64962C).6.
    
    2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.18
to our Annual Report on Form 10-K for the year ended December 31,
2002) (File No. 0-22166).7.
    
    Form of Change of Control Agreement (incorporated by reference to
Exhibit 10.19 to our Annual Report on Form 10-K for the year ended
December 31, 2003) (File No. 0-22166).8.
    
    Sales Incentive Program (incorporated by reference to Exhibit 10.21 to
our Annual Report on Form 10-K for the year ended December 31, 2003)
(File No. 0-22166).9.
    
    Executive Officer Profit Sharing Program (incorporated by reference to
Exhibit 10.20 to our Annual Report on Form 10-K for the year ended
December 31, 2004) (File No. 0-22166).
 29




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FINANCIAL STATEMENTS OF REGISTRANT
 
 Report of Independent Registered Public Accounting Firm
    
 F-1




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AETRIUM INCORPORATED
 
 Consolidated Statements of Operations
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003Net sales
    
    $
    16,407,149
    
    
    $
    27,788,624
    
    
    $
    14,088,883Cost of goods sold
    
    
    8,316,191
    
    
    
    11,999,848
    
    
    
    6,648,671Gross profit
    
    
    8,090,958
    
    
    
    15,788,776
    
    
    
    7,440,212Operating expenses:Selling, general and administrative
    
    
    7,058,008
    
    
    
    8,727,072
    
    
    
    6,398,855Research and development
    
    
    3,125,116
    
    
    
    3,593,487
    
    
    
    2,641,803Total operating expenses
    
    
    10,183,124
    
    
    
    12,320,559
    
    
    
    9,040,658Income (loss) from operations
    
    
    (2,092,166
    )
    
    
    3,468,217
    
    
    
    (1,600,446
    )Interest income, net
    
    
    140,497
    
    
    
    61,396
    
    
    
    41,294Other (expense), net
    
    
    
    
    
    
    (74,196
    )
    
    
    Income (loss) before income taxes
    
    
    (1,951,669
    )
    
    
    3,455,417
    
    
    
    (1,559,152
    )Income tax expense (benefit)
    
    
    (30,000
    )
    
    
    52,000
    
    
    
    Net income (loss)
    
    $
    (1,921,669
    )
    
    $
    3,403,417
    
    
    $
    (1,559,152
    )Income (loss) per share:Basic
    
    $
    (0.20
    )
    
    $
    0.35
    
    
    $
    (0.16
    )Diluted
    
    $
    (0.20
    )
    
    $
    0.34
    
    
    $
    (0.16
    )Weighted average common shares outstanding:Basic
    
    
    9,634,000
    
    
    
    9,589,000
    
    
    
    9,477,000Diluted
    
    
    9,634,000
    
    
    
    10,113,000
    
    
    
    9,477,000
 The accompanying notes are an integral part of the consolidated financial statements.
 F-2




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AETRIUM INCORPORATED
 
 Consolidated Balance Sheets
 December 31,
    
    2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,133,531
    
    
    $
    7,267,874Accounts receivable, net of allowance for
doubtful accounts of $119,000 and $286,000,
respectively
    
    
    4,741,864
    
    
    
    3,538,009Inventories
    
    
    8,792,219
    
    
    
    8,493,928Other current assets
    
    
    80,126
    
    
    
    175,224Total current assets
    
    
    17,747,740
    
    
    
    19,475,035Property and equipment:Furniture and fixtures
    
    
    610,110
    
    
    
    588,526Equipment
    
    
    1,902,862
    
    
    
    2,100,888Less accumulated depreciation and amortization
    
    
    (2,236,527
    )
    
    
    (2,287,006
    )Property and equipment, net
    
    
    276,445
    
    
    
    402,408Identifiable intangible assets, net
    
    
    342,605
    
    
    
    878,906Other assets
    
    
    78,437
    
    
    
    78,437Total assets
    
    $
    18,445,227
    
    
    $
    20,834,786LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    34,738
    
    
    $
    33,339Trade accounts payable
    
    
    1,650,796
    
    
    
    1,571,071Accrued compensation
    
    
    413,108
    
    
    
    354,013Other accrued liabilities
    
    
    675,254
    
    
    
    1,304,035Total current liabilities
    
    
    2,773,896
    
    
    
    3,262,458Long-term debt, less current portion
    
    
    98,419
    
    
    
    132,294Commitments and contingencies (See Note 10)Shareholders equity:Common stock, $.001 par value; 30,000,000
shares authorized; 9,649,425 and 9,627,436
shares issued and outstanding, respectively
    
    
    9,649
    
    
    
    9,627Additional paid-in capital
    
    
    60,672,384
    
    
    
    60,617,859Accumulated deficit
    
    
    (45,109,121
    )
    
    
    (43,187,452
    )Total shareholders equity
    
    
    15,572,912
    
    
    
    17,440,034Total liabilities and shareholders equity
    
    $
    18,445,227
    
    
    $
    20,834,786
 The accompanying notes are an integral part of the consolidated financial statements.
 F-3




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##### Table of Contents



AETRIUM INCORPORATED
 
 Consolidated Statements of Changes in Shareholders Equity
 TotalCommon Stock
    
    Additional
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    EquityBalance, December 31, 2002
    
    
    9,477,044
    
    
    $
    9,477
    
    
    $
    60,250,173
    
    
    $
    (45,031,717
    )
    
    $
    15,227,933Exercise of stock options
    
    
    866
    
    
    
    1
    
    
    
    1,779
    
    
    
    
    
    
    
    1,780Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,559,152
    )
    
    
    (1,559,152
    )Balance, December 31, 2003
    
    
    9,477,910
    
    
    
    9,478
    
    
    
    60,251,952
    
    
    
    (46,590,869
    )
    
    
    13,670,561Exercise of stock options
    
    
    149,526
    
    
    
    149
    
    
    
    365,907
    
    
    
    
    
    
    
    366,056Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,403,417
    
    
    
    3,403,417Balance, December 31, 2004
    
    
    9,627,436
    
    
    
    9,627
    
    
    
    60,617,859
    
    
    
    (43,187,452
    )
    
    
    17,440,034Exercise of stock options
    
    
    21,989
    
    
    
    22
    
    
    
    54,525
    
    
    
    
    
    
    
    54,547Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,921,669
    )
    
    
    (1,921,669
    )Balance, December 31, 2005
    
    
    9,649,425
    
    
    $
    9,649
    
    
    $
    60,672,384
    
    
    $
    (45,109,121
    )
    
    $
    15,572,912
 The accompanying notes are an integral part of the consolidated financial statements.
 F-4




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##### Table of Contents



AETRIUM INCORPORATED
 
 Consolidated Statements of Cash Flows
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    (1,921,669
    )
    
    $
    3,403,417
    
    
    $
    (1,559,152
    )Adjustments to reconcile net income (loss) to net cash
generated by (used in) operating activities:Depreciation and amortization
    
    
    765,714
    
    
    
    1,098,371
    
    
    
    1,133,278Provision for bad debts
    
    
    
    
    
    
    60,000
    
    
    
    Provision for excess and obsolete inventories
    
    
    90,000
    
    
    
    120,000
    
    
    
    80,000Loss on disposal of equipment
    
    
    2,731
    
    
    
    
    
    
    
    Gain on claim settlement
    
    
    
    
    
    
    (127,444
    )
    
    
    Loss on sale of marketable securities
    
    
    
    
    
    
    201,640
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (1,203,855
    )
    
    
    (383,320
    )
    
    
    (1,691,862
    )Inventories
    
    
    (388,291
    )
    
    
    (1,925,200
    )
    
    
    590,146Other current assets
    
    
    95,098
    
    
    
    33,958
    
    
    
    (57,569
    )Other assets
    
    
    
    
    
    
    (50,663
    )
    
    
    12,896Trade accounts payable
    
    
    79,725
    
    
    
    31,435
    
    
    
    942,953Accrued compensation
    
    
    59,095
    
    
    
    41,985
    
    
    
    (129,783
    )Other accrued liabilities
    
    
    (628,781
    )
    
    
    357,170
    
    
    
    (868,206
    )Net cash generated by (used in) operating activities
    
    
    (3,050,233
    )
    
    
    2,861,349
    
    
    
    (1,547,299
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (106,181
    )
    
    
    (244,063
    )
    
    
    (162,958
    )Sale of marketable securities
    
    
    
    
    
    
    31,460
    
    
    
    Net cash used in investing activities
    
    
    (106,181
    )
    
    
    (212,603
    )
    
    
    (162,958
    )Cash flows from financing activities:Proceeds from sale of common stock
    
    
    54,547
    
    
    
    366,056
    
    
    
    1,780Proceeds from long-term debt
    
    
    
    
    
    
    190,000
    
    
    
    Payments on long-term debt
    
    
    (32,476
    )
    
    
    (24,367
    )
    
    
    Net cash provided by financing activities
    
    
    22,071
    
    
    
    531,689
    
    
    
    1,780Increase (decrease) in cash and cash equivalents
    
    
    (3,134,343
    )
    
    
    3,180,435
    
    
    
    (1,708,477
    )Cash and cash equivalents at beginning of year
    
    
    7,267,874
    
    
    
    4,087,439
    
    
    
    5,795,916Cash and cash equivalents at end of year
    
    $
    4,133,531
    
    
    $
    7,267,874
    
    
    $
    4,087,439
 The accompanying notes are an integral part of the consolidated financial statements.
 F-5




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##### Table of Contents



AETRIUM INCORPORATED
 
 Notes to Consolidated Financial Statements
 NOTE 1: BUSINESS DESCRIPTION
  NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation:
 Use of Estimates:
 Cash Equivalents:
 Marketable Securities:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Inventories:
 Property and Equipment:
 Other Intangible Assets:
 F-6




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
  Valuation of Long-Lived Assets:
 Revenue Recognition:
 Warranty Costs:
 Balance at
    
    Accruals for
    
    
    
    
    
    Balance atbeginning of
    
    warranties
    
    Settlements
    
    end ofyear
    
    issued
    
    made
    
    year2003
    
    $
    405
    
    
    $
    81
    
    
    $
    (281
    )
    
    $
    2052004
    
    
    205
    
    
    
    233
    
    
    
    (271
    )
    
    
    1672005
    
    
    167
    
    
    
    267
    
    
    
    (270
    )
    
    
    164
  Research and Development:
 Income Taxes:
 F-7




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
  Income (Loss) Per Common Share:
 Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Weighted average common shares outstanding
    
    
    9,634
    
    
    
    9,589
    
    
    
    9,477Potentially dilutive stock options
    
    
    
    
    
    
    524
    
    
    
    Weighted average common shares
outstanding, assuming dilution
    
    
    9,634
    
    
    
    10,113
    
    
    
    9,477
  Stock-Based Employee Compensation:
   F-8




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
  ,
 Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Net income (loss), as reported
    
    $
    (1,922
    )
    
    $
    3,403
    
    
    $
    (1,559
    )Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all grants
    
    
    (1,501
    )
    
    
    (436
    )
    
    
    (311
    )Pro forma net income (loss)
    
    $
    (3,423
    )
    
    $
    2,967
    
    
    $
    (1,870
    )
 Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Net income (loss) per share:Basic  as reported
    
    $
    (0.20
    )
    
    $
    0.35
    
    
    $
    (0.16
    )Basic  pro forma
    
    $
    (0.36
    )
    
    $
    0.31
    
    
    $
    (0.20
    )Diluted  as reported
    
    $
    (0.20
    )
    
    $
    0.34
    
    
    $
    (0.16
    )Diluted  pro forma
    
    $
    (0.36
    )
    
    $
    0.30
    
    
    $
    (0.20
    )Pro forma diluted weighted
average common shares
outstanding
    
    
    9,634
    
    
    
    10,040
    
    
    
    9,477
   2005
    
    2004
    
    2003Expected dividend level
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70
    %
    
    
    70
    %
    
    
    66
    %Risk-free interest rate
    
    
    4.1
    %
    
    
    2.9
    %
    
    
    2.6
    %Expected life of options (years)
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5
  Comprehensive Income (Loss):
 F-9




---



##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
 Repurchases of Common Stock:
 NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
  NOTE 4: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Interest paid
    
    $
    11
    
    
    $
    10
    
    
    $
    5Income taxes paid (refunded), net
    
    $
    (48
    )
    
    $
    66
    
    
    $
    
 NOTE 5: IDENTIFIABLE INTANGIBLE ASSETS
  December 31,
    
    2005
    
    2004Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    amortization
    
    Net
    
    Gross
    
    amortization
    
    NetDeveloped technology
    
    $
    2,600
    
    
    $
    (2,600
    )
    
    $
    0
    
    
    $
    2,600
    
    
    $
    (2,511
    )
    
    $
    89Core technology
    
    
    3,167
    
    
    
    (3,086
    )
    
    
    81
    
    
    
    3,167
    
    
    
    (2,761
    )
    
    
    406Customer list
    
    
    1,100
    
    
    
    (852
    )
    
    
    248
    
    
    
    1,100
    
    
    
    (742
    )
    
    
    358Other
    
    
    99
    
    
    
    (85
    )
    
    
    14
    
    
    
    99
    
    
    
    (73
    )
    
    
    26Total
    
    $
    6,966
    
    
    $
    (6,623
    )
    
    $
    343
    
    
    $
    6,966
    
    
    $
    (6,087
    )
    
    $
    879
  NOTE 6: OTHER (EXPENSE), NET
  F-10




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
  NOTE 7: INVENTORIES
  December 31,
    
    2005
    
    2004Purchased parts and completed subassemblies
    
    $
    3,796
    
    
    $
    3,919Work-in-process
    
    
    3,400
    
    
    
    2,903Finished goods, including saleable demonstration equipment
    
    
    1,161
    
    
    
    1,379Equipment shipped, subject to revenue deferral
    
    
    435
    
    
    
    293Total inventories
    
    $
    8,792
    
    
    $
    8,494
 NOTE 8: OTHER ACCRUED LIABILITIES:
  December 31,
    
    2005
    
    2004Accrued commissions
    
    $
    165
    
    
    $
    258Accrued warranty
    
    
    164
    
    
    
    167Customer deposits and deferred revenue
    
    
    67
    
    
    
    528Accrued restructuring costs
    
    
    14
    
    
    
    85Other
    
    
    265
    
    
    
    266Total other accrued liabilities
    
    $
    675
    
    
    $
    1,304
 NOTE 9: CREDIT AGREEMENT AND LONG-TERM DEBT
   2006
    
    $
    352007
    
    
    372008
    
    
    402009
    
    
    21Total
    
    $
    133
 NOTE 10: LEASE OBLIGATIONS
  F-11




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
     Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Leased from shareholder
    
    $
    438
    
    
    $
    438
    
    
    $
    438Leased from others
    
    
    591
    
    
    
    808
    
    
    
    344Sublease/assigned lease income
    
    
    (585
    )
    
    
    (745
    )
    
    
    (341
    )Total net rent expense
    
    $
    444
    
    
    $
    501
    
    
    $
    441
  2006
    
    $
    6862007
    
    
    6432008
    
    
    5582009
    
    
    5222010
    
    
    44Total minimum lease payments
    
    $
    2,453
   NOTE 11: RELATED PARTY TRANSACTIONS
  F-12




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
 NOTE 12: STOCK OPTION PLANS
   Year ended Dec. 31,
    
    2005
    
    2004
    
    2003Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageNumber
    
    Exercise
    
    Number
    
    Exercise
    
    Number
    
    Exerciseof Shares
    
    Price
    
    of Shares
    
    Price
    
    of Shares
    
    PriceOutstanding at beginning
of year
    
    
    1,708,920
    
    
    $
    2.97
    
    
    
    1,895,299
    
    
    $
    3.09
    
    
    
    1,498,746
    
    
    $
    3.80Granted
    
    
    323,000
    
    
    
    3.13
    
    
    
    100,000
    
    
    
    4.81
    
    
    
    701,950
    
    
    
    2.70Exercised
    
    
    (21,989
    )
    
    
    2.48
    
    
    
    (150,607
    )
    
    
    2.46
    
    
    
    (866
    )
    
    
    2.06Forfeited
    
    
    (272,104
    )
    
    
    5.59
    
    
    
    (135,772
    )
    
    
    6.47
    
    
    
    (304,531
    )
    
    
    5.70Outstanding at end of year
    
    
    1,737,827
    
    
    $
    2.60
    
    
    
    1,708,920
    
    
    $
    2.97
    
    
    
    1,895,299
    
    
    $
    3.09Exercisable at end of year
    
    
    1,697,148
    
    
    $
    2.62
    
    
    
    964,675
    
    
    $
    3.07
    
    
    
    907,179
    
    
    $
    3.56
  Options Outstanding
    
    Options ExercisableWeightedRange of
    
    Number
    
    Average
    
    Weighted
    
    Number
    
    WeightedExercise
    
    Outstanding
    
    Remaining
    
    Average
    
    Exercisable
    
    AveragePrices
    
    at 12/31/05
    
    Contractual Life
    
    Exercise Price
    
    at 12/31/05
    
    Exercise Price$0.87 to 1.03
    
    
    25,000
    
    
    1.9 years
    
    $
    0.95
    
    
    
    17,240
    
    
    $
    0.961.69 to 2.06
    
    
    639,382
    
    
    1.0 years
    
    
    1.90
    
    
    
    606,463
    
    
    
    1.892.76 to 3.13
    
    
    973,445
    
    
    3.5 years
    
    
    2.88
    
    
    
    973,445
    
    
    
    2.884.81
    
    
    100,000
    
    
    3.8 years
    
    
    4.81
    
    
    
    100,000
    
    
    
    4.81$0.87 to
4.81
    
    
    1,737,827
    
    
    2.6 years
    
    $
    2.60
    
    
    
    1,697,148
    
    
    $
    2.62
 F-13




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
 NOTE 13: EMPLOYEE SAVINGS 401(k) PLAN
  NOTE 14: INCOME TAXES
  Year ended December 31,
    
    2005
    
    2004
    
    2003Current tax expense (benefit):Federal
    
    $
    (34
    )
    
    $
    49
    
    
    $
    State
    
    
    4
    
    
    
    3
    
    
    
    Total current expense (benefit)
    
    
    (30
    )
    
    
    52
    
    
    
    Deferred tax expense (benefit):Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total deferred expense (benefit)
    
    
    
    
    
    
    
    
    
    
    Total income tax expense (benefit)
    
    $
    (30
    )
    
    $
    52
    
    
    $
    
   Year ended December 31,
    
    2005
    
    2004
    
    2003Tax computed at federal statutory rate
    
    $
    (664
    )
    
    $
    1,175
    
    
    $
    (530
    )State taxes, net of federal benefit
    
    
    (120
    )
    
    
    85
    
    
    
    (31
    )Change in tax rates
    
    
    
    
    
    
    (512
    )
    
    
    Increase (decrease) in tax from:Business meals and entertainment
    
    
    8
    
    
    
    26
    
    
    
    17Tax credits
    
    
    (237
    )
    
    
    
    
    
    
    Valuation allowance change
    
    
    1,012
    
    
    
    (747
    )
    
    
    561Other, net
    
    
    (29
    )
    
    
    25
    
    
    
    (17
    )Reported income tax expense (benefit)
    
    $
    (30
    )
    
    $
    52
    
    
    $
    
  F-14




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
  December 31,
    
    2005
    
    2004Accounts receivable, principally due to
allowances for doubtful accounts
    
    $
    43
    
    
    $
    103Inventories, principally due to
reserves
for excess and obsolete inventories
and additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986
    
    
    1,013
    
    
    
    1,103Employee compensation and benefits
accrued for financial reporting
purposes
    
    
    99
    
    
    
    65Amortization of intangibles
    
    
    5,824
    
    
    
    6,560NOL and tax credit carryforwards
    
    
    18,490
    
    
    
    16,611Restructuring accruals
    
    
    8
    
    
    
    31Warranty accrual
    
    
    59
    
    
    
    60Other, net
    
    
    64
    
    
    
    49Deferred tax assets
    
    $
    25,600
    
    
    $
    24,582Less, valuation allowance
    
    
    (25,600
    )
    
    
    (24,582
    )Net deferred tax assets
    
    $
    
    
    
    $
    
    F-15




---



##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
 NOTE 15: PRODUCT LINE, GEOGRAPHIC, SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK DATA
  Year ended December 31,
    
    2005
    
    2004
    
    2003Test handler products
    
    
    41
    %
    
    
    56
    %
    
    
    52
    %Reliability test equipment products
    
    
    24
    
    
    
    21
    
    
    
    20Semiconductor automation products
    
    
    8
    
    
    
    6
    
    
    
    11Change kits and spare parts
    
    
    27
    
    
    
    17
    
    
    
    17Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Year ended December 31,
    
    2005
    
    2004
    
    2003United States
    
    $
    6,030
    
    
    $
    13,437
    
    
    $
    6,531Philippines
    
    
    3,713
    
    
    
    9,863
    
    
    
    3,644Malaysia
    
    
    2,356
    
    
    
    240
    
    
    
    135France
    
    
    1,211
    
    
    
    71
    
    
    
    1,528Other foreign countries
    
    
    3,097
    
    
    
    4,178
    
    
    
    2,251Total
    
    $
    16,407
    
    
    $
    27,789
    
    
    $
    14,089
  Year ended December 31,
    
    2005
    
    2004
    
    2003Customer A
    
    
    33
    %
    
    
    53
    %
    
    
    37
    %Customer B
    
    
    24
    %
    
    
    *
    
    
    
    *Customer C
    
    
    *
    
    
    
    11
    %
    
    
    *Customer D
    
    
    *
    
    
    
    *
    
    
    
    11
    %
 
 *
    
    Sales to customer were less than 10% of total net sales  December 31,
    
    2005
    
    2004Customer A
    
    
    46
    %
    
    
    38
    %Customer B
    
    
    27
    %
    
    
    *
 
 *
    
    Accounts receivable from customer were less than 10% of total accounts
receivable.  F-16




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##### Table of Contents



AETRIUM INCORPORATED
Notes to Consolidated Financial Statements
 NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2005 Net sales
    
    $
    4,002
    
    
    $
    3,108
    
    
    $
    3,701
    
    
    $
    5,596Gross profit
    
    
    2,171
    
    
    
    1,670
    
    
    
    1,553
    
    
    
    2,697Net income (loss)
    
    
    (268
    )
    
    
    (682
    )
    
    
    (983
    )
    
    
    12Net income (loss) per share:Basic
    
    
    (0.03
    )
    
    
    (0.07
    )
    
    
    (0.10
    )
    
    
    0.00Diluted
    
    
    (0.03
    )
    
    
    (0.07
    )
    
    
    (0.10
    )
    
    
    0.002004 Net sales
    
    $
    6,141
    
    
    $
    9,107
    
    
    $
    7,073
    
    
    $
    5,468Gross profit
    
    
    3,437
    
    
    
    5,167
    
    
    
    4,230
    
    
    
    2,955Net income (loss)1
    
    
    713
    
    
    
    2,003
    
    
    
    821
    
    
    
    (134
    )Net income (loss) per share:Basic2
    
    
    0.07
    
    
    
    0.21
    
    
    
    0.09
    
    
    
    (0.01
    )Diluted2
    
    
    0.07
    
    
    
    0.19
    
    
    
    0.08
    
    
    
    (0.01
    )
 
 1.
    
    Includes a $0.1 million gain on a claim settlement in the second quarter and a $0.2 million loss on the sale of marketable securities in the fourth
quarter. See Note 6 to the Consolidated Financial Statements.2.
    
    The sum of the four quarterly per share amounts do not equal the calculation for the full year due to rounding. F-17




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##### Table of Contents



SIGNATURES
  AETRIUM INCORPORATEDDate:  March 31, 2006
    By:
    /s/ Joseph C. LevesqueJoseph C. LevesqueChief Executive Officer and President
(principal executive officer) By:
    /s/ Paul H. AskegaardPaul H. AskegaardTreasurer
(principal financial and accounting officer)  Signature
    
    Title/s/ Joseph C. Levesque

Joseph C. Levesque
    
    Chairman of the Board/s/ Darnell L. Boehm

Darnell L. Boehm
    
    Director/s/ Terrence W. Glarner

Terrence W. Glarner
    
    Director/s/ Andrew J. Greenshields

Andrew J. Greenshields
    
    Director/s/ Douglas L. Hemer

Douglas L. Hemer
    
    Director




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##### Table of Contents



AETRIUM INCORPORATED
 
 EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
 ItemNo.
    
    Item
    
    Method of Filing3.1
    
    Our Restated Articles of Incorporation,
as amended.
    
    Incorporated by reference to
Exhibit 3.1 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).3.2
    
    Amendment to Restated Articles of
Incorporation
    
    Incorporated by reference to
Exhibit 3.2 to our Quarterly
Report for the quarter ended
September 30, 1998 (File No.
0-22166).3.3
    
    Our Bylaws, as amended.
    
    Incorporated by reference to
Exhibit 3.2 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).4.1
    
    Specimen Form of our Common Stock
Certificate.
    
    Incorporated by reference to
Exhibit 4.1 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).10.1
    
    1993 Stock Incentive Plan, as amended.
    
    Incorporated by reference to
Exhibit 10.2 to our Annual
Report on Form 10-K for year
ended December 31, 1997 (File
No. 0-22166).10.2
    
    Salary Savings Plan.
    
    Incorporated by reference to
Exhibit 10.3 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).10.3
    
    Form of Incentive Stock Option Agreement.
    
    Incorporated by reference to
Exhibit 10.6 to our Annual
Report on Form 10-KSB for the
year ended December 31, 1993
(File No. 0-22166).10.4
    
    Form of Non-Statutory Option Agreement.
    
    Incorporated by reference to
Exhibit 10.7 to our Annual
Report on Form 10-KSB for the
year ended December 31, 1993
(File No. 0-22166).10.5
    
    Employment Agreement dated April 1,
1986, between Joseph C. Levesque and us.
    
    Incorporated by reference to
Exhibit 10.6 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).10.6
    
    Credit Agreement dated August 11, 1989,
between Harris Bank and us.
    
    Incorporated by reference to
Exhibit 10.7 to our
Registration Statement on
Form SB-2 (File No.
33-64962C).10.7
    
    Lease Agreement, dated July 19, 1995,
between KAMKO Investments and us.
    
    Incorporated by reference to
Exhibit 10.12 to our
Registration Statement on
Form SB-2 (File No.
33-98040).
 E-1




---



##### Table of Contents



ItemNo.
    
    Item
    
    Method of Filing10.8
    
    Amendment to Lease Agreement, dated
September 26, 1995, between KAMKO
Investments and us.
    
    Incorporated by reference to
Exhibit 10.13 to our
Registration Statement on
Form SB-2 (File No.
33-98040).10.9
    
    Indenture dated June 25, 1998 between
KAMKO Investments and the company.
    
    Incorporated by reference to
Exhibit 10.19 to our Annual
Report on Form 10-K for the
year ended December 31, 1998
(File No. 0-22166).10.10
    
    Standard Industrial/Commercial
Single-Tenant Lease, dated September 18,
1998, between W.H. Pomerado, LLC and us,
including addendum and material exhibits
to lease.
    
    Incorporated by reference to
Exhibit 10.16 to our Annual
Report on Form 10-K for the
year ended December 31, 1999
(File No. 0-22166).10.11
    
    Standard Lease Agreement, dated December
19, 1987, between Crow-Markison 22-27,
Limited Partnership and WEB Technology,
Inc., including all supplements and
amendments thereto through December 27,
1999.
    
    Incorporated by reference to
Exhibit 10.17 to our Annual
Report on Form 10-K for the
year ended December 31, 1999
(File No. 0-22166).10.12
    
    Assignment and Assumption of Lease
Agreement, dated August 8, 2000, by and
between us and Littlefeet, Inc.
    
    Incorporated by reference to
Exhibit 10.16 to our Annual
Report on Form 10-K for the
year ended December 31, 2000
(File No. 0-22166).10.13
    
    Bill of Sale, Assignment and Assumption
and Lease Agreement, dated March 31,
2000, by and between Aetrium-EJ Inc. and
Daniel Gamelin and Mark Woodman.
    
    Incorporated by reference to
Exhibit 10.17 to our Annual
Report on Form 10-K for the
year ended December 31, 2000
(File No. 0-22166).10.14
    
    Assignment, dated August 31, 2000, by
and between Aetrium-EJ Inc. and Daniel
Gamelin and Mark Woodman.
    
    Incorporated by reference to
Exhibit 10.18 to our Annual
Report on Form 10-K for the
year ended December 31, 2000
(File No. 0-22166).10.15
    
    Amendment dated January 27, 2003,
between Crow-Markison 22-27, Limited
Partnership and Aetrium-WEB Technology,
LP to Standard Lease Agreement scheduled
herein as item 10.12.
    
    Incorporated by reference to
Exhibit 10.17 to our Annual
Report on Form 10-K for the
year ended December 31, 2002
(File No. 0-22166).10.16
    
    2003 Stock Incentive Plan.
    
    Incorporated by reference to
Exhibit 10.18 to our Annual
Report on Form 10-K for the
year ended December 31, 2002
(File No. 0-22166).10.17
    
    Form of Change of Control Agreement.
    
    Incorporated by reference to
Exhibit 10.19 to our Annual
Report on Form 10-K for the
year ended December 31, 2003
(File No. 0-22166).
 E-2




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##### Table of Contents



ItemNo.
    
    Item
    
    Method of Filing10.18
    
    Assignment Agreement, dated January 20,
2004, by and between us and Littlefeet,
Inc.
    
    Incorporated by reference to
Exhibit 10.20 to our Annual
Report on Form 10-K for the
year ended December 31, 2003
(File No. 0-22166).10.19
    
    Sales Incentive Program.
    
    Incorporated by reference to
Exhibit 10.21 to our Annual
Report on Form 10-K for the
year ended December 31, 2003
(File No. 0-22166).10.20
    
    Executive Officer Profit Sharing Program.
    
    Incorporated by reference to
Exhibit 10.20 to our Annual
Report on Form 10-K for the
year ended December 31, 2004
(File No. 0-22166).10.21
    
    Business Loan Agreement, dated October
3, 2005, between Bremer Bank and us.
    
    Incorporated by reference to
Exhibit 20.21 to our
Quarterly Report on Form 10-Q
for the quarter ended
September 30, 2004 (File No.
0-22166).10.22
    
    Note, dated October 3, 2005, issued by
us to Bremer Bank.
    
    Incorporated by reference to
Exhibit 20.22 to our
Quarterly Report on Form 10-Q
for the quarter ended
September 30, 2004 (File No.
0-22166).10.23
    
    Commercial Security Agreement, dated
October 3, 2005, between Bremer Bank and
us.
    
    Incorporated by reference to
Exhibit 20.23 to our
Quarterly Report on Form 10-Q
for the quarter ended
September 30, 2004 (File No.
0-22166).10.24
    
    Commercial Lease dated February 24, 2006
between Kamko I, LLC and us.
    
    Filed herewith electronically.14.1
    
    Code of Business Conduct and Ethics.
    
    Incorporated by reference to
Exhibit 14.1 to our Annual
Report on Form 10-K for the
year ended December 31, 2003
(File No. 0-22166).21.1
    
    Subsidiaries of the Registrant.
    
    Incorporated by reference to
Exhibit 10.18 to our Annual
Report on Form 10-K for the
year ended December 31, 2002
(File No. 0-22166).23.1
    
    Independent Registered Public Accounting
Firms Consent.
    
    Filed herewith electronically.31.1
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed herewith electronically.31.2
    
    Certification of Chief Administrative
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed herewith electronically.31.3
    
    Certification of Treasurer pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002.
    
    Filed herewith electronically.
 E-3




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##### Table of Contents



ItemNo.
    
    Item
    
    Method of Filing32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
    
    Filed herewith electronically.
 E-4




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##### Table of Contents



SCHEDULE II
 Valuation and Qualifying Accounts
 AdditionsChargedBalance at
    
    (credited) to
    
    
    
    
    
    
    
    
    
    Balance atbeginning of
    
    costs and
    
    Charged to other
    
    
    
    
    
    end ofDescription
    
    year
    
    expenses
    
    accounts
    
    Deductions
    
    yearAllowance for doubtful accounts:2003
    
    $
    280
    
    
    $
    0
    
    
    $
    0
    
    
    $
    (43
    )
    
    $
    2372004
    
    
    237
    
    
    
    60
    
    
    
    0
    
    
    
    (11
    )
    
    
    2862005
    
    
    286
    
    
    
    0
    
    
    
    0
    
    
    
    (167
    )
    
    
    119Inventory excess and
obsolescence reserve (1):2003
    
    $
    4,001
    
    
    $
    80
    
    
    $
    0
    
    
    $
    (721
    )
    
    $
    3,3602004
    
    
    3,360
    
    
    
    120
    
    
    
    0
    
    
    
    (631
    )
    
    
    2,8492005
    
    
    2,849
    
    
    
    90
    
    
    
    0
    
    
    
    (406
    )
    
    
    2,533Valuation allowance on deferred
tax assets (2):2003
    
    $
    24,551
    
    
    $
    561
    
    
    $
    0
    
    
    $
    0
    
    
    $
    25,1122004
    
    
    25,112
    
    
    
    (747
    )
    
    
    217
    
    
    
    0
    
    
    
    24,5822005
    
    
    24,582
    
    
    
    1,012
    
    
    
    6
    
    
    
    0
    
    
    
    25,600
 
 (1)
    
    Deductions represent sales or disposals of reserved inventory.(2)
    
    Amounts charged to other accounts represent the portion of the valuation allowance charged to
Additional Paid-In Capital for income tax benefits related to stock option exercises. S-1