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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM __________ TO __________

                           COMMISSION FILE NO. 0-22166

                              AETRIUM INCORPORATED
             (Exact name of registrant as specified in its charter)

                    MINNESOTA                           41-1439182
         (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)             Identification No.)

                                2350 HELEN STREET
                         NORTH ST. PAUL, MINNESOTA 55109
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (651) 704-1800
        Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
                                                            PAR VALUE

         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 ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K [X].

         As of March 24, 1999, 9,483,393 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant as of that date (based upon the last reported sale price of
the Common Stock on that date as reported by the Nasdaq National Market),
excluding outstanding shares beneficially owned by directors and executive
officers, was approximately $55,170,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein) from the
registrant's Annual Report to Shareholders for the year ended December 31, 1998
(the "1998 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the registrant's Proxy Statement for its 1999 Annual
Meeting to be held May 18, 1999 (the "1999 Proxy Statement").

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                                     PART I

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            This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Certain Important Factors."

ITEM 1.         BUSINESS.

            Aetrium Incorporated ("Aetrium" or the "Company") designs,
manufactures and markets a variety of electromechanical equipment used in the
handling and testing of microelectronic components, including semiconductor
devices known as integrated circuits ("ICs") and other forms of electronic
components. The Company's primary focus is on high volume electronic component
types and on the latest package designs. Aetrium's products are purchased
primarily by semiconductor manufacturers, and their assembly and test
subcontractors, and are used in the test, assembly, and packaging portion of
semiconductor manufacturing. The Company's products automate critical functions
to improve manufacturing yield, raise quality levels, reduce manufacturing costs
and increase product reliability.

            The Company has three principal product lines. The largest, in terms
of revenue, is its broad line of test handlers, which incorporate thermal
conditioning, contactor and automated handling technologies to provide automated
handling of ICs and other electronic components during production test cycles.
Test handler products are primarily produced by the Company's operations in
North St. Paul, Minnesota; San Diego, California; and Grand Prairie, Texas.
Change kits to adapt the Company's test handlers to different IC package
configurations or to upgrade installed equipment for enhanced performance also
represent a significant part of the Company's revenue. The Company's second
product line consists of its IC Automation products, which are produced in North
St. Paul and by the Aetrium WEB Technology operation in Dallas, Texas. The North
St. Paul operation's IC Automation products are sold to original equipment
manufacturers ("OEMs") to incorporate as the automated handling components of
such OEM's own proprietary equipment for a variety of other IC processing
requirements, such as marking, lead scanning, and lead trim and form. The
Aetrium WEB Technology operation's IC Automation products are sold to
semiconductor manufacturers, and used to automate the loading and unloading of
burn-in boards. The Company's third product line is specialty test equipment,
which includes reliability test equipment and environmental test equipment. The
Company's reliability test systems provide IC manufacturers with IC performance
data to aid in the evaluation and improvement of IC designs and manufacturing
processes to increase IC yield and reliability and are produced in North St.
Paul. The Company's environmental test equipment products are used for burn-in
testing of ICs and are produced at the Company's facility in Lawrence,
Massachusetts.

            The Company's strategy has focused on revenue growth through product
line expansion, by both internal development and by acquiring complementary
technology, businesses, or product lines, and through customer satisfaction.
Company sales have increased at an average annual compounded growth rate of
approximately 30% during the period from 1986 through 1998. Currently, the
Company has an installed base of more than 6,000 test handlers, which the
Company believes is the second largest installed base among all test handler
manufacturers.

            In 1998, the Company completed the acquisition of the equipment
business of WEB Technology Inc. ("WEB"), based in Dallas, Texas, by acquiring
certain assets and assuming certain liabilities of WEB. This acquisition
significantly expanded the Company's IC Automation product lines to include IC
automation products for loading and unloading burn-in boards. Products produced
by Aetrium WEB Technology include a line of burn-in board automation products
that can be configured to accommodate


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any burn-in board currently being manufactured.

            In 1997, the Company completed two acquisitions that expanded its
test handler product lines. In April 1997, Aetrium acquired a line of test
handler products produced in its Grand Prairie, Texas, operation by acquiring
substantially all of the assets of Forward Systems Automation, Inc. ("FSA").
Products produced in Grand Prairie include test handlers for ICs as well as
so-called discrete components, which are a non-semiconductor form of electronic
component. In November 1997, Aetrium acquired a product line of pick-and-place
test handlers by acquiring certain assets and assuming certain liabilities of
the Handler Division of Advantek Inc., which extended Aetrium's product line of
pick-and-place test handlers for nonmemory ICs. The product line acquired from
Advantek was incorporated into and is produced at the Company's North St. Paul
facility.

            The Company acquired the core products of its 5050 series of gravity
feed test handlers through its acquisition of Electro-Mechanical Systems, Inc.
("EMS") in 1988. Since then, the Company has expanded this series of products
through internal development to include a full range of thermal conditioning
capabilities, contactor change kits for a wide range of package types in the
largest segment of surface mount ICs, high performance contactors, dual test
site capability, quad test site capability, and more recently, micro small
outline package ("MSOP") test capability. Aetrium also acquired certain test
handler products through its acquisition of the assets of Sym-Tek Systems, Inc.
("SymTek") in November 1994, which allowed Aetrium to enter the memory IC market
with both high volume multisite pick-and-place and extensive multisite gravity
feed test handler product lines. The SymTek acquisition also extended Aetrium's
line of gravity feed test handlers for the nonmemory IC market.

            The Company acquired its reliability test systems product line
through the purchase of the assets of Sienna Technologies, Inc. ("Sienna
Technologies") in December 1993. At the time of the acquisition, Sienna
Technologies' revenue was declining and customer confidence was eroding due in
part to product performance and customer service issues. Since the acquisition,
a new generation product has been developed and introduced, products have been
improved to address performance issues, customer service has improved, customer
confidence has been substantially restored, and gross profit margins have
increased.

            Aetrium acquired its environmental test products through its
acquisition of substantially all of the assets of E.J. Systems, Inc. ("EJ
Systems") in December 1995. These products are primarily environmental
conditioning chambers for burn-in testing of ICs. Since the acquisition, the
Company has substantially increased marketing and product distribution efforts,
increased average selling prices, and improved manufacturing efficiencies.

            Aetrium emphasizes both product quality and customer service to
achieve customer satisfaction, which is reflected in the certification of its
Minnesota facility in March 1995 as the first test handler producer to be
certified under the ISO 9001 program established by the European Community. In
1998, the Company's facilities in Lawrence, Massachusetts, and San Diego,
California, were ISO 9001 certified, and the Minnesota facility successfully
completed a recertification audit.

            The Company was incorporated in Minnesota in December 1982. The
Company's executive offices are located at 2350 Helen Street, North St. Paul,
Minnesota 55109, and its telephone number is (651) 704-1800.

TEST HANDLER PRODUCTS

            Test handlers are electromechanical systems interfaced with a tester
to form a test system designed to handle, thermally condition, contact and sort
ICs and other electronic components


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automatically during the final testing process. The components are loaded into
the handler from tubes or trays and then typically transported to a temperature
chamber within the test handler where they are thermally conditioned to the
required testing temperature. The component is then positioned against the test
handler contactor, which provides an electrical connection between the component
and the tester. After testing, the test handler sorts the component according to
test performance. In some cases, additional process steps are completed by the
test handler system, including a machine vision inspection of the IC package and
automatic placement of the device into a form of device transport media for
immediate shipment of the electronic component to the end user.

            Traditionally, test handlers used gravity to move ICs and other
components through the handler system. In order to accommodate more fragile IC
package families, gravity feed systems have incorporated various velocity
limiting techniques to reduce the speed of IC packages and minimize IC damage
upon impact with other ICs or other stopping mechanisms. More recently,
pick-and-place test handler systems have been introduced for the IC package
families most easily damaged in handling, such as quad flatpack families
("QFPs"), ball grid array packages ("BGA") and some small outline packages
("SOPs"). Pick-and-place systems move ICs electromechanically, and thus can
avoid jarring stops and the resulting lead damage. Pick-and-place systems are
typically slower and more costly than gravity feed handlers.

            Test handlers are designed for either memory ICs, nonmemory ICs, or
discrete components. Memory ICs require relatively long test times. In order to
achieve acceptable throughput rates, memory IC test handlers have been designed
to test up to 64 devices at a time. Nonmemory ICs and most forms of discrete
components require relatively short test times, and traditionally test times
have not been a limiting factor for throughput rates. Test times, however, have
increased as certain types of nonmemory ICs have become more complex and IC
manufacturers have also sought to fully utilize the capacity of their testers.
Accordingly, multisite test handlers, with as many as eight test sites, are now
available for appropriate nonmemory IC applications.

            Test handlers must meet industry criteria for thermal conditioning,
contactor integrity and minimization of lead damage. Test handlers compete on
the basis of cost, throughput, versatility, reliability and the specific
application requirements of the IC manufacturer. The combination of these
factors measures the cost of ownership of the test handler per device tested.
Aetrium believes its broad line of test handlers competes favorably on the basis
of cost of ownership for a wide range of electronic component manufacturer
applications.

            The Company's primary focus continues to be on the newer generation
ICs referred to as surface mount devices ("SMD") which represent the largest
volumes, the newest IC device types, and the fastest growing market in the
industry. The Company offers the broadest line of test handling products to the
microelectronics industry, addressing the full spectrum of the industry,
including discrete components. Aetrium's test handler products are complementary
in nature with minimal overlap of application and can be distributed and
serviced through a common organization for efficiency.

            GRAVITY FEED TEST HANDLERS

            5050 SERIES. Aetrium's 5050 Series of gravity feed test handlers for
nonmemory IC applications addresses a wide range of SOP package types, which
constitute the largest segment of all surface mount ICs. These handlers compete
most favorably in high-volume applications and their high throughput rates are
an added advantage in relatively short test time applications. Models within
this series vary on adaptability to different IC package sizes and
configurations and the temperature range available for thermal conditioning in
order to provide cost-effective solutions to a wide range of customer
requirements. The Company also offers dual test site and quad test site
capability within its 5050 Series


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of handlers to increase productivity and reduce testing costs in certain
applications.

            300 SERIES. The 300 Series is a product line of gravity feed test
handlers designed to handle a wide variety of DIP devices. The 300 Series
provides hot and cold thermal conditioning with a temperature range of
-60 degrees C to +150 degrees C with +/-2 degrees C control capabilities. A menu
driven CRT display allows the operator to set up the handler's operational
parameters as well as continually monitor the handler status. The handler can be
programmed to sort devices into user-defined categories.

            MODEL M4300. The Model M4300 is a gravity feed test handler that
provides parallel testing of up to 32 memory ICs. The quick load spool design
reduces the number of moving parts in the test environment, eliminating multiple
test site adjustments common to other systems. The Model M4300 systems are
equipped with two separate environmental chambers, independently controlled with
a cold and hot temperature range of -60 degrees C to +150 degrees C.

            PICK-AND-PLACE TEST HANDLERS

            MODEL M3200. The Model M3200 test handler is a pick-and-place,
high-volume production application test handler for memory ICs. The M3200
addresses a wide range of IC package types that cannot be processed on gravity
feed test handlers without special carriers, and provides hot, ambient and cold
parallel testing with up to 32 test sites. Its horizontal tray based system
design provides package protection with input and output modules capable of
automatically loading and unloading tubes or trays.

            MODEL M3200S. The Model M3200S test handler is a pick-and-place,
high-volume production application test handler for memory ICs. The M3200S
addresses the newest form of IC package types used for memory devices, including
chip scale and micro ball grid array-type packages that cannot be effectively
processed on older generation pick-and-place test handlers. It provides hot,
ambient and cold parallel testing with up to 32 test sites, and can be
configured to sort tested ICs in up to 13 individual sort categories. Its
horizontal tray based system design provides package protection with input and
output modules capable of automatically loading and unloading trays.

            1000 SERIES. The 1000 Series pick-and-place test handlers are
offered in a full range of temperature options for thermal conditioning, and can
be configured to gently handle a wide variety of nonmemory devices. They feature
the Soft-Touch Probe(TM) to safely and reliably handle the most fragile IC
packages. Devices are transported with their leads up, virtually eliminating the
possibility of lead damage. The 1000 Series features "plunge to board"-type
contacting, and offers complete electrostatic discharge protection. The 1000
Series products can be modified with change kits, typically within 15 minutes,
to accommodate nearly every IC package configuration being manufactured in
volume today.


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            MODEL 3000. The Model 3000 pick-and-place test handler tests ICs at
two test sites, which allows for significantly increased throughput as compared
to single site test handlers. The Model 3000 is offered in a full range of
temperature options for thermal conditioning, and can be configured to gently
handle a wide variety of nonmemory devices. It features the Soft-Touch Probe(TM)
to safely and reliably handle the most fragile IC packages. Devices are
transported with their leads up, virtually eliminating the possibility of lead
damage. The Model 3000 features "plunge to board"-type contacting, and offers
complete electrostatic discharge protection. The Model 3000 products can be
modified with change kits, typically within 15 minutes, to accommodate nearly
every IC package configuration being manufactured in volume today.

            MODEL QT. The Model QT pick-and-place test handler is a bench-top
sized machine designed to accommodate small lot production runs and engineering
characterization testing. The QT can be configured for any device package
smaller than 2.5 inches wide, including ICs and discrete electronic components.
The QT input can accept ICs from metal or plastic tubes, a custom device tray,
or a bulk bowl feeder. The QT Series products are offered with several different
options for contacting, including "plunge to board"-type contacting.

            2000 SERIES. The 2000 Series of pick-and-place test handlers are
designed for production testing of TO-type discrete electronic components. They
can be configured for up to four test sites and a variety of options for
contacting. The 2000 Series is offered with a number of options for input,
including bulk bowl feeders or tubes. The output options include bulk, tube, and
radial tape and reel. Other options include the capability to perform vision
inspection of the coplanarity of leads and to mark individual devices with a
laser marking system.

            5000 SERIES. The 5000 Series of pick-and-place test handlers are
designed for production testing of SOT-type discrete electronic components. They
can be configured for up to six test sites and a variety of options for
contacting, including "plunge to board"-type contacting. The 5000 Series is
offered with a bulk bowl feeder input and a variety of output options including
bulk, tube, or radial tape and reel. Tested devices can be sorted into up to 19
programmable categories. Other options include the capability to perform vision
inspection of the coplanarity of leads and to mark individual devices with a
laser marking system.

            7000 SERIES. The 7000 Series of pick-and-place test handlers are
designed for high-volume testing of MSOP- and TSSOP-type IC packages. They have
extruded, multi-track tray input. Contacting options include standard contacts
as well as "plunge to board"-type contacting. The 7000 Series is offered with
the capability to perform visual inspection of the coplanarity of leads and to
mark individual devices with a laser marking system. Devices can be sorted into
multi-track trays or tape and reel, with up to 19 programmable sort categories.

            CHANGE KITS, UPGRADES AND SPARE PARTS

            The Company has ongoing demand for IC package change kits for its
installed test handler equipment, including test handlers no longer included in
its active product line, and it sells a variety of change kits to accommodate
the growing variety of IC packages used by the IC industry. The demand for
change kits is driven by the introduction of new IC package types and production
volume changes experienced by the Company's end customers. Also included in
change kits are upgrade kits to enhance the performance of installed equipment.

IC AUTOMATION PRODUCTS

            The Company believes that the growing number and volume of fine
pitch and other delicate IC


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packages is driving a demand for automated equipment for all IC manufacturing
processes. Existing processing equipment often will not accommodate these
package types or the numerous tray configurations used to transport them.
Aetrium believes that its IC Automation product line offers the most effective
handling technology to automate these manufacturing processes for increasingly
difficult to handle, newer generation ICs.

            4800 SERIES. The 4800 Series is a line of products used to automate
the loading and unloading of burn-in boards. Burn-in boards vary in size and
density, and are used to place individual ICs into a convection oven for an
extensive reliability screening and stress testing procedure known as "burn-
in." The burn-in process screens for early failures by operating the IC at
elevated voltages and temperatures, usually at 125 degrees C (257 degrees F),
for periods typically ranging from 12 to 48 hours. Burn-in systems can process
thousands of ICs simultaneously, utilizing multiple boards. Most leading-edge
microprocessors, microcontrollers, digital signal processors, and memory ICs
undergo burn-in testing. Burn-in board automation products take untested ICs out
of trays or other media, place them into sockets on a burn-in board, and then
lock the socket. After the burn-in test is complete, the machine removes tested
ICs from the burn-in board sockets and sorts the ICs according to the results of
the test.

            The 4800 Series comes in a single pick-up head version, a dual-head
version, and a recently introduced five-head version. The single and dual head
models are best suited for large IC packages or for those applications requiring
a quick conversion of the machine to handle a different IC package. The
five-head system is best suited to very high volume production applications. All
are available with a variety of input and output options, including tubes,
sleeves, or trays. Package positioning stations ensure device alignment into
socket and tray. Each version can be configured to identify a burn-in board
using bar coding, resistor array, or diode array. An optional stacked burn-in
board elevator and trolley allows the system to process up to 32 burn-in boards
without any operator intervention.

            IC AUTOMATION PRODUCTS FOR OEMS. The Company began the development
of the IC Automation product line in 1990. This product line is marketed to
other semiconductor equipment manufacturers and currently consists of a series
of robotic electromechanical handling modules, each designed to perform a
specific handling function. Together these modules perform nearly all of the
handling functions necessary for the various IC manufacturing processes. Each
handling module has a microprocessor that directs the handling module's function
and communicates with other modules through a proprietary software protocol that
enables the transfer of ICs between modules in a logical and efficient manner.

            The IC Automation handling modules can be readily assembled into
systems configured to provide nearly any IC routing pattern required by an IC
processing application, and can be readily integrated as a component of the
processing equipment. This generic nature of the IC Automation handling modules
allows the Company to provide a versatile, cost effective automation solution to
IC processing equipment OEMs that overcomes the handling automation challenges
presented by more fragile IC package types. The IC Automation modules can also
be adapted to provide an automated linkage between IC manufacturing processes,
thus offering the potential for seamless automated handling of ICs from trim and
form to packaging for shipment. The Company's IC Automation modules have been
incorporated in trim and form, marking, mark curing, lead inspection, mark
inspection, lead conditioning, media transfer and prom programming equipment to
accommodate various device characteristics and media packaging.

            Following are the principal automation modules in the IC Automation
product line:

            PICK-AND-PLACE MODULE. The pick-and-place module provides the means
to pick up, transport and place IC packages on an individual basis. The
pick-and-place module adapts to various end effectors


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that perform the actual picking and releasing of the IC package as the end
effectors are moved along a horizontal axis between fixed or user programmable
locations. The pick-and-place module can transport most IC packages from or to
tray, tube or other transport media to or from the IC process site. Standard
Aetrium end effectors are commonly purchased with the pick-and-place module,
although the module can easily accommodate customer-designed end effectors. The
pick-and-place module is currently in use by the Company's OEM customers in lead
inspection, mark inspection, mark curing, trim and form, taping, lead
conditioning, media transfer and prom programming equipment.

            TRAY TRANSPORT MODULE. The tray transport module is a user
programmable IC tray handler that precisely indexes a tray of ICs row by row
through a process site. The tray transport module can accommodate a wide variety
of IC trays and tray matrix configurations including all industry standard
trays. Other customer trays can also be accommodated with the addition of
appropriate adapter kits. This module, together with the Company's
pick-and-place module, is used by the Company's OEM customers in lead
inspection, mark inspection, taping, lead conditioning, marking, media transfer
and prom programming equipment.

            CONVEYOR BELT MODULE. The conveyor belt module is designed to
transport and index IC trays through a process. The transport speeds and the
number and size of the index steps are user programmable, providing a versatile
transport mechanism for those applications that require continuous, single
directional flow of IC trays to, through and from manufacturing processes. The
conveyor belt module is commonly used in conjunction with the tray
stacker/unstacker modules as an automation subsystem to provide a continuous
supply of trays with minimal operator intervention, and is currently in use by
the Company's OEM customers in lead inspection, mark inspection, trim and form,
media transfer, marking and mark curing equipment.

            TRAY STACKER/UNSTACKER MODULE. The tray stacker/unstacker module
separates a single tray from a stack of up to 30 IC trays for individual
processing with no operator intervention, and operates in reverse sequence to
stack trays after processes are complete. This module, in conjunction with the
conveyor, is user programmable and precisely positions trays for further
processing and/or transport. Tray stacker/unstacker modules are currently in use
by the Company's OEM customers in lead inspection, mark inspection, marking,
mark curing, burn-in board loading, trim and form, media transfer and prom
programming equipment.

            INVERTING END EFFECTOR. One of several end effector configurations,
this end effector inverts an IC 180 degrees from its previous position. This
capability is required, for example, in some inspection processes where the IC
is transported with the leads pointing down but must be inspected with the leads
pointing up and returned to the transport media with the leads pointing down.
The inverter module is used in conjunction with a programmable pick-and-place
module by the Company's OEM customers in lead inspection and mark inspection
equipment.

            TAPING MODULE. The taping module provides an automated means for
indexing tape media to a position for placement of devices commonly transferred
with the pick-and-place module. A reel of tape is a medium often used to ship
ICs to customers. This module is currently used by the Company's OEM customers
in lead inspection, mark inspection and taping equipment.

SPECIALTY TEST EQUIPMENT

            RELIABILITY TEST PRODUCTS

            In December 1993, the Company acquired its reliability test systems
product line through the acquisition of substantially all of the assets of
Sienna Technologies. Since the acquisition the Company


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has developed and improved this product line to improve product performance and
satisfy the needs of its customers.

            The IC industry's demand for higher performance devices with smaller
circuit geometries has led to significant technological changes in the materials
and processes used to manufacture ICs, including an emerging shift to copper
materials for the minute circuitry of the device. These changes in technology,
along with IC user demand for increased reliability, have created a need for
increasingly sophisticated reliability testing of IC designs and manufacturing
processes. The reliability test equipment product line includes a variety of
systems with which IC manufacturers can force precision levels of voltage and
current through ICs, collect and analyze relevant data, and predict lifetime
performance of ICs. This equipment can be utilized to perform reliability
testing of packaged and unpackaged ICs.

            The Company has formally launched its Model 1164, including a suite
of applications for customers to perform a variety of tests. The Model 1164 is a
fundamentally improved design from the Company's previous reliability test
products. The Model 1164 features a modular design that allows for great
flexibility in performing reliability tests, and can test up to 4,096 devices at
a time or perform numerous simultaneous tests on smaller batches of ICs.

            ENVIRONMENTAL TEST PRODUCTS

            The Company acquired its environmental test equipment product line
from EJ Systems in December 1995, which developed the line in response to a
trend toward higher power and higher speed device applications. The
corresponding increase in power dissipation resulted from increased device
complexity (more circuits) within smaller geometries. This phenomenon is
especially evident in high pin count application specific integrated circuits
(ASICs) and microprocessors. This high degree of power dissipation (heat) led to
unique thermal conditioning problems in the testing of such devices. EJ Systems
developed environmental test equipment that permitted individual IC temperature
control using conduction (direct contact) method rather than the traditional
convection (forced hot air) method to thermally condition devices. These
techniques were patented and incorporated into the BAK-PAK(TM) Burn-In Systems.
This equipment also features the ability to interface high-speed test circuitry
in close proximity to the IC being tested.

            The BAK-PAK technology has been designed into a module called the
QUBE-PAK(R). Each QUBE-PAK is housed in the BAK-PAK Tower system. The Tower
System can accommodate up to 32 QUBE-PAK modules, with multiple ICs on each QUBE
position. Each position is under individual thermal control and can dissipate up
to 100 watts of power.

            In 1998, the Company determined that its TMU-100 Thermal Management
System, which performed thermal conditioning during the manual testing of
semiconductor devices, was not practical for use by customers in the field and
ceased marketing the product. During 1998, the Company continued to develop a
new thermal conditioning and thermal management concept that appears to have
significant potential for use in automated test handlers.

COMPETITION

            The semiconductor capital equipment market is highly competitive. In
the market for test handler products, Aetrium competes with a number of
companies ranging from very small businesses to large companies, some of which
have substantially greater financial, manufacturing, marketing and product
development resources than the Company. Some of these companies manufacture and
sell both testers and test handlers. The Company believes its test handlers are
compatible with all major testers, including those manufactured by companies
that sell both testers and test handlers. The particular companies with


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which the Company competes vary with the Company's different markets, with no
one company dominating the overall test handler market. The companies with which
the Company competes most directly in the surface mount IC test handler market
include Advantest Corporation, Aseco Corporation, Cohu, Inc., Multitest
Electronic Systems GmbH and Micro Component Technology, Inc. The Company also
competes with Ismeca S.A. and Tesec Corporation in the market for test handlers
configured to handle passive and discrete electronic components.

            The Company competes for test handler sales primarily on the basis
of effective handler throughput, cost of ownership, temperature accuracy,
contactor integrity and other performance characteristics of its products, the
breadth of its product lines, the effectiveness of its sales and distribution
channels and its customer service. The Company believes that it competes
favorably on all of these factors.

            The market for burn-in board automation products is highly
competitive. Aetrium competes with a number of companies ranging from very small
businesses to large companies, some of which have substantially greater
financial, manufacturing, marketing and product development resources than the
Company. The companies with which the Company competes most directly in this
market include Schlumberger Ltd., SIPA, S.p.a., and Todo Seisakusho, Ltd.

            The Company competes for burn-in board automation product sales
primarily on the basis of effective throughput, cost of ownership, versatility,
and other performance characteristics of its products, the breadth of its
product line, the effectiveness of its sales and distribution channels and its
customer service.

            The Company believes that the market for its IC Automation products
sold on an OEM basis is emerging, with no clearly defined competitors offering
similar automated handling modules to the IC industry. Historically, OEMs
supplying equipment for IC manufacturing processes have developed custom or
semi-custom handling components. Many of these OEMs have internal development
capability for automated handling and many engineering companies also have
automated handling development capability. The Company believes, however, that
its IC Automation product line of generic automation modules offers OEMs the
only existing, developed solution for their new automated handling requirements.
In addition, the Company believes it offers standard generic handling modules to
its OEM customers at a price difficult for its OEM customers to achieve from
competitors or by developing internal capabilities, because of the greater
product volumes the Company can reach through multiple customers and
applications. The Company believes the economics, the current availability and
the effectiveness of its IC Automation products provide strong incentives to the
Company's OEM customers to forego new product development and to use Aetrium's
IC Automation handling modules.

            The market for the Company's reliability test systems also is
competitive and the Company's competitors include QualiTau, Ltd. and Micro
Instruments, Inc.

            There are also a number of companies that manufacture and sell
conventional burn-in equipment in the United States, which compete with the
Company's environmental test equipment product line, including Aehr Test
Systems, Inc. and Reliability, Inc. The Company is not aware of any competitors
that provide burn-in equipment that addresses the combined needs of high-power
dissipation and high-performance while maintaining sufficiently accurate thermal
conditioning.

MANUFACTURING AND SUPPLIES

            The Company manufactures test handlers, reliability test equipment,
and certain of its IC automation products in North St. Paul, Minnesota; certain
of its test handler products at its facilities in


                                       10
<PAGE>


San Diego, California, and Grand Prairie, Texas; its IC automation products used
for burn-in board applications in Dallas, Texas, and its environmental test
equipment in Lawrence, Massachusetts. The Company's manufacturing operations
consist of procurement and inspection of components and subassemblies, assembly
and extensive testing of finished products. Quality and reliability are
emphasized in both the design and manufacture of the Company's products. This
emphasis is reflected in the certification of the Company's North St. Paul
facility in March 1995 under the ISO 9001 certification criteria established by
the European Community for the standardization of manufacturing documentation
and processes, and successful recertification audit of the Minnesota facility.
The Company's San Diego and Lawrence facilities were also certified under the
ISO 9001 standards in 1998.

            All components and subassemblies are inspected for mechanical and
electrical compliance to Company specifications. All finished products are
tested against Company and customer specifications, and fully assembled test
handler products are tested at all temperatures for which they are designed and
with all the IC packages to be accommodated. Where appropriate, the Company's
products are shipped in custom-engineered protective packaging to minimize
potential damage during shipment.

            A significant portion of the components and subassemblies of the
Company's products, including PC boards, refrigeration systems, vacuum pumps and
contactor elements, are manufactured by third parties on a subcontract basis. As
a part of Aetrium's total quality management program, the Company has an ongoing
supplier quality program under which it selects, monitors and rates its
suppliers, and recognizes suppliers for outstanding performance.

            Certain components are currently available from only a limited
number of sources. The Company currently has one purchased subassembly used in
certain tri-temperature test handlers that is only available from a sole source,
although efforts are ongoing to qualify a second source for such system. Aetrium
believes it can replace any of its suppliers within a time period consistent
with its business requirements. The Company also attempts to keep an adequate
supply of critical components in its inventory to minimize any significant
impact the loss of a supplier may cause.

CUSTOMERS

            The Company relies on a limited number of customers for a
substantial percentage of its net sales. In 1998, its top three customers
accounted for approximately 37% of the Company's net sales. In 1997, its top
three customers accounted for approximately 44% of the Company's net sales. In
1996, its top three customers accounted for approximately 35% of the Company's
net sales. The loss of or a significant reduction in orders by these or other
significant customers, including reductions due to market, economic or
competitive conditions in the semiconductor industry, would adversely affect the
Company's financial condition and results of operations.

SALES AND MARKETING

            The Company markets its test handler products, burn-in board
automation products, environmental test equipment and reliability test systems
through a combination of direct salespeople and independent manufacturers'
representatives and distributors. Aetrium sells its IC Automation Products
directly to OEM customers through its internal sales force. As of December 31,
1998, the Company had 16 U.S. manufacturers' representatives with an average of
3 salespeople each located throughout the U.S. and Canada in areas critical to
the Company's success. International distributors are located in the United
Kingdom, France, Germany, Switzerland, Holland, Sweden, Japan, Taiwan, Thailand,
Malaysia, Korea, Singapore, Hong Kong, China and the Philippines.

            Aetrium's direct sales organization, comprised of 13 salespeople,
coordinates the activities of the


                                       11
<PAGE>


Company's manufacturers' representatives and distributors and actively
participates with them in selling efforts. This enables the Company to establish
strong direct ties with its customers. The Company provides sales and technical
support to its manufacturers' representatives and distributors through the
Company's sales and service locations in North St. Paul, Minnesota; San Diego
and Santa Clara, California; Landisville, Pennsylvania; Austin, Dallas, and
Grand Prairie, Texas; and Saugus and Lawrence, Massachusetts.

            Aetrium's marketing efforts include participation in industry trade
shows and production of product literature and sales support tools. These
efforts are designed to generate sales leads for the Company's manufacturers'
representatives, distributors and direct salespeople.

            International shipments accounted for 28%, 29% and 25% of the
Company's net sales in 1996, 1997, and 1998, respectively. In addition, it is
not uncommon for U.S. customers to take delivery of products in the U.S. for
immediate shipment to international sites, particularly the IC Automation
products that are sold on an OEM basis. Most of the Company's international
shipments are made to international sites of U.S. electronic component
manufacturers, although there is a growing foreign customer base included in the
Company's international sales.

            All of Aetrium's international sales are invoiced in U.S. dollars
and, accordingly, have not historically been subject to fluctuating currency
exchange rates. Credit limits have been established from time to time on the
Company's international distributors, who purchase products from the Company and
resell to end users. Irrevocable letters of credit are often used to minimize
credit risk and to simplify the purchasing/payment cycle.

RESEARCH AND DEVELOPMENT

            Aetrium believes it must continue to enhance, broaden and modify its
existing product lines to meet the constantly evolving needs of the
semiconductor equipment market. To date, the Company has relied both on internal
development and acquisitions of technology and product lines to extend its
product lines, increase its customer base, and avoid reliance on any single
semiconductor equipment market segment, and to develop its IC Automation
products that are sold on an OEM basis. The IC Automation product line required
development of a software protocol that plays an important role in the success
of that product. Software is a critical element in the Company's reliability
test equipment and software development continues to play an increasingly
important role in test handling and burn-in board automation products. The
Company intends to bring additional resources to this area as required.

            Product development expenses are typically split approximately 50%
for new product development and 50% for continuation engineering. In 1997 the
Company completed the Model 1164, and completed development of certain models in
the 5000 Series and the 7000 Series of test handlers. The Company completed
development of an upgraded Model 5050QTS to increase throughput and reliability
and commenced the design of its Model M3200S, which has a reduced footprint,
increased sort capability, and improved functionality from previous designs. In
1998 the Company substantially completed the Model 3000 and the Model M3200S,
introduced a new version of the 4800, and developed new test capabilities for
the Model 1164. The Company's continuing engineering efforts include development
of additional change kits to meet the expanding families of IC package types,
advancement of contactor technologies to meet the challenges of high performance
ICs, enhancement of the 4800 Series to increase throughput and reliability, and
enhancement of the command and control features of the 5050 product line.

            The Company expenses all research and development costs, including
costs for software development as incurred. In 1996, 1997 and 1998, the
Company's expenses relating to research and


                                       12
<PAGE>


development were approximately $7.6 million, $10.5 million and $12.2 million,
respectively. The Company's objective is to invest approximately 13% to 15% of
its net sales in research and development each year. The Company employed 105
engineering personnel as of December 31, 1998.

INTELLECTUAL PROPERTY RIGHTS

            Aetrium attempts to protect the proprietary aspects of its products
with patents, copyrights, trade secret law and internal nondisclosure
safeguards. The Company currently holds several U.S. patents covering certain
features of its handling systems and IC Automation modules and the contactor
elements incorporated in certain of its test handlers and for elements of its
environmental conditioning chambers. The source code for the software contained
in the Company's products is considered proprietary and is not furnished to
customers. Some OEM customers have signed non-compete agreements with the
Company that deter them from direct competition with the IC Automation product
line. The Company has also entered into confidentiality agreements with each of
its key employees. Despite these restrictions, it may be possible for
competitors or users to copy aspects of the Company's products or to obtain
information that the Company regards as a trade secret.

            Because of the rapid pace of technological changes in the
microelectronics industry, the Company believes that patent, trade secret and
copyright protection are less significant to its competitive position than
factors such as the knowledge, ability, and experience of the Company's
personnel, new product development, frequent product enhancements, name
recognition and ongoing, reliable product maintenance and support.

BACKLOG

            The Company's backlog, which consists of customer purchase orders
that the Company expects to ship within the next 12 months, was approximately
$15.0 million as of December 31, 1998, compared to $32.5 million as of December
31, 1997. Because all purchase orders are subject to cancellation or delay by
customers with limited or no penalty, the Company's backlog is not necessarily
indicative of future revenue or earnings.

EMPLOYEES

            As of December 31, 1998 the Company had 381 employees, including 178
in manufacturing, 105 in engineering and product development, 55 in sales,
marketing and customer service, and 43 in general administration and finance.
None of the Company's employees is represented by a labor union or is subject to
any collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.

CERTAIN IMPORTANT FACTORS

            In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following:

            1.          the Company's dependence on the microelectronics market
                        and the capital expenditures of electronic component
                        manufacturers;

            2.          the ability of the Company to manage its growth and to
                        integrate and assimilate recent and future acquisitions;


                                       13
<PAGE>


            3.          new product development cycles and market acceptance of
                        new products;

            4.          potential fluctuations in the Company's operating
                        results based on factors such as cancellation or
                        rescheduling of orders, seasonal fluctuations in
                        business activity, and product announcements by the
                        Company or by competitors;

            5.          the impact of competition in the test handler, IC
                        automation equipment, reliability test equipment and
                        environmental test equipment markets;

            6.          the effect of customer concentration and the loss of any
                        significant customer on the Company's sales; and

            7.          volatility of the Company's stock price based on factors
                        including developments in the microelectronics industry
                        and high-technology industries generally, as well as
                        fluctuations in the Company's quarterly operating
                        results.


                                       14
<PAGE>


ITEM 2.         PROPERTIES.

            The Company conducts manufacturing, product development, sales,
marketing and field service operations in North St. Paul, Minnesota, where the
Company currently occupies approximately 45,000 square feet under a lease which
expires in March 2006, with an annual rent of approximately $240,000. The lease
includes an option to the Company, exercisable at any time during the initial
lease term, to require construction of an additional approximately 45,000 square
feet for lease at the same rental rate. The Company's corporate functions, and
certain sales, marketing and development activities are conducted in an
adjacent, 30,000 square foot facility under a lease that expires in March 2006,
with an annual rent of approximately $198,000.

            The Company conducts manufacturing, product development, and certain
sales and marketing activities in approximately 26,600 square feet in Grand
Prairie, Texas. The facility is leased from a partnership controlled by an
officer of the Company, under a lease that expires in 2003, with an annual rent
of $133,000. The Company believes the lease terms obtained at this facility
approximate the rates that could be obtained at comparable properties in that
area. The Company's manufacturing, product development, and certain sales and
marketing activities of its Aetrium WEB Technology operation occupy
approximately 29,400 square feet in Dallas, Texas, under a lease that expires in
April 2000. The annual rent is approximately $144,000.

            The Company conducts manufacturing, product development and certain
sales and marketing activities in an approximately 42,000 square foot facility
located in San Diego, California under a lease that expires in 1999, with an
annual rent of approximately $275,000. The Company has entered into an agreement
with a property developer for construction of a 45,000 square foot facility in
Poway, California, that the Company will lease for a period of ten years. The
property is scheduled to be ready for occupancy in the third quarter of 1999,
concurrent with the expiration of the existing lease.

            The Company also leases and occupies approximately 3,000 square feet
of space in Santa Clara, California under a lease that expires in 1999, with a
monthly rent of approximately $4,650. The Company uses this space for sales and
field service operations.

            In Lawrence, Massachusetts, the Company conducts manufacturing,
sales and marketing and product development activities for its environmental
test product line in facilities with approximately 61,500 square feet under a
sublease that expires in December 1999, with an annual rent of approximately
$332,000. The Company has commenced an analysis to determine whether to renew
its sublease at such facility, or relocate the Lawrence operation to a different
facility upon the expiration of its current sublease.


ITEM 3.         LEGAL PROCEEDINGS.

            There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.


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

            No matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1998.


ITEM 4A.        EXECUTIVE OFFICERS OF THE REGISTRANT.


                                       15
<PAGE>


            The executive officers of the Company, their ages and the offices
held, as of February 19, 1999 are as follows:

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

Joseph C. Levesque     54       Chairman of the Board, President and Chief
                                Executive Officer

Darnell L. Boehm       50       Chief Financial Officer, Secretary and Director

Douglas L. Hemer       52       Group Vice President and Director

Daniel M. Koch         45       Vice President - Worldwide Sales

Gerald C. Clemens      47       Vice President - Reliability Test Products

Kenneth R. Lee         53       President - Lawrence Division

Farid J. Sabounchi     42       President - Grand Prairie Division

Keith E. Williams      55       President - Aetrium WEB Technology Division

John J. Pollock        39       Vice President - Corporate Marketing

Lee A. Schafer         38       Vice President - Corporate Planning

Stephen P. Weisbrod    58       Vice President - Corporate Technology

Paul H. Askegaard      47       Treasurer

            Mr. Levesque has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1986. From 1973 to 1986,
Mr. Levesque served in various capacities and most recently as Executive Vice
President of Micro Component Technology, Inc., a manufacturer of integrated
circuit testers and test handlers. Mr. Levesque is also a director of TSI Inc.,
a publicly held maker of measurement and instrumentation equipment, and serves
on its compensation committee.

            Mr. Boehm has served as Chief Financial Officer, Secretary and as a
director of the Company since 1986. From December 1994 until July 1995, Mr.
Boehm had also assumed executive management responsibilities for the Company's
San Diego Division. Mr. Boehm is also the principal of Darnell L. Boehm &
Associates, a management consulting firm. Mr. Boehm is also a director of
Rochester Medical Corporation, a public company, and serves on the audit and
compensation committees of such company. Mr. Boehm is also a director of Versa
Companies, a privately held company, and serves on its compensation and audit
committees.

            Mr. Hemer has served as a director of the Company since 1986, and
has served as Group Vice President of the Company since August 1998. Prior to
this appointment, he served as the President of the San Diego Division of the
Company since February 1997. From May 1, 1996 until February 1, 1997, Mr. Hemer
served as the Company's Chief Administrative Officer. Mr. Hemer was a partner in
the law firm of Oppenheimer Wolff & Donnelly LLP for more than 15 years before
joining the Company. Mr. Hemer is also a director of Versa Companies, a
privately held company, and serves on its compensation and audit committees.


                                       16
<PAGE>


            Mr. Koch has served as the Company's Vice President - Worldwide
Sales since March 1991. From March 1990 to March 1991, Mr. Koch served as the
Vice President of Sales of Summation, Inc., a company involved with the testing
of integrated circuit boards. From December 1973 to March 1990, Mr. Koch served
in various sales positions and most recently as Vice President of Sales of Micro
Component Technology, Inc.

            Mr. Clemens has served as the Company's Vice President - Reliability
Test Products since July 1995. From September 1993 to July 1995, Mr. Clemens
served as Vice President-Engineering. Mr. Clemens is also the principal of
Clemens Associates, a consulting firm. From August 1991 to September 1992, Mr.
Clemens was a Vice President at Vectorvision, Inc., a software company. From
June 1990 to April 1991, Mr. Clemens was a Vice President at Elke Corporation, a
software company.

            Mr. Lee has served as President of the Lawrence Division since April
1997, and had served in executive management with that division as a consultant
since January 1996. Mr. Lee previously was a principal of Marlboro Associates, a
consulting practice. Mr. Lee was a co-founder of Aseco Corporation and served in
a number of capacities at Aseco Corporation from 1982 to 1994, most recently as
Vice President of Engineering.

            Mr. Sabounchi has served as the President of the Grand Prairie
Division since April 1, 1997, when Aetrium completed its acquisition of FSA. Mr.
Sabounchi founded FSA in 1990 and served as its President and CEO until it was
acquired by the Company in April 1997. Prior to founding FSA, Mr. Sabounchi
served in various engineering and engineering management roles in the
semiconductor process equipment group of Teccor Electronics Inc.

            Mr. Williams has served as the President of the Aetrium WEB
Technology Division since April 1, 1998, when Aetrium completed its acquisition
of the equipment business of WEB. Mr. Williams co-founded WEB in 1982, and
served as its President and CEO from its inception until it was acquired by the
Company in April 1998. Pursuant to a letter agreement dated April 1, 1998, the
Company offered, and Mr. Williams accepted, the position of President of Aetrium
WEB Technology for a minimum period of three years. Such letter also provides
that Mr. Williams cannot compete with the Company for the three year period of
the agreement.

            Mr. Pollock has served as the Vice President - Corporate Marketing
since August 1998. He served previously as the General Manager of the Arden
Hills Division, and general manager of the North St. Paul Division. From
September 1996 to September 1997, Mr. Pollock was the Business Unit Manager of
the IC Automation products group. From September 1995 to September 1996, Mr.
Pollock was a product director within the Company's IC Automation products
group. From 1985 to 1995 Mr. Pollock was employed in various product engineering
and product marketing positions at Rosemount Aerospace Inc., a supplier of
measurement and instrumentation products to the aerospace industry.

            Mr. Schafer has served as the Vice President - Corporate Planning
since August 1997. From August 1996 to August 1997, Mr. Schafer served as the
Company's Director of Investor Relations. From June 1990 to July 1996, Mr.
Schafer was senior editor and financial columnist for CORPORATE REPORT
MINNESOTA, a monthly business magazine published in Minneapolis, Minnesota.

            Mr. Weisbrod has served as the Vice President - Corporate Technology
since March 1998. From 1994 to 1998, Mr. Weisbrod was Vice President for
systems, and a member of the board of directors, of Game Financial Corporation,
a provider of financial services to the gaming industry. From 1992 to 1994 Mr.
Weisbrod was President and Chief Operating Officer for Coda Music Technology, a
producer of technology-based music instruction systems. From 1992 to 1998 he was
also a principal of S. Weisbrod


                                       17
<PAGE>


Consulting.

            Mr. Askegaard has served as the Company's Treasurer since February
1992. From October 1986 to February 1992, Mr. Askegaard served as the Company's
Corporate Controller.


                                     PART II

ITEM 5.         MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                STOCKHOLDER MATTERS.

            The information under the caption "Price Range of the Company's
Common Stock" on page 24 of the Company's 1998 Annual Report is incorporated
herein by reference. The prices reflected in the table presented in the 1998
Annual Report do not include adjustments for retail mark-ups, mark-downs or
commissions.

            The Company did not have any unregistered sales of equity securities
during the fourth quarter of 1998.


ITEM 6.         SELECTED FINANCIAL DATA.

            The information under the caption "Selected Consolidated Financial
Data" on page 24 of the 1998 Annual Report is incorporated herein by reference.


ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS.

            The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 8 through 13
of the Company's 1998 Annual Report is incorporated herein by reference.


ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES
                ABOUT MARKET RISK.

            Not applicable.


ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

            The following Consolidated Financial Statements of the Company and
the Independent Auditor's Report thereon are incorporated herein by reference
from the pages indicated in the Company's 1998 Annual Report:

            Report of Independent Accountants--page 13.

            Consolidated Statements of Operations for the years ended December
            31, 1998, 1997 and 1996--page 14.


                                       18
<PAGE>


            Consolidated Balance Sheets as of December 31, 1998 and 1997--page
            15.

            Consolidated Statements of Changes in Shareholders' Equity for the
            years ended December 31, 1998, 1997 and 1996--page 16.

            Consolidated Statements of Cash Flows for the years ended December
            31, 1998, 1997 and 1996--page 17.

            Notes to Consolidated Financial Statements--pages 18 to 23.


ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE.

            None.


                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

            The information under the captions "Election of
Directors--Information About Nominees" and "Election of Directors--Other
Information About Nominees" in the Company's 1999 Proxy Statement is
incorporated herein by reference.

            The information under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's 1999 Proxy Statement is
incorporated herein by reference.


ITEM 11.        EXECUTIVE COMPENSATION.

            The information under the captions "Election of
Directors--Compensation of Directors" and "Executive Compensation and Other
Benefits" in the Company's 1999 Proxy Statement is incorporated herein by
reference.


ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1999 Proxy Statement is
incorporated herein by reference.


ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

            The information under the caption "Certain Relationships and Related
Transactions" in the Company's 1999 Proxy Statement is incorporated herein by
reference.


                                       19
<PAGE>


                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                ON FORM 8-K

            (a) 1. FINANCIAL STATEMENTS OF REGISTRANT.

            The following Consolidated Financial Statements of the Company and
the Independent Auditor's Report thereon are incorporated herein by reference
from the pages indicated in the Company's 1998 Annual Report:

            Report of Independent Accountants--page 13.

            Consolidated Statements of Operations for the years ended December
            31, 1998, 1997 and 1996--page 14.

            Consolidated Balance Sheets as of December 31, 1998 and 1997--page
            15.

            Consolidated Statements of Changes in Shareholders' Equity for the
            years ended December 31, 1998, 1997 and 1996--page 16.

            Consolidated Statements of Cash Flows for the years ended December
            31, 1998, 1997 and 1996--page 17.

            Notes to Consolidated Financial Statements--pages 18 to 23.

            (a) 2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.

            The following financial statement schedule is included herein and
should be read in conjunction with the financial statements referred to above:

            Financial Statement Schedule:

                   II.  Valuation and Qualifying Accounts

            All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.

                      Report of Independent Accountants on
                          Financial Statement Schedules

To the Board of Directors
of Aetrium Incorporated

Our audits of the consolidated financial statements referred to in our report
dated January 29, 1999, appearing on page 13 of the 1998 Annual Report to
Shareholders of Aetrium Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, such Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.


                                       20
<PAGE>


                                        /s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
January 29, 1999


                                   Schedule II

                              AETRIUM INCORPORATED

                        VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998

<TABLE>
<CAPTION>
                                                           ADDITIONS
                                                  -------------------------
                                  BALANCE AT      CHARGED TO
                                 BEGINNING OF     COSTS AND      ACQUISITION                       BALANCE AT END OF
      DESCRIPTION                   PERIOD         EXPENSES       RELATED(1)        DEDUCTIONS           PERIOD
--------------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>               <C>           <C>                  <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
                     1996           287,200         515,467               0           (3,267)            799,400
                     1997           799,400               0          50,000         (589,800)            259,600
                     1998           259,600         545,000          50,000         (317,600)            537,000

INVENTORY OBSOLESCENCE RESERVE:
                     1996         3,307,744         488,000               0       (1,780,611)          2,015,133
                     1997         2,015,133       1,076,296          10,000       (1,116,329)          1,985,100
                     1998         1,985,100       3,290,200               0       (1,646,500)          3,628,800

WARRANTY RESERVE:
                     1996           585,000         631,535               0         (605,959)            610,576
                     1997           610,576          25,000         235,000         (308,376)            562,200
                     1998           562,200         661,000         120,000         (448,400)            894,800
</TABLE>

(1) Reserve increases related to the inclusion of newly acquired businesses.

            (a) 3. EXHIBITS.

            The exhibits to this Report are listed in the Exhibit Index attached
hereto.

            A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of March 25, 1999, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to Aetrium
Incorporated, 2350 Helen Street, North St. Paul, Minnesota 55109; Attn.:
Shareholder Relations.

            The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(a)(3):

            1.          Form of Incentive Stock Option Agreement (incorporated
                        by reference to Exhibit 10.6 to the Company's 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 to the
                        Company's Form 10-KSB for the year ended December 31,
                        1993) (File No. 0-22166).


                                       21
<PAGE>


            3.          1993 Stock Incentive Plan, as amended (incorporated by
                        reference to Exhibit 10.2 to the Company's 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 the Company's Registration Statement on
                        Form SB-2 (File No. 33-64962C)).

            5.          Employee Stock Purchase Plan (incorporated by reference
                        to Exhibit 99.1 to the Company's Registration Statement
                        on Form S-8 (File No. 33-74616)).

            6.          Employment Agreement dated April 1, 1986 between Joseph
                        C. Levesque and the Company (incorporated by reference
                        to Exhibit 10.6 to the Company's Registration Statement
                        on Form SB-2 (File No. 33-64962C)).

            7,          Letter Agreement dated April 1, 1998 between the Company
                        and Keith E. Williams (filed herewith electronically).

            (b)         REPORTS ON FORM 8-K.

            The Company did not file any Current Reports on Form 8-K during the
fourth quarter of 1998.


                                       22
<PAGE>


                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                        AETRIUM INCORPORATED


Date: March 27, 1998                    By: /s/ Joseph C. Levesque
                                           ------------------------------------
                                           Joseph C. Levesque
                                           Chief Executive Officer and President
                                           (principal executive officer)


                                        By: /s/ Darnell L. Boehm
                                           ------------------------------------
                                           Darnell L. Boehm
                                           Chief Financial Officer and Secretary
                                           (principal financial and accounting
                                           officer)

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 27, 1998 by the following persons on
behalf of the registrant and in the capacities indicated.


Signature                                  Title
---------                                  -----

/s/ Joseph C. Levesque                     Chairman of the Board
---------------------------------
Joseph C. Levesque

/s/ Darnell L. Boehm                       Director
---------------------------------
Darnell L. Boehm

/s/ Terrence W. Glarner                    Director
---------------------------------
Terrence W. Glarner

/s/ Andrew J. Greenshields                 Director
---------------------------------
Andrew J. Greenshields

/s/ Douglas L. Hemer                       Director
---------------------------------
Douglas L. Hemer

/s/ Terrance J. Nagel                      Director
---------------------------------
Terrance J. Nagel


                                       23
<PAGE>


                              AETRIUM INCORPORATED
                   EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
ITEM NO.                     ITEM                              METHOD OF FILING
--------                     ----                              ----------------
<S>         <C>                                      <C>
3.1         The Company's Restated Articles of       Incorporated by reference to Exhibit
            Incorporation, as amended.               3.1 to the Company's Registration
                                                     Statement on Form SB-2 (File No.
                                                     33-64962C).

3.2         Articles of Amendment to the Company's   Incorporated by reference to Exhibit
            Articles of Incorporation, as amended    3.2 to the Company's Quarterly Report
                                                     for the quarter ended September 30,
                                                     1998 (File No. 0-22166).

3.3         The Company's Bylaws, as amended.        Incorporated by reference to Exhibit
                                                     3.2 to the Company's Registration
                                                     Statement on Form SB-2 (File No.
                                                     33-64962C).

4.1         Specimen Form of the Company's Common    Incorporated by reference to Exhibit
            Stock Certificate.                       4.1 to the Company's 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 the Company's 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 the Company's Registration
                                                     Statement on Form SB-2 (File No.
                                                     33-64962C).

10.3        Form of Incentive Stock Option           Incorporated by reference to Exhibit
            Agreement.                               10.6 to the Company's Annual Report on
                                                     Form 10-KSB for the year ended
                                                     December 31, 1993 (File No. 0-22166).

10.4        Form of Non-Statutory Option             Incorporated by reference to Exhibit
            Agreement.                               10.7 to the Company's Annual Report on
                                                     Form 10-KSB for the year ended
                                                     December 31, 1993 (File No. 0-22166).

10.5        Employment Agreement dated April 1,      Incorporated by reference to Exhibit
            1986, between the Company and Joseph     10.6 to the Company's Registration
            C. Levesque.                             Statement on Form SB-2 (File No.
                                                     33-64962C).

10.6        Credit Agreement dated August 11,        Incorporated by reference to Exhibit
            1989, between Harris Bank and the        10.7 to the Company's Registration
            Company.                                 Statement on Form SB-2 (File No.
                                                     33-64962C).

10.7        Lease Agreement, dated July 19, 1995,    Incorporated by reference to Exhibit
            between KAMKO Investments and the        10.12 to the Company's Registration
            Company                                  Statement on Form SB-2 (File No.
                                                     33-98040).

10.8        Amendment to Lease Agreement, dated      Incorporated by reference to Exhibit
            September 26, 1995, between KAMKO        10.13 to the Company's Registration
            Investments and the Company Industrial   Statement on Form SB-2 (File No.
            Lease Agreement between Parken           33-98040).
            Investment Company

10.9        No. One N.V. and Sym-Tek Systems,        Incorporated by reference to Exhibit
            Inc., dated as of July 7, 1994           10.14 to the Company's Registration
                                                     Statement on Form SB-2 (File No.
                                                     33-98040).
</TABLE>


                                       24
<PAGE>


<TABLE>
<CAPTION>
ITEM NO.                     ITEM                              METHOD OF FILING
--------                     ----                              ----------------
<S>         <C>                                      <C>
10.10       First Amendment to Industrial Lease      Incorporated by reference to Exhibit
            dated July 7, 1994 by and between        10.15 to the Company's Registration
            Parken Investment Co. No. One N.V. c/o   Statement on Form SB-2 (File No.
            CBS Investment Realty Inc. and Aetrium   33-98040).
            Incorporated

10.11       Asset Purchase Agreement, dated as of    Incorporated by reference to Exhibit
            December 29, 1995, between Aetrium       2.1 to the Company's Current Report on
            Incorporated and E.J. Systems, Inc.      Form 8-K dated January 16, 1996 (File
                                                     No. 0-22166).

10.12       Amendment No. 1 to Asset Purchase        Incorporated by reference to Exhibit
            Agreement, dated as of December 29,      2.2 to the Company's Current Report on
            1995, between Aetrium Incorporated and   Form 8-K dated January 16, 1996 (File
            E.J. Systems, Inc.                       No. 0-22166).

10.13       Employee Stock Purchase Plan.            Incorporated by reference to Exhibit
                                                     99.1 to the Company's Registration
                                                     Statement on Form S-8 (File No.
                                                     33-74616).

10.14       Agreement of Sublease, dated January     Incorporated by reference to Exhibit
            16, 1990, by and between General         10.19 to the Company's Annual Report
            Signal Technology Corporation and E.J.   on Form 10-KSB for year ended December
            Systems, Inc.                            31, 1995 (File No. 0-22166).

10.15       Asset Purchase Agreement, dated as of    Incorporated by reference to Exhibit
            March 28, 1997, between Aetrium          10.16 to the Company's Annual Report
            Incorporated and Forward Systems         on Form 10-K for year ended December
            Automation, Inc.                         31, 1997 (File No. 0-22166).

10.16       Asset Purchase Agreement, dated as of    Incorporated by reference to Exhibit
            November 3, 1997, between Aetrium        10.17 to the Company's Annual Report
            Incorporated and Advantek Inc.           on Form 10-K for year ended December
                                                     31, 1998 (File No. 0-22166).

10.17       Asset Purchase Agreement, dated as of    Incorporated by reference to Exhibit
            March 20, 1998, between Aetrium          2.1 to the Company's Current Report on
            Incorporated and WEB Technology, Inc.    Form 8-K dated April 15, 1998 (File
                                                     No. 0-22166).

10.18       Letter Agreement dated April 1, 1998     Filed herewith electronically.
            between Aetrium Incorporated and Keith
            E. Williams.

10.19       Indenture dated June 25, 1998 between    Filed herewith electronically.
            KAMKO Investments and the Company.

13.1        Excerpts from 1998 Annual Report to      Filed herewith electronically.
            Shareholders.

21.1        Subsidiaries of the Registrant.          Incorporated by reference to Exhibit
                                                     21.1 to the Company's Annual Report on
                                                     Form 10-K for year ended December 31,
                                                     1997 (File No. 0-22166).

23.1        Independent Auditors' Consent.           Filed herewith electronically.

27.1        Financial Data Schedule.                 Filed herewith electronically.
</TABLE>


                                       25