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, 2009
 Commission
file number 000-22166
  AETRIUM
INCORPORATED
 (Exact
name of registrant as specified in its charter)
 
 MINNESOTA
                (State
      of incorporation)
              
              41-1439182
                (I.R.S.
      employer identification no.)2350
      Helen Street
                North
      St. Paul, Minnesota
                (Address
      of principal executive offices)
              55109
                (Zip
      code)
              (651)
      770-2000
                (Registrant’s
      telephone number)
  Securities
registered pursuant to Section 12(b) of the Act:
 Title Of Each Class
              Name Of Each Exchange On Which
      RegisteredCOMMON
      STOCK, PAR VALUE $.001 PER SHARE
              The
      NASDAQ Stock Market LLC
 
 Securities
registered pursuant to Section 12(g) of the Act:NONE
  Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  £    No  T
  Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.  Yes  £    No  T
  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  T    No  £
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes  £    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.  T
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.  Large
accelerated filer  £  Accelerated
filer  £  Non-accelerated
filer  £  Smaller
reporting company  T
  Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2).  Yes  £    No  T
  As of
June 30, 2009 (the last business day of the Registrant’s most recently completed
second fiscal quarter), the aggregate market value of the Common Stock of the
Registrant (based upon the closing price of the Common Stock at that date as
reported by The Nasdaq Stock Market), excluding outstanding shares beneficially
owned by directors and executive officers, was $17,168,000.
  As of
March 10, 2010, 10,630,512shares of Common Stock of
the Registrant were outstanding.
  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
definitive Proxy Statement for its 2010 Annual Meeting of Stockholders to be
held May 19, 2010 (the “2010 Proxy Statement”).
  
  
  Form
10-K
   For
the fiscal year ended December 31, 2009
   TABLE
OF CONTENTS
  PART
      IITEM
      1.
                  BUSINESS.
                  
                  
                  1ITEM
      1A.
                  RISK
      FACTORS
                  
                  
                  7ITEM
      1B.
                  UNRESOLVED
      STAFF COMMENTS
                  
                  
                  9ITEM
      2.
                  PROPERTIES
                  
                  
                  9ITEM
      3.
                  LEGAL
      PROCEEDINGS
                  
                  
                  9ITEM
      4.
                  RESERVED
                  
                  
                  9ITEM
      4A.
                  EXECUTIVE
      OFFICERS OF THE REGISTRANT
                  
                  
                  10PART
      IIITEM
      5.
                  MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                  
                  
                  12ITEM
      6.
                  SELECTED
      FINANCIAL DATA
                  
                  
                  12ITEM
      7.
                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
                  
                  
                  13ITEM
      8.
                  FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                  
                  
                  20ITEM
      9.
                  CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                  
                  
                  20ITEM
      9A(T)
                  CONTROLS
      AND PROCEDURES
                  
                  
                  20ITEM
      9B.
                  OTHER
      INFORMATION
                  
                  
                  21PART
      IIIITEM
      10.
                  DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                  
                  
                  22ITEM
      11.
                  EXECUTIVE
      COMPENSATION
                  
                  
                  22ITEM
      12.
                  SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                  
                  
                  22ITEM
      13.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                  
                  
                  23ITEM
      14.
                  PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                  
                  
                  23PART
      IVITEM
      15.
                  EXHIBITS  AND
      FINANCIAL STATEMENT SCHEDULES
                  
                  
                  24
 
  
  
  PART
I
  This
Annual Report on Form 10-K contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained in this Annual Report on 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 under Item 1A below. We undertake no obligation to
correct or update any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised, however, to consult
any future disclosures we may make on related subjects in future filings with
the Securities and Exchange Commission. References in this Annual Report on Form
10-K to “Aetrium,” “the company,” “we” and “our,” unless the context otherwise
requires, refer to Aetrium Incorporated and its consolidated subsidiary and
their respective predecessors.
  ITEM
1.            
BUSINESS.
  Overview
  We
design, manufacture and market a variety of electromechanical equipment used in
the handling and testing of integrated circuits, or ICs, which constitute the
highest revenue component of the semiconductor industry. Our primary focus is on
high volume ICs and on the latest IC package designs. Our products are purchased
primarily by semiconductor manufacturers and their assembly and test
subcontractors. Our products are used in the test, assembly and packaging, or
TAP, segment of semiconductor manufacturing. Our products automate critical
functions to improve manufacturing yield, raise quality levels, increase product
reliability and reduce manufacturing costs.
  We have
two principal equipment product lines:
  ·
              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 during production test cycles. We also
      offer change kits to adapt our test handlers to different IC package
      configurations or to upgrade installed equipment for enhanced performance.
      Change kits can represent a significant part of our
    revenue.
  ·
              Reliability
      Test Equipment.  The primary focus of our reliability
      test equipment is to provide semiconductor manufacturers with structural
      performance data to aid in the evaluation and improvement of IC designs
      and manufacturing processes to increase IC yield and
      reliability.
  Test
handler products accounted for 48% and 59% of our net sales in 2009 and 2008,
respectively. Reliability test equipment accounted for 17% and 15% of our net
sales in 2009 and 2008, respectively. Change kits and spare parts accounted for
35% and 26% of our net sales in 2009 and 2008, respectively.
  IC unit
sales began to decline in late 2007 and continued to decline into 2008, but
resumed growth by the end of the first quarter of 2008 and by early third
quarter exceeded the 2007 peak. However, the worldwide financial collapse that
became apparent by the end of the third quarter in 2008 resulted in one of the
steepest declines ever in the semiconductor industry. Semiconductor companies
in
   
  our
primary industry segments reported revenue declines of over 25% from third
quarter to fourth quarter 2008. Bookings in the TAP segment of the semiconductor
equipment industry began declining by the end of the second quarter of 2008, and
as a result of the worldwide financial collapse declined precipitously in the
fourth quarter. According to SEMI, a semiconductor equipment industry trade
association, revenues for test related equipment finished 2008 approximately 32%
below 2007 revenues.
  The steep
semiconductor industry decline continued into 2009, and the industry posted its
biggest percentage declines of IC units ever in the fourth quarter of 2008 and
the first quarter of 2009. Notwithstanding continuation of the worldwide
financial crisis, and undoubtedly due in part to the semiconductor industry’s
quick and dramatic action to reduce production as the financial crisis began, by
second quarter of 2009 the industry began to recover some of its lost ground. In
fact the second and third quarters of 2009 were the biggest percentage increases
of IC units ever. However, by the end of 2009 the industry had not yet returned
to peak unit production levels of 2008. As a result, the TAP segment of the
semiconductor equipment industry continued its decline throughout 2009.
According to SEMI, revenues for test related equipment in 2009 were almost 70%
below 2007 revenues.
  Our
performance closely followed our industry segment. As a result of the worldwide
financial crisis, our 2009 revenues were also almost 70% below our 2007
revenues.
  Analysts
of the semiconductor industry are forecasting a continuing recovery of IC units
in 2010, and significant growth in the semiconductor equipment industry after
two years of declines. We believe that our line of product offerings, including
our newest product introductions, coupled with our lean cost structure and our
strong working capital base, places us in a strong position to outperform our
industry segment as conditions improve.
  Our
strategy has focused on revenue growth through product line expansion, by both
internally developing and acquiring complementary technologies, businesses or
product lines. Technologies, businesses and product lines that we have acquired
in the past pursuant to this strategy have since been assimilated and
consolidated into our current operations.
  We were
incorporated in Minnesota in December 1982. Our executive offices are located at
2350 Helen Street, North St. Paul, Minnesota 55109.  Our telephone
number is (651) 770-2000. Our website address is www.aetrium.com. We make
available free of charge through our website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to those reports, as soon as is reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange
Commission. Our website is not intended to be a part of, nor are we
incorporating it by reference into, this Annual Report on Form
10-K.
  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
automatically during the final test stage of the manufacturing process. ICs are
loaded into the test handler from bowls, tubes or trays and then, if required,
transported to a temperature chamber within the test handler where they are
thermally conditioned to the required testing temperature. The ICs are then
inserted into a contactor, which provides an electrical connection between the
IC and the tester. After testing, the test handler sorts the ICs according to
test performance as provided by the tester. In some cases, additional process
steps are completed by the test handler system. These include marking or
inspection of the IC packages, and automatic placement of the ICs into a tube,
tray or tape for shipment to the end user.  Test handlers must meet
industry criteria for thermal conditioning, contactor integrity and minimization
of damage to the IC during the test handling cycle.
   2
  ICs are
multi-function semiconductor devices that may contain millions of individual
transistors, and include microprocessors, microcontrollers, digital signal
processors and memory devices. ICs come in a wide range of sizes and package
types, depending upon their application.
  In the
testing of ICs, the device package type being tested often dictates the type of
test handler used. Small outline packages, or SOPs, constituting the largest IC
package segment, have leads, or electrical contacts, extending from two sides
and are typically tested with gravity feed test handlers. Micro leadless
packages, or MLPs (and sometimes referred to as DFNs or QFNs), have electrical
contact pads flush with the sides and bottoms of the ICs. MLPs are typically
tested with gravity feed test handlers, particularly for analog and linear
applications, but may also be tested with turret based or pick-and-place test
handlers. MLPs constitute one of the fastest growing new IC package
types.
  More
complex ICs are sometimes packaged in IC package families with leads more easily
damaged in handling. These package families are typically tested with
pick-and-place test handlers.
  Our
primary focus continues to be on the newest device and package types, and the
largest volume and fastest growing markets, in the IC side of the semiconductor
industry. Our test handler products are complementary with minimal overlap of
application, and we distribute and service them through a common organization
for efficiency. Our current test handler product lines are all gravity feed test
handlers.
  Gravity
Feed Test Handlers
  Traditionally,
test handlers have used gravity to move ICs from tubes or trays through the
handler system and back into tubes or trays. Typically, in gravity feed systems
ICs are halted at necessary points in the handling process by stopping against
other ICs or singulation mechanisms, which can result in lead damage to IC
packages with more fragile leads. Accordingly, gravity feed handlers are best
suited for leadless packages and IC packages with more rugged leads, which
include MLPs and most SOPs.
  Our
gravity feed test handlers compete most favorably in high-volume applications
and their high throughput rates are an added advantage in relatively short test
time applications. These handlers adapt to third party contactors, as well as
our internally developed proprietary contactors, providing cost-effective
solutions to a wide range of customer test requirements. Our gravity feed test
handlers can heat or cool the ICs being tested to test temperatures ranging from
-55 degrees Celsius to +155 degrees Celsius. They use mechanical refrigeration
to cool ICs, which is more economical and less dangerous than liquid nitrogen,
commonly used as a refrigerant in competing handlers.
  Our 55V
Series is our principal and newest line of gravity feed test handlers. The 55V
Series focuses on analog and logic IC applications and addresses a wide range of
IC packages, including SOPs and MLPs. The 55V Series offers a small footprint, a
vertical backplane that can accommodate nearly 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. We offer the 55V Series in single, dual, quad and
eight test site configurations. Each of our 55V Series multi-site test handlers
can simultaneously test devices in each of their sites to increase productivity
and reduce testing costs in certain applications.
  We first
introduced our 55V6 single and dual site test handler in 2002 and our 55V8 quad
site test handler in 2004. We began volume production of our 55V16 eight site
test handler in 2007, and since then we have expanded evaluations of our 55V
series of test handlers to additional potential new customers.
   3
  Change Kits and Spare
Parts
  We have
an ongoing demand for IC package change kits for our installed test handler
products, including test handlers no longer in our active product lines. Change
kits consist of the parts necessary to reconfigure a test handler for another
type or size of device package. We sell a variety of change kits to accommodate
the growing variety of device packages used in the semiconductor industry. The
demand for change kits is primarily driven by the introduction of new IC package
types and increased production volumes experienced by our end customers. We sell
spare parts with new equipment orders as kits or separately as piece parts or in
kit form as required.
  Reliability
Test Equipment
  The IC
industry’s demand for higher performance devices through smaller circuit
geometries has led to significant technological changes in the materials and
processes used to manufacture ICs, including a continuing migration to copper
materials for the increasingly minute circuitry of devices. 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. Our reliability test equipment product line enables IC
manufacturers to force and measure precise levels of voltage and current through
structures designed to exemplify IC failure modes, collect and analyze relevant
data, and predict lifetime performance of ICs. This equipment can be utilized to
perform reliability testing of packaged and wafer level test
structures.
  In 1998,
we introduced our 1164 Series of reliability test equipment, including a suite
of applications for customers to perform a variety of tests. We have since added
many new features, including the full reliability test functionality necessary
for testing an IC manufacturer’s entire copper process. The 1164 Series features
a modular design that allows for great flexibility in performing reliability
tests, and can test up to 4,096 devices at a time and perform numerous
simultaneous tests on batches of ICs. Eight of the top 10 semiconductor
manufacturers in the world are using our 1164 Series of reliability test
equipment for copper and related advanced process technologies.
  Competition
  The
semiconductor capital equipment market is highly competitive.  In the
market for test handler products, we compete 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 we have. Some of these companies manufacture and sell both testers and test
handlers. The particular companies with which we compete vary with our different
test handler product lines, with no one company dominating the overall test
handler market. The companies with which we compete most directly in the test
handler market include Multitest Electronic Systems GmbH (a Dover Corporation
company), Rasco (a division of Cohu, Inc.) and TESEC Corporation.
  We
compete for test handler sales primarily on the basis of effective handler
throughput, cost of ownership, temperature accuracy and other performance
characteristics of our products, the breadth of our product lines, the
effectiveness of our sales and distribution channels, the effectiveness of our
post-sale support and our customer relationships. We believe we compete
favorably on all of these factors.
  The
market for our reliability test equipment is also highly competitive and our
competitors include QualiTau, Ltd., Chiron Technology Pte. Ltd., ESPEC Corp. and
Reedholm Instruments Co. We compete for reliability test system sales on the
basis of technology, price, delivery, system flexibility and overall system
performance. We believe we compete favorably on all of these
factors.
   4
  Manufacturing
and Supplies
  Our
manufacturing operations consist of procurement and inspection of components and
subassemblies, assembly and extensive testing of finished products.
  We
emphasize quality and reliability in both the design and manufacture of our
products. We or our suppliers inspect all components and subassemblies for
mechanical and electrical compliance to our specifications. We test all finished
products against our specifications, and customer specifications where
applicable, 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.
  A
significant portion of the components and subassemblies used in our products,
including machined parts, printed circuit boards, refrigeration systems, vacuum
pumps and contactor elements, are manufactured by third parties on a subcontract
basis. As a part of our total quality management program, we have an ongoing
supplier quality program under which we select, monitor and rate our suppliers,
and recognize suppliers for outstanding performance.
  Certain
components used in our products, including certain contactor components, printed
circuit boards and refrigeration systems, are currently available from only a
limited number of sources. We do not maintain long-term supply agreements with
most of our suppliers, and we purchase most of our components through individual
purchase orders. We may not always be able to replace all of our suppliers
within a time period consistent with our business requirements. We attempt to
keep an adequate supply of critical components in our inventory to minimize any
significant impact the loss of a supplier may cause.
  Customers
  We rely
on a limited number of customers for a substantial percentage of our net sales.
In 2009, our top two customers accounted for 58% and 20% of our net sales,
respectively. In 2008, our top three customers accounted for 40%, 25% and 11% of
our net sales, respectively. 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 likely
have a negative impact on our financial condition and results of
operations.
  Sales
and Marketing
  We market
our products through a combination of direct salespeople, independent sales
representatives and international distributors. Our direct sales organization,
comprised of five salespeople, is responsible for most domestic sales, and
coordinates the activities of our independent sales representatives and
international distributors and actively participates with them in selling
efforts. This enables us to establish strong direct ties with our
customers.
  We
maintain sales and service locations in North St. Paul, Minnesota, Morgan Hills,
California, and Kuala Lumpur and Penang, Malaysia. As of December 31, 2009, we
had domestic independent sales representatives located in New Hampshire and
California, and international independent sales representatives or distributors
located in the United Kingdom, France, Germany, Italy, Korea, Japan, Taiwan,
China, Thailand, Malaysia, Singapore and the Philippines.
  Our
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 our independent sales representatives, international
distributors and direct salespeople.
   5
  International
shipments accounted for 78% and 85% of our net sales in 2009 and 2008,
respectively.  In addition, it is not uncommon for U.S. customers to
take delivery of products in the United States for subsequent shipment to
international sites. Most of our international shipments are made to
international sites of U.S. semiconductor manufacturers, although there is a
growing foreign customer base included in our international sales.
  We
invoice all of our international sales in U.S. dollars and, accordingly, have
not historically been subject to fluctuating currency exchange rates. We
establish credit limits, if appropriate, on our international distributors, who
purchase products from us and resell to end-users. We may also require
irrevocable letters of credit from our end-user international customers to
minimize credit risk and to simplify the purchasing/payment cycle.
  Research
and Development
  We
believe we must continue to enhance, broaden and modify our existing product
lines to meet the constantly evolving needs of the semiconductor equipment
market. To date, we have relied both on internal development and acquisitions of
technology and product lines to extend our product lines, increase our customer
base and avoid reliance on any single semiconductor equipment market segment. We
focus our new product development efforts on what we believe to be the most
compelling requirements in the largest and fastest growing segments of the IC
side of the semiconductor industry, with emphasis on near term revenue
potential.
  Product
development expenses include new product development and continuation
engineering. Our continuation engineering efforts include the development of
additional change kits to meet the expanding families of IC package types,
further advancement of contactor technologies, and the addition of features and
performance options for existing equipment.
  We
expense all research and development costs, including costs for software
development, as incurred. In 2009 and 2008, our expenses relating to research
and development were approximately $2.2 million and $3.0 million, respectively,
or 25.4% and 17.5% of our net sales, respectively. Over time, our objective is
to invest approximately 12% to 15% of our net sales in research and development.
However, the percentage may be higher in periods of reduced sales such as 2009
and 2008.
  Intellectual
Property
  We
attempt to protect the proprietary aspects of our products with patents,
copyrights, trade secret law and internal nondisclosure safeguards. We currently
hold several U.S. patents ranging in remaining terms from one to seven years
covering certain features of our handling systems and reliability test systems,
the contactor elements incorporated in certain of our test handlers, and
elements of our proprietary conductive thermal technology. The source code for
the software contained in our products is considered proprietary, and we
typically do not furnish source code to our customers. We have also entered into
confidentiality agreements with our employees. Despite these restrictions, it
may be possible for competitors or users to copy aspects of our products or to
obtain information that we regard as a trade secret.
  There is
a rapid pace of technological change in the semiconductor industry, which in
turn compels us to continually enhance and extend our product lines. We believe
that patent, trade secret and copyright protection is less significant to our
competitive position than factors such as the knowledge, ability and experience
of our personnel, new product development, frequent product enhancements, name
recognition and ongoing, reliable product maintenance and support.
   6
  Employees
  As of
December 31, 2009, we had 67 employees, one of whom was part-time. They
consisted of 28 in manufacturing, 16 in engineering and product development, 15
in sales, marketing and customer service, and 8 in general administration and
finance. None of our employees are represented by a labor union or are subject
to any collective bargaining agreement. We have never experienced a work
stoppage, and we believe that our employee relations are
satisfactory.
  ITEM
      1A.
              RISK
      FACTORS.
  Several
important risks and uncertainties exist that could have an impact on our future
operating results. These factors could cause our actual results to differ
materially from our anticipated results or results that are reflected in any
forward-looking statements in this Annual Report on Form 10-K. These factors,
and their impact on the success of our operations and our ability to achieve our
goals, include the following:
  Market
Fluctuations in the Semiconductor Industry
  Our
business and results of operations depend upon capital expenditures by
manufacturers of ICs.  As a result, our operating results are
materially dependent upon economic and business conditions in the semiconductor
industry. This industry has been subject to significant market fluctuations and
has experienced periodic downturns, which often have had a disproportionate
effect on capital equipment suppliers, such as Aetrium. In periods of excess
capacity, the semiconductor industry sharply reduces purchases of capital
equipment, such as our products. The worldwide financial collapse that became
apparent by the end of the third quarter of 2008 has resulted in an
unprecedented downturn in the semiconductor industry and in the semiconductor
equipment industry. While there are currently indications of improving
conditions in the semiconductor industry, there can be no assurance that this
trend will continue and result in self-sustaining levels of revenues for the
Company.
  Successful
Development and Introduction of New Products and Product
Improvements
  We
operate in an industry that is highly competitive with respect to timely product
innovations. The market for our products is characterized by rapid technological
change and evolving industry standards. The development of more complex ICs has
driven the need for new equipment and processes to produce such devices at an
acceptable cost. We believe that our future success will depend in part upon our
ability to anticipate and respond rapidly to changes in technologies, IC package
types, market trends and industry standards. If we cannot successfully develop
and introduce new and enhanced cost-effective products on a timely basis that
are accepted in the marketplace, our business and operating results will likely
suffer.
  Reliance
on Significant Customers
  We rely
on a limited number of customers for a substantial percentage of our net sales.
A reduction, delay or cancellation of orders from one or more of these
significant customers, or the loss of one or more of these customers, would
likely have a negative impact on our operating results.
  Impact
of Competitive Markets
  The
markets for our main product lines are highly competitive. Some of our
competitors have substantially greater financial, manufacturing, marketing and
product development resources than we have. For most of our customers, we are
not the sole supplier of our type of equipment. In addition, it is
   7
  common
for customers to evaluate more than one supplier’s equipment for their emerging
requirements. Accordingly, we are at significant risk to lose orders to
competing suppliers, and even to being displaced as a supplier to potentially
significant customers, which would likely have a negative impact on our
operating results.
  Fixed
Cost Constraints on Reduction of Expenses
  Many of
our expenses, particularly those relating to properties, capital equipment and
certain manufacturing overhead items, are fixed in the short term. Reduced
demand for our products and services causes our fixed production costs to be
allocated across reduced production volumes, which negatively affects our gross
margins and profitability. Our ability to reduce expenses is further constrained
because we must continue to invest in research and development to maintain our
competitive position and to maintain service and support for our existing
customer base. Accordingly, in the event of a reduction in our revenues,
resulting from an industry downturn as occurred in 2009 or otherwise, we may not
be able to maintain profitable operations.
  Impact
of Cost Reduction Actions
  In the
face of the sustained downturn in our industry that began in late 2008 and
continued throughout 2009 we implemented cost reduction actions, including
workforce reductions, pay freezes and reductions, and reductions in other
expenditures. In doing so, we believe we have maintained the necessary
infrastructures to allow us to take full advantage of subsequent improvements in
conditions.  However, there can be no assurance that reductions we
have made or may make in personnel and expenditure levels and the loss of the
capabilities of personnel we have terminated or may terminate will not inhibit
us in the timely completion of product development efforts, the effective
service of and responsiveness to customer requirements, and the timely ramp up
of production in response to improving market conditions.
  Risk
Potential of Future Acquisitions
  We have
in the past and may in the future pursue acquisitions of complementary
technologies, product lines or businesses. In addition to the risks associated
with any such business that may be acquired, future acquisitions may result in
potentially dilutive issuances of equity securities, the use of our cash or
incurrence of debt that may reduce our ability to meet future capital
expenditure and working capital requirements, the incurrence of amortization
expense and/or valuation adjustments associated with goodwill and intangible
assets that would reduce our profitability, difficulties in the assimilation of
the operations and products of the acquired business, and diversion of
management’s attention from other business concerns.
  Reduction
in the Sales Efforts by our Current Distributors
  We market
and sell our test handlers and reliability test products outside of the United
States primarily through international distributors that are not under our
direct control. We have limited internal sales personnel. A reduction in the
sales efforts by our current distributors, or the termination of one or more of
these relationships with us, could negatively affect our operating
results.
  Risks
Inherent in our International Sales
  We expect
that international sales will continue to account for a significant portion of
our net sales. As a result, our operations are subject to a number of risks
inherent in conducting business internationally, which if any of them develops
could negatively impact our operating results.
   8
  Supply
of Significant Components for our Products
  Certain
significant components used in our products, including certain contactor
components, printed circuit boards and refrigeration systems, are currently
available only from sole or limited sources.  We do not maintain
long-term supply agreements with most of our suppliers, and we purchase most of
our components through individual purchase orders. Our inability to obtain
components in required quantities or of acceptable quality could result in
delays or reductions in our product introductions or shipments, which could
damage our relationships with our customers and cause our operating results to
suffer.
  ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS.
  None.
  ITEM
      2.
              PROPERTIES.
  We
conduct our corporate functions and manufacturing, product development, sales,
marketing and field service activities in North St. Paul, Minnesota. We
currently occupy approximately 45,000 square feet in North St. Paul under a
lease that expires in February 2011, at which time we have an option to extend
the lease for an additional five-year term. We consider our present facilities
to be sufficient for our current operations.
  In
addition, as of December 31, 2009, we leased a 45,000 square foot facility in
Poway, California, which we vacated in 2000. This lease expired in January 2010.
The facility was subleased to two independent parties with the sublease terms
running concurrently with our remaining lease term. We remained liable under the
lease on a contingent basis in the event of a subtenant default. During fiscal
year 2009, one of the subtenants was in default under its sublease agreement
with us for non-payment of rents. In September 2009, we filed a legal action
against the subtenant in the State of California to recover amounts owed to us.
We recorded a charge of $318,000 in the fourth quarter of 2009 to fully reserve
amounts due from this subtenant through December 31, 2009. In addition, we
recorded a charge of $54,000 for the unpaid January 2010 rent and related costs
we expect to incur.
  In late
March 2010, we reached an accord with the delinquent subtenant under which we
agreed to settle our claim for a cash payment of $175,000 if received by April
21, 2010. If we do not receive the cash payment by that date, under the terms of
the accord we will be awarded a default judgment against the subtenant in the
amount of approximately $423,000. We have no assurance that the subtenant will
make the agreed upon cash payment or that we would be able to collect any amount
on a default judgment if awarded.
  ITEM
      3.
              LEGAL
      PROCEEDINGS.
  We are
not a party to, and none of our property is the subject of, any material pending
legal, governmental, administrative or other proceedings.
  ITEM
      4.
              RESERVED
   9
  ITEM
      4A.
              EXECUTIVE
      OFFICERS OF THE REGISTRANT.
  Our
executive officers, their ages and the offices they held as of March 3, 2010 are
as follows:
  Name
              Age
              PositionJoseph
      C. Levesque
              65
              Chairman
      of the Board and Chief Executive OfficerJohn
      J. Pollock
              50
              President
      and DirectorDouglas
      L. Hemer
              63
              Chief
      Administrative Officer, Secretary and DirectorDaniel
      M. Koch
              56
              Vice
      President — Worldwide SalesPaul
      H. Askegaard
              58
              TreasurerTimothy
      G. Foley
              50
              Vice
      President — ManufacturingDean
      K. Hedstrom
              60
              Vice
      President — TechnologyTimothy
      A. McMullen
              42
              Vice
      President — Reliability Test SystemsW.
      Charles Sletten, II
              58
              Vice
      President — Engineering
 
 Mr.
Levesque has served as our chief executive officer and chairman of our
board since 1986.  From 1986 until October 2009, Mr. Levesque also
served as our president. 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 IC testers and test handlers.
  Mr.
Pollock was elected as one of our directors in March 2010 and has served
as our president since October 2009. From December 2001 to October 2009, Mr.
Pollock served as vice president and general manager of our North St. Paul
operations.  From August 1998 to December 2001, Mr. Pollock served as
our vice president of product development and marketing.  From April
1998 to August 1998, Mr. Pollock served as interim general manager of our North
St. Paul operations.  From November 1997 to May 1998, Mr. Pollock
served as interim general manager of a test handler product line we had recently
acquired.  From September 1996 to August 1997, Mr. Pollock served as a
business unit manager.
  Mr. Hemer
has served as one of our directors since 1986, and has served as our secretary
since May 2000 and as our chief administrative officer since March
2001.  He served as our group vice president from August 1998 to March
2001, as the president of our former Poway, California operations from February
1997 to August 1998 and as our chief administrative officer from May 1996 until
February 1997.  Mr. Hemer was a partner in the law firm of Oppenheimer
Wolff & Donnelly LLP for more than 15 years before joining Aetrium in May
1996.  Mr. Hemer is also a director of Versa Companies, a privately
held company.
  Mr. Koch
has served as our 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 PC
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.
Askegaard has served as our treasurer since February
1992.  From October 1986 to February 1992, Mr. Askegaard served as our
corporate controller.
   10
  Mr. Foley
has served as our vice president – manufacturing of our North St. Paul
operations since December 2001. Prior to that, he served at our North St. Paul
operations as vice president – operations from August 1998 to December 2001,
vice president – manufacturing from October 1996 to August 1998, and in various
other positions since joining us in 1988.
  Mr.
Hedstrom has served as our vice president – technology since June 2007.
Prior to that, he served as the vice president – engineering of our North St.
Paul operations since joining us in September 2004. From 1993 to 1998 Mr.
Hedstrom was a co-founder, director, and later president of CariTech, Inc., a
manufacturer of carrier tape materials for the IC industry.  Following
the acquisition of CariTech by Illinois Tool Works in August 1998, he served as
engineering manager – worldwide operations for Illinois Tool Works until May
2001.  Prior to founding CariTech and subsequent to his retirement
from Illinois Tool Works, Mr. Hedstrom served as president and a principal of
Hedstrom Engineering Co., a consulting firm specializing in industrial
automation and controls.
  Mr.
McMullen has served as our vice president – reliability test systems
since April 2007. Prior to that, he served at our North St. Paul operations as
vice president – marketing/applications from February 2002 until April 2007, as
product director of our reliability test equipment from March 2000 until
February 2002, and as an electrical engineer since joining us in
1994.
  Mr.
Sletten has served as our vice president – engineering since joining us
in January 2008. Prior to that, he served as president of EnergyFlo Corporation
from 2003 to 2007, as vice president, general manager of Goodall Mfg. LLC from
2002 to 2003, and in various capacities including chief engineer, vice president
and senior vice president at Nilfisk-Advance from 1984 to 2001.
   11
  PART
II
  ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
  Market
Information
  Our
common stock is quoted on The Nasdaq Global Market under the symbol “ATRM.” The
following table summarizes the high and low closing sale prices per share of our
common stock for the periods indicated, as reported on The Nasdaq Global Market.
These prices do not include adjustments for retail mark-ups, markdowns or
commissions.
  First Quarter
              
              
              Second Quarter
              
              
              Third Quarter
              
              
              Fourth QuarterFiscal
      2009
              High
              
              $
              1.93
              
              
              $
              1.75
              
              
              $
              2.65
              
              
              $
              2.99Low
              
              $
              0.91
              
              
              $
              0.99
              
              
              $
              1.37
              
              
              $
              2.05Fiscal
      2008
              High
              
              $
              5.92
              
              
              $
              4.23
              
              
              $
              3.75
              
              
              $
              2.82Low
              
              $
              3.64
              
              
              $
              2.98
              
              
              $
              2.61
              
              
              $
              1.01
 Holders
  As of
March 10, 2010, there were ­­­­­­125 shareholders of
record. We estimate that an additional 2,900 shareholders beneficially own stock
held for their accounts at brokerage firms and financial
institutions.
  Dividends
  We have
never paid cash dividends on our common stock. We currently intend to retain any
earnings for use in our operations and do not anticipate paying cash dividends
in the foreseeable future.
  Recent
Sale of Unregistered Securities
  We did
not have any unregistered sales of equity securities during fiscal year
2009.
  Issuer’s
Purchases of Equity Securities
  We did
not make any purchases of our common stock during the fourth quarter of fiscal
2009.
  ITEM
      6.
              SELECTED
      FINANCIAL DATA
  As a
Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in
Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting
obligations and therefore are not required to provide the information requested
by this Item.
  
 
  12
  ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  Overview:
  Aetrium
designs, manufactures and markets a variety of electromechanical equipment used
in the handling and testing of integrated circuits, or ICs, which constitute the
highest revenue component of the semiconductor industry. Our primary focus is on
high volume ICs, the latest IC package designs, and the latest IC manufacturing
processes. Our test handler products are purchased primarily by semiconductor
manufacturers and their assembly and test subcontractors and are used in the
test, assembly and packaging, or TAP, segment of semiconductor manufacturing.
Our reliability test products are used to validate IC designs and monitor
semiconductor wafer fabrication processes. Our products automate critical
functions to improve manufacturing yield, raise quality levels, increase product
reliability and reduce manufacturing costs.
  As an
equipment supplier to the semiconductor industry, Aetrium’s results are driven
primarily by worldwide demand for ICs, which in turn depends on end-user demand
for electronic products. The demand for our products can fluctuate significantly
from period to period due to the direct or indirect impact of numerous factors,
including but not limited to changes in the supply and demand for ICs, changes
in IC manufacturing capacity, advancements in industry technologies, changes in
U.S. and worldwide economic conditions and competitive factors.
  Like many
suppliers in the TAP segment of the semiconductor equipment industry, Aetrium’s
business was severely impacted in fiscal years 2008 and 2009 by the global
recession and turmoil in the financial credit markets that have contributed to
significant decreases in the sales of electronic products and the demand for ICs
and IC manufacturing equipment.
  Business
conditions in the semiconductor equipment industry were generally weak in the
first half of 2008 and deteriorated significantly in the second half of the year
as the worldwide economic crisis evolved. Aetrium’s results generally followed
this trend as net sales amounted to $14.3 million in the first nine months of
2008 and fell to $2.9 million in the fourth quarter as many IC manufacturers,
including our primary customers, made significant adjustments to their
operations and reduced their capital expenditure plans in anticipation of
significantly declining demand for ICs. In the fourth quarter of 2008, as it
became clear to us that business conditions may be weak for an extended period
of time, we immediately took steps to reduce our expenses. We eliminated
contract workers, terminated twelve employees, or 15% of our regular workforce,
and reduced other operating expenses as well.  In January 2009 we
implemented wage reductions of 10% for all employees and up to 25% for our
executive officers. Our fiscal year 2008 sales totaled $17.2 million compared
with $28.0 million in 2007, a decrease of 38%.
  As
expected, weak economic conditions and the semiconductor equipment industry
slowdown continued into fiscal year 2009 and Aetrium’s operating results
continued to be adversely impacted. We experienced declining net sales and
increasing losses in the first two quarters of 2009. General economic and
industry conditions began to improve in mid-year and we began to see signs of
increased demand for our customers' products and generally improving equipment
utilization rates. Our net sales almost doubled to $5.7 million in the second
half of 2009 compared with $2.9 million in the first half of the year. Despite
an improvement in business conditions late in the year, our net sales for fiscal
year 2009 declined further to $8.6 million compared with $17.2 million in 2008,
a decrease of 50%.
  We
believe fiscal year 2010 will be a turn-around year for the semiconductor
equipment industry and for Aetrium. Recently, we have continued to see signs
that economic and semiconductor industry
   13
  business
conditions are improving. We have experienced significant increases in sales
quotations and requests for quick deliveries from our customers. We have
responded to these positive trends by making adjustments to our operations to
prepare for increased production and shipment levels. It appears that new orders
and net sales for Aetrium will increase significantly in the first quarter of
2010 compared with the fourth quarter of 2009. However, there can be no
assurance the positive momentum we see in early 2010 will continue or that
changes in semiconductor industry conditions, general domestic and global
economic conditions, and/or other factors will not adversely impact Aetrium’s
future operating results.
  Off-Balance
Sheet Arrangements:
  We did
not have any off-balance sheet arrangements as of December 31, 2009 or
2008.
  Critical Accounting Policies and
Estimates:
  Management’s
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.  We base our estimates on historical experience and
on various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities.  Actual results may
differ from these estimates under different assumptions or
conditions.  We believe the critical accounting policies that require
the most significant judgments and estimates used in the preparation of our
consolidated financial statements are those related to share-based compensation,
revenue recognition, accounts receivable, inventories, warranty obligations and
income taxes.
  Share-Based
Compensation
  We
account for share-based compensation in accordance with the provisions of
Accounting Standards Codification (ASC) 718, “Compensation – Stock
Compensation,” which requires the measurement and recognition of all share-based
compensation using the fair value method.
  We
determine the fair value of share-based awards on the grant date by using the
Black-Scholes option valuation model.  We also use the Black-Scholes
model to determine the fair value of modifications to awards by determining and
comparing the fair value of the modified award with the fair value of the award
immediately before the modification.  Option valuation models,
including Black-Scholes, require the input of subjective assumptions, and
changes in the assumptions used can materially affect the calculation of the
fair value of an award. These assumptions include expected stock price
volatility, risk-free interest rate, expected dividend yield, and the expected
life of the award.  We estimate future stock price volatility based
primarily on historical daily stock price observations of our common
stock.  Risk-free interest rate is estimated based on U.S. Treasury
bill rates consistent with the expected term of an award.  We assume
an expected dividend yield of zero based on our intention to retain any future
earnings for use in our operations.  Expected life of an award is
estimated primarily based on vesting provisions, the contractual term of the
award, and historical experience of previous awards with similar terms or, for
situations in which historical experience is not available or is deemed
unreliable, we use the simplified method for estimating the expected life of an
award, as permitted by ASC 718. ASC 718 also requires that estimated forfeitures
be considered in the calculation of future compensation expense at the date of
grant. We use historical data, as adjusted if deemed appropriate, to estimate
future option forfeiture rates for purposes of recognizing share-based
compensation expense.
   14
  Revenue
Recognition
  We
recognize revenue on product sales when there is persuasive evidence of an
arrangement, the sales price is fixed or determinable, title and risk of loss
have passed to the customer, contractual obligations have been substantially
met, and collection of the related receivable is reasonably assured. Revenue on
spare parts and change kits is generally recognized upon shipment. In some
circumstances, revenue on equipment sales is recognized subsequent to shipment.
For example, equipment sales contracts may specify that customer acceptance
criteria be met. In such cases, revenue for established equipment products that
have previously met a customer’s acceptance criteria is generally recognized
upon shipment, provided the equipment meets our final test requirements that we
believe substantially demonstrate conformance to the customer’s acceptance
criteria.  However, revenue for equipment products that are newly
designed or otherwise lack a reliable history of customer acceptance is deferred
until objective evidence of customer acceptance has been obtained. In situations
where equipment contracts include significant post-shipment obligations to be
performed by us, revenue for the entire transaction is deferred until such
obligations have been completed or, if applicable, the transaction is accounted
for as a multiple-element arrangement. For arrangements containing multiple
elements, the amounts allocated to delivered and undelivered elements are based
on their fair value and revenue is recognized upon delivery of each
element.  Due to the high selling prices of certain types of
equipment, the timing of revenue recognition of a relatively small number of
transactions may have a significant impact on our reported operating
results.
  Accounts
Receivable
  We
maintain an allowance for doubtful accounts that reflects our estimate of losses
that may result from the uncollectability of accounts receivable.  Our
allowance for doubtful accounts is based primarily on an analysis of individual
accounts for which we have information indicating the customer may not be able
to pay amounts owed to us.  In these cases, based on the available
facts and circumstances, we estimate the amount that will be collected from such
customers.  We also evaluate the collectability of our accounts
receivable in the aggregate based on factors such as the aging of receivable
amounts, customer concentrations, historical experience, and current economic
trends and conditions.  We adjust our allowance for doubtful accounts
when additional information is received that impacts the amount
reserved.  If circumstances change, our estimates of the
recoverability of accounts receivable could be reduced or increased by a
material amount.  Such a change in estimated recoverability would be
accounted for in the period in which the facts that give rise to the change
become known.
  Inventories
  We adjust
our inventories for estimated excess and obsolete items by reducing their
carrying values to estimated realizable value based upon assumptions about
future product demand and market conditions.  If actual product demand
or market conditions are less favorable than those projected by management,
additional inventory adjustments may be required.
  Warranty
Obligations
  We accrue
estimated warranty costs in the period that the related revenue is
recognized.  Our warranty cost estimates and warranty reserve
requirements are determined based upon product performance, historical warranty
experience and costs incurred in addressing product performance issues. Should
product performance or cost factors differ from our estimates, adjustments to
our warranty accrual may be required.
   15
  Income
Taxes
  We record
income tax benefit (expense) based on our estimate of the effective tax rates
for the jurisdictions in which we do business. We record the benefit we will
derive in future accounting periods from tax losses and credits and deductible
temporary differences as “deferred tax assets” which are included in the caption
“Deferred income taxes” on our consolidated balance sheet.  In
accordance with ASC 740, “Income Taxes,” if, based on all available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized, we record a valuation allowance to reduce the carrying value of our
deferred tax assets to the estimated realizable amount. If the valuation
allowance is increased, we record additional income tax expense in the period
the valuation allowance is increased. If the valuation allowance is reduced, we
record an income tax benefit. We make significant estimates and judgments in
determining our income tax provision, deferred tax assets and valuation
allowance recorded against our deferred tax assets. Actual results may differ
from those reflected in management estimates and could result in adjustments
that have a material impact on our results of operations.
 
 Results of
Operations:
 
 Selected
statement of operations data as a percentage of our net sales for 2009 and 2008
were as follows:
  2009
                
                
                2008Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of goods sold
                
                
                63.9
                
                
                
                52.0Gross
      profit
                
                
                36.1
                
                
                
                48.0Operating
      expenses:Selling,
      general and administrative
                
                
                59.8
                
                
                
                37.9Research
      and development
                
                
                25.4
                
                
                
                17.5Total
      operating expenses
                
                
                85.2
                
                
                
                55.4Loss
      from operations
                
                
                (49.1
                )%
                
                
                (7.4
                )%
  Net
Sales:
  Our net
sales by product line as a percentage of total sales for 2009 and 2008 were as
follows:
  2009
                
                
                2008Test
      handler products
                
                
                48
                %
                
                
                59
                %Reliability
      test equipment products
                
                
                17
                
                
                
                15Change
      kits and spare parts
                
                
                35
                
                
                
                26Total
                
                
                100
                %
                
                
                100
                %
  Net sales
were $8.6 million in 2009 compared with $17.2 million in 2008, a 50% decrease.
Net sales in 2009 decreased across all our product lines as a result of the weak
economic conditions and semiconductor equipment industry slowdown that began in
2008 and continued into 2009. During this period, worldwide demand for
semiconductors decreased substantially, resulting in excess manufacturing
capacity and sharply reduced demand for equipment like ours. Net sales of test
handlers were $4.1 million in 2009 compared with $10.2 million in 2008, a
decrease of 59%. Net sales of reliability test equipment were $1.5 million in
2009 compared with $2.5 million in 2008, a decrease of 43%. Net sales of change
kits and spare parts were $3.1 million in 2009 compared with $4.5 million in
2008, a decrease of 32%. Sales of change kits and spare parts were less impacted
by the industry downturn as some customers continued to purchase these items to
optimize the utilization of existing equipment rather than purchase new
equipment.
   16
  Gross
Profit:
  Aetrium’s
gross profit as a percentage of net sales can fluctuate based on a number of
factors, including but not limited to the mix of products sold, distribution
channel mix, price discounting, product maturity, inventory writedowns, and the
utilization of manufacturing capacity associated with varying production levels.
Gross profit was 36.1% of net sales in 2009 compared with 48.0% in 2008. Our
gross margin decreased in 2009 substantially due to inefficiencies associated
with significantly lower production and net sales levels. In addition, we
recorded an inventory obsolescence charge of $0.2 million in 2009 as we
determined that the realizable value of inventories for certain of our older
products had diminished. The gross margin decrease in 2009 resulting from the
above factors was partially offset by a more favorable product and distribution
mix. Test handler sales, which are generally lower margin sales than our other
product lines, represented 48% of total net sales in 2009 compared with 59% in
2008. Reliability test equipment sales represented 17% of total net sales in
2009 compared with 15% of net sales in 2008 and sales of change kits and spare
parts represented 35% of net sales in 2009 compared with 26% in 2008. Discounted
sales to distributors represented 26% of total net sales in 2009 compared with
54% in 2008.
  Selling,
General and Administrative Expenses:
  Selling,
general and administrative, or SG&A, expenses consist primarily of employee
compensation and related costs, independent representative commissions, travel,
warranty and no-charge equipment improvement costs. SG&A expenses were $5.2
million in 2009 compared with $6.5 million in 2008, a decrease of 21%.
Compensation costs decreased $0.8 million in 2009 primarily due to a workforce
reduction implemented in December 2008, wage reductions for all employees
implemented in January 2009 and the elimination of all profit-related
incentives. Commissions expense, warranty expense, no-charge equipment
improvements and travel costs decreased $0.1 million, $0.2 million, $0.1 million
and $0.3 million, respectively, due primarily to lower sales and reduced sales
and service activities. These decreases were partially offset by a $0.4 million
charge recorded in 2009 to reserve for a loss on a sublease contract (see Note 9
to the consolidated financial statements).
  Research
and Development Expenses:
  Research
and development expenses were $2.2 million in 2009 compared with $3.0 million in
2008, a decrease of 27%. Compensation costs related to research and development
decreased $0.4 million in 2009 primarily due to a workforce reduction
implemented in December 2008, wage reductions for all employees implemented in
January 2009 and the elimination of all profit-related incentives. Contract
services decreased $0.2 million and travel expenses decreased $0.1 million due
to cost containment efforts. Research and development expenses represented 25.4%
of total net sales in 2009 compared with 17.5% of total net sales in 2008. New
product development is an essential part of our strategy to gain market share.
Over time, we expect to invest approximately 12% to 15% of our revenues in
research and development although we may exceed this range in periods of reduced
revenues as was the case in 2009 and 2008.
  Interest
Income, Net:
  Interest
income, net, amounted to $0.1 million and $0.3 million in 2009 and 2008,
respectively. These amounts consisted primarily of interest income from the
investment of excess funds. The decrease in interest income in 2009 reflects
generally declining interest rates and lower average invested cash
balances.
   17
  Income
Tax Benefit (Expense):
  We
recorded income tax expense of $2.6 million in fiscal year 2009 which included a
$1.5 million income tax benefit offset by a $4.1 million increase in the
valuation allowance on our deferred tax assets. Excluding the valuation
allowance adjustment, our effective tax rate was 35.1%. We recorded an income
tax benefit of $0.3 million in fiscal year 2008, which reflected a 33.7%
effective tax rate. See Note 12 to our consolidated financial statements for a
full discussion of our income tax benefit (expense), valuation allowance and
other income tax matters.
  Financial
Condition, Liquidity and Capital Resources:
  Cash and
cash equivalents decreased by approximately $2.2 million in the year ended
December 31, 2009. We used $2.2 million of cash to fund operating activities,
which included our net loss of $6.7 million, partially offset by $3.5 million of
non-cash expenses and $1.0 million in working capital changes. Non-cash expenses
included depreciation expense of $0.1 million, share-based compensation expense
of $0.6 million, deferred income taxes of $2.6 million and an inventory
obsolescence charge of $0.2 million. Working capital changes contributing to
cash consisted primarily of a $1.5 million decrease in inventories, partially
offset by a $0.6 million increase in accounts receivable. Inventories decreased
primarily due to significantly reduced inventory purchases in 2009 compared with
2008 in response to lower sales levels. Accounts receivable increased primarily
because shipments in the fourth quarter of 2009 were concentrated in the latter
part of the period. Net cash flows from investing activities and financing
activities were not significant in fiscal year 2009.
  Cash and
cash equivalents decreased by approximately $0.5 million in the year ended
December 31, 2008. We used $0.4 million of cash to fund operating activities,
which included our net loss of $0.6 million and working capital changes of $0.2
million, partially offset by $0.4 million of non-cash items. Non-cash items
included depreciation expense of $0.1 million, share-based compensation expense
of $0.6 million, and a deferred tax benefit of $0.3 million. Working capital
changes using cash consisted primarily of a $1.5 million increase in
inventories, a $0.2 million decrease in accounts payable, a $0.4 million
decrease in accrued compensation and a $0.3 million decrease in other accrued
liabilities, partially offset by a $2.0 million decrease in accounts receivable
and a $0.1 million decrease in other assets. Inventories increased due to
selective increases of certain inventories in the first half of 2008 to meet
anticipated customer delivery requirements, an increase in the number of
demonstration equipment units used for new customer evaluations, and
lower-than-anticipated net sales in the second half of the year. Accounts
payable decreased primarily due to reduced inventory purchases in the fourth
quarter of 2008 compared with the fourth quarter of 2007. Accrued compensation
decreased primarily due to the elimination of profit-related incentives in the
second half of 2008. The decrease in accrued liabilities included a $0.1 million
decrease in accrued no-charge equipment improvement costs and a $0.1 million
decrease in deferred revenue. Accounts receivable decreased primarily due to a
significant decrease in net sales in the fourth quarter of 2008 compared with
the fourth quarter of 2007. Net cash provided by investing activities in 2008
was not significant. Net cash used in financing activities in 2008 amounted to
$0.1 million and was primarily related to the repurchase of shares of common
stock in connection with stock option exercises.
  Historically
we have supported our capital expenditure and working capital needs with cash
generated from operations and our existing cash and cash
equivalents.  We believe our cash and cash equivalents of $9.5 million
at December 31, 2009 will be sufficient to meet capital expenditure and working
capital requirements at least through 2010. In addition, we have a revolving
credit line agreement with a bank that provides for borrowings up to $2.0
million. Advances under the agreement are at the sole discretion of the bank.
Therefore, there can be no assurance that funds will be available to us under
the agreement.  The credit agreement expires in December 2010. As
discussed above, we have recently seen
   18
  signs of
improving economic and industry business conditions and we expect our financial
results to improve in fiscal year 2010. However, there can be no assurance that
the positive momentum we see in early 2010 will continue and that changes in
semiconductor industry conditions, general domestic and global economic
conditions, and/or other factors will not adversely impact Aetrium’s future
operating results. Also, we may acquire other companies, product lines or
technologies that are complementary to our business, and our working capital
needs may change as a result of such acquisitions.
  Recent
Accounting Pronouncements:
  Effective
with the quarter ended September 30, 2009, Aetrium adopted the Financial
Accounting Standards Board (FASB) Accounting Standards Codification(ASC)
105, “Generally Accepted Accounting Principles.” ASC 105 establishes the FASB
Accounting Standards Codification (“Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) in the United
States. The Codification also provides that rules and interpretive releases of
the U. S. Securities and Exchange Commission (SEC) issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. Since adopting this guidance, we have changed all references to
authoritative standards to be consistent with those set forth in the
Codification. The adoption of ASC 105 had no impact on our consolidated
financial position, results of operations or cash flows.
  In
October 2009, the FASB issued authoritative guidance for revenue recognition
with multiple deliverables. This authoritative guidance impacts the
determination of when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. Additionally, this
guidance modifies the manner in which the transaction consideration is allocated
to separately identified deliverables by no longer permitting the residual
method of allocating arrangement consideration. This new guidance is effective
for Aetrium at the beginning of fiscal year 2011, with early adoption permitted.
The implementation of this guidance is not expected to have a material impact on
our consolidated financial position, results of operations or cash
flows.
  In
October 2009, the FASB issued new accounting guidance for the accounting
for certain revenue arrangements that include software elements. The new
guidance amends the scope of pre-existing software revenue guidance by removing
from the guidance non-software components of tangible products and certain
software components of tangible products. The new guidance will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, and will be effective for
us at the beginning of fiscal year 2011. However, early adoption is permitted.
We are currently evaluating what impact, if any, this new guidance will have on
Aetrium.
  In May
2009, the FASB issued new accounting guidance regarding subsequent
events.  The guidance establishes general standards of accounting for
and disclosure of events or transactions occurring after the balance sheet date
but before financial statements are issued or are available to be
issued.  In addition, it requires disclosure of the date through which
subsequent events have been evaluated.  We adopted this guidance as of
June 30, 2009, which was the required effective date. This guidance was
subsequently amended and we are no longer required to disclose the date through
which we evaluate subsequent events.
  In
December 2007, the FASB issued new guidance regarding business combinations,
which establishes principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the fair value
of identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree at the acquisition date. This guidance also establishes
disclosure requirements to enable users of the financial statements to evaluate
the nature and financial
   19
  effects
of the business combination.  This guidance became effective for
Aetrium at the beginning of fiscal year 2009 and had no impact on our
consolidated financial position, results of operations or cash
flows.
  ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.
  The
information required by this Item is included in our Consolidated Financial
Statements and the report of our independent registered public accounting firm,
which are included in this Annual Report on Form 10-K beginning on page
F-1.  The index to this report and the financial statements is
included in Item 15(a)(1) below.
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
 
 None.
  ITEM
      9A(T).
              CONTROLS
      AND PROCEDURES
  Disclosure
Controls and Procedures:
  Our chief
executive officer, our chief administrative officer and our treasurer conducted
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e)
and 15d-15(e)). Based on their evaluation, they concluded that our disclosure
controls and procedures were effective as of December 31, 2009, the end of the
period covered by this annual report.
  Management’s
Report on Internal Control over Financial Reporting:
  Aetrium’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our chief executive officer, our chief administrative officer
and our treasurer, our management conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the framework in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31,
2009.
  This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Internal control over financial reporting was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
  Changes
in Internal Control over Financial Reporting:
  There
were no changes in our internal control over financial reporting that occurred
during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, Aetrium’s internal control over
financial reporting.
   20
  Inherent
Limitations of Disclosure Controls and Procedures and Internal Control over
Financial Reporting:
  It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system will be met. In designing and operating a control system, one must
consider the potential benefits of controls relative to their costs and the
reality of limited resources available to allocate to control activities,
particularly in smaller companies.  In addition, the design of any
control system is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any control will meet its
objectives under all potential future conditions.  Because of such
inherent limitations in any control system, there can be no absolute assurance
that control issues, misstatements, and/or fraud will be prevented or
detected.
  ITEM
      9B.
              OTHER
      INFORMATION.
  None.
   21
  PART
III
  ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
  Directors
of the Registrant
  The
information under the captions “Election of Directors — Information About Mr.
Westling,” “Election of Directors—Information About Mr. Pollock,” “Election of
Directors —Information About Other Nominees” and “Election of
Directors—Additional Information About the Board and Its Committees” in our 2010
Proxy Statement is incorporated in this Annual Report on Form 10-K by
reference.
  Executive
Officers of the Registrant
  The
information under the caption “Item 4A. Executive Officers of the Registrant”
located elsewhere in this Annual Report on Form 10-K is incorporated herein by
reference.
  Compliance
with Section 16(a) of the Exchange Act
  The
information under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” in our 2010 Proxy Statement is incorporated in this Annual Report on
Form 10-K by reference.
  Identification
of Audit Committee; Audit Committee Financial Expert
  The
information under the caption “Audit Committee Report – Membership and Role of
the Audit Committee” in our 2010 Proxy Statement is incorporated in this Annual
Report on Form 10-K by reference.
  Code
of Ethics
  The
information under the caption “Code of Ethics” in our 2010 Proxy Statement is
incorporated in this Annual Report on Form 10-K by reference.
  ITEM
      11.
              EXECUTIVE
      COMPENSATION.
  The
information under the captions “Election of Directors — Compensation of
Non-Employee Directors” and “Executive Compensation and Other Benefits” in our
2010 Proxy Statement is incorporated in this Annual Report on Form 10-K by
reference.
  ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
  The
information under the caption “Security Ownership of Certain Beneficial Owners
and Management” in our 2010 Proxy Statement is incorporated in this Annual
Report on Form 10-K by reference.
   22
  Securities
Authorized for Issuance under Equity Compensation Plans
   The
following table summarizes information about our equity compensation plans as of
December 31, 2009:
  EQUITY
COMPENSATION PLAN INFORMATION
 Plan
      Category
              
              Number
      of securities
                to
      be issued upon
                exercise
      of
                outstanding
      options,
                warrants
      and rights(1)
              
              
              Weighted
      average
                exercise
      price of
                outstanding
      options,
                warrants
      and rights
              
              
              Number
      of securities
                remaining
      available
                for
      future issuance
                under
      equity
                compensation
      plans
                (excluding
      securities
                reflected
      in the
                first
      column)(2)Equity
      compensation plans approved by security holders
              
              
              1,721,521
              
              
              $
              2.34
              
              
              
              399,605Equity
      compensation plans not approved by security holders
              
              None
              
              
              Not applicable
              
              
              NoneTotal
              
              
              1,721,521
              
              
              $
              2.34
              
              
              
              399,605
  ____________________________
   (1)
              Includes the
      Aetrium Incorporated 2003 Stock Incentive
Plan.
  (2)
              The
      number of shares available for issuance under the Aetrium Incorporated
      2003 Stock Incentive Plan is equal to 20% of the aggregate number of
      shares of our common stock outstanding less the total number of shares of
      common stock issuable upon the exercise or conversion of any outstanding
      stock options, warrants, or other stock
rights.
  ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
  The
information under the captions “Election of Directors—Additional Information
About the Board and Its Committees” in our 2010 Proxy Statement is incorporated
in this Annual Report on Form 10-K by reference.
  ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.
  The
information concerning principal accountant fees and services and the audit
committee’s pre-approval polices and procedures under the captions “Independent
Registered Public Accounting Firm—Audit and Non-Audit Fees” and “Independent
Registered Public Accounting Firm—Pre-approval Policies and Procedures” in our
2010 Proxy Statement is incorporated in this Annual Report on Form 10-K by
reference.
   23
  PART
IV
  ITEM
      15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES.
  (a)
1.  Financial Statements of Registrant.
  The
following Consolidated Financial Statements of Aetrium Incorporated and the
Independent Registered Public Accounting Firm’s Report thereon are included
herein:
  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-19
  (a)
2.  Financial Statement Schedule of Registrant.
  Schedule
      II -  Valuation and Qualifying Accounts
              S-1
  All other
schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related
notes.
  (a)
3.  Exhibits.
  The
exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index
beginning on page E-1 of this Annual Report on Form 10-K.
  If
you were one of our shareholders on March 31, 2010 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.
   24
  The
following is a list of each management contract or compensatory plan or
arrangement we are required to file as an exhibit to this Annual Report on Form
10-K pursuant to Item 15(b):
  1.
              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).2.
              Form
      of Non-Statutory Stock 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).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.
              Form
      of Amendments to Change of Control Agreement (incorporated by reference to
      Exhibit 10.18 to our Annual Report on Form 10-K for the year ended
      December 31, 2007) (File No. 0-22166).9.
              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.
              Executive
      Officer Profit Sharing Program (incorporated by reference to Exhibit 10.1
      to our Current Report on Form 8-K dated January 23, 2007) (File No.
      0-22166).
 
  
   25
  FINANCIAL
STATEMENTS OF REGISTRANT
  Report
of Independent Registered Public Accounting Firm
 
 Board of
Directors and Shareholders
 Aetrium
Incorporated
 
 We have
audited the accompanying consolidated balance sheets of Aetrium
Incorpo­rated (a Minnesota corporation) and subsidiary as of
December 31, 2009 and 2008, and the related consolidated state­ments of
opera­tions, changes in shareholders’ equity and cash flows for each of the
two years in the period ended December 31, 2009.  Our audits of
the basic financial statements included the financial statement schedule listed
in the index appearing under Item 15.  These finan­cial statements
and financial statement schedule are the responsibility of the Company’s
man­agement.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of mate­rial misstatement.  The
Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circum­stances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit also includes examining, on a test
basis, evidence supporting the amounts and disclo­sures in the financial
statements, assessing the accounting principles used and significant
esti­mates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aetrium
Incorporated and subsidiary as of Decem­ber 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2009 in confor­mity with accounting principles
generally accepted in the United States of America.  Also, in our
opinion, the related financial statement schedule, when consi­dered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
   /s/GRANT
THORNTON LLP
   
  Minneapolis,
Minnesota
   March 30,
2010
   F-1
  
  AETRIUM
INCORPORATED
 Consolidated
Statements of Operations
  
  Year
      Ended December 31,
              
              2009
              
              
              2008Net
      sales
              
              $
              8,648,515
              
              
              $
              17,217,477Cost
      of goods sold
              
              
              5,527,531
              
              
              
              8,949,602Gross
      profit
              
              
              3,120,984
              
              
              
              8,267,875Operating
      expenses:Selling,
      general and administrative
              
              
              5,168,783
              
              
              
              6,519,929Research
      and development
              
              
              2,195,026
              
              
              
              3,018,141Total
      operating expenses
              
              
              7,363,809
              
              
              
              9,538,070Loss
      from operations
              
              
              (4,242,825
              )
              
              
              (1,270,195
              )Interest
      income, net
              
              
              135,449
              
              
              
              346,752Loss
      before income taxes
              
              
              (4,107,376
              )
              
              
              (923,443
              )Income
      tax benefit (expense)
              
              
              (2,621,000
              )
              
              
              311,000Net
      loss
              
              $
              (6,728,376
              )
              
              $
              (612,443
              )Loss
      per share - basic and diluted
              
              $
              (0.63
              )
              
              $
              (0.06
              )Weighted
      average common shares
                outstanding
      – basic and diluted
              
              
              10,599,000
              
              
              
              10,583,000
  
   The accompanying notes are an integral part of the consolidated
financial statements.
 F-2
  
  AETRIUM
INCORPORATED
 Consolidated
Balance Sheets
  
  December
      31,
              
              2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              9,475,871
              
              
              $
              11,628,962Accounts
      receivable, net of allowance for doubtful accounts of $40,000 in 2009 and
      2008
              
              
              2,114,109
              
              
              
              1,539,345Inventories
              
              
              7,472,261
              
              
              
              9,161,840Deferred
      income taxes
              
              
              —
              
              
              
              127,000Other
      current assets
              
              
              233,548
              
              
              
              297,982Total
      current assets
              
              
              19,295,789
              
              
              
              22,755,129Property
      and equipment:Furniture
      and fixtures
              
              
              521,450
              
              
              
              521,450Equipment
              
              
              1,177,785
              
              
              
              1,203,214Less
      accumulated depreciation and amortization
              
              
              (1,601,398
              )
              
              
              (1,581,980
              )Property
      and equipment, net
              
              
              97,837
              
              
              
              142,684Deferred
      income taxes
              
              
              —
              
              
              
              2,489,000Other
      assets
              
              
              —
              
              
              
              214,947Total
      assets
              
              $
              19,393,626
              
              
              $
              25,601,760LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
              
              $
              —
              
              
              $
              11,678Trade
      accounts payable
              
              
              707,310
              
              
              
              571,224Accrued
      compensation
              
              
              268,269
              
              
              
              286,375Other
      accrued liabilities
              
              
              400,600
              
              
              
              632,733Total
      current liabilities
              
              
              1,376,179
              
              
              
              1,502,010Commitments
      and contingencies (See Note 9)Shareholders’
      equity:Common
      stock, $.001 par value; 30,000,000 shares authorized; 10,605,631 and
      10,598,131 shares issued and outstanding at December 31, 2009 and 2008,respectively
              
              
              10,606
              
              
              
              10,598Additional
      paid-in capital
              
              
              64,311,125
              
              
              
              63,665,060Accumulated
      deficit
              
              
              (46,304,284
              )
              
              
              (39,575,908
              )Total
      shareholders’ equity
              
              
              18,017,447
              
              
              
              24,099,750Total
      liabilities and shareholders’ equity
              
              $
              19,393,626
              
              
              $
              25,601,760
 
 
  The accompanying notes are an integral part of the consolidated
financial statements.
 F-3
  
  AETRIUM
INCORPORATED
 Consolidated
Statements of Changes in Shareholders’ Equity
   
  Common
      Stock
              Additional
                Paid-in
      Capital
              Accumulated
                Deficit
              Total
      Shareholders’ EquityShares
              Amount  Balance,
      December 31, 2007
                
                
                10,542,611
                
                
                $
                10,543
                
                
                $
                63,094,494
                
                
                $
                (38,963,465
                )
                
                $
                24,141,572Exercise
      of stock options
                
                
                165,159
                
                
                
                165
                
                
                
                455,767
                
                
                
                —
                
                
                
                455,932Repurchase
      of shares in connection with exercise of stock options
                
                
                (109,639
                )
                
                
                (110
                )
                
                
                (487,451
                )
                
                
                —
                
                
                
                (487,561
                )Share-based
      compensation expense
                
                
                —
                
                
                
                —
                
                
                
                602,250
                
                
                
                —
                
                
                
                602,250Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (612,443
                )
                
                
                (612,443
                )Balance,
      December 31, 2008
                
                
                10,598,131
                
                
                
                10,598
                
                
                
                63,665,060
                
                
                
                (39,575,908
                )
                
                
                24,099,750Exercise
      of stock options
                
                
                7,500
                
                
                
                8
                
                
                
                16,736
                
                
                
                —
                
                
                
                16,744Share-based
      compensation expense
                
                
                —
                
                
                
                —
                
                
                
                629,329
                
                
                
                —
                
                
                
                629,329Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (6,728,376
                )
                
                
                (6,728,376
                )Balance,
      December 31, 2009
                
                
                10,605,631
                
                
                $
                10,606
                
                
                $
                64,311,125
                
                
                $
                (46,304,284
                )
                
                $
                18,017,447
 
 
 
 
  The accompanying notes are an integral part of the consolidated
financial statements.
 F-4
  
  AETRIUM
INCORPORATED
 Consolidated
Statements of Cash Flows
  
  Year
      Ended December 31,
              
              2009
              
              
              2008Cash
      flows from operating activities:Net
      loss
              
              $
              (6,728,376
              )
              
              $
              (612,443
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              70,243
              
              
              
              100,773Share-based
      compensation expense
              
              
              629,329
              
              
              
              602,250Deferred
      income taxes
              
              
              2,616,000
              
              
              
              (299,000
              )Provision
      for bad debts
              
              
              —
              
              
              
              (6,212
              )Provision
      for excess and obsolete inventories
              
              
              155,000
              
              
              
              —Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (574,764
              )
              
              
              2,009,293Inventories
              
              
              1,534,579
              
              
              
              (1,466,971
              )Other
      current assets
              
              
              99,816
              
              
              
              62,707Other
      assets
              
              
              1,761
              
              
              
              72,665Trade
      accounts payable
              
              
              136,086
              
              
              
              (210,642
              )Accrued
      compensation
              
              
              (18,106
              )
              
              
              (382,907
              )Other
      accrued liabilities
              
              
              (160,133
              )
              
              
              (301,153
              )Net
      cash used in operating activities
              
              
              (2,238,565
              )
              
              
              (431,640
              )Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (25,396
              )
              
              
              (58,423
              )Collection
      of note receivable
              
              
              105,804
              
              
              
              90,667Net
      cash provided by investing activities
              
              
              80,408
              
              
              
              32,244Cash
      flows from financing activities:Proceeds
      from exercise of stock options
              
              
              16,744
              
              
              
              56,469Payments
      on long-term debt
              
              
              (11,678
              )
              
              
              (44,871
              )Repurchase
      of shares in connection with exercise of stock options
              
              
              —
              
              
              
              (88,098
              )Net
      cash provided by (used in) financing activities
              
              
              5,066
              
              
              
              (76,500
              )Net
      decrease in cash and cash equivalents
              
              
              (2,153,091
              )
              
              
              (475,896
              )Cash
      and cash equivalents at beginning of year
              
              
              11,628,962
              
              
              
              12,104,858Cash
      and cash equivalents at end of year
              
              $
              9,475,871
              
              
              $
              11,628,962Supplemental
      cash flow information:Cash
      paid (received) for:Interest
              
              $
              948
              
              
              $
              2,478Income
      taxes
              
              $
              1,004
              
              
              $
              (12,817
              )
 
 
 
 
  The accompanying notes are an integral part of the consolidated
financial statements.
 F-5
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  NOTE
1: BUSINESS DESCRIPTION
  Aetrium
Incorporated designs, manufactures and markets a variety of electromechanical
equipment used by the semiconductor industry to handle and test integrated
circuits, or ICs.  Our products are sold primarily to semiconductor
manufacturers and their assembly and test subcontractors located in the United
States and in foreign locations. References in the Notes to Consolidated
Financial Statements to “Aetrium,” “the company,” “we” or “our,” unless the
context otherwise requires, refer to Aetrium Incorporated and its consolidated
subsidiary and their respective predecessors.
  NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis of
Presentation:The consolidated financial statements include
the accounts of Aetrium Incorporated and its wholly owned
subsidiary.  All intercompany accounts and transactions have been
eliminated in consolidation.
  Use of
Estimates:The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates.
  Cash
Equivalents:  Cash equivalents consist of highly liquid
investments with a maturity of three months or less when purchased. Cash
equivalents at December 31, 2009 included investments in certificates of deposit
(CDs) of $4.0 million. Cash equivalents at December 31, 2008 included
investments in money market funds of $8.1 million and CDs of $3.5 million. In
accordance with ASC 820, “Fair Value Measurements and Disclosures,” money market
funds are classified as Level 1 investments and are recorded at fair value based
on quoted prices in active markets. CDs are classified as held-to-maturity Level
2 investments for which fair value is based on observable inputs other than
quoted prices in active markets. We recorded our CDs at cost, which at December
31, 2009 and 2008, approximated fair value. We maintain our cash equivalents in
accounts that, at times, may exceed the insurance limits of the Federal Deposit
Insurance Corporation.
  Accounts Receivable and Allowance for
Doubtful Accounts:Trade accounts receivable are recorded at
the invoiced amount and do not bear interest.  The allowance for
doubtful accounts is our best estimate of losses that may result from the
uncollectability of accounts receivable.  We determine the allowance
based primarily on an analysis of individual accounts.  We also
evaluate the collectability of our accounts receivable in the aggregate based on
factors such as the aging of receivable amounts, customer concentrations,
historical experience, and current economic trends and
conditions.  Account balances are charged off against the allowance
when we feel it is probable the receivable will not be recovered. We do not have
any off-balance-sheet credit exposure related to our customers.
  Inventories:Inventories
are valued at the lower of cost or market, with cost determined on a first-in,
first-out basis. We adjust our inventories for estimated excess and obsolete
items by reducing their carrying values to estimated realizable value based upon
assumptions about future product demand and market conditions.
   F-6
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  Property and
Equipment:Furniture, fixtures and equipment are recorded at
cost and are depreciated using the double declining balance method over
estimated useful lives ranging from three to seven years.  When assets
are retired or disposed of, the cost and accumulated depreciation are removed
from the accounts.  Depreciation expense was $0.1 million for the each
of the years ended December 31, 2009 and 2008.  Maintenance and
repairs are charged to expense as incurred.
  Valuation of Long-Lived
Assets:  Aetrium reviews its long-lived assets for impairment
whenever an event or change in circumstances indicates that the carrying value
of an asset may not be recoverable.  If such an event or change in
circumstances occurs and potential impairment is indicated because the carrying
values exceed the estimated future undiscounted cash flows, we would measure the
impairment loss as the amount by which the carrying value of the asset exceeds
its fair value. There were no impairment charges during the years ended December
31, 2009 and 2008.
  Revenue
Recognition:We recognize revenue on product sales when there
is persuasive evidence of an arrangement, the sales price is fixed or
determinable, title and risk of loss have passed to the customer, contractual
obligations have been substantially met, and collection of the related
receivable is reasonably assured. Revenue on spare parts and change kits is
generally recognized upon shipment. In some circumstances, revenue on equipment
sales is recognized subsequent to shipment. For example, equipment sales
contracts may specify that customer acceptance criteria be met. In such cases,
revenue for established equipment products that have previously met a customer’s
acceptance criteria is generally recognized upon shipment, provided the
equipment meets our final test requirements that we believe substantially
demonstrate conformance to the customer’s acceptance
criteria.  However, revenue for equipment products that are newly
designed or otherwise lack a reliable history of customer acceptance is deferred
until objective evidence of customer acceptance has been obtained. In situations
where equipment contracts include significant post-shipment obligations to be
performed by us, revenue for the entire transaction is deferred until such
obligations have been completed or, if applicable, the transaction is accounted
for as a multiple-element arrangement. For arrangements containing multiple
elements, the amounts allocated to delivered and undelivered elements are based
on their fair value and revenue is recognized upon delivery of each
element. Sales tax billed to customers is excluded from revenue. In
situations where equipment is shipped but revenue and the related receivable are
not recognized, the cost of the equipment is included in inventories in our
consolidated balance sheet.  We often receive payments from customers
prior to recognizing revenue.  For example, we may receive partial
payments prior to shipment, which we record as “customer deposits” or we may
receive partial payments after shipment but prior to recognizing revenue, which
we record as “deferred revenue.”  Customer deposits and deferred
revenue are recorded as liabilities and included as a component of “Other
accrued liabilities” in our consolidated balance sheet.  See Notes 6
and 7.
  Advertising
Costs:Advertising costs are expensed as incurred. Advertising
costs were immaterial for each of the years ended December 31, 2009 and
2008.
   F-7
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  Warranty Costs:Our
products are sold with warranty periods that vary by item and range up to two
years.  Estimated warranty costs are accrued in the period that the
related revenue is recognized. The following table summarizes product warranty
expense accruals and settlements for the two years ended December 31, 2009 (in
thousands):
  Accrual
                balance
      at
                beginning
      of
                year
              
              
              Accruals
      for
                warranties
              
              
              Settlements
                made
              
              
              Accrual
                balance
      at
                end
      of
                year2008
              
              $
              134
              
              
              $
              241
              
              
              $
              (260
              )
              
              $
              1152009
              
              
              115
              
              
              
              29
              
              
              
              (62
              )
              
              
              82
 
 Accrued
warranty costs are included in the caption “Other accrued liabilities” in our
consolidated balance sheet. See Note 7.
  Research and
Development:Research and development expenditures, which
include software development costs, are expensed as incurred. Accounting
Standards Codification (ASC) 730, “Research and Development” requires the
capitalization of certain software development costs once technological
feasibility is established, which we define as the completion of a working
model.  To date, the period between achieving technological
feasibility and the general availability of such software that is embedded in
our equipment has been short and software development costs qualifying for
capitalization have been insignificant.  Accordingly, we have not
capitalized any software development costs.
  Income Taxes:Income taxes are
accounted for in accordance with ASC 740, “Income Taxes.” We record income tax
expense or benefit based on our estimate of the effective tax rates for the
jurisdictions in which we do business. Deferred tax assets are recognized for
deductible temporary differences and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary
differences.  Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. We assess our income tax
positions for all years subject to examination based upon our evaluation of the
facts, circumstances and information available at the reporting dates. For those
tax positions where it is more likely than not that a tax benefit will be
sustained, we record the largest amount of tax benefit with a greater than 50
percent likelihood of being realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income
tax positions where it is not more likely than not that a tax benefit will be
sustained, no tax benefit is recorded. Interest expense associated with income
taxes, if any, is classified as income tax expense. See Note 12 for additional
information regarding income taxes.
   F-8
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  Loss Per Common Share:Basic
and diluted loss per common share is computed by dividing net loss by the
weighted-average number of common shares outstanding during each period. The
computation of diluted loss per share excludes the impact of stock options
because they would be antidilutive. A reconciliation of the number of shares
used in the computations of basic and diluted loss per share follows (in
thousands):
  Year
      ended Dec. 31,
              
              2009
              
              
              2008Weighted
      average common shares outstanding
              
              
              10,599
              
              
              
              10,583Potentially
      dilutive stock options
              
              
              —
              
              
              
              —Weighted
      average common shares outstanding,  assuming
      dilution
              
              
              10,599
              
              
              
              10,583
 
 As of
December 31, 2009 and 2008, there were 1,721,521 and 1,818,144 stock options
outstanding, respectively, that could have potentially impacted diluted income
per share.
  Share-Based
Compensation:We accounted for share-based compensation in
accordance with the provisions of ASC 718, “Compensation – Stock Compensation,”
which requires the measurement and recognition of all share-based compensation
under the fair value method.  See Notes 4 and 10 for additional
information regarding share-based compensation and our stock incentive
plan.
  NOTE
3: NOTE RECEIVABLE
  In
connection with the sale of our Dallas, Texas operations to WEB Technology, Inc.
(WEB) in 2006, we received a promissory note from WEB that provided for
installment payments through December 2008. In July 2008, at WEB’s request, the
note was restructured to provide for installment payments through December 2010.
The current portion of the note receivable balance is included in the caption
“Other current assets” and the long-term portion is included in the caption
“Other assets” in our consolidated balance sheet as follows (in
thousands):
  December
      31,
              
              2009
              
              
              2008Current
      portion - included in “Other current assets”
              
              $
              137
              
              
              $
              106Long-term
      portion - included in “Other assets”
              
              
              —
              
              
              
              137Total
      note receivable
              
              $
              137
              
              
              $
              243
  NOTE
4: SHARE-BASED COMPENSATION
  We
determine the fair value of share-based awards on the grant date using the
Black-Scholes option valuation model. We also use the Black-Scholes model to
determine the fair value of modifications to awards by determining and comparing
the fair value of the modified award with the fair value of the award
immediately before the modification. Option valuation models, including
Black-Scholes, require the input of subjective assumptions, and changes in the
assumptions used can materially affect the determination of the fair value of an
award. These assumptions include expected stock price volatility, risk-free
interest rate, expected dividend yield, and the expected life of the
award.  We estimate future stock price volatility based primarily on
historical daily stock price observations of our common
stock.  Risk-free interest rate is estimated based on U.S. Treasury
bill rates consistent with the expected term of an award. We assume an expected
dividend yield of zero based on our intention to retain any future earnings for
use in our operations. Expected life of an award is estimated primarily based on
vesting
   F-9
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  provisions,
the contractual term of the award, and historical experience of previous awards
with similar terms or, for situations in which historical experience is not
available or is deemed unreliable, we use the simplified method for estimating
the expected life of an award, as permitted by ASC 718. ASC 718 also requires
that estimated forfeitures be considered in the calculation of future
compensation expense at the date of grant. We use historical data, as adjusted
if deemed appropriate, to estimate future option forfeiture rates for purposes
of recognizing share-based compensation expense.
  Using the
Black-Scholes option valuation model, the weighted-average fair value of options
granted in 2009 and 2008 was determined to be $0.46 and $1.07,
respectively.  Weighted average assumptions used in applying the
Black-Scholes option-pricing model to estimate the fair value of options granted
were as follows:
  Year ended
      December 31,
              
              2009
              
              
              2008Expected
      dividend yield
              
              
              0
              %
              
              
              0
              %Expected
      stock price volatility
              
              
              48
              %
              
              
              42
              %Risk-free
      interest rate
              
              
              1.2
              %
              
              
              2.5
              %Expected
      life of options (years)
              
              
              3.5
              
              
              
              3.5
 
 In May
2009, Aetrium shareholders approved the re-pricing of certain outstanding stock
options that had been previously granted pursuant to our 2003 Stock Incentive
Plan. The modified options were held by 48option holders,
including Aetrium officers, directors and employees. A total of 1,536,249
options with exercise prices ranging from $3.095 to $4.33 per share were
modified to provide for exercise prices ranging from $2.2175 to $2.34 per share.
The new exercise prices were determined based on a formula tied to the fair
market value of our common stock on the modification date, which was $1.34 per
share. The incremental fair value of the option modifications, using the
Black-Scholes valuation model, was determined to be approximately
$117,000.  Of this amount, approximately $63,000 was related to vested
options and was expensed on the modification date. The remaining expense is
being recognized over the remaining vesting periods of the applicable
options.
  In
February 2009, pursuant to our 2003 Stock Incentive Plan, we granted a stock
option to purchase 30,000 shares of our common stock at an exercise price of
$1.265 per share, the fair market value of the common stock on the date of the
grant. The option vests in monthly increments over four years and will expire
five years after the grant date. The fair value of the option was determined to
be approximately $14,000, which amount is being expensed over the four-year
vesting period.
  Also in
February 2009, we modified the terms of vested options held by a former Aetrium
director who retired in December 2008. The options were to expire ninety days
following his retirement date. The options, which were “under water” on the
modification date, were modified to extend the expiration dates to their
respective original contract terms. The total fair value of the modifications
was less than $1,000.
  In
November 2006, we modified the terms of 223,000 stock options to reduce the
exercise prices to $3.00 per share (the then fair market value of a share of our
common stock).  The options had been originally granted pursuant to
our 2003 Stock Incentive Plan (Plan). None of the modified stock options were
held by named executive officers or directors of Aetrium.  In December
2008, we discovered that the Plan does not permit repricing of outstanding
options. In order to remain compliant with the provisions of the Plan, we
determined that the repriced options be deemed to continue to be outstanding on
their original terms and that the repricing action taken in November 2006 be
deemed a grant of 223,000 additional
   F-10
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  stock
options with exercise prices of $3.00 and otherwise on the terms granted in
November 2006. Cumulative share-based compensation expense associated with the
new options amounted to $98,000 and was recorded in the fourth quarter of
2008.  Aetrium’s financial statements for prior periods were not
restated as the impact of the additional stock options and related compensation
expense was determined to be immaterial.
  Share-based
compensation expense included in our consolidated statements of operations was
as follows (in thousands):
  Year
      ended December 31,
              
              2009
              
              
              2008Cost
      of goods sold
              
              $
              90
              
              
              $
              81Selling,
      general and administrative
              
              
              423
              
              
              
              412Research
      and development
              
              
              116
              
              
              
              109Total
      share-based compensation expense
              
              $
              629
              
              
              $
              602
  As of
December 31, 2009, we had approximately $0.7 million of unrecognized pretax
share-based compensation expense, which is expected to be recognized over a
weighted average period of 1.6 years.
  NOTE
5: RECENT ACCOUNTING PRONOUNCEMENTS
  Effective
with the quarter ended September 30, 2009, Aetrium adopted the Financial
Accounting Standards Board (FASB) Accounting Standards Codification(ASC)
105, “Generally Accepted Accounting Principles.” ASC 105 establishes the FASB
Accounting Standards Codification (“Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) in the United
States. The Codification also provides that rules and interpretive releases of
the U. S. Securities and Exchange Commission (SEC) issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. Since adopting this guidance, we have changed all references to
authoritative standards to be consistent with those set forth in the
Codification. The adoption of ASC 105 had no impact on our consolidated
financial position, results of operations or cash flows.
  In
October 2009, the FASB issued authoritative guidance for revenue recognition
with multiple deliverables. This authoritative guidance impacts the
determination of when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. Additionally, this
guidance modifies the manner in which the transaction consideration is allocated
to separately identified deliverables by no longer permitting the residual
method of allocating arrangement consideration. This new guidance is effective
for Aetrium at the beginning of fiscal year 2011, with early adoption permitted.
The implementation of this guidance is not expected to have a material impact on
our consolidated financial position, results of operations or cash
flows.
  In
October 2009, the FASB issued new accounting guidance for the accounting
for certain revenue arrangements that include software elements. The new
guidance amends the scope of pre-existing software revenue guidance by removing
from the guidance non-software components of tangible products and certain
software components of tangible products. The new guidance will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15,
   F-11
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  2010, and
will be effective for us at the beginning of fiscal year 2011. However, early
adoption is permitted. We are currently evaluating what impact, if any, this new
guidance will have on Aetrium.
  In May
2009, the FASB issued new accounting guidance regarding subsequent
events.  The guidance establishes general standards of accounting for
and disclosure of events or transactions occurring after the balance sheet date
but before financial statements are issued or are available to be
issued.  In addition, it requires disclosure of the date through which
subsequent events have been evaluated.  We adopted this guidance as of
June 30, 2009, which was the required effective date. This guidance was
subsequently amended and we are no longer required to disclose the date through
which we evaluate subsequent events.
  In
December 2007, the FASB issued new guidance regarding business combinations,
which establishes principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the fair value
of identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree at the acquisition date. This guidance also establishes
disclosure requirements to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
guidance became effective for Aetrium at the beginning of fiscal year 2009 and
had no impact on our consolidated financial position, results of operations or
cash flows.
  NOTE
6: INVENTORIES
  Inventories
are comprised of the following (in thousands):
  December
      31,
              
              2009
              
              
              2008Purchased
      parts and completed subassemblies
              
              $
              4,550
              
              
              $
              5,978Work-in-process
              
              
              896
              
              
              
              456Finished
      goods, including saleable demonstration equipment
              
              
              2,026
              
              
              
              2,686Equipment
      shipped, subject to revenue deferral
              
              
              —
              
              
              
              42Total
      inventories
              
              $
              7,472
              
              
              $
              9,162
 
 We adjust
our inventories for estimated excess and obsolete items by reducing their
carrying values to estimated realizable value based upon assumptions about
future product demand and market conditions. In December 2009, we completed an
analysis of inventories and determined that the realizable value of inventories
for certain of our older products had diminished. Accordingly, we increased our
inventory reserve by $155,000 in the fourth quarter of 2009. During fiscal year
2009, we disposed of obsolete inventories with a cost of approximately $0.8
million. Our reserve for excess and obsolete inventories was $0.9 million and
$1.6 million at December 31, 2009 and 2008, respectively.
   F-12
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  NOTE
7: OTHER ACCRUED LIABILITIES:
  Other
accrued liabilities are comprised of the following (in thousands):
  December
      31,
              
              2009
              
              
              2008Accrued
      commissions
              
              $
              59
              
              
              $
              75Accrued
      warranty
              
              
              82
              
              
              
              115Customer
      deposits and deferred revenue
              
              
              —
              
              
              
              61Accrued
      severance and related costs
              
              
              —
              
              
              
              102Accrued
      health insurance benefits
              
              
              79
              
              
              
              57Subtenant
      deposits
              
              
              21
              
              
              
              93Other
              
              
              160
              
              
              
              130Total
      other accrued liabilities
              
              $
              401
              
              
              $
              633
 
 NOTE
8: CREDIT AGREEMENT
  Aetrium
has a revolving credit line agreement with a bank that provides for borrowings
up to $2.0 million and bears interest at the prime rate plus 1.0% with a minimum
interest rate of 4.5%. The agreement is collateralized by substantially all of
our assets and expires in December 2010.  Advances under the agreement
are at the sole discretion of the bank. Therefore, there can be no assurance
that funds will be available to us under the agreement. At December 31, 2009 and
2008, there were no borrowings under line of credit agreements.
  NOTE
9: LEASE OBLIGATIONS
  We lease
our facility in North St. Paul, Minnesota from a limited liability company
controlled by a shareholder of Aetrium.  The shareholder is neither a
director nor officer of Aetrium, and, to our knowledge, does not own more than
five percent of our common stock.  The lease agreement provides for
monthly base rents that were $24,285 as of December 31, 2009 and increase 2%
annually through the end of the lease term.  The agreement expires on
February 28, 2011, at which time we have an option to extend the lease for an
additional five-year term.
  In 2000,
we vacated a leased facility in Poway, California under a lease agreement that
expired on January 31, 2010. Since 2006, the facility was subleased to two
independent parties with the sublease terms running concurrently through the end
of our lease term. During fiscal year 2009, one of the subtenants was in default
under its sublease agreement with us for non-payment of rents. This subtenant
indicated to us that it had received a substantial multi-year sales contract and
had commenced deliveries pursuant to the contract during 2009 but was not able
to pay us on a timely basis due to working capital constraints. In September
2009, we filed a legal action against the subtenant in the State of California
to recover amounts owed to us. During the fourth quarter of 2009, the subtenant
vacated the facility. As of December 31, 2009 the recorded receivable from the
subtenant for past-due rents and related costs had increased to $318,000.
Although we intend to pursue all legal remedies against this subtenant, we
determined it is unlikely we will recover the amounts owed to us under the
sublease agreement. Therefore, we recorded a charge of $318,000 in the fourth
quarter of 2009 to fully reserve this receivable. In addition, we recorded a
charge of $54,000 for the unpaid January 2010 rent and related costs we expect
to incur. The accrued expenses of $54,000 are included in “Other accrued
liabilities” in our consolidated balance sheet at December 31, 2009. The total
charge of $372,000 related to this matter is included in
   F-13
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  “Selling,
general and administrative expenses” in our consolidated statement of operations
for the year ended December 31, 2009.
  In late
March 2010, we reached an accord with the delinquent subtenant under which we
agreed to settle our claim for a cash payment of $175,000 if received by April
21, 2010. If we do not receive the cash payment by that date, under the terms of
the accord we will be awarded a default judgment against the subtenant in the
amount of approximately $423,000. We have no assurance that the subtenant will
make the agreed upon cash payment or that we would be able to collect any amount
on a default judgment if awarded.
  As of
December 31, 2009, future minimum annual lease payments under operating leases
were as follows (in thousands):
  2010
              
              $
              3472011
              
              
              50Total
      minimum lease payments
              
              $
              397
 
 Rent
expense, including facility and various short-term equipment operating leases,
was as follows (in thousands):
  Year
      ended Dec. 31,
              
              2009
              
              
              2008Paid
      to company controlled by shareholder
              
              $
              291
              
              
              $
              291Paid
      to others
              
              
              547
              
              
              
              536Sublease/assigned
      lease income
              
              
              (403
              )
              
              
              (521
              )Total
      net rent expense
              
              $
              435
              
              
              $
              306
  NOTE
10: STOCK OPTION PLAN
  In May
2003, Aetrium’s shareholders approved the adoption of the 2003 Stock Incentive
Plan (Plan).  Employees, officers, directors, consultants and
independent contractors providing services to us are eligible to receive awards
under the Plan.  The number of shares available for issuance under the
Plan is equal to 20% of the aggregate number of shares of common stock
outstanding less the total number of shares of common stock issuable upon the
exercise or conversion of any outstanding stock options, warrants or other stock
rights. The Plan is administered by the Compensation Committee of our board of
directors and provides for the granting of: (a) stock options; (b) stock
appreciation rights; (c) restricted stock; (d) performance awards; and (e)
stock awards valued in whole or in part by reference to or otherwise based upon
our stock.  Options granted under the Plan may be incentive stock
options or nonqualified stock options.  To date, nonqualified stock
options are the only awards that we have granted under the Plan.  The
Plan will terminate on February 28, 2013.  The Plan provides that the
Compensation Committee may, at its discretion, allow the exercise price of stock
options to be paid, in whole or in part, by tendering previously acquired shares
that have been held by the option holder for at least six months.
   F-14
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  The
following table summarizes activity under our stock incentive plan for the year
ended December 31, 2009:
  Number
                Of
      Shares
              
              
              Weighted
      Average
                Exercise
      Price
              
              Weighted
                Average
                Remaining
                Contract
      Term
              
              Aggregate
      Intrinsic Value
                (in
      thousands)Outstanding,
      January 1, 2009
              
              
              1,818,144
              
              
              $
              3.65Granted
              
              
              30,000
              
              
              
              1.27Exercised
              
              
              (7,500
              )
              
              
              2.23Forfeited
              
              
              (10,500
              )
              
              
              3.10Expired
              
              
              (108,623
              )
              
              
              4.70Outstanding,
      December 31, 2009
              
              
              1,721,521
              
              
              $
              2.34
              
              2.1
      years
              
              $
              497Options
      at December 31, 2009:Exercisable
      and expected to become exercisable
              
              
              1,687,091
              
              
              $
              2.34
              
              2.1
      years
              
              $
              487Exercisable
              
              
              1,227,540
              
              
              $
              2.37
              
              1.8
      years
              
              $
              328
 
 As
explained in Note 4, in May 2009, Aetrium shareholders approved the re-pricing
of certain outstanding stock options. A total of 1,536,249 options with exercise
prices ranging from $3.095 to $4.33 per share were modified to provide for
exercise prices ranging from $2.2175 to $2.34 per share. The December 31, 2009
balances in the table above reflect the modified exercise prices of such
options.
  The
aggregate intrinsic values in the table above represents the total pretax
intrinsic value (the difference between Aetrium’s closing stock price on
December 31, 2009 and the option exercise price) of all in-the-money stock
options that would have been received by the option holders had they exercised
their options on December 31, 2009. The aggregate intrinsic value of options
exercised during the years ended December 31, 2009 and 2008 was approximately
$1,000 and $270,000, respectively.  Total compensation expense
recognized for options vested during the years ended December 31, 2009 and 2008
was approximately $629,000 and $602,000 respectively.
  During
fiscal year 2008, in connection with certain stock option exercises, employees
surrendered 89,831 shares ($399,463 fair market value) and 19,808 shares
($88,098 fair market value) of common stock as payment for the exercise prices
and related withholding tax obligations, respectively, of such
options.
   F-15
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  The
following table summarizes information related to stock options outstanding at
December 31, 2009, all of which are nonqualified options and expire five years
after the grant date and of which 272,000 options were fully exercisable when
granted and 1,449,521 options become exercisable over four years from date of
grant. The table reflects the re-pricing of certain options as described
above:
  Options
      Outstanding
              
              
              Options
      ExercisableRange
      of
                Exercise
      Prices
              
              
              Number
                Outstanding
              
              Weighted
      Average
                Remaining
      Contractual Life
              
              Weighted
      Average
                Exercise
      Price
              
              
              Number
                Exercisable
              
              
              Weighted Average
      Exercise Price$
              1.27
              
              
              
              30,000
              
              4.1
      years
              
              $
              1.27
              
              
              
              6,250
              
              
              $
              1.272.22
      to 2.34
              
              
              
              1,528,749
              
              2.1
      years
              
              
              2.29
              
              
              
              1,084,229
              
              
              
              2.303.00
              
              
              
              162,772
              
              1.6
      years
              
              
              3.00
              
              
              
              137,061
              
              
              
              3.00$
              1.27
      to 3.00
              
              
              
              1,721,521
              
              2.1
      years
              
              $
              2.34
              
              
              
              1,227,540
              
              
              $
              2.37
  NOTE
11: EMPLOYEE SAVINGS 401(k) PLAN
  Aetrium
has a 401(k) employee savings plan, which covers full-time employees who are at
least 21 years of age.  Our contributions to the savings plan are at
the discretion of management.  We contributed $0 and $103,251,
respectively, to the plan in 2009 and 2008.
  NOTE
12: INCOME TAXES
  Income
tax expense (benefit) consists of the following components (in
thousands):
  Year
      ended December 31,
              
              2009
              
              
              2008Current
      tax expense:Federal
              
              $
              —
              
              
              $
              —State
              
              
              5
              
              
              
              6Total
      current expense
              
              
              5
              
              
              
              6Deferred
      tax expense (benefit):Federal
              
              
              2,471
              
              
              
              (283
              )State
              
              
              145
              
              
              
              (34
              )Total
      deferred expense (benefit)
              
              
              2,616
              
              
              
              (317
              )Total
      income tax expense (benefit)
              
              $
              2,621
              
              
              $
              (311
              )
 
 A
reconciliation of income tax expense (benefit) computed using the federal
statutory rate to the income tax expense (benefit) in our consolidated
statements of operations is as follows (in thousands):
  Year
      ended December 31,
              
              2009
              
              
              2008Tax
      computed at federal statutory rate
              
              $
              (1,397
              )
              
              $
              (314
              )State
      taxes, net of federal benefit
              
              
              (66
              )
              
              
              (48
              )Increase
      in tax from:Business
      meals and entertainment
              
              
              13
              
              
              
              15Tax
      credits
              
              
              —
              
              
              
              23Valuation
      allowance change
              
              
              4,064
              
              
              
              —Other,
      net
              
              
              7
              
              
              
              13Total
      income tax expense (benefit)
              
              $
              2,621
              
              
              $
              (311
              )
 
  F-16
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  Deferred
tax assets are comprised of the following (in thousands):
 December
      31,
              
              2009
              
              
              2008Accounts
      receivable
              
              $
              15
              
              
              $
              15Inventories
              
              
              389
              
              
              
              643Employee
      compensation and benefits
              
              
              622
              
              
              
              428Amortization
      of intangibles
              
              
              327
              
              
              
              599NOL
      and tax credit carryforwards
              
              
              24,169
              
              
              
              22,489Severance
      and related cost accruals
              
              
              —
              
              
              
              36Warranty
      accrual
              
              
              30
              
              
              
              47Reserve
      for loss on sublease contract
              
              
              134
              
              
              
              —Other,
      net
              
              
              57
              
              
              
              38Deferred
      tax assets
              
              $
              25,743
              
              
              $
              24,295Less,
      valuation allowance
              
              
              (25,743
              )
              
              
              (21,679
              )Net
      deferred tax assets
              
              $
              —
              
              
              $
              2,616
 
  Deferred
tax assets are classified in our consolidated balance sheet as follows (in
thousands):
  December
      31,
              
              2009
              
              
              2008Current
      assets
              
              $
              —
              
              
              $
              127Noncurrent
      assets
              
              
              —
              
              
              
              2,489Total
              
              $
              —
              
              
              $
              2,616
 
 We record
the benefit we will derive in future accounting periods from tax losses and
credits and deductible temporary differences as “deferred tax assets,” which are
included in the caption “Deferred income taxes” on our consolidated balance
sheet.  In accordance with Accounting Standards Codification (ASC)
740, “Income Taxes,” we record a valuation allowance to reduce the carrying
value of our deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. At December 31, 2007, we had recorded a valuation allowance of
approximately $21.7 million based on our assessment of the realizability of our
deferred tax assets at that date. At December 31, 2008, we assessed the
realizability of our deferred tax assets and the amount of our valuation
allowance. We considered that business conditions had deteriorated late in 2008
and would likely continue to be weak through the first half of 2009. We also
considered our cumulative profit over the previous three-year period and our
future profit potential. Based on our assessment of these and other relevant
factors, we determined that there was not sufficient positive or negative
evidence to warrant an increase or decrease in the amount of the valuation
allowance and that a valuation allowance of $21.7 million was appropriate at
December 31, 2008.
 
 Economic
and semiconductor industry business conditions remained weak in the first half
of 2009 and Aetrium incurred operating losses during this period. General
economic and semiconductor industry conditions showed improvement in the second
half of the year and Aetrium’s operating results improved such that our net
sales increased to $5.7 million in the second half of 2009 compared with $2.9
million in the first half. Despite the improvement in sales in the second half
of the year and our ongoing cost containment efforts, we incurred additional
losses in the third and fourth quarters of the year that placed us in a three
year cumulative loss position at December 31, 2009. Although we expect that
general economic and semiconductor industry business conditions will likely
continue to improve in 2010, we determined there was not sufficient positive
evidence regarding our potential for future profits to
   F-17
 AETRIUM
INCORPORATED
  Notes
to Consolidated Financial Statements
  outweigh
the negative evidence of our three year cumulative loss position under the
guidance provided in ASC 740.  Therefore, we determined that our
valuation allowance should be increased to $25.7 million to fully reserve our
deferred tax assets at December 31, 2009. We expect to continue to maintain a
full valuation allowance until we determine that we can sustain a level of
profitability that demonstrates our ability to realize these assets. To the
extent we determine that the realization of some or all of these benefits is
more likely than not based upon expected future taxable income, a portion or all
of the valuation allowance will be reversed.  Such a reversal would be
recorded as an income tax benefit and, for some portion related to deductions
for stock option exercises, an increase in shareholders' equity.
  Aetrium
has federal net operating loss carryforwards of approximately $66 million that
will begin to expire in 2020 if not utilized.  We also have state net
operating loss carryforwards of approximately $23 million that will expire at
various times, beginning in 2010, if not utilized.  We also have
federal and state research tax credit and alternative minimum tax credit
carryforwards of approximately $1.3 million that will expire at various times,
beginning in 2013, if not utilized.  The utilization of net operating
loss carryforwards and research tax credit carryforwards may be subject to
annual limitations in the event of future changes in ownership pursuant to the
requirements of Section 382 of the Internal Revenue Code. Such limitations could
result in the expiration of net operating loss and tax credit carryforwards
before utilization.
  Our
federal and state operating loss carryforwards include windfall tax deductions
from stock option exercises.  In accordance with ASC 740, the amount
of windfall tax benefit recognized in additional paid-in capital is limited to
the amount of benefit realized currently in income taxes payable. As of December
31, 2009, Aetrium had suspended additional paid-in capital credits of $1.2
million related to windfall tax deductions. Upon realization of the net
operating loss carryforwards from such windfall tax deductions, we would record
a benefit of up to $1.2 million in additional paid-in capital.
  We
assessed our income tax positions at December 31, 2009 and 2008 for all years
subject to examination and determined that our unrecognized tax positions were
immaterial at those dates.
  Aetrium
is subject to income tax examinations in the U.S. federal and certain state
jurisdictions.  There are currently no income tax examinations in
progress.  Federal and state income tax returns are subject to review
for fiscal years 2006 through 2009.
  NOTE
13: PRODUCT LINE, GEOGRAPHIC, SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT
RISK DATA
  The
following table sets forth the various components of net sales by product line
as a percentage of total sales:
  Year
      ended December 31,
              
              2009
              
              
              2008Test
      handler products
              
              
              48
              %
              
              
              59
              %Reliability
      test equipment products
              
              
              17
              
              
              
              15Change
      kits and spare parts
              
              
              35
              
              
              
              26Total
              
              
              100
              %
              
              
              100
              %
 
  F-18
  All of
our long-lived assets are located in the United States. Sales by geographic area
based on product shipment destination were as follows (in
thousands):
  Year
      ended December 31,
              
              2009
              
              
              2008United
      States
              
              $
              1,896
              
              
              $
              2,625Thailand
              
              
              2,661
              
              
              
              163Philippines
              
              
              2,187
              
              
              
              3,017Malaysia
              
              
              300
              
              
              
              7,986Singapore
              
              
              944
              
              
              
              831Other
      foreign countries
              
              
              661
              
              
              
              2,595Total
              
              $
              8,649
              
              
              $
              17,217
 
 Sales to
customers comprising more than 10% of our total net sales and accounts
receivable from customers comprising more than 10% of our total accounts
receivable are summarized below:
  Percent
      of total sales
                for
      year ended December 31,
              
              
              Percent
      of total accounts
                receivable
      as of December 31,2009
              
              
              2008
              
              
              2009
              
              
              2008Customer
      A
              
              
              58
              %
              
              
              25
              %
              
              
              60
              %
              
              
              61
              %Customer
      B
              
              
              20
              %
              
              
              40
              %
              
              
              35
              %
              
              
              *Customer
      C
              
              
              *
              
              
              
              11
              %
              
              
              *
              
              
              
              *Customer
      D
              
              
              *
              
              
              
              *
              
              
              
              *
              
              
              
              14
              %
 ______________
 * Percent
was less than 10% of the total.
  We sell
our products principally to manufacturers of integrated circuits.  Our
accounts receivable balance is concentrated with customers principally in one
industry.  We regularly monitor the creditworthiness of our customers
to manage this collection risk.  A reduction, delay or cancellation of
orders from one or more of these significant customers, or the loss of one or
more of these customers, would likely have a significant adverse impact on our
operating results.
   F-19
  
  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
      INCORPORATEDDate:  March
      30, 2010
              By:  /s/ Joseph C.
      LevesqueJoseph
      C. LevesqueChief
      Executive Officer(principal
      executive officer)By:/s/ Paul H.
      AskegaardPaul
      H. AskegaardTreasurer(principal
      financial and accounting officer)
  
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on March 30, 2010 by the following persons on behalf of the
registrant and in the capacities indicated.
  Signature
              
              Title/s/ Joseph C. Levesque
              
              Chairman
      of the BoardJoseph
      C. Levesque/s/ Darnell L. Boehm
              
              DirectorDarnell
      L. Boehm/s/ Terrence W. Glarner
              
              DirectorTerrence
      W. Glarner/s/ Daniel A. Carr
              
              DirectorDaniel
      A. Carr/s/ Charles B. Westling
              
              DirectorCharles
      B. Westling/s/ John J. Pollock
              
              DirectorJohn
      J. Pollock/s/ Douglas L. Hemer
              
              DirectorDouglas
      L. Hemer
  
  
  AETRIUM
INCORPORATED
  EXHIBIT
INDEX TO ANNUAL REPORT ON FORM 10-K
  FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
 Item
                No.
              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 3.1 to our Form 8-K dated October 20, 2009 (File
      No. 0-22166).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
              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).10.2
              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).10.3
              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).10.4
              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).10.5
              Form
      of Amendments to Change of Control Agreement
              Incorporated
      by reference to Exhibit 10.18 to our Annual Report on Form 10-K for the
      year ended December 31, 2007 (File No. 0-22166).10.6
              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).
  E-1
   
  10.7
              Commercial
      Lease dated February 24, 2006 between Kamko I, LLC and us.
              Incorporated
      by reference to Exhibit 10.24 to our Annual Report on Form 10-K for the
      year ended December 31, 2006 (File No. 0-22166).10.8
              Asset
      Purchase Agreement, dated December 28, 2006, between WEB Technology, Inc.
      and us.
              Incorporated
      by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
      January 5, 2007 (File No. 0-22166).10.9
              Executive
      Officer Profit Sharing Program.
              Incorporated
      by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
      January 23, 2007 (File No. 0-22166).10.10
              Business
      Loan Agreement, dated December 3, 2009, between Bremer Bank and
      us.
              Filed
      herewith electronically.10.11
              Note,
      dated December 3, 2009, issued by us to Bremer Bank.
              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 21.1 to our Annual Report on Form 10-K for the
      year ended December 31, 2007 (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.32.1
              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-2
  SCHEDULE
II
  Valuation
and Qualifying Accounts
  AdditionsDescription
              
              Balance
      at
                beginning
      of
                year
              
              
              Charged
      (credited) to costs and expenses
              
              
              Charged
      to
                other
      accounts
              
              
              Deductions
              
              
              Balance
      at
                end
      of
                yearAllowance
      for doubtful accounts:2008
              
              $
              46
              
              
              $
              (6
              )
              
              $
              0
              
              
              $
              0
              
              
              $
              402009
      (1)
              
              
              40
              
              
              
              (4
              )
              
              
              0
              
              
              
              (4
              )
              
              
              40Inventory
      excess and obsolescence reserve (2):2008
              
              $
              1,760
              
              
              $
              0
              
              
              $
              0
              
              
              $
              (198
              )
              
              $
              1,5622009
              
              
              1,562
              
              
              
              155
              
              
              
              0
              
              
              
              (817
              )
              
              
              900Valuation
      allowance on deferred tax assets:2008
              
              $
              21,679
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              21,6792009
              
              
              21,679
              
              
              
              4,064
              
              
              
              0
              
              
              
              0
              
              
              
              25,743
  (1)
              Deduction
      represents recovery of account previously written
  off.
  (2)
              Deductions
      represent disposals of reserved
inventory.
   S-1