<PAGE>



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                  FORM 10-KSB

     (Mark One)

     [X]    Annual report under Section 13 or 15(d) of the Securities Exchange
            Act of 1934 for the fiscal year ended December 31, 2001

     [_]    Transition report under Section 13 or 15(d) of the Securities
            Exchange Act of 1934 for the transition period from_____________ to
            _____________

                            APOGEE TECHNOLOGY, INC.
                            -----------------------
                 (Name of Small Business Issuer in its charter)

            DELAWARE                                      04-3005815
   (State or other jurisdiction                         (IRS employer
 of incorporation or organization)                    identification no.)

129 MORGAN DRIVE, NORWOOD, MASSACHUSETTS                    02062
(Address of principal executive offices)                 (Zip Code)

                                 (781) 551-9450
                (Issuer's telephone number, including area code)

     SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
     SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                      COMMON STOCK, $.01 PAR VALUE PER SHARE
                                (Title of class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                             Yes  X    No
                                 ---     ---

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

     The registrant had revenues of approximately $2,181,000 in the fiscal year
ended December 31, 2001. The aggregate market value of the voting stock held by
non-affiliates of the registrant on March 15, 2002 was approximately
$25,555,200.00. As of March 15, 2002, 5,228,051 shares of Common Stock, $.01 par
value per share, of the registrant were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-KSB: Certain information required in
Part III of this Annual Report on Form 10-KSB is incorporated from the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 10, 2002.

     Transitional Small Business Disclosure Format:  Yes       No  X
                                                          ---     ---

<PAGE>


                                   PART I

     THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS AS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES", "ANTICIPATES", "PLANS", "EXPECTS", AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE IMPORTANT
FACTORS DISCUSSED IN ITEM 1, "DESCRIPTION OF BUSINESS", AND ITEM 7 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", AMONG
OTHERS, COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED BY FORWARD-LOOKING STATEMENTS MADE HEREIN AND PRESENTED ELSEWHERE BY
MANAGEMENT FROM TIME TO TIME.

ITEM 1.     DESCRIPTION OF BUSINESS.

         Apogee Technology designs, develops and markets semiconductor products,
or integrated circuits (ICs), that incorporate the company's patented Direct
Digital Amplification (DDX(R)) technology. The Company believes the DDX
technology's all-digital design and high efficiency operation has significant
commercial benefits for consumer electronic manufacturers, as well as, end users
compared to traditional audio amplifier technology. The benefits include
reducing final product size and cost, providing true digital audio reproduction,
increasing audio functionality through digital integration and extending
playback time in battery applications. DDX-based IC products are intended for a
range of audio applications including home theater systems, powered speakers,
car audio, commercial audio, and PC multi-media. The company markets DDX
products using a worldwide network of direct sales staff, independent sales
representatives and distributors.

         Under a licensing agreement with STMicroelectronics, NV, the third
largest semiconductor company in the world, the Company is developing and
providing intellectual property to be used in royalty bearing products produced
by STMicroelectronics. In addition, the Company and STMicroelectronics have
signed a development agreement (see ITEM 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Subsequent Events")
whereby the companies will develop and market new semiconductor products that
leverage Apogee's DDX technology and STMicroelectronics' intellectual property
and semiconductor design, development and manufacturing capability.

         A DDX amplifier solution is implemented with a DDX Controller and a DDX
Power Device. The Company began development of the first Controller, the
"DDX-2000" in 1996 and completed the design in 1999. The first power device, the
"DDX-2060" was completed in November 2000. Samples of the DDX-2000 and DDX-2060
were provided to customers for testing during the fourth quarter of 2000 and
full production parts were released in May of 2001. The Company subsequently
released the DDX-4100 Controller and the DDX-2100 Power devices.

         The Company expects to release in 2002 additional DDX Controller and
Power Devices.

         In the first half of 2001, the Company signed a sales representative
agreement covering Korea and a distribution and sales representative agreement
covering Taiwan, Hong Kong, China, Japan and Singapore. The Company plans to
continue to build its network of distributors and representatives to market
semiconductors and circuit boards that incorporate its DDX technology.

         As a result of the company's marketing and sales activities, there are
currently over 85 companies designing products using DDX technology and 8
companies in pre-production or production. One announced product is a new
Zenith Electronics DA3520 DVD Dolby Digital Surround Sound System that plays
both CDs and DVDs and includes a radio tuner and six loudspeakers powered by
180 Watts of DDX amplification.

         Apogee was organized as a Delaware corporation on July 1, 1987, and
initially operated through its wholly-owned subsidiary, Apogee Acoustics,
Incorporated ("Acoustics"). Apogee discontinued its loudspeaker business under
Acoustics in 1995 and, since that time, has focused exclusively on the research,
development and commercialization of DDX amplifier technology.

INDUSTRY TRENDS AND THE DDX ADVANTAGE

         Digital technology is rapidly transforming the way consumers obtain,
record, view and listen to content. Traditional analog formats of TV, radio,
VCR, and cassettes are being replaced with digital standards like DVDs, CDs,
Digital Cable, MP3/Internet audio, and digital radio, which provide better
audio/video quality. The Company believes that over the next several years most
audio/video material will be distributed using digital technology. Along with
this transition, the consumer is demanding smaller, more integrated systems,
such as the DVD receiver that includes a DVD/CD player, radio tuner, six
channels of amplification and speakers.

                                       2

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         The Company believes that it is uniquely positioned to take advantage
of these market trends because the DDX technology provides digital quality audio
reproduction, reduces system cost, and is compact compared to traditional audio
amplifier solutions. These benefits are derived from the all-digital design and
the high operational efficiency.

         Existing audio products use analog audio amplifier ICs to amplify
analog signals. This technology is suitable for products such as record players
and cassette tapes that produce analog signals. However, with the advent of
digital audio playback, an additional IC (digital to analog converter, or DAC)
is required to convert the digital signal to an analog signal suitable for
amplification. DDX's all-digital design eliminates the cost of the DAC and the
potential quality losses in the conversion and transmission of the analog
signals. Thus, with DDX consumers can enjoy the excitement and quality of true
digital audio reproduction in a low cost product. In addition, because DDX is a
digital implementation, other audio functions such as bass/treble and volume
can be integrated easily into DDX-based ICs, thereby lowering overall cost.

         An additional problem with analog amplifier solutions is their very low
operational efficiency. Like a light bulb whose goal is to produce light, their
poor efficiency results in enormous amounts of waste heat. The goal of an analog
amplifier is to produce power to drive a speaker, but because of their poor
efficiency they also produce waste heat, which has to be managed using a large
piece of metal, or heat sink. Because of the size of the heat sink, analog
amplifiers are virtually eliminated from use in compact integrated products such
as a DVD receiver.

         Analog amplifiers' poor efficiency also increases the size and cost of
the amplifier power supply. As an example, analog amplifiers have a peak
efficiency of approximately 60% compared to DDX, which has a peak efficiency of
90%. A typical DVD receiver, which outputs approximately 300 watts of audio
power, would require a 500 watts (300/60%) power supply with an analog amplifier
solution. This compares to only 330 Watts (300/90%) for a DDX based design - a
significant savings for a consumer product.

         DDX's digital design and high efficiency will benefit both existing and
emerging audio applications. These products include: DVD receivers, digital TVs,
cable system components, and fully integrated digital- powered speaker systems.
New technologies, such as MP3 players, digital playback devices and Internet
appliances, can be made fully digital with DDX amplifier solutions.

         With the emergence of home networking, DDX can be integrated with the
network interface to provide consumers with pure digital sound throughout their
homes at low cost. DDX allows audio systems to be installed in wall or ceiling
spaces without the typical thermal problems associated with analog amplifier
installations. In addition, because of DDX's higher efficiency, more amplifiers
can be powered and a higher audio output can be produced in network applications
operating from a remote power source.

         DDX amplifier solutions can also meet the requirements of many
traditional audio applications. In the home audio and PC multimedia markets, OEM
manufacturers will recognize efficiencies gained through the incorporation of
smaller configuration DDX amplifiers in powered speakers. DDX's smaller and more
efficient design will enable car audio designs to deliver more power in a
smaller space. Portable audio, hand-held systems and mobile communication
devices will also benefit from longer battery life resulting from DDX's greater
efficiency.

PRODUCTS

         The Company is commercializing DDX technology by developing and
providing intellectual property products to its licensee, STMicroelectronics,
and DDX-based semiconductor products to manufacturers of audio systems. The
Company also supplies customers with circuit boards to support the marketing and
sales of DDX semiconductor products.

                                       3

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         a)  Intellectual Property Products

         The Company has developed and delivered several DDX controller core and
DDX power technology products to support its licensing activities with
STMicroelectronics. In 2001, the Company delivered Controller designs to
STMicroelectronics to support two new DDX product developments. The Company
developed and applied for patent protection on a DDX design to support low power
applications such as headphone amplifiers. The Company intends to develop new
intellectual property products to expand its licensing activities.

         b)  Semiconductor Products

         The Company is currently developing and marketing two different types
of DDX semiconductor products. The first is a digital IC that implements DDX and
other digital audio processing and is referred to as a "Controller". DDX
Controller ICs are manufactured utilizing standard digital IC processes. The
second component or "Power Device" converts the Controller outputs into power
outputs to drive a loudspeaker. DDX Power ICs are manufactured using a
proprietary semiconductor process developed by STMicroelectronics. Both a DDX
Controller and a DDX Power Device are required to implement a complete audio
amplifier solution.

         The Company has released two Controller and two Power devices developed
for medium power audio applications. The Company plans to develop new DDX ICs to
expand the market applications for the technology. The following DDX IC products
have been released or will soon be on the market:

DDX-2000 Controller: A two-channel DDX controller that includes a standard audio
serial interface, volume control, and a dynamic compression algorithm to reduce
amplifier distortion. The device was released to production in December 2000.

DDX-2060 Power Device: The DDX-2060 is a surface mount high efficiency power IC
that provides two channels of up to 35 watts into a standard 8 Ohm speaker load,
or 70 watts into a 4 Ohm speaker load. The device was released to production in
May 2001.

DDX-4100 Controller: The DDX-4100 integrates multiple digital audio interfaces,
volume, bass/treble, dynamic compression and other digital audio functions plus
4.1 channels of DDX outputs. The device was released to production in May 2001.

DDX-2100 Power Device: The DDX-2100 is a high efficiency power IC that provides
two channels of up to 50 watts into a standard 8 Ohm speaker load, or one
channel of 100 watts in a 4 Ohm speaker load. The device is expected to be
released to production in March 2002.

DDX-8000 Controller: The DDX-8000 integrates a configurable audio serial
interface, specialized audio processing and eight channels of DDX outputs. The
device is expected to be released in the second quarter of 2002 and is targeted
for the DVD receiver market.

     c)  Board Products

     The Company is developing circuit boards to demonstrate the application of
its DDX semiconductor products. These products are provided to customers to
support technology and product evaluation and to support customer engineering
design activities. At this time, the Company has released four evaluation
boards.

MARKETING & SALES

         The Company is marketing DDX technology to leading audio manufacturers
whose products can benefit from the technology's high efficiency all-digital
design.

         The Company relies on a direct sales force, independent sales
representatives and distributors to promote DDX products worldwide. In Asia,
where most of the world's consumer electronics products are manufactured, the
Company utilizes a representative in Korea and independent distributors in Hong
Kong, China, Japan, Taiwan, and the Asia/Pacific geographic region. A direct
sales force is utilized for sales in the US and the rest of the world. The
Company's sales headquarters are located in Norwood, Massachusetts and during
2002 the Company intends to open an Asian sales office in Hong Kong. A product
application group supports customer marketing and development activities.

         The Company markets its products by exhibiting and attending key
industry tradeshows, as well as through targeted public relations efforts,
e-mail, direct mailing


                                       4

<PAGE>

programs, and through the Company web site at http://www.apogeeddx.com. The
Company is promoting the DDX trademark to enhance the value of its products to
manufacturers and consumers.

MANUFACTURING AND QUALITY

         The Company utilizes two independent semiconductor companies to
manufacture, package and test its IC products. Independent contract
manufacturers are utilized to produce and test the Company's circuit board
assemblies. The Company orders, inventories and ships ICs and circuit board
products from its headquarters in Norwood, Massachusetts.

         OKI Semiconductor supplies the DDX-2000 device and STMicroelectronics
supplies the remaining DDX ICs. Per the terms of the Company's licensing
agreement with STMicroelectronics, all future DDX audio products will be
manufactured and supplied by STMicroelectronics. From both suppliers, Apogee
receives packaged, fully tested devices that pass the suppliers' internal
quality control. The Company believes that its suppliers will have the capacity
to meet Apogee's sales projections in the foreseeable future.

         In October of 2001, the Company initiated a quality program to improve
manufacturing and other Company processes. The Company established a quality
management system and procedures in 2001 and expects to receive ISO9001
certification during the first half of 2002.

RESEARCH AND DEVELOPMENT

         During the past three years ended December 31, 2001, 2000 and 1999, the
Company spent approximately $1.1 million, $869,000 and $658,000, respectively,
on research and development activities.

COMPETITION

         Integrated audio amplifier ICs marketed today primarily consist of; (1)
analog amplifiers known as Class A/B amplifiers; (2) analog high efficiency
designs, known as Class D amplifiers, and (3) digital high efficiency designs
like DDX. There are several companies currently marketing analog Class D
amplifier products including National Semiconductor Corporation, Philips
Electronics, STMicroelectronics, Texas Instruments, Incorporated and Tripath
Technology, Incorporated. STMicroelectronics, under a licensing agreement with
Apogee, and Texas Instruments, Incorporated are currently marketing complete
digital Class D solutions. Companies including Cirrus Logic, Incorporated and
Pulsus Technologies, Inc. are marketing digital Class D Controller solutions
without an integrated power device.

         The Company believes that the competitive advantage of its products is
the level of integration and operational efficiency; as well as its low cost
solution. The DDX Controller design is digital, which allows the integration of
other digital audio functions such as bass/treble, volume, and equalization to
lower overall system cost - an approach that cannot be accomplished economically
using analog solutions in a single IC. DDX efficiency is also greater than
analog Class A/B and analog Class D amplifiers, providing manufacturers with
power supply and product savings. The pricing agreements with STMicroelectronics
and OKI Semiconductor provide for a cost structure that Apogee believes will
allow it to compete effectively in the marketplace with acceptable operating
margins.

EMPLOYEES

         As of December 31, 2001, the Company had 22 employees, of which 19 were
full-time employees, including 15 in research and development, 4 in sales and
marketing and 3 in general and administration. None of the employees are
represented by a collective bargaining agreement, nor has the Company
experienced work stoppages. The Company believes that relations with its
employees are good.

            The following table sets forth certain information with respect to
the executive officers of Apogee Technology. All officers serve at the pleasure
of the Board of Directors.


                                       5

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

Name              Age          Position

Herbert M. Stein  73           Chief Executive Officer and Chairman of the Board
David Spiegel     45           Secretary and Treasurer
David B. Meyers   43           Chief Operating Officer
Andrew A. Adrian  38           Vice President of Engineering
Antonio Visconti  42           Vice President of Sales and Marketing

Mr. Herbert M. Stein has served as the Company's Chief Executive Officer since
January 2001. Mr. Stein has been a Director of the Company since 1996 and has
been Chairman of the Board since January 2000. Mr. Stein was Chairman of the
Board of Directors of Organogenesis Inc. from 1991 through 1999 and was Chief
Executive Officer of Organogenesis from 1987 through 1999.

Mr. David Spiegel has served on the Company's Board of Directors since 1987, as
Secretary and Treasurer since 2001, as President and Treasurer of the Company
from 1995 to 2000 and as Chairman of the Board from 1996 to 1999. He is Vice
President of Gallery Automotive Group, Inc.

Mr. David B. Meyers was appointed the Company's Chief Operating Officer in
February 2001. From January 2000 until February 2001 he was the Company's
Vice-President, Business Development. Prior to joining the Company in 1996, Mr.
Meyers was a principal engineer with Arinc Research Corporation and held various
engineering and research positions at Northrop Grumman Corporation and Rockwell
International.

Mr. Andrew A. Adrian has served as the Company's Vice President of Engineering
since August 2001. From 1995 to 2001 he was a principal engineer with the
Company. Prior to joining the Company in 1995, Mr. Adrian was a design engineer
with Northrop Grumman Corporation.

Mr. Antonio Visconti was appointed as the Company's Vice President, Sales and
Marketing in December 2001. Prior to joining the Company, Mr. Visconti most
recently was Vice President, Marketing and Business Development with Smart Link,
Ltd. From 1996 until 2000, Mr. Visconti was Director of Business Development
with STMicroelectronics in California.

ITEM 2.   Description of Property.

         The Company leases approximately 5,000 square feet at 129 Morgan Drive,
Norwood, Massachusetts. This lease expires on September 30, 2003. The 5,000
square foot area is leased at a below-market rate.

ITEM 3.   Legal Proceedings.

         From time to time, the Company may be involved in litigation that
arises through the normal course of business. As of the date of filing of this
Form 10-KSB, the Company is not party to any litigation that is required to be
disclosed pursuant to this item, except as follows:

         On February 19, 2002, Acoustic Technology, Inc. ("ATI") filed a
complaint in the Superior Court of Suffolk County, Massachusetts, against Mr.
Tak Ping Tsui, a former employee of ATI and a current employee of the Company,
in which the Company was also named as a defendant. The complaint alleges that
the Company interfered with ATI's noncompete agreement with Mr. Tsui and
violated the Massachusetts statutes on unfair and deceptive trade practices and
trade secrets by hiring Mr. Tsui. ATI has claimed $1,000,000 in damages from Mr.
Tsui and the Company. On February 26, 2002, the Suffolk County Superior Court
denied, without prejudice, ATI's motion for a preliminary injunction seeking to
stop the Company from continuing to employ Mr. Tsui and to require the Company
to provide information regarding Mr. Tsui's employment by the Company. The
Company intends to defend vigorously the claims against it in this matter.
Further, the Company has brought a counterclaim against ATI for unfair and
deceptive trade practices and unfair methods of competition.

ITEM 4.   Submission of Matters to a Vote of Security Holders.


                                       6

<PAGE>

            No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.

                                    PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters.

         The Company's Common Stock was listed on the NASDAQ Stock Market
(formerly the National Association of Securities Dealers' Automated Quotation
System) from July 15, 1988 to June 8, 1992 under the symbol APGG. The Common
Stock was also listed on the Boston Stock Exchange under the symbol APG from
February 14, 1990 until December 18, 1992.

         From June 9, 1992 to September 1, 1999, the Company's Common Stock was
quoted on the Over-the-Counter Bulletin Board (the "OTCBB") of the NASDAQ Stock
Market, Inc. under the symbol APGT. From September 1, 1999, the Company's Common
Stock was no longer eligible for quotation on the OTCBB due to the phase-in
implementation of NASD Rule 6530 requiring all OTCBB quoted companies to report
their current financial information to the Securities and Exchange Commission
(the "SEC"). From September 1, 1999 to September 12, 2000, the Company's Common
Stock was quoted on the National Quotation Bureau's Pink Sheets. On August 29,
2000, the Company's Registration Statement on Form 10-SB to register its Common
Stock under the Securities Exchange Act of 1934 was declared effective by the
Securities and Exchange Commission and on September 12, 2000, the Common Stock
resumed being quoted on the Over the Counter Bulletin Board (the "OTCBB") under
the symbol APGT. On September 14, 2001, Nasdaq approved the Company's
application to list its securities on The Nasdaq SmallCap Market under the
symbol APGT.

         Set forth below for the periods specified are the ranges of high and
low closing bid prices for the Common Stock as published by the Nasdaq SmallCap
Market, the OTCBB and the Pink Sheets, as indicated. The bid quotations
represent inter-dealer prices, without adjustment for mark-ups, mark-downs or
commissions and do not necessarily represent actual transactions.

                                                   Closing Bid Price
                                           ---------------------------------
                                                Low               High
                                           ---------------    --------------
2000:
         First Quarter                         1.250             3.250
         Second Quarter                        2.000             7.750
         Third Quarter (on the Pink
         Sheets through September 11,          4.000            13.500
         2000)

         Third Quarter (on the OTCBB
         from September 12, 2000)              9.500            14.350

         Fourth Quarter                       10.250            14.875

2001:    First Quarter                        10.250            16.250
         Second Quarter                       11.950            23.000
         Third Quarter                         8.510            19.500
         Fourth Quarter (on the Nasdaq Small   9.220            15.100
           Cap Market from September 14, 2001)

         As of March 15, 2002, there were 90 holders of record and approximately
345 beneficial holders of 5,228,051 outstanding shares of Common Stock of the
Company.

DIVIDENDS

         The Company has never paid cash dividends and does not plan to pay any
cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

         Set forth in chronological order is information regarding shares of


                                       7

<PAGE>

Common Stock sold and options granted by the Company during the period covered
by this Annual Report on Form 10-KSB and not previously reported on the
Company's Quarterly Reports on Form 10-QSB. Also included is the consideration,
if any, received by the Company for such shares and options and information
relating to the section of the Securities Act of 1933, as amended (the
"Securities Act"), or rule of the Securities and Exchange Commission under which
exemption from registration was claimed. All of the following securities were
sold directly by the Company and there were no underwriters or selling agents
involved in these transactions.

         During the three months ended December 31, 2001, the Company sold
207,828 shares of Common Stock in a private placement under Section 4(2) of the
Securities Act at a price of $11.50 per share. The Company received proceeds of
$2,390,022 from this private placement. The Company used the proceeds for
general corporate purposes, including working capital and capital expenditures.

         From November 2001 through December 2001, the Company granted options
to purchase 255,000 shares of Common Stock under its 1997 Stock Option Plan to
certain employees and Directors at exercise prices ranging from $12.60 to $13.00
per share.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected financial data for the three years ended
December 31, 2001, 2000 and 1999, have been derived from the Company's financial
statements audited by Yohalem Gillman & Company LLP, independent accountants,
included elsewhere in this Annual Report on Form 10-KSB.

<TABLE>
<CAPTION>
                                          For the years ended December 31,
                                   ----------------------------------------------
                                      2001             2000              1999
                                   ----------       -----------       -----------
<S>                                <C>              <C>               <C>
Statement of Operations Data:

Revenues                           $2,181,391       $   50,275        $   60,200
Costs and expenses                  3,123,183        1,961,763         1,094,755
Other income (expense)                 47,206           (8,365)          (27,852)
Net Loss                             (894,586)      (1,919,853)       (1,062,407)
Shares outstanding
    -December 31                    5,213,051        4,981,523         4,155,022
Balance Sheet Data:
Total assets                        3,324,751        1,527,560           255,508
Stockholders' equity (deficiency)   2,741,938        1,197,391          (636,116)
Basic and fully diluted
     loss per common share         $    (0.18)      $    (0.42)       $    (0.30)
</TABLE>

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

         The following Discussion and Analysis of the Company's Financial
Condition and Results of Operations should be read in conjunction with the
Company's Financial Statements and the related Notes included elsewhere in this
Annual Report on Form 10-KSB. This discussion contains, in addition to
historical statements, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include the factors discussed below in the
section titled "Certain Risk Factors That May Affect Future Results of
Operations And Our Common Stock Price" as well as other factors in this Annual
Report on Form 10- KSB.

OVERVIEW OF APOGEE TECHNOLOGY, INC.

         From 1981 until 1995, the Company was in the business of engineering,
manufacturing and marketing high quality, high-end patented ribbon loudspeaker


                                       8

<PAGE>

systems for use in home audio and video entertainment systems. Since 1995, the
Company has focused exclusively on the development and commercialization of its
proprietary amplifier technology, known as DDX(R). DDX technology is an
all-digital, high efficiency amplifier technology that provides true digital
audio reproduction while lowering manufacturing cost compared to traditional
analog amplifier solutions. The Company's initial DDX development efforts were
directed toward the implementation of a digital controller design and the
specifications of power designs to support DDX licensing objectives. The Company
licensed DDX technology in 1999 to ALST Technology Excellence Center and
subsequently signed an exclusive agreement, for audio applications, with
STMicroelectronics in 2001. The Company continues to support its licensing
activities with STMicroelectronics. In 1996 the Company started the development
of DDX-based semiconductor products. Under a fabless semiconductor business
model, the Company utilizes two independent suppliers to produce its
semiconductor products. The first DDX-based IC product was released to
production in late 2000 and since that time the Company has released three
additional DDX IC products. The Company markets its semiconductor products to
audio manufacturers using a worldwide sales and distribution organization. The
Company uses contract manufacturers to produce circuit boards for customers to
support the Company's DDX IC marketing activities.

         The Company incurred net losses of approximately $894,600 in 2001, $1.9
million in 2000 and $1.1 million in 1999. At December 31, 2001, the Company had
an accumulated deficit of approximately $10.1 million, as compared to a deficit
of $9.2 million as of December 31, 2000. Of this accumulated deficit,
approximately $4 million was attributable to the Company's loudspeaker business,
which it discontinued in 1995. The Company's historical net losses and
accumulated deficit (since 1995) result primarily from the costs associated with
the Company's efforts to develop its DDX technology.

         The Company sells products to original equipment manufacturers and
distributors. Revenue from product sales is recognized upon shipment to original
equipment manufacturers and distributors, net of returns and allowances. All
sales are made in U.S. Dollars.

         The Company outsources the manufacturing, assembly and preliminary
testing of its semiconductor products and evaluation boards. Cost of revenue
includes the third-party manufacturing, testing and assembly costs as well as
salaries and overhead costs related with the final testing and shipping.
Research and development expenses consist primarily of salaries and related
overhead costs associated with engineering activities as well as other materials
and related services used in the development of the Company's semi-conductor
chips and digital evaluation boards. Selling, general and administrative
expenses consist primarily of employee compensation and overhead charges as well
as expenses directly associated with the advertising and marketing of the
Company's products.

RESULTS OF OPERATIONS

Years Ended December 31, 2001, 2000 and 1999

REVENUE

         SEC Staff Accounting Bulletin No. 101, "Revenue Recognition of
Financial Statements (SAB 101), was issued in December 1999 outlining the basic
criteria that companies must meet to recognize revenue. The Company adopted SAB
101 effective as of January 1, 2000. In accordance with SAB 101's guidance, the
Company recognized revenue for the fiscal year ended December 31, 2001 of
approximately $2.2 million, an increase of $2.1 million from revenue of
approximately $50,300 in 2000. This increase in revenue consisted primarily of a
one-time, initial fee of $1.4 million paid in connection with the Company's
licensing agreement with STMicroelectronics NV of The Netherlands ("ST"). During
the twelve-month period ended December 31, 2001, the Company recorded $250,000
in royalty payments under the ST agreement. In addition, the Company recognized
revenues from the introduction of its products, consisting of DDX evaluation
boards, the DDX-2000 and DDX-4100 Controller and the DDX-2060 Power Device.
Revenue for 2000 decreased approximately $10,000 or (16.5%) from 1999. Revenue
for 2000 consisted primarily of consulting income earned in connection with the
Company's licensing agreement with ALST, while revenue for 1999 was principally
derived from an initial fee paid in connection with the signing of the agreement
with ALST.


                                       9

<PAGE>

Total Revenue for the years 2001, 2000 and 1999 consisted of:

<TABLE>
<CAPTION>
                                                2001               2000           1999
                                            -----------       -------------   ------------
<S>                                         <C>               <C>             <C>

Licensing Fees                              $1,420,000        $        -0-    $     -0-
Royalties                                      250,000                 -0-          -0-
Consulting                                     242,063              50,275        28,200
Development Agreement                            -0-                   -0-        32,000
Product Sales                                  269,328                 -0-          -0-
                                            -----------       -------------   ------------
                                            $2,181,391        $     50,275    $   60,200
                                            ===========       =============   ============
</TABLE>

RESEARCH AND DEVELOPMENT COSTS

         Research and development expenses consist of costs associated with
research and development in addition to engineering support to current and
potential customers in the development of consumer products utilizing the DDX
semiconductor products. Research and development costs were approximately $1.1
million in 2001, an increase of approximately $273,000 or 32% from research and
development expenses of approximately $869,000 in 2000. Research and development
expenses for 2000 increased by approximately $210,000 or 32% from research and
development expenses of approximately $658,000 in 1999. The year-to-year
increases in research and development costs were primarily a result of increased
staffing and increased product development expenses. Research and development
expenses increased as the Company added personnel and expanded research and
development activities to accommodate existing and new strategic alliances and
development efforts. The Company anticipates that funds allocated for research
and development will continue to increase in future periods.

SELLING, GENERAL AND ADMINISTRATIVE COSTS

         Selling, general and administrative expenses include costs of our
corporate, finance, marketing and human resource functions. Selling, general and
administrative expenses for 2001 were approximately $1.8 million, an increase of
approximately $684,000 or 63% from selling, general and administrative expenses
of approximately $1,093,000 in 2000. Selling, general and administrative
expenses for 2000 increased by approximately $656,000 to approximately $1.1
million for 2000 from approximately $437,000 for 1999. The year-to-year
increases in selling, general and administrative expenses reflect increases in
the Company's sales and marketing personnel, increased professional fees
(primarily legal and accounting) incurred in connection with the Company's
preparation of three-year audited financial statements ending December 31, 1999
and its Form 10-SB Exchange Act registration statement as well as other
marketing expenses. The increase was primarily attributable to expenses for
additional senior management, legal fees and administrative expenses associated
with the Company's expansion and the increased complexity of our operations and
business development efforts. Legal and accounting fees for 2001, 2000 and 1999
were approximately $476,000, $244,000 and $103,000, respectively. The increase
in legal and accounting fees was primarily due to the Company's re-listing on
the Nasdaq SmallCap Market, Securities and Exchange commission filings and the
finalization of the ST Microelectronics Development Agreement. Although the
Company expects professional fees to be reduced with its Nasdaq listing
completed, the Company expects the overall dollar amount of selling, general and
adminstrative expenses to increase in future periods as the Company continues to
expand its sales, marketing and business development activities worldwide.

INTEREST INCOME

         Interest income for 2001 was approximately $58,000, an increase of
approximately $46,000 or 378% from interest income of approximately $12,000 in
2000. This increase resulted from increased cash investments resulting primarily
from the Company's equity financings and the one-time payment received in
connection with the Company's licensing agreement with STMicroelectronics. There
was no interest income in 1999.

INCOME TAXES

         The Company has not incurred any income tax expense to date. As of
December 31, 2001, the Company had available a federal net operating loss
carryforward of approximately


                                       10

<PAGE>

$10,762,000 and a state net operating loss carryforward of approximately
$5,829,000. These net operating loss carryforwards will expire at various times
through 2021.

LIQUIDITY AND CAPITAL RESOURCES

       As of December 31, 2001, the Company had approximately $2.4 million in
cash and cash equivalents compared to approximately $1.1 million as of December
31, 2000. The Company has no debt. Cash equivalents consist of certificates of
deposit, which are highly liquid and have original maturities no more than 30
days. Over the past few years, the Company has been financed by its three
principal stockholders and through the private placement of the Company's Common
Stock to unaffiliated accredited investors.

       Net cash used in operations during the twelve-month periods ended
December 31, 2001, 2000 and 1999 was approximately $1 million, $2 million and $1
million, respectively. Cash used in operating activities consisted primarily of
cash utilized to build inventory, finance operating losses and for working
capital. Net cash used in operations was partially offset in 2001 by the
one-time license fee received from STMicroelectronics.

       Net cash used in investing activities for the year ended December 31,
2001 totaled approximately $112,000 compared to approximately $155,000 for the
year ended December 31, 2000. Although to a lesser degree in 2001, the Company
continued to purchase capital equipment necessary to further its product
development efforts. Net cash provided by financing activities in 2001 was
approximately $2.4 million. During 2001 the Company raised $2.39 million in a
private placement of its Common Stock at $11.50 per share. Two of the directors
contributed a total of $340,000, and the difference was provided by accredited
third party investors. During the first half of 2000, the Company raised
$750,000 in a private placement of its Common Stock at $3.00 per share. The
directors of the Company contributed an aggregate of $291,000 of this amount,
including the conversion of $60,000 in stockholder debt, while third party
accredited investors contributed the $459,000 balance. During the fourth quarter
of 2000, the Company raised an additional $2.77 million in a private placement
of its Common Stock at $10 per share, $215,670 of which was paid by way of
converted stockholder debt. In February 2000, the Company refinanced its
$200,000 bank loan and in April 2000, this loan was converted into a revolving
line of credit secured by the assets of the Company and guaranteed by one of its
directors. The Company repaid the outstanding principal and interest on this
line of credit in May 2000.

         The Company believes that its current working capital should be
sufficient to fund its capital and operational requirements for at least the
next 10 months. The continuance of the Company in the long term is dependent
upon its ability to successfully develop and market its DDX digital amplifier
technology and raise additional funds for such purposes. There can be no
assurance, however, that the Company will be able to raise the funds that it
needs to continue its operations in the long term or that additional funds will
be available to the Company on acceptable terms, if at all.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of the consolidated financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. On an on-going basis, the Company evaluates
its estimates, including those related to uncollectible accounts receivable,
inventories, intangibles and other long-lived assets. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

         The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company maintains allowances for
uncollectible accounts receivable for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
Company maintains allowances for estimated excess or obsolete inventories based
on the Company's review of inventory levels, projected future sales and
comparison of actual manufacturing costs to standard costs. If actual market
conditions are less than favorable


                                       11

<PAGE>

than those projected by management, additional allowances may be required.
Property, plant and equipment, patents, trademarks and other intangible assets
are amortized over their estimated useful lives. Useful lives are based on
management's estimates over the period that such assets will generate revenue.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Future adverse changes in market conditions or poor operating
results of underlying capital investments or intangible assets could result in
losses or an inability to recover the carrying value of such assets, thereby
possibly requiring an impairment charge in the future.

Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities". FAS No. 133, as amended by SFAS No. 137 and
138, establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. FAS 133 is required to be adopted in fiscal years beginning after
June 15, 2000. The Company adopted FAS No. 133 effective January 1, 2001. The
adoption of FAS No. 133 did not have a material impact on the Company's results
of operations or financial position.

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142 (FAS 142), "Goodwill and Other
Intangible Assets". FAS No. 142 is required to be adopted in fiscal years
beginning subsequent to December 15, 2001. FAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of the statement. The adoption of FAS No.
142 will not have a material impact on the Company's results of operations or
financial position.

         In August 2001, the Financial Accounting Standards Board issued
Statement No. 144 (FAS 144), "Impairment of Long-Lived Assets". FAS No. 144 is
required to be adopted in fiscal years beginning subsequent to December 15,
2001. FAS 144 requires in cases where undiscounted expected cash flows
associated with long-lived assets are less than their carrying value, an
impairment provision is recognized in an amount by which the carrying value
exceeds the estimated fair market value of such assets. The adoption of FAS No.
144 will not have a material impact on the Company's results of operations or
financial position.

SUBSEQUENT EVENT

         In March of 2002, the Company signed a joint development agreement with
STMicroelectronics. Pursuant to this agreement the companies will develop and
market new semiconductor products that leverage DDX technology and
STMicroelectronics' intellectual property and semiconductor design, development
and manufacturing capability. The agreement defines the process, development
obligations and ownership rights under which the companies will develop IC
products. The Company will receive access to STMicroelectronics' IC design tools
and will receive two development seats to design ICs. The agreement complements
the DDX technology licensing agreement signed between the companies in February
of 2001.

CERTAIN RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND OUR COMMON
STOCK PRICE

         There are a number of important factors that could cause our actual
results to differ materially from those indicated or implied by forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Form 10-KSB.
We disclaim any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.


                                       12

<PAGE>

                         RISKS RELATED TO OUR BUSINESS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS.

         We were incorporated in July 1987, but in 1995, we discontinued our
loudspeaker business and refocused our business on digital amplifier technology
development. We did not begin shipping products until 1999 and most of our
products have only recently been introduced. Accordingly, we have limited
historical financial information and operating history upon which you may
evaluate us and our prospects. Our prospects must be considered in light of the
risks, challenges and difficulties frequently encountered by companies in their
early stage of development, particularly companies in intensely competitive and
rapidly evolving markets such as the digital audio system industry. We cannot be
sure that we will be successful in addressing these risks and challenges.

WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.

         As of December 31, 2001, we had an accumulated deficit of $10.1
million. We incurred net losses of approximately $895,000 for the year ended
December 31, 2001, $1.9 million in 2000 and $1.1 million in 1998. We expect to
continue to incur net losses and these losses may be substantial. Furthermore,
we expect to generate significant negative cash flow in the future. We will need
to generate substantial revenue to achieve and sustain profitability and
positive cash flow. Our revenue growth may not be sustainable and should not be
considered indicative of future revenue growth trends. Our ability to generate
future revenue and achieve profitability will depend on a number of factors,
many of which are described throughout this risk factor section. If we are
unable to achieve or maintain profitability, we will be unable to build a
sustainable business. In this event, our share price would likely decline.

OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR
SUCCESS DEPENDS ON OUR ABILITY TO INTRODUCE NEW PRODUCTS IN A TIMELY FASHION.

         The life cycle of the technology and any future products developed by
us may be limited by the emergence of new products and technologies, changes in
consumer preferences and other factors. Our future performance will depend on
our ability to consistently:

      .     identify emerging technological trends in our market
      .     identify changing consumer requirements
      .     develop or maintain competitive technology, including new product
            offerings
      .     improve the performance, features and reliability of our products,
            particularly in response to technological change and competitive
            offerings
      .     bring technology to market quickly at cost-effective prices
      .     protect our intellectual property.

         There can be no assurance that we will be successful in developing and
marketing new products that respond to technological and competitive
developments and changing customer needs, or that such products will gain market
acceptance and be incorporated into the technology or products of third parties.
Any significant delay or failure to develop new enhanced technologies, including
new product offerings, and any failure of the marketplace to accept any new
technology and product offerings would have a material adverse effect on our
business, financial condition and results of operations.

WE MAY REQUIRE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND RESEARCH AND
DEVELOPMENT.

         Because we have historically had losses and only a nominal amount of
cash has been generated from operations, we have funded our operating activities
to date primarily from the sale of securities. We will likely require additional
capital in the future which may be in the form of additional sales of
securities. The additional capital may not be readily available to us on
favorable items, if at all. The sale of securities will result in dilution to
our current stockholders' ownership in the Company.


                                       13

<PAGE>

OUR ABILITY TO ACHIEVE SUSTAINED REVENUE GROWTH WILL BE HARMED IF WE ARE UNABLE
TO MAINTAIN OUR EXISTING LICENSING RELATIONSHIPS.

         Part of our business strategy is to expand our licensing activities
with STMicroelectronics and to enter into licensing relationships with other
companies in order to offer products to a larger customer base than could be
reached through our own development and marketing efforts. We believe that such
relationships can accelerate market penetration of our products and
technologies, while limiting our manufacturing exposure and sales and marketing
costs. However, there can be no assurance that we will be able to expand or
maintain our existing licensing relationships or establish new licensing
relationships on commercially reasonable terms, if at all. Any future inability
by us to maintain our licensing relationships or to enter into additional
licensing relationships, or the failure of one or more of our licensing
relationships to contribute to the development and maintenance of a market for
our products, could have a material adverse effect on our business, operating
results and financial condition.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE

         We have experienced fluctuations in our quarterly operating results in
the past and it is likely that these fluctuations will continue in the future.
These fluctuations are caused by many factors, including, but not limited to:

      -     availability and pricing from our suppliers;

      -     changes in the demand for our products by customers;

      -     introductions or enhancements of products, or delays in the
            introductions or enhancements of products, by us or our competitors;

      -     rate and success of new customer development; - changes in our
            pricing policies or those of our competitors; - success in
            attracting, retaining and motivating qualified personnel; and -
            changes in the general economic conditions.

         A substantial portion of our operating expenses is related to
personnel, facilities, and sales and marketing programs and are fixed. Our
expense level is based in part on our expectations of future orders and sales,
which are extremely difficult to predict. Accordingly, we may not be able to
adjust our fixed expenses quickly enough to address any significant shortfall in
demand for our products in relation to our expectations.

         Fluctuations in our operating results may also result in fluctuations
in our common stock price. In such event, the trading price of our common stock
would likely suffer and adversely affect our ability to raise capital and the
value of your investment in the Company.

IF WE ARE UNABLE TO HIRE OR RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO OPERATE
OUR BUSINESS SUCCESSFULLY.

         We may not be successful in recruiting and retaining executive officers
and other key management and technical personnel. The competition for employees
with the necessary high level of technical expertise to design and market our
products is intense, particularly in eastern Massachusetts. We will need to hire
a number of additional technical personnel if we are to increase the rate
at which we develop new products. Because competition for highly skilled
technical personnel is so intense, companies in Apogee's industry are subject
from time to time to complaints brought by competitors alleging interference
with contractual relations or wrongful hiring of employees. Such lawsuits may be
costly, may divert management attention and resources from the operation of our
business, and may therefore adversely affect our financial condition and results
of operations. In addition, the loss of the management and technical expertise
of our senior management could seriously harm us.

WE DO NOT HAVE MANUFACTURING CAPABILITIES, AND AS A RESULT, WE RELY ON OUTSIDE
FOUNDRIES TO MANUFACTURE OUR SEMICONDUCTOR PRODUCTS.

         We have no manufacturing capabilities, nor do we have plans to
establish any such capabilities. Accordingly, we utilize outside semiconductor
foundries to manufacture our semiconductor products. There are significant risks
associated with our reliance on these foundries that can adversely affect our
business, operating results and financial condition. These risks include:


                                       14

<PAGE>


      .     the ability to maintain foundry relationships, the failure of which
            could result in significant delays in product introduction due to
            the time to establish new relationships
      .     the loss of foundry priority that may result in limiting our ability
            to obtain products on schedule
      .     limited control over product quality which could result in product
            returns and the loss of customers
      .     inability to control manufacturing yield that could increase
            production costs, thereby reducing sales potential and operating
            margins
      .     lack of access or control over new process and manufacturing
            technologies to maintain product competitiveness in the market.

OUR PRODUCTS USE NEW TECHNOLOGY AND MAY HAVE MANUFACTURING DEFECTS OR OTHER
CHARACTERISTICS THAT ARE ONLY DETECTED AFTER INSTALLATION IN CUSTOMER
APPLICATIONS, WHICH MAY HARM OUR BUSINESS.

         Our products are based on recently-developed technology and are
manufactured using state-of-the-art manufacturing processes. Our approach to
product qualification and testing may not fully evaluate or identify product
characteristics or defects that could adversely affect the product's ability to
operate in the intended application. If such defects or characteristics are
discovered after installation, product revenue might be significantly delayed
and our ability to maintain existing customers and to retain new customers may
be seriously affected.

OUR ABILITY TO ACHIEVE REVENUE GROWTH WILL BE HARMED IF WE ARE UNABLE TO
PERSUADE THE MARKET TO ADOPT OUR NEW AMPLIFIER TECHNOLOGY.

         We face challenges in persuading manufacturers to adopt our products
using our new DDX amplifier technology. Traditional amplifiers use design
approaches developed in the 1930s. These approaches are still used in most
amplifiers and engineers are familiar with these design approaches. In order to
adopt our products, manufacturers and engineers must understand and accept our
new technology. In addition, our amplifier technology may be more expensive for
some applications than the traditional amplifier technology. For these reasons,
prospective customers may be reluctant to adopt our technology.

INTENSE COMPETITION IN THE SEMICONDUCTOR AND CONSUMER AUDIO INDUSTRY COULD
PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.

         The semiconductor and consumer audio industry is highly competitive,
and we expect the intensity of the competition to increase. Many of our
competitors have greater financial, technical, research, marketing, sales,
distribution, service and other resources than we do. Moreover, our competitors
may offer broader product lines and have greater name recognition than we do,
and may offer discounts as a competitive tactic. In addition, several
development stage companies are currently creating or developing technologies
and products that compete with or are being designed to compete with our
technologies and products. Our competitors may develop or market technologies or
products that are more effective or more commercially attractive than our
current or future products, or that may render our technologies or products less
competitive or obsolete. Accordingly, if competitors introduce superior
technologies or products and we cannot make enhancements to our technologies and
products necessary for them to remain competitive, our competitive position, and
in turn, our business, revenues and financial condition, will be seriously
harmed.

                   RISKS RELATED TO OUR INTELLECTUAL PROPERTY

OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY BE INSUFFICIENT TO PROTECT
OUR COMPETITIVE POSITION.

         Our business depends, in part, on our ability to protect our
intellectual property. We rely primarily on patent, copyright, trademark and
trade secret laws to protect our proprietary technologies. We cannot be sure
that such measures will provide meaningful protection for our proprietary
technologies and processes. We have two issued United States patents and two
pending patent applications. We cannot be sure that any existing or future
patents will not be challenged, invalidated or circumvented, or that any right
granted thereunder


                                       15

<PAGE>

would provide us meaningful protection. The failure of any patents to provide
protection to our technology would make it easier for our competitors to offer
similar products.

         We also generally enter into confidentiality agreements with our
employees and strategic partners, and generally control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our products or technology without authorization, develop similar
technology independently or design around our patents. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries.

WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS DISPUTES WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND COULD BE COSTLY.

         The semiconductor and consumer audio industry is characterized by
vigorous protection and pursuit of intellectual property rights. From time to
time, we may receive notices of claims of infringement, misappropriation or
misuse of other parties' proprietary rights. We cannot be sure that we will
prevail in these actions, or that other actions alleging infringement by us of
third-party patents, misappropriation or misuse by us of third-party trade
secrets or the invalidity of one or more patents held by us will not be asserted
or prosecuted against us, or that any assertions of infringement,
misappropriation or misuse or prosecutions seeking to establish the invalidity
of our patents will not seriously harm our business. For example, in a patent or
trade secret action, an injunction could be issued against us requiring that we
withdraw particular products from the market or necessitating that specific
products offered for sale or under development be redesigned.

         Irrespective of the validity or successful assertion of various claims
of infringement, misappropriation or misuse of other parties' proprietary
rights, we would likely incur significant costs and diversion of our management
and personnel resources with respect to the defense of such claims, which could
seriously harm our business. If any claims or actions are asserted against us,
we may seek to obtain a license under a third party's intellectual property
rights. We cannot be sure that under such circumstances a license would be
available on commercially reasonable terms, if at all. Moreover, we often
incorporate the intellectual property of our strategic customers into our
designs, and we have certain obligations with respect to the non-use and non-
disclosure of such intellectual property. We cannot be sure that the steps taken
by us to prevent our, or our customers', misappropriation or infringement of the
intellectual property will be successful.

                       RISKS RELATING TO OUR COMMON STOCK

MARKET FLUCTUATIONS COULD NEGATIVELY IMPACT THE MARKET PRICE OF OUR COMMON
STOCK.

         The stock markets have experienced extreme price and volume
fluctuations that have affected and continue to affect the market prices of
equity securities of many technology companies. These fluctuations often have
been unrelated or disproportionate to the operating performance of those
companies. We expect that the market price of our Common Stock will fluctuate as
a result of variations in our quarterly operating results. These fluctuations
may be exaggerated if the trading volume of our Common Stock is low. In
addition, due to the technology-intensive and emerging nature of our business,
the market price for our Common Stock may rise and fall in response to various
factors including:

..     announcements of technological innovations or new products, or competitive
      developments;

..     changes in earnings estimates or investment recommendations by securities
      analysts;

..     investor perceptions and expectations regarding our or our competitors'
      products;

..     acquisitions or strategic alliances by us or our competitors; and

..     the gain or loss of a significant customer or order.


                                       16

<PAGE>

     In addition, market fluctuations, as well as general economic, political
and market conditions such as recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our Common
Stock.

BECAUSE A LIMITED NUMBER OF PERSONS, INCLUDING DIRECTORS AND EXECUTIVE OFFICERS,
OWN A MAJORITY OF OUR COMMON STOCK AND THEREFORE CONTROL OUR COMPANY, DECISIONS
MAY BE MADE BY THEM THAT MAY BE DETRIMENTAL TO OTHER STOCKHOLDERS.

         As of March 15, 2002, our executive officers and directors owned
approximately fifty-nine percent (58.99%) of the outstanding shares of Common
Stock of the Company. Accordingly, such persons have sufficient voting power to
control the outcome of matters that are put to a stockholder vote, including the
election of a majority of the board of directors, and any merger, consolidation
or sale of all or substantially all of our assets, and also have control over
our management and affairs. As a result of such voting power, these stockholders
will be able to control the outcome of corporate actions, including proxy
contests, mergers involving us, tender offers, open market purchase programs or
other purchases of Common Stock that could give our stockholders the opportunity
to realize a premium over the then prevailing market price for their shares of
Common Stock. This concentration of ownership could also adversely affect our
stock's market price.

ITEM 8.   FINANCIAL STATEMENTS

     See ITEM 14 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.

ITEM 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.

     Not applicable.

                                    PART III

ITEM 10.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act

   The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for the 2002
Annual Meeting of Stockholders.

ITEM 11.  Executive Compensation

   The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in the Company's
Proxy Statement for the 2002 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Certain Relationships and Related
Transactions" and "Executive Compensation" in the Company's Proxy Statement for
the 2002 Annual Meeting of Stockholders.

ITEM 14.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

   (a)(1) Financial Statements. The financial statements required to be filed by
          --------------------


                                       17

<PAGE>

ITEM 8 herewith are as follows:

                                                                    PAGE
                                                                    ----

Independent Auditor's Report......................................   F-1

Consolidated Balance Sheet-December 31, 2001......................   F-2

Consolidated Statements of Operations-Years ended
December 31, 2001 and 2000........................................   F-3

Consolidated Statements of Stockholders' Equity (Deficit)-Years
   ended December 31, 2001 and 2000...............................   F-4

Consolidated Statements of Cash Flows-Years ended
   December 31, 2001 and 2000.....................................   F-5

Notes to Consolidated Financial Statements-December 31, 2001
   and 2000.......................................................   F-6

   (a)(2) EXHIBITS.

   (i) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
Exhibit
  No.                    Description
--------                 -----------
<S>               <C>
3.1               Certificate of Incorporation of Apogee Technology, Inc., incorporated herein by reference to Exhibit 3.1 to the
                  Registrant's Form 10-SB, as amended (File No. 000-17053).

3.2               Amendment of Certificate of Incorporation of Apogee Technology, Inc., incorporated herein by reference to Exhibit
                  3.2 to the Registrant's Form 10-SB, as amended (File No. 000-17053).

3.3               Certificate of Amendment to Certificate of Incorporation of Apogee Technology, Inc., incorporated herein by
                  reference from Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30,
                  2001 (Reg. No. 000-17053).

3.4               Restated By-Laws of Apogee Technology, Inc., incorporated herein by reference from Exhibit 3.4 to the
                  Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 (Reg. No. 000-17053).

10.1*             License Agreement dated February 2, 2001 by and between the Registrant and STMicroelectronics, NV, incorporated
                  herein by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended
                  March 31, 2001 (File No. 000-17053).

10.2              Form of 1999 Stock and Warrant Subscription Agreement, incorporated herein by reference to Exhibit 10.1 to the
                  Registrant's Form 10-SB, as amended (File No. 000-17053).

10.3              Form of 1999 Warrant to purchase shares of Common Stock of the Registrant, incorporated herein by reference to
                  Exhibit 10.2 to the Registrant's Form 10-SB, as amended (File No. 000-17053).

10.4              Form of 2000 Stock Subscription Agreement, incorporated herein by reference to Exhibit 10.3 to the Registrant's
                  Form 10-SB, as amended (File No. 000-17053).

10.5*             Development and Licensing Agreement, dated August 13, 1999, between ALST Technical Excellence Center, Altec
                  Lansing Technologies, Inc. and Apogee Technology, Inc., incorporated herein by reference to Exhibit 10.4 to the
                  Registrant's Form 10-SB, as amended (File No. 000-17053).

10.6*             Amendment I to Development and Licensing Agreement, dated February 1, 2001, between ALST Technical Excellence
                  Center, Altec Lansing Technologies, Inc. and Apogee Technology, Inc., incorporated herein by reference to Exhibit
                  10.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 (File No. 000-17053).

10.7              Employment Agreement between Herbert M. Stein and Apogee Technology, Inc.

23                Consent of Independent Accountants to the incorporation by reference in the Registration Statement on Form S-8
                  (No. 333-61486) of the consolidated financial statements which appear in this Form 10-KSB.

* Confidential treatment requested as to certain portions of the document, which
portions have been omitted and filed separately with the Securities and Exchange
Commission.
</TABLE>


                                       18

<PAGE>

     Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.

   (b)  REPORTS ON FORM 8-K.

          None.

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    APOGEE TECHNOLOGY, INC.

Date: April 1, 2002                 By:  /s/ Herbert M. Stein
                                         -----------------
                                    Name:  Herbert M. Stein
                                    Title: Chief Executive Officer and Chairman
                                           of the Board

     In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Name                    Capacity                     Date
----                    --------                     ----

/s/ Herbert M. Stein    Chief Executive Officer    (Principal Executive Officer)
Herbert M. Stein

/s/ David Spiegel       Secretary and Treasurer    (Principal Financial Officer)
---------------------
David Spiegel

/s/ Anton Schrafl
---------------------   Director
Anton Schrafl

/s/ Sheryl Stein        Director
---------------------
Sheryl Stein

/s/ Alan Tuck
---------------------   Director
Alan Tuck


                                       19

<PAGE>

                         ANNUAL REPORT ON FORM 10 - KSB
                                     ITEM 8

                          LIST OF FINANCIAL STATEMENTS
                          YEAR ENDED DECEMBER 31, 2001

                             APOGEE TECHNOLOGY, INC.
                             NORWOOD, MASSACHUSETTS

--------------------------------------------------------------------------------

                                                                    PAGE
                                                                    ----

Independent Auditor's Report                                        F-1

Consolidated Balance Sheet-December 31, 2001                        F-2

Consolidated Statements of Operations-Years ended
   December 31, 2001 and 2000                                       F-3

Consolidated Statements of Stockholders'Equity (Deficit)-Years
   ended December 31, 2001 and 2000                                 F-4

Consolidated Statements of Cash Flows-Years ended
   December 31, 2001 and 2000                                       F-5

Notes to Consolidated Financial Statements-December 31, 2001
   and 2000                                                         F-6


                                       20

<PAGE>

Independent Auditor's Report

Board of Directors
Apogee Technology, Inc.

We have audited the accompanying consolidated balance sheet of Apogee
Technology, Inc. and Subsidiary as of December 31, 2001 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the two-year period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 Apogee
Technology, Inc. and Subsidiary as of December 31, 2001 and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 2001 in conformity with U.S. generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has had recurring losses and no
significant revenue stream that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 2. The viability of the Company is dependent upon its
ability to successfully further develop and market its digital amplifier
technology applications and raise sufficient funds for such purposes. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.




New York, New York
February 7, 2002


                                      F-1

<PAGE>


APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

                                                                    DECEMBER 31,
                                                                       2001
                                                                   -------------
<S>                                                                <C>
ASSETS

Current assets
 Cash and cash equivalents ......................................  $  2,387,178
 Accounts receivable, net of allowance for doubtful
  accounts of $5,000 ............................................       232,555
 Inventories ....................................................       420,047
                                                                   ------------
   Total current assets .........................................     3,091,650
                                                                   ------------
Property and equipment, net of accumulated
  depreciation of $217,491 ......................................       177,650
                                                                   ------------
Other assets

 Digital Amplifier patents, net of amortization
  of $68,157 ....................................................        55,451
                                                                   ------------
                                                                   $  3,324,751
                                                                   ============


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
 Accounts payable and accrued expenses ..........................  $    529,709
 Current maturities of capital lease obligations ................        33,128
                                                                   ------------
   Total current liabilities ....................................       562,837
Capitalized lease obligations net of current maturities .........        19,976
                                                                   ------------
   Total liabilities ............................................       582,813
                                                                   ------------
Stockholders' equity
 Common stock, $.01 par value;
  20,000,000 shares authorized, 5,213,051
  issued and outstanding ........................................        52,130
 Additional paidin capital ......................................    12,799,146
 Accumulated deficit ............................................   (10,109,338)
                                                                   ------------
   Total stockholders' equity ...................................     2,741,938
                                                                   ------------
                                                                   $  3,324,751
                                                                   ============
</TABLE>
            See accompanying notes and independent auditor's report.

                                      F-2

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
                                                        YEARS ENDED DECEMBER 31,
                                                           2001         2000
                                                       ------------ ------------
Revenues
  License fee .......................................   $1,420,000  $       --
  Royalties .........................................      250,000          --
  Consulting ........................................      242,063       50,275
  Product sales .....................................      269,328          --
                                                       ------------ ------------
                                                         2,181,391       50,275
                                                       ------------ ------------
Costs and expenses
  Research and development ..........................    1,142,364      868,672
  Selling, general and administrative ...............    1,777,022    1,093,091
  Product sales .....................................      203,797          --
                                                       ------------ ------------
                                                         3,123,183    1,961,763
                                                       ------------ ------------
Loss before other income (expense) ..................     (941,792)  (1,911,488)
                                                       ------------ ------------
Other income (expense)
  Interest expense ..................................      (11,424)     (20,621)
  Interest income ...................................       58,630       12,256
                                                       ------------ ------------
                                                            47,206       (8,365)
                                                       ------------ ------------
Net loss ............................................   $ (894,586) $(1,919,853)
                                                       ============ ============
Basic and diluted loss per common share .............   $    (0.18) $     (0.42)
                                                       ============ ============
Weighted average common shares outstanding--
 basic and diluted ..................................    5,019,507    4,571,860
                                                       ============ ============


            See accompanying notes and independent auditor's report.


                                      F-3

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                Additional
                                                            Common Stock          Paid-in      Accumulated
                                    Common Stock             Subscribed           Capital        Deficit
                                ---------------------   ---------------------   -----------   -------------
                                 Shares      Dollars    Shares      Dollars       Dollars        Dollars          Total
                                ---------    -------   ---------   ----------   -----------   -------------   ------------
<S>                             <C>          <C>       <C>         <C>          <C>           <C>             <C>
Balances at December 31, 1999 . 4,155,022    $41,550    165,000    $ 330,000    $ 6,287,233   $ (7,294,899)   $  (636,116)
Net loss ......................       --         --         --           --             --      (1,919,853)    (1,919,853)
Issuances of stock ............   784,984      7,850   (165,000)    (330,000)     3,738,742            --       3,416,592
Conversion of stockholder
 debt to equity ...............    41,517        415        --           --         274,753            --         275,168
Contributions by directors ....       --         --         --           --          61,600            --          61,600
                                ---------    -------   ---------   ----------   -----------   -------------   ------------
Balances at December 31, 2000 . 4,981,523     49,815        --           --      10,362,328     (9,214,752)     1,197,391
Net loss ......................       --         --         --           --             --        (894,586)      (894,586)
Issuances of stock ............   231,528      2,315        --           --       2,436,818            --       2,439,133
                                ---------    -------   ---------   ----------   -----------   -------------   ------------
Balances at December 31, 2001 . 5,213,051    $52,130        --     $     --     $12,799,146   $(10,109,338)   $ 2,741,938
                                =========    =======   =========   ==========   ===========   =============   ============
</TABLE>

            See accompanying notes and independent auditor's report.


                                       F-4

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                      YEARS ENDED DECEMBER 31,
                                                        2001            2000
                                                    -----------     -----------
<S>                                                   <C>           <C>
Cash flows from operations
Net loss ........................................... $ (894,586)     (1,919,853)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Accrued interest .................................         -          (51,529)
  Depreciation and amortization ....................    108,123          71,748
  Change in operating assets and liabilities:
    Accounts receivable ............................   (177,831)        (14,166)
    Inventory ......................................   (420,047)            -
    Prepaid expenses ...............................     78,101        (106,667)
    Accounts payable and accrued expenses ..........    263,194         (28,411)
                                                    -----------     -----------
      Net cash used in operating activities ........ (1,043,046)     (2,048,878)
                                                    -----------     -----------

Cash flows from investing activities
  Purchases of equipment ...........................    (81,174)       (132,806)
  Patent costs .....................................    (30,672)        (22,614)
                                                    -----------     -----------
      Net cash used in investing activities ........   (111,846)       (155,420)
                                                    -----------     -----------

Cash flows from financing activities
  Repayments of line of credit .....................         -         (200,000)
  Proceeds from issuances of common stock ..........  2,439,133       3,496,592
  Repayments of stockholder loans ..................         -          (20,000)
  Other capital contributions ......................         -           61,600
  Repayments of capital lease obligations ..........    (28,309)         (5,277)
                                                    -----------     -----------
       Net cash provided by financing activities ...  2,410,824       3,332,915
                                                    -----------     -----------

Increase in cash and cash equivalents ..............  1,255,932       1,128,617
Cash and cash equivalents--beginning ...............  1,131,246           2,629
                                                    -----------     -----------
Cash and cash equivalents--ending ..................$ 2,387,178     $ 1,131,246
                                                    ===========     ===========
</TABLE>
            See accompanying notes and independent auditor's report.

                                      F-5

<PAGE>


APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000
================================================================================


1.     Nature of Operations

       The Company is engaged in the development and design of digital amplifier
       technology. The Company is presently focused on computer based audio and
       entertainment media applications derived from its all-digital amplifier
       circuitry design trademarked as Direct Digital Amplification (DDX).

2.     Going Concern

       The accompanying financial statements have been prepared assuming the
       Company will continue as a going concern. Because the Company has had
       recurring losses and no continuing revenue stream, there is
       substantial doubt as to the Company's ability to continue as a going
       concern. The Company believes that its current working capital should
       be sufficient to fund its capital and operational requirements at
       least through October 31, 2002. The Company plans to raise additional
       capital to further commercialize its digital amplifier (DDX)
       technology. The viability of the Company is dependent upon its ability
       to further develop and market its DDX technology and raise sufficient
       funds for such purposes. The financial statements do not include any
       adjustments that might result from the outcome of this uncertainty.

3.     Summary of Significant Accounting Policies

       Consolidation

       The financial statements include the accounts of Apogee Technology, Inc.
       ("Technology"), and its wholly owned subsidiary, DUBLA, Inc.
       (collectively the "Company"). All significant intercompany transactions
       and accounts have been eliminated.

       Revenue Recognition

       License fee and royalty revenues are recognized when earned in accordance
       with the underlying agreements.

       Consulting revenue is recognized as services are performed.

       Revenue from product sales is recognized upon the shipment of
       merchandise.

       In December 1999, the United States Securities and Exchange Commission
       ("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in
       Financial Statements" subsequently updated by SAB 101A and SAB 101B ("SAB
       101"). SAB 101 summarizes certain of the SEC's views in applying U.S.
       generally accepted accounting principles to revenue recognition in
       financial statements. The Company's accounting for its license agreement
       with ST Microelectronics NV, as discussed in Note 9, is in accordance
       with SAB 101.

================================================================================

                                      F-6

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000



3.     Summary of Significant Accounting Policies (continued)

       Research and Development

       Costs for research and development are expensed as incurred.

       Inventories

       Inventories are stated at the lower of cost (first-in, first-out) or
       market.

       Property and Equipment

       Major replacements and betterments of equipment are capitalized. Cost of
       normal maintenance and repairs is charged to expense as incurred.
       Depreciation is provided over the estimated useful lives of the assets
       using accelerated methods.

       Patents

       Costs incurred to register and obtain patents are capitalized and
       amortized on a straight-line basis over five years.

       Use of Estimates in Financial Statements

       In preparing financial statements in conformity with generally accepted
       accounting principles, management is required to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and disclosure of contingent assets and liabilities at the date of
       financial statements, and the reported amounts of revenues and expenses
       during the reporting period. Actual results could differ from those
       estimates.

       Cash and Cash Equivalents

       The Company considers all highly liquid investments with an original
       maturity of three months or less to be cash equivalents.

       New Accounting Pronouncements

       In June 1998, the Financial Accounting Standards Board issued Statement
       of Financial Accounting Standards No. 133 (FAS 133), "Accounting for
       Derivative Instruments and Hedging Activities," as amended by FAS 137 and
       FAS 138, which is required to be adopted in fiscal years beginning after
       June 15, 2000. FAS 133 requires all derivatives to be recorded on the
       balance sheet at fair value and establishes new accounting procedures
       that will affect the timing and manner in which hedging gains and losses
       are recognized in a Company's financial statements.


                                       F-7

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000



       The adoption of these standards did not have a material effect on the
       Company's results of operations or financial position.

3.     Summary of Significant Accounting Policies (continued)

       In June 2001, the Financial Accounting Standards Board approved Statement
       No. 142 (FAS 142), "Goodwill and Other Intangible Assets" which is
       required to be adopted in fiscal years beginning after December 15, 2001.
       FAS 142 changes the accounting for goodwill from an amortization method
       to an impairment-only approach. Thus, amortization of goodwill, including
       goodwill recorded in past business combinations, will cease upon adoption
       of the statement.

       In August 2001, the Financial Accounting Standards Board approved
       Statement No. 144 (FAS 144) "Impairment of Long-Lived Assets" which is
       required to be adopted in fiscal years beginning after December 15, 2001.
       FAS 144 requires that in cases where undiscounted expected cash flows
       associated with long-lived assets are less than their carrying value, an
       impairment provision is recognized in an amount by which the carrying
       value exceeds the estimated fair value of such assets.

       The adoption of FAS 142 and 144 will not have a material effect on the
       Company's results of operations or financial position.

4.     Inventories

       The major classifications of inventories are as follows at December 31,
       2001:
<TABLE>
<CAPTION>
<S>                                                                     <C>
                   Raw materials ...................................... $          27,484
                   Work in process ....................................            14,779
                   Finished goods .....................................           377,784
                                                                        -----------------
                                                                        $         420,047
</TABLE>

5.     Property and Equipment

       Property and equipment at December 31, 2001 are comprised of the
       following:
<TABLE>
<CAPTION>

<S>                                                                     <C>
                   Equipment .......................................... $         347,838
                   Furniture and fixtures .............................            27,649
                   Leasehold improvements .............................            19,654
                                                                        -----------------

                                                                                  395,141
                   Less accumulated depreciation ......................           217,491
                                                                        -----------------
</TABLE>


                                      F-8

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000

<TABLE>
<CAPTION>
<S>                                                                     <C>
                                                                        $         177,650
                                                                        =================
</TABLE>

5.     Property and Equipment (continued)

       The estimated useful lives of the classes of physical assets were as
       follows:
<TABLE>
<CAPTION>
                   Description                                             Depreciable Lives
                   -----------                                             -----------------
<S>                                                                             <C>
                   Equipment ............................................       5 years
                   Furniture and fixtures ...............................       7 years
                   Leasehold improvements ...............................    Term of lease
</TABLE>

6.     Bank Line of Credit

       The Company had a $250,000 bank line of credit which expired in June
       2001. The line was secured by the Company's assets and was personally
       guaranteed by a director of the Company.

7.     Capital Lease Obligations

       The Company leases certain furniture and equipment under capital leases.
       Future minimum lease payments for assets under capital leases at December
       31, 2001 are as follows:
<TABLE>
<CAPTION>
                          <S>                                                            <C>
                          2002 .......................................................   $        38,643
                          2003 .......................................................            17,833
                          2004 .......................................................             3,405
                                                                                         ---------------

                          Total minimum lease payments ...............................            59,881
                          Less amount representing interest ..........................            (6,777)
                                                                                         ---------------

                          Present value of minimum lease payments ....................            53,104
                      payments

                          Less current maturities ....................................           (33,128)
                                                                                         ---------------
                                                                                         $        19,976
</TABLE>

       At December 31, 2001, the Company had net assets under capital leases of
       $47,295 included in property and equipment in the accompanying balance
       sheet.

8.     Stockholders' Equity

       Private Placements


                                       F-9

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000



       In December 2001, the Company completed a private placement of 207,828
       shares of common stock at $11.50 per share. Proceeds received were
       $2,390,022.

8.     Stockholders' Equity (continued)

       Private Placements (continued)

       In November 2000, the Company completed a private placement of 277,001
       shares of common stock at $10.00 per share. Proceeds received were
       $2,554,842 together with a conversion of $215,168 in stockholder debt.

       In June 2000, the Company completed a private placement in the amount of
       $750,000 for the issuance of 250,000 shares of common stock at $3.00 per
       share. Proceeds received were $690,000 together with a conversion of
       $60,000 in stockholder debt.

       In January 2000, the Company completed a private placement, authorized in
       September 1999, in the amount of $545,000. The Company issued 272,500
       units at $2.00 per unit. Each unit represents one share of common stock
       and one five-year warrant to purchase one-fifth share of common stock at
       $2.50 per share. The warrants expire five years from the date of the
       subscription. Total proceeds received were $495,000 together with a
       conversion of $50,000 in stockholder debt. As of December 31, 2000 and
       2001, there were outstanding 222,500 warrants to purchase 44,500 shares
       of common stock.

       Stock Options

       The Company issued 23,700 and 75,000 shares of common stock during 2001
       and 2000, respectively, for options exercised by certain employees and
       directors. The shares were issued at prices ranging from $0.50 per share
       to $4.15 in 2001 and $0.55 to $1.25 per share in 2000. Proceeds from
       options amounted to $32,276 and $51,750 in 2001 and 2000, respectively.

       During 2000 the Company issued 2,000 shares of common stock to an outside
       consultant at a price of $2.50 per share pursuant to the Company's 1989
       stock option plan. The 1989 plan has been replaced by the 1997 Incentive
       Stock Option Plan.

       Other

       In May 2001, the shareholders approved an Amendment to the Certificate of
       Incorporation increasing the number of authorized shares of the Company's
       common stock from 9,000,000 shares to 20,000,000 shares.



                                      F-10

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000



       During 2000, the Company waived accrued interest on stockholder loans of
       $61,600 and contributed it to capital.

9.     Related Party Transactions

       The Company rents its facility from one of its stockholders for $4,400
       per month ($3,600 per month prior to October 2001) pursuant to a lease
       expiring in September 2003. Rent paid to this stockholder aggregated
       $45,600 and $43,200 for 2001 and 2000, respectively.

10.    Development and License Agreements

       In February 2001, the Company entered into a license agreement with ST
       Microelectronics NV ("ST") of the Netherlands. The agreement calls for ST
       to use certain intellectual property rights owned or controlled by the
       Company to commercialize and sell related products utilizing such
       technology. In consideration for this license, ST paid to the Company a
       one-time license fee of $1.6 million in cash and a $400,000 credit for
       future design services. This agreement has no expiration date, however,
       either party may cancel the agreement upon certain advance notices as
       defined in the agreement. $180,000 of the $1.6 million of license fee
       income was initially deferred as the Company was obligated to perform
       future consulting services relating to the development of a portion of
       the products to be created using the licensed technology and supporting
       services relating to the licensed technology. During the year ended
       December 31, 2001, the Company fulfilled this obligation and recognized
       this deferral in its entirety. The Company earned an additional $62,063
       for consulting services provided, surpassing its initial obligation under
       this agreement. Total consulting revenue under this agreement amounted to
       $242,063 in 2001. The Company also received royalties of $250,000 in 2001
       based on certain formulas, as defined in the agreement. The $400,000
       credit portion of the license fee is associated with future development
       activities of the Company and will not be recognized in income before
       that happens. When the $400,000 amount is recognized in income, it will
       simultaneously be charged to research and development costs.

       In August 1999, the Company signed a licensing agreement with ALST, a
       strategic partnership between Altec Lansing Technology, Inc. ("Altec")
       and STMicroelectronics. The Company was to receive a royalty on sales of
       all products incorporating the Company's DDX technology as well as
       consulting income on collaborative development work. The royalty
       obligation under the ALST agreement was superseded in February 2001 with
       the signing of the STMicroelectronics Agreement whereby
       STMicroelectronics agreed to assume all royalty obligations to the
       Company under the ALST agreement. During 2000, no royalties were earned
       given that no shipments were made under the agreement. In January 2002,
       the agreement was cancelled as ALST ceased operations. No revenue from
       this agreement was



                                      F-11

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000
--------------------------------------------------------------------------------
       earned during 2001. During 2000, the Company recognized $50,275 in
       revenue from consulting fees under the ALST agreement.

11.    Customer Concentration

       During the year ended December 31, 2001, approximately 83% of the
       Company's product sales were derived from four customers.

12.    Stock Options

       In May 1997, the Company adopted an incentive stock option plan for key
       employees, directors and consultants. The Company's board of directors
       authorized a maximum of 300,000 shares of common stock for issuance under
       the plan which in 2001 was increased to 1,050,000 shares. Pursuant to the
       plan, the board may grant options to key employees, directors, or
       consultants at its discretion. Options granted under the plan to less
       than 10% and greater than 10% stockholders are to be for 100% and 110%,
       respectively, of the fair value of the common stock on the date of the
       grant, and expire 10 and 5 years, respectively, from the date of the
       grant.

       A summary of the status of the Company's stock options as of December 31,
       2001 and 2000 and changes during the years ended on that date is
       presented below.
<TABLE>
<CAPTION>

                                                                    2001                                       2000
                                                                  Weighted                                   Weighted
                                                                  Average                                    Average
                                                                  Exercise                                   Exercise
                                                   Shares          Price               Shares                 Price
                                                   ------          -----               ------                 -----
<S>                                               <C>              <C>                 <C>                  <C>
       Outstanding--beginning of year ........... 405,500          $   2.99            300,000              $   0.64
       Granted .................................. 485,500             12.68            212,000                  5.38
       Exercised ................................ (23,700)            (1.38)           (77,000)                (0.74)
       Expired ..................................      -                 -                  -                     -
       Cancelled ................................ (48,900)            (4.25)           (29,500)                (2.15)
                                                  -------                              -------
       Outstanding--end of year ................. 818,400          $   8.71            405,500              $   2.99
                                                  =======          ========            =======              ========
       Weighted average fair value of
         options granted during year ............                  $   9.33                                 $   3.02
                                                                   ========                                 ========
</TABLE>


       The Company granted a total of 485,500 and 212,000 in options under the
       1997 Incentive Stock Options Plan during 2001 and 2000, respectively, to
       certain directors, employees and a consultant. Vesting generally occurs
       ratably over a five-year period beginning one year from

                                      F-12

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000
--------------------------------------------------------------------------------
       the date of grant. During 2001, 2,500 options were granted to a
       consultant in lieu of payment for services rendered. As a result, these
       options were fully vested at the date of grant, and the fair market value
       of these options ($16,385) was charged to operations.

12.    Stock Options (continued)

       The Company has adopted only the disclosure provisions of Financial
       Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
       (FAS 123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
       Employees," and related Interpretations in accounting for its plans and
       does not recognize compensation expense for its stock-based compensation
       plans other than for options granted (as noted above).

       Pro forma information regarding earnings and per share information is
       required by Statement 123, and has been determined as if the Company had
       accounted for its employee stock options under the fair value method of
       that Statement. The fair value for these options was estimated at the
       date of grant using a Black-Scholes option pricing model in 2001 and 2000
       with the following weighted-average assumptions for 2001 and 2000,
       respectively: risk-free interest rates ranging from 4.41% to 5.28% and
       5.58% to 6.63%; no dividend yields; volatility factors of the expected
       market price of the Company's common stock of 0.77 in 2001 and 1.0 in
       2000; and a weighted-average expected life of the option of approximately
       7.5 years and 10 years.

       For purposes of pro forma disclosures, the estimated fair value of the
       options is amortized over the options' vesting period. Had the Company's
       stock option plan been accounted for under SFAS No. 123, net loss and
       loss per share would have been increased to the following pro forma
       amounts:
<TABLE>
<CAPTION>

                                                            2001                   2000
                                                            ----                   ----
       Net loss:
<S>                                                  <C>                     <C>
         As reported ............................... $   (894,586)           $  (1,919,853)
         Pro forma ................................. $ (1,411,709)           $  (2,032,094)

       Loss per share:
         As reported, basic and diluted ............ $      (0.18)           $       (0.42)
         Pro forma, basic and diluted .............. $      (0.28)           $       (0.44)
</TABLE>


       The following table summarizes information about options outstanding as
       of December 31, 2001:
<TABLE>
<CAPTION>
       <S>                           <C>                  <C>            <C>               <C>               <C>
                                                   Options Outstanding                          Options Exercisable
                                      -------------------------------------------------    ------------------------------
                                                           Weighted
</TABLE>

                                      F-13

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000


<TABLE>
<CAPTION>

                                                           Average         Weighted                           Weighted
                                                          Remaining        Average                            Average
             Range of Exercise           Number          Contractual       Exercise           Number          Exercise
                  Prices              Outstanding            Life           Price          Exercisable         Price
       ------------------------------ -------------    --------------- ---------------    -------------    -------------
       <S>                           <C>                  <C>            <C>               <C>               <C>
              $ 0.50 - 9.00              290,400             4.25       $       1.50          210,600        $   1.05
              $ 5.25 - 15.25             528,000             6.38              12.68           16,800           12.37
                                         -------                                             --------

       Total at December 31, 2001       818,400              5.97       $       8.71          227,400        $   1.88
       ============================== =============    =============== ===============    =============    =============
</TABLE>


13.    Loss Per Common Share


       Basic and diluted loss per common share are computed by dividing net loss
       by the weighted average number of shares of common stock outstanding
       during each year, which totaled 5,019,507 and 4,571,860 shares for 2001
       and 2000, respectively. The assumed exercise of outstanding warrants and
       stock options for diluted loss per common share was not applicable
       because their effect was antidilutive.

14.    Employee Retirement 401(k) Plan

       The Company sponsors a 401(k) retirement plan for the benefit of its
       employees. The plan imposes no contribution requirement or liability upon
       the Company. Plan participation is voluntary and unconditional to all
       employees over 18 and plan contributions are discretionary to the limits
       allowed by the Internal Revenue Code and are immediately 100% vested.
       There were no employer contributions during 2001 and 2000.

15.    Tax Loss Carryforwards

       The Company has federal net operating loss carryforwards at December 31,
       2001, totaling approximately $10,762,000, expiring through the year 2021.

       The Company's net losses result in no current tax benefit. The deferred
       tax assets arising from net operating loss carryforwards amounted to
       approximately $2,168,000 at December 31, 2001, and were fully offset by a
       valuation allowance as required by Statement of Financial Accounting
       Standards No. 109, Accounting for Income Taxes. This represents an
       increase of $468,000 in the valuation allowance since December 31, 2000.
       The valuation allowance is based on an assessment at December 31, 2001
       that it is more likely than not that the net operating loss carryover
       will not be realized in the future. However, should the Company generate
       future income from licensing agreements (see Note 10) and sales of
       products, resulting in taxable income, then the valuation allowance will
       be adjusted accordingly.

16.    Concentration of Credit Risk

       The Company maintains accounts with financial institutions. Balances
       usually exceed the maximum coverage provided by the Federal Deposit
       Insurance Corporation on insured depositor accounts.


                                      F-14

<PAGE>

APOGEE TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2001 AND 2000




       One of the Company's major customers accounted for approximately 55% of
       the total accounts receivable balance at December 31, 2001.

17.    Supplemental Cash Flow Information

       Interest paid during 2001 and 2000 amounted to $11,424 and $10,550,
       respectively.


       Supplemental Disclosure of Noncash Financing and Investing Activities
<TABLE>
<CAPTION>

                                                                                   2001               2000
                                                                             ----------------   ----------------
          <S>                                                                   <C>               <C>

          Furniture and equipment financed through
          capital leases .................................................     $   17,760        $     68,930

          Stockholder debt converted to equity ...........................             -              275,108
</TABLE>


18.    Litigation

       On February 19, 2002, Acoustic Technology, Inc. ("ATI") filed a complaint
       in the Superior Court of Suffolk County, Massachusetts, against Mr. Tak
       Ping Tsui, a former employee of ATI and a current employee of the
       Company, in which the Company was also named as a defendant. The
       complaint alleges that the Company interfered with ATI's noncompete
       agreement with Mr. Tsui and violated the Massachusetts statutes on unfair
       and deceptive trade practices and trade secrets by hiring Mr. Tsui. ATI
       has claimed $1,000,000 in damages from Mr. Tsui and the Company. On
       February 26, 2002, the Suffolk County Superior Court denied, without
       prejudice, ATI's motion for a preliminary injunction seeking to stop the
       Company from continuing to employ Mr. Tsui and to require the Company to
       provide information regarding Mr. Tsui's employment by the Company. The
       Company intends to defend vigorously the claims against it in this
       matter. Further, the Company has brought a counterclaim against ATI for
       unfair and deceptive trade practices and unfair methods of competition.


                                      F-15