UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





ýQUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the quarterly period ended March 31, 2009





oTRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the transition period
from                   to





Commission
file number 001-10456





APOGEE
TECHNOLOGY, INC.


(Exact
name of registrant as specified in its charter)




DELAWARE
            
            04-3005815(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)129
      MORGAN DRIVE, NORWOOD, MASSACHUSETTS 02062(Address
      of principal executive offices)(781)
      551-9450(Registrant’s
      telephone number, including area code)NOT
      APPLICABLE(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.Yes   o
  No   



ý





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
proceeding 12 months (or such shorter periods that the registrant was required
to submit and post such files).  Yes   o
  No   o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  
            
            Accelerated
      filer  
            
            Non-accelerated
      filer  
              (
      Do not check if a smallerreporting
      company)
            
            Smaller
      reporting company  ý





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). o
  Yes   ý
  No





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  As of January 8, 2010, there
were 12,132,332 shares of Common Stock, $0.01 par value per share outstanding.












APOGEETECHNOLOGY, INC.


(A
Development Stage Company)


Table of Contents




PART I - FINANCIAL
      INFORMATIONItem 1 -
            Financial StatementsUnaudited 
Consolidated Balance Sheets at
      March 31, 2009 and December 31, 2008
            3Unaudited Consolidated Statements of
      Operations and Accumulated Deficit for the Three Months Ended March 31,
      2009 and March 31, 2008 and for the period from October 1, 2008 (date
      re-entering development stage)  through March 31,
      2009
            4Unaudited
Consolidated
      Statements of Cash Flows for the Three Months Ended  March 31,
      2009 and March 31, 2008 and for the period from October 1, 2008 (date
      re-entering development stage) through March 31,
      2009
            5Notes to Unaudited Consolidated
      Financial Statements
            6Item 2 -
            Management’s Discussion and Analysis
      of Financial Condition and Results of
Operations
            25Item 3 -
            Quantitive and Qualitative
      Disclosures about Market Risk
            36Item 4T -
            Controls and
      Procedures
            36PART II - OTHER
      INFORMATIONItem 1 -
            Legal
      Proceedings
            37Item 1A -
            Risk
    Factors
            38Item 2 -
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            41Item 3 -
            Defaults Upon Senior
      Securities
            41Item 4T-
            Submission of Matters to a Vote of
      Security Holders
            42Item 5 -
            Other
      Information
            42Item 6 -
            Exhibits
            42Signatures
            44


2
 Table of Contents


PART I
            FINANCIAL
      INFORMATION





Item
      1.
            Financial
      Statements





APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY


(A
Development Stage Company)


CONSOLIDATED
BALANCE SHEETS


(Unaudited)





MARCH
      31,
            
            
            DECEMBER 31,2009
            
            
            2008ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            2,498
            
            
            $
            —Accounts
      receivable, net of allowance for doubtful accounts of $9,377 in 2009 and
      2008
            
            
            —
            
            
            
            —Prepaid
      expenses and other current assets
            
            
            24,285
            
            
            
            8,335Total
      current assets
            
            
            26,783
            
            
            
            8,335Property
      and equipment, net
            
            
            95,113
            
            
            
            111,152Other
      assetsPatents,
      net
            
            
            128,017
            
            
            
            148,889$
            249,913
            
            
            $
            268,376LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCYCurrent
      liabilitiesBank
      overdraft
            
            $
            —
            
            
            $
            49,236Accounts
      payable and accrued expenses
            
            
            2,409,897
            
            
            
            2,267,273Officer
      loans and notes payable
            
            
            881,782
            
            
            
            783,524Shareholder
      loans and notes payable
            
            
            944,686
            
            
            
            882,431Other
      loans and notes payable
            
            
            609,493
            
            
            
            259,622Total
      current liabilities
            
            
            4,845,858
            
            
            
            4,242,086Commitments
      and Contingencies
            
            
            —
            
            
            
            —Stockholders’
      deficiencyPreferred
      stock, par value $0.0001 per share; 5,000,000 shares authorized, none
      issued and outstanding
            
            
            —
            
            
            
            —Common
      stock, $0.01 par value; 40,000,000 shares authorized, 12,132,332 issued
      and outstanding at March 31, 2009 and December 31, 2008
            
            
            121,323
            
            
            
            121,323Additional
      paid-in capital
            
            
            18,854,606
            
            
            
            18,786,046Accumulated
      deficit
            
            
            (21,891,704
            )
            
            
            (21,891,704
            )Accumulated
      deficit during development stage
            
            
            (1,680,170
            )
            
            
            (989,375
            )Total
      stockholders’ deficiency
            
            
            (4,595,945
            )
            
            
            (3,973,710
            )$
            249,913
            
            
            $
            268,376





The
accompanying notes are an integral part of these consolidated financial
statements.


3
 Table of Contents


APOGEETECHNOLOGY, INC. AND SUBSIDIARY


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT


(Unaudited)





THREE MONTHS ENDED
              MARCH
      31,
            
            
            Cumulative
      from Re-entering Development Stage on OCTOBER 1, 2008 to2009
            
            
            2008
            
            
            MARCH
      31, 2009RevenuesProduct
      sales
            
            $
            —
            
            
            $
            21,951
            
            
            $
            —Royalties
            
            
            —
            
            
            
            —
            
            
            
            ——
            
            
            
            21,951
            
            
            
            —Costs
      and expensesProduct
      sales
            
            
            —
            
            
            
            696
            
            
            
            —Research
      and development
            
            
            274,670
            
            
            
            413,087
            
            
            
            753,750Selling,
      general and administrative
            
            
            331,614
            
            
            
            684,331
            
            
            
            770,215606,284
            
            
            
            1,098,114
            
            
            
            1,523,965Loss
      from operations
            
            
            (606,284
            )
            
            
            (1,076,163
            )
            
            
            (1,523,965
            )Other
      income (expense)Interest
      and other expense
            
            
            (84,617
            )
            
            
            (13,477
            )
            
            
            (156,996
            )Interest
      and other income
            
            
            106
            
            
            
            1,243
            
            
            
            791(84,511
            )
            
            
            (12,234
            )
            
            
            (156,205
            )Net
      loss
            
            $
            (690,795
            )
            
            $
            (1,088,397
            )
            
            $
            (1,680,170
            )Accumulated
      deficit - beginning
            
            $
            (22,881,079
            )
            
            $
            (18,860,568
            )
            
            $
            —Accumulated
      deficit - ending
            
            
            (23,571,874
            )
            
            
            (19,948,965
            )
            
            
            (1,680,170
            )Basic
      and diluted loss per common share
            
            $
            (0.06
            )
            
            $
            (0.09
            )
            
            $
            (0.14
            )Weighted
      average common shares outstanding - basic and diluted
            
            
            12,132,332
            
            
            
            11,968,332
            
            
            
            12,132,332





The
accompanying notes are an integral part of these consolidated financial
statements.


4
 Table of Contents




APOGEETECHNOLOGY, INC. AND SUBSIDIARY


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)




THREE
      MONTHS ENDED
                MARCH
      31,
              
              
              Cumulative
      from Re-entering Development Stage on OCTOBER 1, 2008 to2009
              
              
              2008
              
              
              MARCH
      31, 2009Cash
      flows from operationsNet
      loss
              
              $
              (690,795
              )
              
              $
              (1,088,397
              )
              
              $
              (1,680,170
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Provision
      for doubtful accounts
              
              
              —
              
              
              
              (1,193
              )
              
              
              —Depreciation
      and amortization
              
              
              25,645
              
              
              
              22,140
              
              
              
              83,096Stock
      compensation expense for employees and directors
              
              
              23,495
              
              
              
              18,245
              
              
              
              51,874Original
      issue discount
              
              
              25,049
              
              
              
              1,855
              
              
              
              47,534Patent
      impairment
              
              
              17,267
              
              
              
              —
              
              
              
              205,674Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              —
              
              
              
              11,729
              
              
              
              —Prepaid
      expenses and other current assets
              
              
              (15,950
              )
              
              
              16,502
              
              
              
              10,829Accounts
      payable and accrued expenses
              
              
              142,623
              
              
              
              381,196
              
              
              
              537,661Net
      cash used in operating activities
              
              
              (472,666
              )
              
              
              (637,923
              )
              
              
              (743,502
              )Cash
      flows from investing activitiesPurchases
      of property and equipment
              
              
              —
              
              
              
              (7,082
              )
              
              
              —Patent
      costs
              
              
              (6,000
              )
              
              
              (14,701
              )
              
              
              (28,116
              )Net
      cash used by investing activities
              
              
              (6,000
              )
              
              
              (21,783
              )
              
              
              (28,116
              )Cash
      flows from financing activitiesCash overdraft
              
              
              (49,236
              )
              
              
              —
              
              
              
              (4,284
              )Proceeds
      for shareholder loans and notes payable
              
              
              95,000
              
              
              
              250,000
              
              
              
              210,000Proceeds
      from officer loans and notes payable
              
              
              98,900
              
              
              
              200,000
              
              
              
              123,900Proceeds
      from other loans and notes payable
              
              
              336,500
              
              
              
              —
              
              
              
              444,500Net
      cash provided by financing activities
              
              
              481,164
              
              
              
              450,000
              
              
              
              774,116Increase
      (decrease) in cash and cash equivalents
              
              
              2,498
              
              
              
              (209,706
              )
              
              
              2,498Cash
      and cash equivalents — beginning
              
              
              —
              
              
              
              320,524
              
              
              
              —Cash
      and cash equivalents — ending
              
              $
              2,498
              
              
              $
              110,818
              
              
              $
              2,498Supplemental
      Cash Flow Information:Cash
      paid for interest
              
              $
              —
              
              
              $
              5,933
              
              
              $
              —Warrants
      issued in connection with notes payable – non-cash
              
              $
              45,065
              
              
              $
              12,724
              
              
              $
              55,907Income
      taxes
              
              $
              —
              
              
              $
              —
              
              
              $
              —




The
accompanying notes are an integral part of these consolidated financial
statements


5
 Table of Contents




APOGEETECHNOLOGY, INC. AND SUBSIDIARY


(A
Development Stage Company)


Notes
to Unaudited Consolidated Financial Statements


March
31, 2009 and March 31, 2008




1.
            The
      Company and Basis of Presentation





The Company





Apogee
Technology, Inc., (“Apogee”, “we”, “us” or “our”) is developing PyraDerm(TM), a proprietary
intradermal drug delivery system for vaccines and other pharmaceuticals that we
intend to market to pharmaceutical and medical device
companies.  Until March 31, 2009, we were also engaged in the
development of IntellaPAL(TM), a proprietary
sensor-based health monitoring systems for the elderly care and other markets
that we intended to manufacture and market to individuals and health
organizations. Our two major business activities were organized under our Life
Science Group and our Health Monitoring Products Group.  Apogee is
currently considered to be a development stage company, as defined by Statement
of Financial Accounting Standards No. 7.





Apogee is
developing PyraDerm, an advanced intradermal
drug delivery system, to meet the needs of patients, health insurers and
companies developing pharmaceuticals, as well as governments and international
health organizations. We believe PyraDerm(TM) has advantages over competitive
approaches for the delivery of vaccines, high potency therapeutic protein drugs
and other pharmaceuticals. We have evaluated the feasibility of PyraDerm by performing in
vitro tests with model drugs and demonstrated its potential for intradermal
immunization in vivo. We are working to establish pharmaceutical industry
compliant manufacturing methods and to define regulatory strategies to support
its commercialization. Upon the completion of in vitro and in vivo evaluation of
PyraDerm(TM), ifsuccessful, we intend
to pursue licensing/development or partnership agreements with pharmaceutical
companies interested in our technologies.





We have
operated as a technology research and development stage company since October 1,
2008, under Statement of Financial Accounting Standards No. 7.  We
have not yet generated revenue from our principal operations. During the fiscal
year ended December 31, 2008, and continuing to date,  due to our limited
resources, we invested these resources predominately in the development of our
Life Science Group.  As of March 31, 2009, we closed down operations
of our Health Monitoring Products Group.  Costs associated with the
closing of this group, as well as the termination of related employees are not
material.  Our sole focus is and will remain on the development and
growth of our Life Science Group.





Basis
of Presentation
 
 The
information from our consolidated balance sheet as of December 31, 2008 included
in this Quarterly Report on Form 10-Q has not been audited for the reasons set
forth in the Report of Independent Registered Accounting Firm dated December 18,
2009 included in our Annual Report on Form 10-K for the year ended December 31,
2008, which was filed with the Securities and Exchange Commission on December
18, 2009.


Going
Concern





The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has recurring
operating losses, negative cash flows from operations, negative working capital
of approximately $4.8 million and stockholder’s deficiency of approximately $4.6
million, is in arrears with substantially all of its vendors, and is in default
on a majority of its Promissory Notes.  This raises substantial doubt
about our ability to continue as a going concern. Net losses were approximately
$691,000 and negative cash flows from operations were approximately $473,000 for
the three months ended March 31, 2009.  Given our current cash
position, net losses and negative cash flows from operations and our outstanding
current obligations, we will not be able to continue as a going concern without
raising additional capital which is not assured.


6
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008
  We had
approximately $2,500 cash balance at March 31, 2009.  As of January
15, 2010, we had cash of approximately $2,500.   See Note 13 -
Subsequent Events – Additional Financings.
 
 The
long-term success of Apogee is dependent upon our ability to raise additional
funds to continue our operations, pay our outstanding liabilities and to
successfully develop and market our technologies and products and to attain
profitable operations. Although we have modified our business strategy to
improve near-term financial performance, there can be no assurance that we will
be able to obtain funds, to generate sufficient revenue, if any, or become
profitable or that additional funds will be available to us on acceptable terms,
if at all.  Accordingly, we may be unable to implement current
plans.  In addition, if sufficient capital cannot be obtained, Apogee
may be forced to cease operations.  In the event that any future
financing is affected, to the extent it includes equity securities; the holders
of the common stock may experience additional dilution.  In the event
of a cessation of operations, there may not be sufficient assets to fully
satisfy all creditors, in which case, the holders of securities may be unable to
recoup any of their investment.
  We are in
the process of attempting to secure sufficient financing to meet our current
obligations and to continue development of our technology.  We have
been working to obtain financing from outside investors for more than 24 months,
but have not yet been successful.  In the interim, short-term debt
financing has been provided by Apogee’s significant shareholders, including our
President, Chief Executive Officer and Chairman of the Board of Directors, an
individual investor and others, and has been utilized to keep product
development moving forward.  Additionally, cost cutting measures,
including salary reduction for non-PyraDerm employees,
diminished sensor development, deferral of capital expenditures, and reduced
general spending, have been instituted until such time as financing is secured,
if ever.
  Due to
the early stages of development of our products, we cannot estimate at this time
the amounts of cash or the length of time that will be required to bring our
products under development to market.  It is expected that such costs
will be funded not only by external funding, if available, but also through
partnership activities.  Without additional financing, we will be
unable to continue operations.
 
 On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934.  In connection with the contemplated proceedings, the staff
may seek a suspension or revocation of registration of each class of the
Company’s registered securities. Also, the staff may consider whether contempt
proceedings in a federal district court are appropriate.  The Company
submitted a response to this letter on November 16, 2009.  Should
suspension or revocation of our stock occur, the Company’s ability to raise
additional funding may be severely impacted.
 
 Accounting
Principles
 
 The
accompanying consolidated financial statements have been prepared using
accounting principles generally accepted in the United States of
America.


7
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Consolidated
Financial Statements





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




In
management’s opinion all adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation, have been included in the
accompanying unaudited financial statements.  Operating results for
the three months ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the full year ended December 31, 2009 or any
other period.
 
 Use of
Estimates in Financial Statements
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates, and such
differences could affect the results of operations reported in future periods
and such differences could be material.


2.
            Summary
      of Significant Accounting Policies





Revenue
Recognition





Apogee
recognizes revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial
Statements: Revenue Recognition”, which states that revenue should be recognized
when the following revenue recognition criteria are met: 
(1) persuasive evidence of an arrangement exists; (2) the product has
been shipped and the customer takes ownership and assumes the risk of loss;
(3) the selling price is fixed or determinable; and (4) collection of
the resulting receivable is reasonably assured. The following policies apply to
Apogee’s two sales categories for revenue recognition. Sales to end users
(“OEM”):  revenue is recognized under our standard terms and conditions of
sale, title and risk of loss transfer to the customer at the time products are
shipped from our warehouse or delivered to the customer’s representative/freight
forwarder. We accrue the estimated cost of post-sale obligations including
product warranty returns, based on historical experience. To date we have
experienced minimal warranty returns.





We record
royalty revenue when earned in accordance with the underlying agreements.
Consulting and licensing revenue is recognized as services are
performed.




In April
of 2008, SigmaTel, Inc. agreed to pay Apogee a percentage of the royalties it
received from STMicroelectronics NV (“ST”) in exchange for supporting their
royalty negotiations with ST. As a result of this agreement, Apogee received
approximately $63,000 during the year ended December 31, 2008. On November 4,
2008 Apogee was notified by STMicroelectronics NV that they had reached an
agreement with Freescale (formerly SigmaTel, Inc.) reducing the quarterly
royalties due Freescale.  The original agreement was a result of the
transaction with SigmaTel, Inc. (“SigmaTel”) whereby we sold certain assets of
our audio division, including the DDX technology and the associated royalties
from our license agreement with ST, for approximately $9.78
million.  Upon acceptance by Freescale of the lower royalty payments,
the arrangement agreed to between Freescale and Apogee in April 2008 was
cancelled.  No further revenue is expected under this
arrangement.


8
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Loss
Per Share




Basic net
loss per share is computed by dividing the net loss attributable to common
stockholders for the period by the weighted average number of common stock
outstanding during the period.  Diluted net loss per share is computed
based on the weighted average number of common stock and dilutive potential
common stock outstanding.  Potential common stock consists of
incremental common stock issuable upon the exercise of stock options and common
stock issuable upon the exercise of common stock warrants.  The
calculation of diluted net loss per share excludes potential common stock as the
effect is anti-dilutive. The weighted average number of shares of common stock
outstanding used to compute basic net loss per share for the three months ended
March 31, 2009 and 2008 amounted to 12,132,332 and 11,968,332,
respectively.
 
 Research
and Development
 
 Costs for
research and development are expensed as incurred.
 
 Legal
Fees
 
 We record
legal costs (such as fees and expenses of outside legal counsel and other
service providers) when incurred or when it is probable that a liability has
been incurred on or before the balance sheet date and the amount can be
reasonably estimated if invoices have not been received.  Legal fees
incurred pursuant to patent applications are part of the patent costs and
capitalized.
 
 Contingencies
 
 Apogee is
involved in and/or indemnifies others in various legal
proceedings.  Management assesses the probability of loss for such
contingencies and recognizes a liability when a loss is probable and
estimable.  See Note 10 – Legal and Related Indemnification with our
Executives and Others.
 
 Inventories
 
 Inventories,
including inventory held at distributors, are stated at the lower of cost on a
first-in, first-out basis or market.This
policy requires us to make estimates regarding the market value of our
inventory, including an assessment of excess or obsolete inventory.
 
 On
January 15, 2008, we sold the remaining DDX inventory held in our Norwood office
to one of our customers and on January 24, 2008, we sold the remaining DDX
inventory housed in Hong Kong to one of our former DDX
distributors.  Total proceeds received from the disposition of the DDX
inventory were $17,000.
 
 Asset
Impairment Charges
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” long-lived assets to be held and used are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable.  The
conditions considered include whether or not the asset has become obsolete, or
whether external market circumstances indicate that the carrying amount may not
be recoverable.  Management performs analysis for impairment on a
regular basis.


9
 Table of Contents




APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


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.





Leasehold
Improvements





Leasehold
improvements are amortized over either the term of lease or the estimated useful
life of the improvement.





Patents




Costs
incurred to register and obtain patents are capitalized and amortized on a
straight-line basis over five years, their estimated useful
lives.  Management performs analysis for impairment on a regular
basis.
 
 Exclusive
License Fee
 
 We
capitalized license fees paid to third parties for costs associated with the
exclusive rights to their patents.  We amortize these fees over a
period of four years.  During 2008, Apogee terminated the 2006 license
agreement with the University of Akron Research Foundation and expensed the
remaining license fees.  In addition, during 2008, we expensed an
additional $30,000, which represented the minimum royalty due under this
terminated license agreement.
 
 Cash
and Cash Equivalents
 
 We
consider all highly liquid investments with an original maturity of three months
or less to be cash equivalents.
 
 Accounts
Receivable
 
 We carry
trade receivables from customers less an allowance for doubtful accounts to
ensure that trade receivables are carried at net realizable value.  On
a periodic basis, we evaluate the collectibility of our accounts receivable
based on a variety of factors, including length of time receivables are past
due, indication of customer ability to pay, significant one-time events and
historical experience.  Accounts receivable are generally considered
past due if any portion of the receivable balance is outstanding for more than
90 days.  If circumstances related to our customers change, estimates
of the recoverability of receivables would be further adjusted.
 
 Advertising
 
 Advertising
costs are expenses when incurred and were not significant for the three months
ended March 31, 2009 and 2008.
 
 Fair
Value of Financial Instruments
 
 Carrying
amounts of certain of our financial instruments, including cash and cash
equivalents, accounts receivable and notes and accounts payable, approximate
their fair values due to their relatively short maturities and based upon
comparable market information available at the respective balance sheet dates.
We do not hold or issue financial instruments for trading purposes.
 
 Stock-Based
Compensation
 
 We
account for our stock based compensation as permitted by Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards, “Accounting
for Stock-Based Compensation” (SFAS 123(R)).
 10
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Accounting
for Stock Compensation





Stock-based
compensation costs are generally based on the fair value calculated from the
Black-Scholes option-pricing model on the date of grant for stock
options.  The fair values of option grants are amortized as
compensation expense over the option’s vesting period. Compensation expense
recognized is shown in the operating activities section of the consolidated
statements of cash flow.
 
 In
anticipation of adopting SFAS 123(R), Apogee evaluated the assumptions used by
it in applying the Black-Scholes model. We continue to calculate the expected
stock price volatility based solely on historical volatility. We believe that
historical volatility provides the best estimate of future stock price
volatility.
 
 The
expected term of options was previously and is currently calculated based on an
analysis of vesting periods and contractual life. Apogee believes that this
analysis provides a better estimate of option term periods.
 
 We
estimate the expected life of the option and determine a risk-free rate based on
U.S. Treasury issues with remaining terms similar to the expected life of the
option.  We have never paid cash dividends and do not currently intend
to pay cash dividends.
 
 Pursuant
to SFAS 123(R), we are required to estimate potential forfeitures of stock
grants and adjust compensation cost recorded accordingly. The estimate of
forfeitures will be adjusted over the requisite service period to the extent
that actual forfeitures differ, or are expected to differ, from such estimates.
Changes in estimated forfeitures will be recognized through a cumulative
adjustment in the period of change and will also impact the amount of stock
compensation expense to be recognized in future periods.





Apogee’s
stock compensation activity with respect to the three months ended March 31,
2009 is summarized below:





Stock Options
            
            Shares
            
            
            Weighted-
              Average
              Exercise
              Price
            
            
            Weighted-
              Average
              Remaining
              Contractual
              TermOutstanding
      at December 31, 2008
            
            
            3,068,100
            
            
            $
            4.4048Granted
            
            
            —Exercised
            
            
            —Cancelled
      or expired
            
            
            44,000
            
            
            
            0.5136Outstanding
      at March 31, 2009
            
            
            3,024,100
            
            
            $
            4.4615
            
            
            
            4.8976Vested
      at March 31, 2009
            
            
            2,578,900
            
            
            $
            5.0643
            
            
            
            4.3361Exercisable
      at March 31, 2009
            
            
            2,578,900
            
            
            $
            5.0643
            
            
            
            4.3361


11
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


The
following table summarizes information about options outstanding as of March 31,
2009:





Options Outstanding
            
            
            Options ExercisableWeightedAverage
            
            
            Weighted
            
            
            
            
            
            WeightedRemaining
            
            
            Average
            
            
            
            
            
            AverageRange of Exercise
            
            
            Number
            
            
            Contractual
            
            
            Exercise
            
            
            Number
            
            
            ExercisePrices
            
            
            Outstanding
            
            
            Term
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.25
      — 1.69
            
            
            
            1,125,900
            
            
            
            6.9815
            
            
            $
            1.0214
            
            
            
            680,700
            
            
            $
            1.0553$
            2.71
      — 6.59
            
            
            
            1,299,200
            
            
            
            3.0135
            
            
            $
            5.4017
            
            
            
            1,299,200
            
            
            $
            5.4017$
            8.45
      — 12.15
            
            
            
            599,000
            
            
            
            5.0672
            
            
            $
            8.8883
            
            
            
            599,000
            
            
            $
            8.8883Total
      at March 31, 2009
            
            
            
            3,024,100
            
            
            
            4.8976
            
            
            $
            4.4615
            
            
            
            2,578,900
            
            
            $
            5.0643




During
the three months ended March 31, 2009 and 2008, no options were
granted.  No options were exercised during the three months ended
March 31, 2009 and 2008.  During the three months ended March 31, 2009,
options to purchase 5,300 shares of Apogee common stock vested.The weighted average
fair value of these options was $0.6243. During the three months ended
March 31, 2009 options to purchase 44,000 shares of Apogee common stock were
cancelled.  Total stock-based compensation expense was approximately
$23,500 and $18,000 for the three months ended March 31, 2009 and 2008,
respectively.  As of March 31, 2009, approximately 445,000 options to
purchase approximately 445,000 shares of Apogee common stock with an approximate
value of $130,000 are not yet vested.


Recent
Accounting Pronouncements





Management
does not believe there are any recently issued but not yet effective accounting
pronouncements that will have a material effect on our financial statements and
results of operation.




3.
            Accounts
      Receivable





Accounts
receivable at March 31, 2009 and December 31, 2008 are comprised of the
following:





Accounts
      Receivable
            
            March 31,
            
            
            December 31,2009
            
            
            2008Distributor
            
            $
            —
            
            
            $
            —Direct
      customers
            
            
            9,377
            
            
            
            9,377$
            9,377
            
            
            $
            9,377Less
      allowance for doubtful accounts
            
            $
            (9,377
            )
            
            
            (9,377
            )Net
      accounts receivable
            
            $
            —
            
            
            $
            —


12
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


4.
            Property
      and Equipment





Property
and equipment at March 31, 2009 and December 31, 2008 are comprised of
the following:





Property and Equipment
            
            March
      31,
            
            
            December 31,2009
            
            
            2008Equipment
            
            $
            189,781
            
            
            $
            189,781Software
            
            
            32,943
            
            
            
            32,943Furniture
      and fixtures
            
            
            22,047
            
            
            
            22,047Leasehold
      improvements
            
            
            92,892
            
            
            
            92,892$
            337,663
            
            
            $
            337,663Less
      accumulated depreciation
            
            
            (242,550
            )
            
            
            (226,511
            )$
            95,113
            
            
            $
            111,152





Depreciation
expense was $8,141 and $12,191 for the three months ended March 31, 2009
and 2008, respectively.


13
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


The
      estimated useful lives of the classes of physical assets were as
      follows:





Description
            
            Depreciable LivesEquipment
            
            5
      yearsSoftware
            
            3
      yearsFurniture
      and fixtures
            
            7
      yearsLeasehold
      improvements
            
            Term
      of lease





5.
            Asset
      Impairment





We
recorded a patent impairment charge of approximately $17,000 at March 31,
2009.  These patent applications were related to our Health Monitoring
Group which was closed down as of March 31, 2009.  In addition, for
the 3 months ended March 31, 2009, we amortized approximately $9,600 of patent
application related expenses.





The
values of patent costs are summarized in the table below:






Gross Carrying
              Value
            
            
            Accumulated
              Amortization
            
            
            Accumulated
              Impairment
            
            
            Net Book ValueDecember
      31, 2008
            
            $
            414,523
            
            
            
            (37,227
            )
            
            
            (228,407
            )
            
            $
            148,889March
      31, 2009
            
            $
            420,524
            
            
            
            (46,833
            )
            
            
            (245,674
            )
            
            $
            128,017





Estimated
Amortization is as follows:





Year ended December 31,Nine
      months ended December 2009
            
            
            24,4312010
            
            
            34,1292011
            
            
            34,1292012
            
            
            34,1282013
            
            
            1,200





6.
            Accounts
      Payable and Accrued Expenses





Accrued
expenses are included in accounts payable on the Balance Sheet. Accounts payable
and accrued expenses are as follows:




Accounts PayableMarch
      31,
            
            
            December 31,2009
            
            
            2008Legal
      and accounting
            
            $
            1,679,000
            
            
            $
            1,612,000Consulting
      expenses
            
            
            85,000
            
            
            
            137,000Interest
      owed to Promissory Note holders
            
            
            173,000
            
            
            
            113,000Corporate
      insurance expenses
            
            
            3,000
            
            
            
            5,000Director
      and Advisory Committee fees
            
            
            58,000
            
            
            
            43,000Rent
      expenses
            
            
            31,000
            
            
            
            18,000Other
      expenses
            
            
            206,000
            
            
            
            184,000$
            2,235,000
            
            
            $
            2,112,000


14
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Accrued
      ExpensesMarch
      31,
            
            
            December 31,2009
            
            
            2008Accrued
      audit expenses
            
            $
            83,000
            
            
            $
            60,000Accrued
      legal expenses
            
            
            15,000
            
            
            
            15,000Accrued
      consulting expenses
            
            
            46,000
            
            
            
            56,000Other
      accrued expenses
            
            
            30,000
            
            
            
            24,000$
            174,000
            
            
            $
            155,000





7.
            Promissory
      Notes, Loans and Warrants




During
the three months ended March 31, 2009, Apogee received $530,400 in proceeds from
unsecured interest-bearing promissory notes in the amounts of $98,900 from Mr.
Herbert M. Stein, President, Chief Executive Officer and Chairman of the Board
of Directors, $64,000 from Mr. David Spiegel, a major shareholder, $31,000 from
The Spiegel Family Limited Partnership, $270,000 from Mr. Robert Schacter et al,
$35,000 from Leo Spiegel, $30,000 from JAZFund LLC, and $1,500 from
others.  These promissory notes are payable upon demand,
not  subject to premium or penalty for prepayment, bear simple
interest of 8% per annum, and are to be repaid in 180 days.  An
additional 4% interest will be charged after maturity.  As of March
31, 2009, total unpaid interest of approximately $173,200 is due, consisting of
$79,800 to Mr. Stein, $77,700 to Mr. Spiegel, $13,700 to Mr. Robert Schacter et
al and $2,000 to others.
 
 Through
March 31, 2009, Apogee has received total proceeds from loans and promissory
notes of approximately $2.5 million, consisting of $949,000, $883,900, $510,000,
and $125,500 from Mr. Spiegel, Mr. Stein, Mr. Schacter and others,
respectively.
 
 As of
March 31, 2009, promissory notes in the amount of $1,690,000 are in default and
accruing post-maturity interest.


Promissory Notes
              and Loans Due To
              David SpiegelDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateDecember
      11, 2007
            
            $
            150,000
            
            March
      10, 2008
            
            
            8.00
            %
            
            
            12.00
            %February
      21, 2008
            
            
            100,000
            
            August
      19, 2008
            
            
            8.00
            %
            
            
            12.00
            %March
      20, 2008
            
            
            100,000
            
            September
      16, 2008
            
            
            8.00
            %
            
            
            12.00
            %April
      1, 2008
            
            
            50,000
            
            September
      28, 2008
            
            
            8.00
            %
            
            
            12.00
            %May
      15, 2008
            
            
            50,000
            
            November
      11, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      16, 2008
            
            
            65,000
            
            December
      13, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      18, 2008
            
            
            50,000
            
            December
      15, 2008
            
            
            8.00
            %
            
            
            12.00
            %July
      15, 2008
            
            
            50,000
            
            January
      11, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      28, 2008
            
            
            50,000
            
            January
      24, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      12, 2008
            
            
            35,000
            
            February
      8, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      27, 2008
            
            
            35,000
            
            February
      23, 2009
            
            
            8.00
            %
            
            
            12.00
            %September
      5, 2008
            
            
            35,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            35,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      6, 2009
            
            
            80,000
            
            July
      5 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            64,000
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %$
            949,000


15
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Promissory Notes
              and Loans Due To
              Herbert M. SteinDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateDecember
      11, 2007
            
            $
            250,000
            
            March
      10, 2008
            
            
            8.00
            %
            
            
            12.00
            %February
      21, 2008
            
            
            100,000
            
            August
      19, 2008
            
            
            8.00
            %
            
            
            12.00
            %March
      20, 2008
            
            
            50,000
            
            September
      16, 2008
            
            
            8.00
            %
            
            
            12.00
            %April
      1, 2008
            
            
            50,000
            
            September
      28, 2008
            
            
            8.00
            %
            
            
            12.00
            %May
      15, 2008
            
            
            50,000
            
            November
      11, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      16, 2008
            
            
            35,000
            
            December
      13, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      18, 2008
            
            
            40,000
            
            December
      15, 2008
            
            
            8.00
            %
            
            
            12.00
            %July
      15, 2008
            
            
            30,000
            
            January
      11, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      28, 2008
            
            
            50,000
            
            January
      24, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      12, 2008
            
            
            35,000
            
            February
      8, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      27, 2008
            
            
            35,000
            
            February
      23, 2009
            
            
            8.00
            %
            
            
            12.00
            %September
      5, 2008
            
            
            35,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            25,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      2, 2009
            
            
            30,000
            
            August
      1, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            
            
            10,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            25,900
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            
            
            33,000
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %$
            883,900





Promissory Notes and
              Loans Due To
              Robert Schacter et alDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateSeptember
      5, 2008
            
            $
            140,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            100,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      8, 2009
            
            
            100,000
            
            July
      7, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      2, 2009
            
            
            50,000
            
            August
      1, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            
            
            50,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            50,000
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            
            
            20,000
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %$
            510,000


16
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Promissory
      Notes
              and
      Loans Due To
              OthersDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory
      Note
            
            Amount
            
            Date
            
            Interest
      Rate
            
            
            Interest
      RateJuly
      28, 2008
            
            $
            20,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            6,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      6, 2009
            
            
            500
            
            July
      5, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            
            
            37,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            500
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            
            
            61,500
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %$
            125,500





The
promissory notes issued to Messrs. Stein and Spiegel from December 11, 2007
through September 5, 2008 for an aggregate of $1,520,000 are incurring a
post-maturity rate of interest of 12% compounded monthly.  The
promissory notes originally were issued with simple interest of 8% per year and
were to be repaid in cash after 90 days for the December 11, 2007 and 180 days
for the remaining promissory notes.  The effective interest rate is
approximately 19%.




The
following tables represent the net payable from promissory notes and loans as of
March 31, 2009:





Officer Loans Herbert M.
    Stein
            
            Shareholder Loans
              David Spiegel
            
            TotalTotal
      proceeds from Loans and Promissory Notes
            
            $
            883,900
            
            
            $
            949,000
            
            
            $
            1,832,900Discount  (Fair
      Market Value of Warrants)
            
            
            (2,118
            )
            
            
            (4,314
            )
            
            
            (6,432
            )$
            881,782
            
            
            $
            944,686
            
            
            $
            1,826,468





Loans
              Robert Schacter et al
            
            Loans
              Others
            
            TotalTotal
      proceeds from Loans and Promissory Notes
            
            $
            510,000
            
            
            $
            125,500
            
            
            $
            635,500Discount
      (Fair Market Value of Warrants)
            
            
            (22,366
            )
            
            
            (3,641
            )
            
            
            (26,007
            )$
            487,634
            
            
            $
            121,859
            
            
            $
            609,493


17
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008
  In
connection with the issuance of the promissory notes, we issued warrants to
purchase our common stock.  Each warrant expires three years from
issue date with an exercise price of $1.00 per share.  As of March 31,
2009, these warrants represent, in the aggregate, an underlying seventy-nine
thousand nine hundred (79,900) shares of common stock for Mr. Spiegel, an
underlying sixty thousand ninety (60,090) shares of common stock for Mr. Stein,
an underlying one hundred one thousand five hundred (101,500) shares of common
stock for Mr. Schacter, and an underlying four thousand one hundred fifty
(4,150) shares of common stock for others.  These warrants were issued
as added consideration for the notes.  These warrants include
customary terms and include a cashless or net exercise provision for exercise.
The values of these warrants were determined by using the Black Scholes
valuation model.





David SpiegelStock
      Price
            
            
            
            
            
            
            Risk
      FreeDate
      of
            
            Number
      of
            
            
            At
      Date of
            
            Term
      of
            
            Strike
            
            
            Interest
            
            
            
            
            
            Value
      PerWarrant
            
            Shares
            
            
            Issuance
            
            Warrant
            
            Price
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            Total ValueFebruary
      21, 2008
            
            
            10,000
            
            
            $
            0.65
            
            3
      Years
            
            $
            1.00
            
            
            
            2.23
            
            
            
            98.45824
            %
            
            $
            0.3462
            
            
            $
            3,462.00March
      20, 2008
            
            
            10,000
            
            
            $
            0.70
            
            3
      Years
            
            $
            1.00
            
            
            
            1.71
            
            
            
            99.87467
            %
            
            $
            0.3867
            
            
            
            3,867.00April
      1, 2008
            
            
            5,000
            
            
            $
            0.85
            
            3
      Years
            
            $
            1.00
            
            
            
            1.94
            
            
            
            100.00925
            %
            
            $
            0.5042
            
            
            
            2,526.00May
      15, 2008
            
            
            5,000
            
            
            $
            0.83
            
            3
      Years
            
            $
            1.00
            
            
            
            2.70
            
            
            
            102.78266
            %
            
            $
            0.5036
            
            
            
            2,518.00June
      16, 2008
            
            
            6,500
            
            
            $
            0.63
            
            3
      Years
            
            $
            1.00
            
            
            
            3.33
            
            
            
            104.12541
            %
            
            $
            0.3555
            
            
            
            2,310.75June
      18, 2008
            
            
            5,000
            
            
            $
            0.61
            
            3
      Years
            
            $
            1.00
            
            
            
            3.19
            
            
            
            104.07197
            %
            
            $
            0.3397
            
            
            
            1,698.50July
      15, 2008
            
            
            5,000
            
            
            $
            0.87
            
            3
      Years
            
            $
            1.00
            
            
            
            2.70
            
            
            
            104.55357
            %
            
            $
            0.5429
            
            
            
            2,714.50July
      28, 2008
            
            
            5,000
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            2.90
            
            
            
            104.54508
            %
            
            $
            0.4481
            
            
            
            2,240.60August
      12, 2008
            
            
            3,500
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            2.73
            
            
            
            104.93498
            %
            
            $
            0.4488
            
            
            
            1,570.80August
      27, 2008
            
            
            3,500
            
            
            $
            0.85
            
            3
      Years
            
            $
            1.00
            
            
            
            2.58
            
            
            
            106.26182
            %
            
            $
            0.5331
            
            
            
            1,865.85September
      5, 2008
            
            
            3,500
            
            
            $
            0.86
            
            3
      Years
            
            $
            1.00
            
            
            
            2.44
            
            
            
            106.21122
            %
            
            $
            0.5404
            
            
            
            1,891.40October
      27, 2008
            
            
            3,500
            
            
            $
            0.60
            
            3
      Years
            
            $
            1.00
            
            
            
            1.83
            
            
            
            108.82589
            %
            
            $
            0.3431
            
            
            
            1,200.85January
      6, 2009
            
            
            8,000
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            1.10
            
            
            
            108.80131
            %
            
            $
            0.4566
            
            
            
            3,652.80March
      19, 2009
            
            
            6,400
            
            
            $
            0.68
            
            3
      Years
            
            $
            1.00
            
            
            
            1.21
            
            
            
            109.80676
            %
            
            $
            0.4057
            
            
            
            2,596.48Total
            
            
            79,900
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            34,115.43





Herbert M. SteinStock
      Price
            
            
            
            
            
            
            Risk
      FreeDate
      of
            
            Number
      of
            
            
            At
      Date of
            
            Term
      of
            
            Strike
            
            
            Interest
            
            
            
            
            
            Value
      PerWarrant
            
            Shares
            
            
            Issuance
            
            Warrant
            
            Price
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            Total ValueFebruary
      21, 2008
            
            
            10,000
            
            
            $
            0.65
            
            3
      Years
            
            $
            1.00
            
            
            
            2.23
            
            
            
            98.45824
            %
            
            $
            0.3462
            
            
            $
            3,462.00March
      20, 2008
            
            
            5,000
            
            
            $
            0.70
            
            3
      Years
            
            $
            1.00
            
            
            
            1.71
            
            
            
            99.87467
            %
            
            $
            0.3867
            
            
            
            1,933.50April
      1, 2008
            
            
            5,000
            
            
            $
            0.85
            
            3
      Years
            
            $
            1.00
            
            
            
            1.94
            
            
            
            100.00925
            %
            
            $
            0.5042
            
            
            
            2,526.00May
      15, 2008
            
            
            5,000
            
            
            $
            0.83
            
            3
      Years
            
            $
            1.00
            
            
            
            2.70
            
            
            
            102.78266
            %
            
            $
            0.5036
            
            
            
            2,518.00June
      16, 2008
            
            
            3,500
            
            
            $
            0.63
            
            3
      Years
            
            $
            1.00
            
            
            
            3.33
            
            
            
            104.12541
            %
            
            $
            0.3555
            
            
            
            1,244.25June
      18, 2008
            
            
            4,000
            
            
            $
            0.61
            
            3
      Years
            
            $
            1.00
            
            
            
            3.19
            
            
            
            104.07197
            %
            
            $
            0.3397
            
            
            
            1,358.80July
      15, 2008
            
            
            3,000
            
            
            $
            0.87
            
            3
      Years
            
            $
            1.00
            
            
            
            2.70
            
            
            
            104.55357
            %
            
            $
            0.5429
            
            
            
            1,628.70July
      28, 2008
            
            
            5,000
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            2.90
            
            
            
            104.545
      08
            %
            
            $
            0.4481
            
            
            
            2,240.60August
      12, 2008
            
            
            3,500
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            2.73
            
            
            
            104.93498
            %
            
            $
            0.4488
            
            
            
            1,570.80August
      27, 2008
            
            
            3,500
            
            
            $
            0.85
            
            3
      Years
            
            $
            1.00
            
            
            
            2.58
            
            
            
            106.26182
            %
            
            $
            0.5331
            
            
            
            1,865.85September
      5, 2008
            
            
            3,500
            
            
            $
            0.86
            
            3
      Years
            
            $
            1.00
            
            
            
            2.44
            
            
            
            106.21122
            %
            
            $
            0.5404
            
            
            
            1,891.40October
      27, 2008
            
            
            2,500
            
            
            $
            0.60
            
            3
      Years
            
            $
            1.00
            
            
            
            1.83
            
            
            
            108.82589
            %
            
            $
            0.3431
            
            
            
            857.75February
      2, 2009
            
            
            3,000
            
            
            $
            0.70
            
            3
      Years
            
            $
            1.00
            
            
            
            1.27
            
            
            
            109.04276
            %
            
            $
            0.4188
            
            
            
            1,256.40February
      17, 2009
            
            
            1,000
            
            
            $
            0.83
            
            3
      Years
            
            $
            1.00
            
            
            
            1.22
            
            
            
            109.04322
            %
            
            $
            0.5219
            
            
            
            521.90March
      19, 2009
            
            
            2,590
            
            
            $
            0.68
            
            3
      Years
            
            $
            1.00
            
            
            
            1.21
            
            
            
            109.80676
            %
            
            $
            0.4057
            
            
            
            1,050.76Total
            
            
            60,090
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            25,926.61


18
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Robert Schacter et alStock
      Price
            
            
            
            
            
            
            Risk
      FreeNumber
      of
            
            
            At
      Date of
            
            Term
      of
            
            Strike
            
            
            Interest
            
            
            
            
            
            Value
      PerDate of Warrant
            
            Shares
            
            
            Issuance
            
            Warrant
            
            Price
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            Total ValueSeptember
      5, 2008
            
            
            14,000
            
            
            $
            0.86
            
            3
      Years
            
            $
            1.00
            
            
            
            2.44
            
            
            
            106.21122
            %
            
            $
            0.5404
            
            
            $
            7,565.60October
      27, 2009
            
            
            25,000
            
            
            $
            0.60
            
            3
      Years
            
            $
            1.00
            
            
            
            1.83
            
            
            
            108.82589
            %
            
            $
            0.3431
            
            
            
            8,577.50January
      8, 2009
            
            
            25,000
            
            
            $
            0.90
            
            3
      Years
            
            $
            1.00
            
            
            
            1.16
            
            
            
            108.85621
            %
            
            $
            0.5777
            
            
            
            14,442.50February
      2, 2009
            
            
            12,500
            
            
            $
            0.70
            
            3
      Years
            
            $
            1.00
            
            
            
            1.27
            
            
            
            109.04276
            %
            
            $
            0.4188
            
            
            
            5,235.00February
      17, 2009
            
            
            12,500
            
            
            $
            0.83
            
            3
      Years
            
            $
            1.00
            
            
            
            1.22
            
            
            
            109.04322
            %
            
            $
            0.5219
            
            
            
            6,523.75March
      19, 2009
            
            
            12,500
            
            
            $
            0.68
            
            3
      Years
            
            $
            1.00
            
            
            
            1.21
            
            
            
            109.80676
            %
            
            $
            0.4057
            
            
            
            5,071.25Total
            
            
            101,500
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            47,415.60




* 97,500
warrants issued in the name of TYJO Corporation Money Purchase Pension Plan,
2,000 warrants issued in the name of Mr. Robert Schacter, as Custodian for Tyler
Schacter UTMA/CA and 2,000 warrants issued in the name of Mr. Robert Schacter,
as Custodian for Joseph Schacter UTMA/C.


OthersStock
      Price
            
            
            
            
            
            
            Risk
      FreeNumber
      of
            
            
            At
      Date of
            
            Term
      of
            
            Strike
            
            
            Interest
            
            
            
            
            
            Value
      PerDate
      of Warrant
            
            Shares
            
            
            Issuance
            
            Warrant
            
            Price
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            Total
      ValueJuly 28, 2008
            
            
            2,000
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            2.90
            
            
            
            104.545
      08
            %
            
            $
            0.4460
            
            
            $
            892.00October
      27, 2008
            
            
            600
            
            
            $
            0.60
            
            3
      Years
            
            $
            1.00
            
            
            
            1.83
            
            
            
            108.82589
            %
            
            $
            0.3431
            
            
            
            205.86January
      6, 2009
            
            
            50
            
            
            $
            0.75
            
            3
      Years
            
            $
            1.00
            
            
            
            1.10
            
            
            
            108.80131
            %
            
            $
            0.4566
            
            
            
            22.83February
      17, 2009
            
            
            8,950
            
            
            $
            0.83
            
            3
      Years
            
            $
            1.00
            
            
            
            1.22
            
            
            
            109.04322
            %
            
            $
            0.5219
            
            
            
            4,671.01March
      19, 2009
            
            
            50
            
            
            $
            0.68
            
            3
      Years
            
            $
            1.00
            
            
            
            1.21
            
            
            
            109.80676
            %
            
            $
            0.4057
            
            
            
            20.29Total
            
            
            11,650
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,811.99




The
carrying value of the notes and loans payable approximate fair value due to
their short-term maturity.





8.
            Stockholders’
      Deficiency





Preferred
Stock




At our
Annual Meeting held on August 28, 2007, our shareholders approved an Amendment
to the Amended and Restated Certificate of Incorporation authorizing five
million shares of undesignated preferred stock.  These shares will
have future rights and preferences to be determined at the sole discretion of
our Board of Directors. No preferred stock has been issued.





Common
Stock




On April
9, 2008, Apogee sold 164,000 shares of our common stock to accredited investors
at a price of $1.00 per share.  The net proceeds to Apogee were
$152,519, which we have used for general working capital and corporate
purposes.   The shares of Apogee’s common stock were issued and
sold in a private placement in reliance on an exemption from registration
provided by Section 4(2) of Securities Act of 133, as amended, and Rule 506 of
Regulation D promulgated thereunder.The shares of
common stock issued in this private placement were not registered under the
Securities Act of 1933 and may not be subsequently offered or sold by the
investors in the United States absent registration or an applicable exemption
from the registration requirements.


19
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Stock
Options





During
the three months ended March 31, 2009 and 2008, no stock options were
awarded.





9.
            Related Party
      Transactions





Apogee
rents its facility from an entity controlled by a stockholder for $4,400 per
month pursuant to a lease that expired December 31, 2005. Currently, we are
renting the facility on a month-to-month basis.  Rent expense was
$52,800 for the fiscal years ended December 31, 2008.  Rent has been
accrued and remains unpaid since September 2008.  See also Note 7 –
Promissory Notes, Loans and Warrants from Officers and Significant
Stockholders.




10.
            Legal
      and Related Indemnification Arrangements with our Executives and
      Others




Apogee
has assumed and will continue to assume the final legal costs and related
expenses of Herbert M. Stein, in connection with the civil action styled Joseph Shamy vs. Herbert M. Stein,
Case No.: 50 2005 CA 007719 XXXXMB.  In this action instituted
in the 15th Judicial Circuit in and for Palm Beach County, Florida (the
"Court), Joseph Shamy sued Herbert M. Stein, President, Chief Executive Officer
and Chairman of the Board of Apogee in connection with Shamy’s purchase of
Apogee shares in 2003 and 2004.  In February 2009, in connection with
a settlement, the Court entered a Final Judgment against Mr.
Stein.  In early January 2010, a filing was made with the Court
to memorialize the Total and Complete Satisfaction of Judgment, which states
that all sums due under the civil action were fully paid and that the Final
Judgment was satisfied and canceled.  Further, the Clerk of the Court
was directed to note satisfaction of the Final Judgment and cancellation of all
judgments of record in this action. Apogee was not a party to the aforementioned
settlement or the satisfaction of the Final Judgment.  Through January
1, 2010, we have incurred approximately $887,000 toward this
indemnification.   For the three months ended March 31, 2009 and
2008, we have incurred approximately $42,000 and $62,000,
respectively.
 
 The
Company first became aware of an investigation by the SEC in May 2005. The
subject matter of this investigation was the Company's prior revenue recognition
practices that were addressed in the Company's restatement of its financial
statements for the fiscal year ended December 31, 2004. As previously disclosed
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004,
as amended, Apogee’s Audit Committee, with the assistance of independent
counsel, conducted an investigation into Apogee’s historical accounting
practices that resulted in the implementation of remedial actions. See our
Annual Report on Form 10-KSB for the year ended December 31, 2004, as amended,
for detail regarding the restatement.
 
 In July
2008, Apogee, it’s Chief Executive Officer and other employees
received notifications from the Staff of the SEC relating to the Staff's 2005
investigation. These notifications, known as “Wells Notices,” stated that the
Staff is considering recommending that the Commission bring enforcement actions
against the Company and certain employees, based on alleged violations of
certain provisions of the federal securities laws, including Section 17(a) of
the Securities Act of 1933, as amended, Section 10(b) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 thereunder, Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13
thereunder. The Wells Notice sent to the Company indicates that in any action
actually brought against the Company, the Staff would seek an injunction against
future violations of the federal securities laws as relief.
 
 On May
19, 2009, the Securities and Exchange Commission (“commission”) filed a settled
enforcement action against the Company, one employee, and one former employee
(“Others”) in connection with Apogee’s prior revenue recognition
practices.  Each of the defendants has agreed to settle this matter,
without admitting or denying the allegations of the Commission’s
complaint.  Apogee and others agreed to the entry of a final judgment
permanently enjoining them from variously violating or aiding and abetting
violations of Sections of the Securities Act of 1933, and Sections of the
Securities Exchange Act of 1934, and various Rules.  The others also
agreed to financial and other sanctions.  Through January 1, 2010, we
have incurred approximately $554,000 toward this
indemnification.    For the three months ended March 31,
2009 and 2008, we have incurred approximately $1,000 and $73,000,
respectively.  See Note 13 - Subsequent Events – Notification from the
Securities and Exchange Commission.
 20
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


As of
March 31, 2009, Apogee’s Directors and Officers Liability Insurance was
cancelled due to non-payment.  Apogee may be required to pay any
uninsured claims and related costs.




On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission – See Note 13 – Subsequent Events – SEC
Administrative Proceeding.





11.
            Tax
      Loss Carryforwards





The
following approximates the net loss carryforwards we have available in the
future for federal and state tax purposes as of December 31, 2008:





December 31,
            
            
            December
      31,2008
            
            
            2007Net operating loss
      carryforwardsFederal
            
            $
            19,000,000
            
            
            $
            15,000,000State
            
            $
            12,000,000
            
            
            $
            9,200,000





Business
credits available in the future:





December 31,
            
            
            December
      31,2008
            
            
            2007Business credits
      available in the futureFederal
            
            $
            940,000
            
            
            $
            980,000State
            
            $
            330,000
            
            
            $
            300,000





The
Company does not record a net tax benefit asset due to the uncertainty of its
realization.


The net
operating loss carryforwards will begin to expire in 2018 for federal tax
purposes and in 2009 for state tax purposes.  The federal and state
credits will begin to expire in 2017.





Significant
      changes in our ownership may substantially reduce the available
      carryforwards and related tax
benefits.





12.
            Supplemental
      Cash Flow Information





As of
March 31, 2009, we recorded cumulatively approximately $261,000 in interest
expense of which approximately $7,700 was paid. We recorded interest expense of
approximately $85,000 and $13,000 for the three month ended March 31, 2009 and
2008, respectively.


13.
            Subsequent
      Events





Management
has evaluated subsequent events through January 15, 2010, the date the financial
statements were issued.


21
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Additional
Financings





The
following table details all financings subsequent to March 31,
2009:





Date
      of
            
            Amount
            
            
            
            
            
            
            
            
            
            Risk
            
            
            
            
            
            
            
            
            TotalLoan
      or
            
            of
            
            
            
            
            
            
            Number
            
            
            Free
            
            
            
            
            
            Value
            
            
            ValuePromissory
            
            Loan
      or
            
            Maturity
            
            
            
            
            of
            
            
            Interest
            
            
            
            
            
            Per
            
            
            ofNote and Warrant
            
            Note
            
            Date
            
            Interest
            
            
            Warrants
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            WarrantsDavid SpiegelMay
      19, 2009
            
            $
            35,000
            
            November
      15, 2009
            
            
            8.00
            %
            
            
            3,500
            
            
            
            1.37
            
            
            
            111.7484
            %
            
            $
            0.4288
            
            
            $
            1,500.80June
      10, 2009
            
            
            25,000
            
            December
      7, 2009
            
            
            8.00
            %
            
            
            2,500
            
            
            
            2.00
            
            
            
            126.1055
            %
            
            $
            0.3959
            
            
            $
            989.75July
      1, 2009
            
            
            32,000
            
            December
      28, 2009
            
            
            8.00
            %
            
            
            3,200
            
            
            
            1.57
            
            
            
            128.9334
            %
            
            $
            0.6295
            
            
            $
            2,014.40November
      5, 2009
            
            
            103,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            10,300
            
            
            
            1.44
            
            
            
            131.4589
            %
            
            $
            0.7681
            
            
            $
            7,911.43December
      21, 2009
            
            
            68,000
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            6,800
            
            
            
            1.42
            
            
            
            133.8376
            %
            
            $
            0.8029
            
            
            $
            5,459.72December
      29, 2009
            
            
            4,665$
            267,665





Date
      of
            
            Amount
            
            
            
            
            
            
            
            
            
            Risk
            
            
            
            
            
            
            
            
            TotalLoan
      or
            
            of
            
            
            
            
            
            
            Number
            
            
            Free
            
            
            
            
            
            Value
            
            
            ValuePromissory
            
            Loan
      or
            
            Maturity
            
            
            
            
            of
            
            
            Interest
            
            
            
            
            
            Per
            
            
            ofNote and Warrant
            
            Note
            
            Date
            
            Interest
            
            
            Warrants
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            WarrantsHerbert M. SteinMay
      18, 2009
            
            $
            12,000
            
            November
      14, 2009
            
            
            8.00
            %
            
            
            1,200
            
            
            
            1.36
            
            
            
            111.7741
            %
            
            $
            0.4288
            
            
            $
            514.56July
      1, 2009
            
            
            20,000
            
            December
      28, 2009
            
            
            8.00
            %
            
            
            2,000
            
            
            
            1.57
            
            
            
            128.9334
            %
            
            $
            0.6295
            
            
            $
            1,259.20November
      5, 2009
            
            
            42,500
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            4,250
            
            
            
            1.44
            
            
            
            131.4589
            %
            
            $
            0.7681
            
            
            $
            3,264.43December
      21, 2009
            
            
            83,500
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            8,350
            
            
            
            1.42
            
            
            
            133.8376
            %
            
            $
            0.8029
            
            
            $
            6,704.22December
      30, 2009
            
            
            27,000January
      7, 2010
            
            
            15,000January
      8, 2010
            
            
            10,000January
      14, 2010
            
            $
            27,000$
            237,000





Date
      of
            
            Amount
            
            
            
            
            
            
            
            
            
            Risk
            
            
            
            
            
            
            
            
            TotalLoan
      or
            
            of
            
            
            
            
            
            
            Number
            
            
            Free
            
            
            
            
            
            Value
            
            
            ValuePromissory
            
            Loan
      or
            
            Maturity
            
            
            
            
            of
            
            
            Interest
            
            
            
            
            
            Per
            
            
            ofNote and Warrant
            
            Note
            
            Date
            
            Interest
            
            
            Warrants
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            WarrantsRobert Schacter et alJune
      10, 2009
            
            $
            25,000
            
            December
      7, 2009
            
            
            8.00
            %
            
            
            6,250
            
            
            
            2.00
            
            
            
            126.1055
            %
            
            $
            0.3959
            
            
            $
            2,474.38November
      5, 2009
            
            
            50,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            20,000
            
            
            
            1.44
            
            
            
            131.4589
            %
            
            $
            0.7681
            
            
            $
            15,362.00$
            75,000





Date
      of
            
            Amount
            
            
            
            
            
            
            
            
            
            Risk
            
            
            
            
            
            
            
            
            TotalLoan
      or
            
            of
            
            
            
            
            
            
            Number
            
            
            Free
            
            
            
            
            
            Value
            
            
            ValuePromissory
            
            Loan
      or
            
            Maturity
            
            
            
            
            of
            
            
            Interest
            
            
            
            
            
            Per
            
            
            ofNote and Warrant
            
            Note
            
            Date
            
            Interest
            
            
            Warrants
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            WarrantsSpiegel
      Family Limited PartnershipMay
      18 ,2009
            
            $
            32,000
            
            November
      14, 2009
            
            
            8.00
            %
            
            
            1,200
            
            
            
            1.36
            
            
            
            111.7741
            %
            
            $
            0.4288
            
            
            $
            1,372.16Leo
      SpiegelNovember
      5, 2009
            
            
            10,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            1,000
            
            
            
            1.44
            
            
            
            131.4589
            %
            
            $
            0.7681
            
            
            $
            768.10Erica
      SteinNovember
      5, 2009
            
            
            60,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            15,000
            
            
            
            1.44
            
            
            
            131.4589
            %
            
            $
            0.7681
            
            
            $
            11,521.50$
            104,000


22
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008


Date
      of
            
            Amount
            
            
            
            
            
            
            
            
            
            Risk
            
            
            
            
            
            
            
            
            TotalLoan
      or
            
            of
            
            
            
            
            
            
            Number
            
            
            Free
            
            
            
            
            
            Value
            
            
            ValuePromissory
            
            Loan
      or
            
            Maturity
            
            
            
            
            of
            
            
            Interest
            
            
            
            
            
            Per
            
            
            ofNote and Warrant
            
            Note
            
            Date
            
            Interest
            
            
            Warrants
            
            
            Rate
            
            
            Volatility
            
            
            Warrant
            
            
            WarrantsOthersMay
      19, 2009
            
            $
            500
            
            November
      15, 2009
            
            
            8.00
            %
            
            
            50
            
            
            
            1.37
            
            
            
            111.7484
            %
            
            $
            0.4288
            
            
            $
            21.44December
      21, 2009
            
            
            2,563
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            256
            
            
            
            1.42
            
            
            
            133.8376
            %
            
            $
            0.8029
            
            
            $
            205.43January
      6, 2010
            
            
            30,000$
            33,063





All
warrants have been issued.
  Wages,
Payroll Withholding and Payroll Taxes
  Due to
Apogee’s financial condition, payroll taxes and payroll withholding had remained
unpaid since July 1, 2009.  We have accrued payroll taxes and
withholdings based upon our employees gross wages. In addition, we had not paid
wages to employees for the four weeks ended December 10, 2009 of approximately
$40,000.  As of December 10, 2009, approximately $85,000 was owed to
Federal and State authorities.  Additionally, Apogee has accrued
$25,000 for penalties and interest on such amounts.  On December 11,
15, 16, and 18, 2009, Apogee received $133,000 from Herbert M. Stein and David
Spiegel.  The proceeds from these loans were used to pay unpaid
payroll and payroll taxes up through and including payroll for the period ended
December 15, 2009.  These amounts exclude payroll and payroll taxes
for Mr. Herbert M. Stein, who has not drawn cash compensation from Apogee since
June 30, 2009.
 
 Notification
from the Securities and Exchange Commission
 
 On May
19, 2009, the Securities and Exchange Commission (“commission”) filed a settled
enforcement  action against the Company, one employee, and one former
employee (“Others”) in connection with a with the revenue recognition
practices.  Each of the defendants has agreed to settle this matter,
without admitting or denying the allegations of the Commission’s
complaint.  Apogee and others agreed to the entry of a final judgment
permanently enjoining them from variously violating or aiding and abetting
violations of Sections of the Securities Act of 1933, and Sections of the
Securities Exchange Act of 1934, and various Rules.  The others also
agreed to financial and other sanctions.
 
 SEC
Administrative Proceedings
 
 Due to
its financial condition, the Company had been unable to fund payments to its
auditors as well as its financial printer. Accordingly, the Company did not
timely file its 2008 Annual Report on 10-K, as well as quarterly reports on Form
10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30,
2009. Additionally, it had not timely filed a Form 8-K and related Form
4s.
 
 On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934.
  23
 Table of Contents


APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 Notes
to Unaudited Consolidated Financial Statements
 March
31, 2009 and March 31, 2008
  In
connection with the contemplated proceedings, the staff may seek a suspension or
revocation of each class of the Company’s registered securities. Also, the staff
may consider whether contempt proceedings in a federal district court are
appropriate.  The Company submitted a response to this letter as of
November 16, 2009.  Suspension or revocation may substantially impact
the Company’s ability to obtain funding.
 
 Subsequently,
on December 18, 2009 we filed our 2008 Annual Report on Form 10-K and are filing
our 2009 Quarterly Reports on Form 10-Q for the periods ended June 30, 2009 and
September 30, 2009 in January 2010.


24
 Table of Contents


ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS





GENERAL





The
following Management’s Discussion and Analysis of the Company’s Financial
Condition and Results of Operations for the three-month periods ended March 31,
2009 and March 31, 2008, should be read in conjunction with the Company’s
Financial Statements and related footnotes included elsewhere in this Quarterly
Report on Form 10-Q. This discussion contains, in addition to historical
statements, forward-looking statements that involve risks and uncertainties. Our
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 in the section titled ITEM 1A –
RISK FACTORS, as well as other factors described in our Annual Report on
Form 10-K for the year ended December 31, 2008.


OVERVIEW





We are
developing proprietary intradermal drug delivery systems for vaccines and other
pharmaceuticals that we intend to market to pharmaceutical and medical device
companies, government and world health organizations.  Our Life
Science Group is developing PyraDerm(TM), an advanced intradermal drug delivery
system to meet the needs of patients, health insurers and companies developing
pharmaceuticals, as well as, governments and international health organizations.
We believe that PyraDerm has advantages over
competitive approaches for the delivery of vaccines, high potency therapeutic
protein drugs and other pharmaceuticals. We have evaluated the feasibility of
PyraDerm by performing
in vitro tests with model drugs and conducted successful in vivo testing of
PyraDerm in the
intradermal immunization experiments. We are working to establish pharmaceutical
industry compliant manufacturing methods and to define regulatory strategies to
support its commercialization.





Our sole
focus remains on developing and growing the Life Science Group, subject to our
ability to secure additional financing to support our operations and repay our
existing indebtness.  We expect that future revenue, if any, will
initially be the result of potential licensing and development revenues
resulting from the grant of rights to our intellectual property.
  During
the three months ended March 31, 2008, virtually all of our revenue was derived
from the sale of the remaining DDX audio IC inventory.
 
 At March
31, 2009, we had an accumulated deficit of approximately $23.6 million, as
compared to a deficit of approximately $22.9 million as of December 31,
2008.  Since re-entering development stage on October 1, 2009, we have
an accumulated deficit of approximately $1.7 million, as compared to a deficit
of approximately $989,000 as of December 31, 2008.   Our
historical net losses and accumulated deficit (since 1995) result primarily from
the costs associated with our efforts to design, develop and market our DDX
technology as well as costs associated with our efforts to develop PyraDermTM.
 
 As of
March 31, 2009, we have received approximately $2.5 million in
loans.  Since March 31 2009, we have received approximately $705,700
in loans, which have been inadequate to meet the current needs of the Company
resulting in non-payment of loan principal and interest, vendors, payroll,
payroll withholding, and payroll taxes for the third and fourth quarters of
2009.  The proceeds from these loans were used to pay unpaid payroll
and payroll taxes up through and including payroll for the period ended December
15, 2009 and to pay payroll and related costs to date.  These amounts
exclude payroll and payroll taxes for Mr. Herbert M. Stein, who has not drawn
cash compensation from Apogee since June 30, 2009.  See Note 13 to the
consolidated financial statements - Subsequent Events – Additional
Financings.
  As of March 31, 2009, we had 13
employees, compared to 14 employees at March 31, 2008.  Effective as
of June 9, 2008 through October 31, 2009, 5 of the remaining employees
transitioned to part-time status in an effort to reduce human resource
costs.  As of November 1, 2009 the majority of employees have returned
to full time.
  25
 Table of Contents


SELECTED
CONSOLIDATED FINANCIAL DATA





The
following selected financial data for the three-month periods ended March 31,
2009 and 2008 have been derived from our unaudited financial statements. Any
trends reflected by the following table may not be indicative of future
results.


For the Three-Month
              Period Ended
              March 31,
            
            
            Cumulative
      from
              Re-entering
      Development Stage on October 1, 2008
              to March
    31,2009
            
            
            2008
            
            
            2009Statement
      of Operations Data:Revenue
            
            $
            —
            
            
            $
            21,951
            
            
            $
            —Costs
      and expenses
            
            
            (606,284
            )
            
            
            (1,098,114
            )
            
            
            (1,523,965
            )Other
      Income (expenses)
            
            
            (84,511
            )
            
            
            (12,234
            )
            
            
            (156,205
            )Net
      Loss
            
            $
            (690,795
            )
            
            $
            (1,088,397
            )
            
            $
            (1,680,170
            )Shares
      Outstanding
            
            
            12,132,332
            
            
            
            11,968,332
            
            
            
            12,132,332Total
      Assets
            
            $
            249,913
            
            
            $
            659,869
            
            
            $
            249,913Stockholders’
      deficiency
            
            $
            (4,595,945
            )
            
            $
            (1,316,003
            )
            
            $
            (1,680,170
            )Loss
      per share (basic and diluted)
            
            $
            (0.06
            )
            
            $
            (0.09
            )
            
            $
            (0.14
            )





RESULTS
OF OPERATIONS OF THE COMPANY





Revenue





We have
historically derived our revenue from three sources:





●           Product
sales, which formerly consisted of merchandise sales made either directly to
original equipment manufacturers or sell through point of sale (“POS”) by
distributors.  All remaining merchandise was sold in January
2008.  All such shipments were fulfilled from our contracted warehouse
in Hong Kong or from our Norwood, Massachusetts office and were reported net of
returns.





●           Royalties
received as a result of an agreement between Apogee and SigmaTel, Inc. whereby
SigmaTel, Inc. agreed to pay Apogee a percentage of the royalties it received
from STMicroelectronics NV (“ST”) in exchange for supporting their royalty
negotiations with ST, as well as revenue from the sale of the remaining DDX
inventory.





●           Consulting
income related to contractual services or development activities for third
parties.





We
anticipate that future revenue streams, if any, will come from our Life Science
Group, , generally in the form of strategic alliances or arrangements with
development or marketing partners, as well as, from licensing and
development-related revenues resulting from the grant of rights to our
intellectual property.  We envision the future of our medical devices as
(i) licensing or selling our technologies to pharmaceutical or medical device
companies; (ii) establishing partnerships with pharmaceutical and medical device
companies to commercialize our products; and (iii) developing, producing and
marketing our own products.  In order to develop and market any
products, we will need to secure additional funding.





No
revenue was recognized for the three months ended March 31, 2009.  We
recognized revenue for the three months ended March 31, 2008 of approximately
$22,000.  On January 15, 2008 we sold the remaining DDX inventory held
in the Norwood Office to one of our customers and on January 24, 2008 we sold
the remaining DDX inventory housed in Hong Kong to one of our former DDX
distributors.  Total proceeds received for the disposition of the DDX
inventory was $17,000.





We
anticipate that we will not generate any material future revenue until such
time, if ever, that we are able to generate revenue from our PyraDerm(TM)
technology.


26
 Table of Contents


Cost
of Revenue





Since
substantially all of the revenue recorded was from products related to our
former audio IC business, it had previously been fully reserved at
100%.  For the three months ended March 31, 2008, we recorded cost of
revenue associated with the sale of sensor products of $696.
  Operating
Expenses
  Research
and Development Costs
 
 Our
research and development, or R&D, expenses consist primarily of salaries,
development material costs, and external consulting and service costs related to
the development and design of new products. Research and development expenses
decreased by approximately $138,000, or 34%, to approximately $275,000 for the
three months ended March 31, 2009, compared to approximately $413,000 for the
three months ended March 31, 2008.
 
 The
decrease in the three-month comparison was the result of a reduction in expenses
for our Life Science Group as well as the discontinuation of activities related
to our sensor products and the reduction in activities related to the Health
Monitoring Group.  For the three months ended March 31, 2009, costs
incurred from the utilization of third-party consultants decreased by
approximately $92,000, or 94%, to approximately $6,000 for the three months
ended March 31, 2009, compared to approximately $98,000 for the three months
ended March 31, 2008.  This decrease was the result of our
discontinuing activities on sensor products and the reduction in third-party
consultant arrangements to support the Health Monitoring Group.
 
 For the
three months ended March 31, 2009, human resource costs decreased by
approximately $31,000, or 12%,, to approximately $221,000, compared to
approximately $252,000 for the three months ended March 31,
2008.  Stock compensation costs were reduced by approximately $10,000,
or 63%, to approximately $6,000 for the three months ended March 31, 2009,
compared to approximately $16,000 for the same period in
2008.  Effective as of June 9, 2008, human resource expense was
reduced by 20% for some R&D employees as a result of transitioning from full
time to part time in order to reduce expenses.
 
 At March
31, 2009, we recorded a patent impairment charge of approximately $17,000 to
reflect the write-off of patent costs associated with the discontinuation of our
Health Monitoring Group.
 
 Depreciation
and amortization expense increased by approximately $4,000, or 18%, to
approximately $25,000 for the three months ended March 31, 2009 from
approximately $21,000 for the same period in 2008 as a result of our amortizing
approximately $10,000 of patent application related expenses. We had been
capitalizing license fees paid to third parties for costs associated with the
exclusive rights to their patents, and have been amortizing these fees over a
period of four years.  For the three months ended March 31, 2008 we
amortized approximately $2,000 of license fees.  Subsequently during
the second quarter ended June 30, 2008, we terminated our 2006 license agreement
with the University of Akron Research Foundation, as we had developed similar
technology in-house and licensed a more compatible technology.  As a
result, we expensed the remaining $22,000 of unamortized license fees under this
license agreement.  In addition, during this same quarter, we expensed
an additional $30,000, which represented the minimum royalty due under this
terminated license agreement.
 
 While we
continue to conduct in-house experimentation and testing, purchases of supplies
and consumables for the medical laboratory were reduced by approximately
$23,000, or 95%, to approximately $1,000 for the three months ended March 31,
2009, compared to approximately $24,000 for the three months ended March 31,
2008.
 
 For the
three months ended March 31, 2009, travel and entertainment expenses decreased
by approximately $11,000, or 100%.  We did not incur travel expenses
for the three months ended March 31, 2009, compared to approximately $11,000 for
the three months ended March 31, 2008.
 
 If we are
able to secure additional financing, we anticipate that we will continue to
commit resources to research and development activities as our financial
position allows, and as a result, R&D costs are expected to increase
substantially in the future.
 
 Selling,
General and Administrative Costs
 
 General
and Administrative costs consist primarily of executive and administrative
salaries, professional fees and other associated corporate expenses. Selling,
General and Administrative, or SG&A, expenses were approximately $332,000
for the three months ended March 31, 2009, compared to approximately $684,000
for the three months ended March 31, 2008.  The decrease of
approximately $353,000, or 52%, was primarily attributed to a reduction in
professional fees, human resources costs, and an overall reduction in operating
expenses.  Legal fees were reduced with the settlement of the SEC
investigation.  We are, however, continuing to incur legal expenses in
connection with the indemnification of our President, Chief Executive Officer
and Chairman of the Board of Directors (as described below).
  27
 Table of Contents


Human
resources costs decreased by approximately $52,000, or 25%, to approximately
$160,000 for the three months ended March 31, 2009, compared to approximately
$212,000 for the three months ended March 31, 2008.  This decrease was
the result of a 20% reduction in SG&A employee salaries effective as of June
9, 2008, partially offset by an increase in the stock-based compensation
expense.  For the three months ended March 31, 2009, stock
compensation expense increased by approximately $15,000, to approximately
$17,000 compared to approximately $2,000 for the three months ended March 31,
2008.
 
 Professional
expenses decreased by approximately $275,000, or 73%, to approximately $101,000
for the three months ended March 31, 2009, compared to approximately $376,000
for the three months ended March 31, 2008.  For the three months ended
March 31 2009, legal expenses decreased by $246,000, or 79%, to approximately
$63,000, compared to approximately $309,000 for the three months ended March 31,
2008.  Legal fees decreased primarily as a result of the settlement of
the SEC investigation as well as a decrease in legal fees associated with the
continued indemnification of our President, Chief Executive Officer and Chairman
of the Board of Directors in connection with the Shamy matter.
 
 An
investigation by the SEC since settled on May 19, 2009, which the Company first
became aware of in May 2005, was ongoing through early 2009. The subject matter
of this investigation was the Company's prior revenue recognition practices that
were addressed in the Company's restatement of its financial statements for
the fiscal year ended December 31, 2004.  As previously disclosed in
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, as
amended, Apogee’s Audit Committee, with the assistance of independent counsel,
conducted an investigation into Apogee’s historical accounting practices that
resulted in the implementation of remedial actions. See our Annual Report on
Form 10-KSB for the year ended December 31, 2004, as amended, for detail
regarding the restatement.  In July 2008, Apogee, it’s Chief
Executive Officer and other employees received notifications from the Staff
of the SEC relating to the Staff's 2005 investigation. These notifications,
known as “Wells Notices,” stated that the Staff considered recommending that the
Commission bring enforcement actions against the Company and certain
employees, based on alleged violations of certain provisions of the federal
securities laws, including Section 17(a) of the Securities Act of 1933, as
amended, Section 10(b) of the Securities Exchange Act of 1934, as amended, and
Rule 10b-5 thereunder, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. The Wells Notice
sent to the Company indicated that in any action actually brought against the
Company, the Staff would seek an injunction against future violations of the
federal securities laws as relief.
 
 On May
19, 2009, the Securities and Exchange Commission (“commission”) settled this
enforcement action.  See Note 13 to the consolidated financial
statements – Subsequent Events – Notification from the Securities and Exchange
Commission.   In light of the settlement we do not anticipate any
additional significant legal fees associated with this matter.
 
 We have
agreed to indemnify certain employees, directors and a former employee in
connection with the SEC investigation. As of March 31, 2009, we have incurred
approximately $553,000 to date in legal expenses to indemnify these individuals
in association with this matter.  During the three months ended March
31, 2009 and 2008, we recorded expenses associated with this indemnification of
approximately $1,000 and $73,000, respectively.
  28
 Table of Contents
  In
addition, we incurred legal fees associated with the indemnification costs in
connection with the civil action styled Joseph Shamy vs. Herbert M. Stein
Case No.: 50 2005 CA 007719 XXXXMB.  In this action instituted
in the 15th Judicial Circuit in and for Palm Beach County, Florida (the
"Court), Joseph Shamy sued Herbert M. Stein, President, Chief Executive Officer
and Chairman of the Board of Apogee in connection with Shamy’s purchase of
Apogee shares in 2003 and 2004.  In February 2009, in connection with
a settlement, the Court entered a Final Judgment against Mr.
Stein.  In early January 2010, a filing was made with the Court
to memorialize the Total and Complete Satisfaction of Judgment, which states
that all sums due under the civil action were fully paid and that the Final
Judgment was satisfied and canceled.  Further, the Clerk of the Court
was directed to note satisfaction of the Final Judgment and cancellation of all
judgments of record in this action. Apogee was not a party to the aforementioned
settlement or the satisfaction of the Final Judgment. Through January 1, 2010,
we have incurred approximately $887,000 toward this
indemnification.  For the three months ended March 31, 2009 and 2008,
we have incurred approximately $42,000 and $62,000, respectively.  See
Note 10 to the consolidated financial statements - Legal and Related
Indemnification Arrangements with our Executives.
  On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission – See Note – Subsequent Events – SEC
Administrative Proceeding.


We were
not receiving reimbursement under our Director and Officer insurance policy for
either the indemnification of Mr. Stein or the ongoing investigation by the
SEC.  As of March 31, 2009, Apogee’s Directors and Officers Liability
Insurance was cancelled due to non-payment.





Investor
relations expense decreased by approximately $28,000, or 86 %, to approximately
$4,000 for the three months ended March 31, 2009, compared to approximately
$32,000 for the three months ended March 31, 2008.   As part of
our cost reduction, we have been forced to limit our investor relations
activities.  If additional funding is secured, we will be in a
position to resume focusing on increasing awareness of our scientific and
corporate developments.





Travel
and Entertainment costs decreased by approximately $25,000, or 98%, for the
three months ended March 31 2009, to approximately $500, compared to
approximately $25,500 for the same period in 2008.  Corporate
insurance increased by approximately $8,000, or 53%, to approximately $23,000
for the three months ended March 31, 2009, compared to approximately $15,000 for
the same period in 2008.  This increase was the result of increase
premiums related to the Director’s and Officer’s Insurance. As of March 31,
2009, Apogee’s Directors and Officers Liability Insurance was cancelled due to
non-payment.  In addition, we had reductions to various other overhead
expenses, including: communication, marketing and
maintenance.  Operating expenses are expected to increase when our
financial position allows.


Interest
Income (Expense)





Interest
income includes income from Apogee’s cash and cash equivalents and from
investments and expenses related to its financing activities. During the three
months ended March 31, 2009 we did not generate interest
income.  During the three months ended March 31, 2008, we generated
approximately $701 in interest income.  This decrease in interest
income was due to reduced cash balances.





Interest
expense resulting from the issuance of promissory notes to Mr. Herbert M. Stein,
Mr. David Spiegel, Mr. Robert Schacter et al and others was approximately
$85,000 for the three months ended March 31, 2009, compared to approximately
$13,000 for the three months ended March 31, 2008.  See below for a
detail of these expenses.





Interest Incurred for the Three Months Ended March
      31,2009
            
            
            2008David
      Spiegel
            
            $
            30,070
            
            
            $
            5,870Herbert
      M. Stein
            
            
            26,379
            
            
            
            7,607Robert
      Schacter et al
            
            
            25,637
            
            
            
            —Others
            
            
            2,531
            
            
            
            —Total
            
            $
            84,617
            
            
            $
            13,477


29
 Table of Contents


Net
Loss





Apogee’s
net loss for the three months ended March 31, 2009 was approximately $691,000,
or $0.06 per basic and diluted common share, compared to a net loss of
approximately $1.1 million, or $0.09 per basic and diluted common share, for the
three months ended March 31, 2008.  This decrease in our net loss was
the result of a decrease in legal fees and a reduction in human resource
expenses as well as an overall decrease in operating expenditures due to our
current cash restraints.


LIQUIDITY
AND CAPITAL RESOURCES





The
tables below summarize our outstanding unsecured interest-bearing promissory
notes (including amounts subsequent to March 31, 2009) totaling approximately
$3.2 million:


Herbert M. SteinDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateDecember
      11, 2007
            
            $
            250,000
            
            March
      10, 2008
            
            
            8.00
            %
            
            
            12.00
            %February
      21, 2008
            
            
            100,000
            
            August
      19, 2008
            
            
            8.00
            %
            
            
            12.00
            %March
      20, 2008
            
            
            50,000
            
            September
      16, 2008
            
            
            8.00
            %
            
            
            12.00
            %April
      1, 2008
            
            
            50,000
            
            September
      28, 2008
            
            
            8.00
            %
            
            
            12.00
            %May
      15, 2008
            
            
            50,000
            
            November
      11, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      16, 2008
            
            
            35,000
            
            December
      13, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      18, 2008
            
            
            40,000
            
            December
      15, 2008
            
            
            8.00
            %
            
            
            12.00
            %July
      15, 2008
            
            
            30,000
            
            January
      11, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      28, 2008
            
            
            50,000
            
            January
      24, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      12, 2008
            
            
            35,000
            
            February  8,
      2009
            
            
            8.00
            %
            
            
            12.00
            %August
      27, 2008
            
            
            35,000
            
            February
      23, 3009
            
            
            8.00
            %
            
            
            12.00
            %September
      5, 2008
            
            
            35,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            25,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      2, 2009
            
            
            30,000
            
            August
      1, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            
            
            10,000
            
            August
      16 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            25,900
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            
            
            33,000
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %May
      18, 2009
            
            
            12,000
            
            November
      14, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      1, 2009
            
            
            20,000
            
            December
      28, 2009
            
            
            8.00
            %
            
            
            12.00
            %November
      5, 2009
            
            
            42,500
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            8.00
            %December
      21, 2009
            
            
            83,500
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            8.00
            %December
      30, 2009
            
            
            27,000January
      7, 2010
            
            
            15,000January
      8, 2010
            
            
            10,000January
      14, 2010
            
            
            27,000$
            1,120,900


30
 Table of Contents




David SpiegelDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateDecember
      11, 2007
            
            $
            150,000
            
            March
      10, 2008
            
            
            8.00
            %
            
            
            12.00
            %February
      21, 2008
            
            
            100,000
            
            August
      19, 2008
            
            
            8.00
            %
            
            
            12.00
            %March
      20, 2008
            
            
            100,000
            
            September
      16, 2008
            
            
            8.00
            %
            
            
            12.00
            %April
      1, 2008
            
            
            50,000
            
            September
      28, 2008
            
            
            8.00
            %
            
            
            12.00
            %May
      15, 2008
            
            
            50,000
            
            November
      11, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      16, 2008
            
            
            65,000
            
            December
      13, 2008
            
            
            8.00
            %
            
            
            12.00
            %June
      18, 2008
            
            
            50,000
            
            December
      15, 2008
            
            
            8.00
            %
            
            
            12.00
            %July
      15, 2008
            
            
            50,000
            
            January
      11, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      28, 2008
            
            
            50,000
            
            January
      24, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      12, 2008
            
            
            35,000
            
            February
      8, 2009
            
            
            8.00
            %
            
            
            12.00
            %August
      27, 2008
            
            
            35,000
            
            February
      23, 3009
            
            
            8.00
            %
            
            
            12.00
            %September
      5, 2008
            
            
            35,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            35,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      6, 2009
            
            
            80,000
            
            July
      5, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            64,000
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %May
      19, 2009
            
            
            35,000
            
            November
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %June
      10, 2009
            
            
            25,000
            
            December
      7, 2009
            
            
            8.00
            %
            
            
            12.00
            %July
      1, 2009
            
            
            32,000
            
            December
      28, 2009
            
            
            8.00
            %
            
            
            12.00
            %November
      5, 2009
            
            
            103,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            8.00
            %December
      21, 2009
            
            
            68,000
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            8.00
            %December
      29, 2009
            
            
            4,665$
            1,216,665


31
 Table of Contents




Robert
      Schacter et alDate
      of
            Name
      on
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Notes
            Promissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateSeptember
      5, 2008
            TYJO
      Corporation Money Purchase Pension Plan
            
            $
            100,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %September
      5 2008
            Mr.
      Robert Schacter, as Custodian for  Tyler Schacter
      UTMA/CA
            
            
            20,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %September
      5 2008
            Mr.
      Robert Schacter, as Custodian for Joseph Schacter UTMA/CA
            
            
            20,000
            
            March
      4, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            100,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      8, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            100,000
            
            July
      7, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      2, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            50,000
            
            August
      1, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            50,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            50,000
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            20,000
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %June
      10, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            25,000
            
            December
      7, 2009
            
            
            8.00
            %
            
            
            12.00
            %November
      5, 2009
            TYJO
      Corporation Money Purchase Pension Plan
            
            
            50,000
            
            May
      10, 2010
            
            
            8.00
            %
            
            
            8.00
            %$
            585,000





Promissory
      Notes and Loans Due to
                Spiegel
      et al, JAZFund, Erica Stein and Friedrich ReinerDate
      of
            Name
      on
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            Promissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateFebruary
      3, 2009
            Leo
      Spiegel
            
            $
            35,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %November
      5, 2009
            Leo
      Spiegel
            
            
            10,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            8.00
            %April
      13, 2009
            Spiegel
      Family Limited Partnership
            
            
            31,000
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %May
      18, 2009
            Spiegel
      Family Limited Partnership
            
            
            32,000
            
            November
      14, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            JAZFund
      LLC
            
            
            30,000
            
            October
      10, 2009
            
            
            12.00
            %
            
            
            16.00
            %November
      5, 2009
            Erica
      Stein
            
            
            60,000
            
            May
      4, 2010
            
            
            8.00
            %
            
            
            8.00
            %January
      6, 2010
            Friedrich
      Reiner
            
            
            30,000$
            228,000





OthersDate
      of
            
            
            
            Maturity
            
            Initial
            
            
            CurrentPromissory Note
            
            Amount
            
            Date
            
            Interest Rate
            
            
            Interest RateJuly
      28, 2008
            
            $
            20,000
            
            January
      24, 2009
            
            
            8.00
            %
            
            
            12.00
            %October
      27, 2008
            
            
            6,000
            
            April
      25, 2009
            
            
            8.00
            %
            
            
            12.00
            %January
      6, 2009
            
            
            500
            
            July
      6, 2009
            
            
            8.00
            %
            
            
            12.00
            %February
      17, 2009
            
            
            2,000
            
            August
      16, 2009
            
            
            8.00
            %
            
            
            12.00
            %March
      19, 2009
            
            
            500
            
            September
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %April
      13, 2009
            
            
            500
            
            October
      10, 2009
            
            
            8.00
            %
            
            
            12.00
            %May
      19, 2009
            
            
            500
            
            November
      15, 2009
            
            
            8.00
            %
            
            
            12.00
            %December
      21, 2009
            
            
            2,563
            
            June
      19, 2010
            
            
            8.00
            %
            
            
            8.00
            %$
            32,563


32
 Table of Contents


As of
March 31, 2009 we had approximately $2,500 in cash and a working capital deficit
of approximately $4.8 million.  This compares to an overdraft of
approximately $49,000 as of December 31, 2008 and a working capital deficit of
approximately $4.2 million.  During the three months ended March 31
2009 and 2008, we received proceeds from loans and unsecured interest-bearing
promissory notes totaling of $530,400 and $450,000, respectively, detailed as
follows:





Name
      on
            
            Combined
      Amounts Loaned3 Months ended March 31,Promissory Note
            
            2009
            
            
            2008David
      Spiegel
            
            $
            64,000
            
            
            $
            250,000Herbert
      M. Stein
            
            
            98,900
            
            
            
            200,000Robert
      Schacter et al
            
            
            270,000
            
            
            
            —Leo
      Spiegel
            
            
            35,000
            
            
            
            —Spiegel
      Family Limited Partnership
            
            
            31,000
            
            
            
            —JAZFund,
      LLC
            
            
            30,000
            
            
            
            —Others
            
            
            1,500
            
            
            
            —$
            530,400
            
            
            $
            450,000





These
promissory notes are payable upon demand and were not subject to any premium or
penalty for prepayment. The loan interest rate is 8% per annum, payable monthly
in arrears on the outstanding balance.  An additional 4% interest is
charged on any notes exceeding maturity.  In addition, post maturity
notes are compounded monthly.





On April
9, 2008, Apogee sold 164,000 shares of our common stock to accredited investors
at a price of $1.00 per share.  The aggregate net proceeds to Apogee,
after fees and expenses, were $152,519, which we will use for general working
capital and corporate purposes.   The shares of Apogee’s common
stock were issued and sold in a private placement in reliance on an exemption
from registration provided by Section 4(2) of Securities Act of 133, as amended,
and Rule 506 of Regulation D promulgated thereunder.The shares of the
common stock issued in this private placement have not been registered under the
Securities Act of 1933 and may not be subsequently offered or sold by the
investors in the United States absent registration or an applicable exemption
from the registration requirements.





Net cash
used in operating activities for the three-month period ended March 31, 2009
decreased to approximately $473,000 compared to approximately $638,000 in the
three-month period ended March 31, 2008. As of March 31, 2008, we sold the
remaining DDX inventory for a total of $17,000 and offset the remaining reserves
for slow moving, excess and obsolete inventory.  As of March 31, 2009,
our accounts payable and accrued expenses were approximately $2.4 million, of
which a majority is composed of professional fees.   We are
currently in arrears with loan and interest payments, a majority of our vendors,
payroll, payroll withholding and payroll taxes.  On December 11, 15,
16, and 18, 2009, Apogee received an additional $133,000 from Herbert M. Stein,
David Spiegel.  The proceeds from these loans were used to pay unpaid
payroll and payroll taxes up through and including payroll for the period ended
December 15, 2009.  These amounts exclude payroll and payroll taxes
for Mr. Herbert M. Stein, who has not drawn cash compensation from Apogee since
June 30, 2009.See
Note 13 to the consolidated financial statements – Subsequent Events - Wages,
Payroll Withholding and Payroll Taxes.





Net cash
used in investing activities for the three months ended March 31, 2009 was
approximately $6,000, compared to approximately $22,000 for the three months
ended March 31, 2008.  We continued to support the existing patent
applications related to our Life Science Group.





Net cash
provided by financing activities was approximately $480,000 for the three months
ended March 31, 2009.  This compares $450,000 for the three months
ended March 31, 2008.  During the three-month period ended March 31,
2009, we received the proceeds from unsecured interest bearing promissory notes
totaling $530,400; comprised of $64,000 from David Spiegel, a major shareholder,
$98,900 from Herbert M. Stein, President, Chief Executive Officer and Chairman
of the Board of Directors, $270,000 from Mr. Robert Schacter, $35,000 from Leo
Spiegel, $31,000 from the Spiegel Family Limited Partnership, $30,000 from
JAZFund, LLC and $1,500 from others.  These loans are
payable upon demand and are not subject to any premium or penalty for
prepayment. The loan interest rate is 8% per annum, payable monthly in
arrears on the outstanding balance.   An additional 4% interest
will be charged on any notes exceeding maturity.  In addition, post
maturity notes are compounded monthly.  See Footnote 7 of the
consolidated financials statements - Promissory Notes, Loans and
Warrants.  We are currently in default on substantially all of the
promissory notes.  We must raise additional capital to continue
operations.


33
 Table of Contents


Apogee is
in the process of attempting to secure sufficient financing, to pay its
indebtedness and to continue operations.  We have been working to
obtain financing from outside investors for more than 24 months, but have not
yet been successful.  As of January 1, 2010 approximately $2.7 million
in promissory notes are in default.  In the interim, short-term debt
financing provided primarily by two of Apogee’s significant shareholders,
including our President, Chief Executive Officer and Chairman of the Board of
Directors as well as Mr. Robert Schacter, et al and others, is being utilized to
keep product development moving forward.  Due to the early stages of
development of our products technology, we cannot estimate at this time the
amounts of cash and length of time that will be required to bring our products
under development to market.  It is expected that such costs will be
funded not only by external financing, but also through partnership
activities.  Additionally, cost cutting measures, including salary
reduction for non-PyraDerm employees,
discontinuation of sensor development, deferral of capital expenditures, and
reduced general spending have been instituted until such time as financing is
secured.  We do not expect any significant changes in the number of
employees until funding has been secured, if ever.  Management remains
confident that we will raise sufficient capital in the near-term to fund
operations for at least the next twelve months.  If, however, we are
unable to generate or obtain financing, we will be required to further curtail
our operations, including a reduction in the number of employees, or cease
conducting business.


34
 Table of Contents


CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Apogee
prepares its consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates, judgments and
assumptions that we believe are reasonable based upon the information currently
available. These estimates and assumptions affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. Any future changes to
these estimates and assumptions could have a significant impact on the reported
amounts of revenue, expenses, assets and liabilities in our financial
statements. The significant accounting policies which we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results include the following:





Revenue
Recognition





Apogee
recognizes revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin “104”, or SAB “104”,“Revenue Recognition in
Financial Statements: Revenue Recognition”, which states that revenue should be
recognized when the following revenue recognition criteria are met: 
(1) persuasive evidence of an arrangement exists; (2) the product has
been shipped and the customer takes ownership and assumes the risk of loss;
(3) the selling price is fixed or determinable; and (4) collection of
the resulting receivable is reasonably assured.  We had no product
sales since the first quarter ended March 31, 2008.  The following
policies applied to Apogee’s two major product sales categories for revenue
recognition. Sales to end users, OEM:  revenue is recognized under our
standard terms and conditions of sale, title and risk of loss transfer to the
customer at the time products are shipped from our warehouse or delivered to the
customer’s representative/freight forwarder.  We accrue the estimated
cost of post-sale obligations including product warranty returns, based on
historical experience. To date, we have experienced minimal warranty
returns.





In
addition, we record royalty revenue when earned in accordance with the
underlying agreements. Consulting and licensing revenue is recognized as
services are performed.





Accounts
Receivable





Apogee
performs credit evaluations of customers and determines credit limits based upon
payment history, customers’ creditworthiness and other factors, as determined by
our review of their current credit information. For a majority of our larger
sales, we can require the issuance of a Letter of Credit. Smaller accounts must
either pay via credit card or in advance of shipment. We continuously monitor
collections and payments from our customers, and we maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While we have not had any
significant credit losses to date, we cannot guarantee that we will continue to
avoid credit losses in the future. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Since our accounts
receivable are highly concentrated in a small number of customers, a significant
change in the liquidity or financial position of any one of these customers
could have a material adverse impact on our ability to collect our accounts
receivable, our liquidity or our future results of operations.





Inventory





Inventories
are stated at the lower of cost on a first-in, first-out basis or market. This
policy requires Apogee to make estimates regarding the market value of our
inventory, including an assessment of excess or obsolete
inventory.   On January 15, 2008, we sold the remaining DDX
inventory held in our Norwood office to one of our customers, and on January 24,
2008, we also sold the remaining DDX inventory housed in Hong Kong to one of our
former DDX distributors.  Total proceeds received from the disposition
of the DDX inventory were $17,000.





Valuation
and Impairment of Long-Lived Assets





Property,
plant and equipment, patents and trademarks are amortized over their estimated
useful lives. Useful lives are based on management’s estimates over the period
that such assets will generate revenue. In accordance with SFAS No. 144
“Accounting for the Impairment or Disposal of Long-Lived Assets” long lived
assets we hold and use are reviewed to determine whether any events or changes
in circumstances indicate that the carrying value of the assets may not be
recoverable.  Future adverse changes in market conditions or poor
operating results of underlying capital investments or certain 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.  At
March 31, 2009, we recorded a patent impairment charge of approximately $17,000
to reflect the write-off of patent costs associated with the discontinuation of
our Health Monitoring Group.  Additionally, we amortize the balance of
our patent applications over five years, which resulted in a $9,600 charge for
the three months ended March 31, 2009.


35
 Table of Contents


Stock-Based
Compensation





Apogee
had a stock-based compensation plan, the 1997 Employee, Director and Consultant
Stock Option Plan, also referred to as the 1997 Plan.  The 1997 Plan
expired as of May 14, 2007.  At our Annual Meeting held on August 28,
2007, our stockholders approved the adoption of a new stock-based compensation
plan, the 2007 Employee, Director and Consultant Stock Plan, also referred to as
the 2007 Plan.  Prior to fiscal 2006, we accounted for the stock-based
compensation under the recognition and measurement provisions of Accounting
Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees”, and related Interpretations, as permitted by Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards, “Accounting
for Stock-Based Compensation” (SFAS 123(R)).





Effective
January 1, 2006, we adopted SFAS 123(R) using the
modified-prospective-transition method. Under this transition method, stock
compensation costs recognized beginning January 1, 2006 include (a)
compensation cost for all stock-based compensation payments granted prior to,
but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS 123(R), and
(b) compensation cost for all stock-based payments granted on or subsequent
to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).  Due to the adoption of
SFAS 123(R), included in our net loss for the three months ended March 31, 2009
and 2008, were stock-based compensation charges of approximately $23,000 and
$18,000, respectively.





Legal
Fees





We record
legal costs (such as fees and expenses of outside legal counsel and other
service providers) when incurred or when it is probable that a liability has
been incurred on or before the balance sheet date and the amount can be
reasonably estimated if invoices have not been
received.  Significantly lower legal fees were incurred during the
three months ended March 31, 2009, compared to the three months ended March 31,
2008 as a result of a decrease in legal fees in connection with the SEC
investigation as well as decreased legal fees associated with the
indemnification of our President, Chief Executive Officer and Chairman of the
Board of Directors for the Shamy matter.





Contingencies





Apogee is
involved in and/or indemnifies others in various legal
proceedings.  Management assesses the probability of loss for such
contingencies and recognizes a liability when a loss is probable and
estimable.  See Note 10 to the consolidated financial statements -
Legal and Related Indemnification Arrangements with our Executives and
Others





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements nor do we have any special purpose
entities.





ITEM3 – QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Apogee’s
financial instruments include: cash, cash equivalents, accounts receivable and
accounts payable.  At March 31, 2009, the carrying value of our cash,
cash equivalents, accounts receivable, loans and notes payable, and accounts
payable approximate fair values given the short maturity of these
instruments.





We
believe that our financial instruments do not carry a material foreign currency
exchange rate risk since any international sales will be paid in U.S. dollars
and material purchases from foreign suppliers are typically also denominated in
U.S. dollars.





It is our
policy not to enter into derivative financial instruments for speculative
purposes.




ITEM 4T – CONTROLS AND
PROCEDURES
 
 (a) Evaluation of
Disclosure Controls and Procedures. The Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has reviewed and evaluated the effectiveness of the  design
and operation of Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act) as of the end of the period covered by this
report.  Based on this evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of such
period, the disclosure controls and procedures were effective to ensure that the
information required to be disclosed in our Securities and Exchange Commission
reports (i) is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
(ii) is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures.


36
 Table of Contents


(b) Changes in
Internal Controls. There have not been any changes in the Company’s internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) identified in connection with the evaluation
of such internal control that occurred during the fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.


PARTII - OTHER INFORMATION





ITEM
1 – LEGAL PROCEEDINGS





From time
to time, we may be a party to various legal proceedings arising in the ordinary
course of our business.  If and when these proceedings arise, we are
committed to vigorously defending ourselves in any such legal
actions.





An
investigation by the Security and Exchange Commission (“SEC”), which the Company
first became aware of in May 2005, was ongoing in 2008. The subject matter of
this investigation is the Company's prior revenue recognition practices that
were addressed in the Company's restatement of its financial statements for
the fiscal year ended December 31, 2004. As previously disclosed in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2004, as amended,
Apogee’s Audit Committee, with the assistance of independent counsel, conducted
an investigation into Apogee’s historical accounting practices that resulted in
the implementation of remedial actions. See our Annual Report on Form 10-KSB for
the year ended December 31, 2004, as amended, for detail regarding the
restatement.





In July
2008, Apogee, it’s Chief Executive Officer and other employees
received notifications from the Staff of the SEC relating to the Staff's 2005
investigation. These notifications, known as “Wells Notices,” stated that the
Staff is considering recommending that the Commission bring enforcement actions
against the Company and certain employees, based on alleged violations of
certain provisions of the federal securities laws, including Section 17(a) of
the Securities Act of 1933, as amended, Section 10(b) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 thereunder, Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13
thereunder. The Wells Notice sent to the Company indicated that in any action
actually brought against the Company, the Staff would seek an injunction against
future violations of the federal securities laws as relief.





On May
19, 2009, the SEC settled the enforcement action with the Company, one employee,
and one former employee (“Others”).   Each of the Defendants has
agreed to settle this matter, without admitting or denying the allegations of
the SEC’s complaint.  Apogee and Others agreed to the entry of a final
judgment permanently enjoining them from violating or aiding and abetting
violations of Sections of the Securities Act of 1933, as amended, and Sections
of the Securities Exchange Act of 1934, as amended, and various Rules
thereunder.  Others also agreed to financial and other
sanctions.
 
 In
addition, we incurred legal fees associated with the indemnification costs in
connection with the civil action styled Joseph Shamy vs. Herbert M. Stein
Case No.: 50 2005 CA 007719 XXXXMB.  In this action instituted
in the 15th Judicial Circuit in and for Palm Beach County, Florida (the
"Court), Joseph Shamy sued Herbert M. Stein, President, Chief Executive Officer
and Chairman of the Board of Apogee in connection with Shamy’s purchase of
Apogee shares in 2003 and 2004.  In February 2009, in connection with
a settlement, the Court entered a Final Judgment against Mr.
Stein.  In early January 2010, a filing was made with the Court
to memorialize the Total and Complete Satisfaction of Judgment, which states
that all sums due under the civil action were fully paid and that the Final
Judgment was satisfied and canceled.  Further, the Clerk of the Court
was directed to note satisfaction of the Final Judgment and cancellation of all
judgments of record in this action. Apogee was not a party to the aforementioned
settlement or the satisfaction of the Final Judgment. See Note 10 to the
consolidated financial statements - Legal and Related Indemnification
Arrangements with our Executives and Others.
  37
 Table of Contents


Due to
its financial condition, the Company had been unable to fund payments to its
independent auditors as well as its financial printer. Accordingly, it did not
timely file its 2008 Annual Report on Form 10-K, as well as quarterly reports on
Form 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September
30, 2009. Additionally, we did not file timely Current Reports on a Form 8-K and
reports under Section 16 of the Securities Exchange Act of 1934, as
amended.  Subsequently, during the fourth quarter of 2009, we paid the
outstanding balance to our auditors and filed our Annual Report on 10-K for the
fiscal year ended December 31, 2008 on December 18, 2009.
 
 On
October 28, 2009, the Company received a “Wells Notice” from the Staff of the
SEC, which stated the Staff’s intent to recommend that the SEC institute a
public administrative proceeding against the Company, alleging that it violated
Section 13(a) of the Securities Exchange Act of 1934, as amended for failing to
file its 2008 Form 10-K and other periodic reports.
 
 In
connection with the contemplated proceedings, the Staff may seek a suspension or
revocation of each class of the Company’s registered securities. Also, the Staff
may consider whether contempt proceedings in a federal district court are
appropriate.  The Company submitted a response to this letter on
November 16, 2009.  Should suspension or revocation of registration of
our stock occur, the Company’s ability to raise additional funding may be
severely impacted.  On December 18, 2009 we filed our 2008 Annual
Report on Form 10-K and expect to file our 2009 Quarterly Reports on Form 10-Q
for the periods ended June 30, 2009, and September 30, 2009 in January
2010.


ITEM1A – RISK FACTORS





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. 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,
except as may be required by law.




Aside
from those risks discussed below, there have been no material changes to the
risk factors included in our Annual Report on Form-10K for the fiscal year ended
December 31, 2008.


38
 Table of Contents


RISKS
RELATED TO OUR BUSINESS





WE
REQUIRE ADDITONAL CAPITAL TO CONTINUE OPERATIONS AND HAVE A HISTORY OF LOSSES
AND EXPECT FUTURE LOSSES.





As of
March 31, 2009, we had approximately $2,500 in cash, a stockholders’ deficiency
of approximately $4.6 million, an accumulated deficit of approximately $23.6
million and a working capital deficit of approximately $4.8
million.  We had a net loss of approximately $691,000 for the three
months ended March 31, 2009, compared to a net loss of approximately $1.1
million for the three months ended March 31, 2008.  In the fiscal year
ended December 31, 2008, we recorded a net loss of approximately $4.0
million.
 
 We have
substantial debt and interest obligations and expect to incur additional debt to
the extent available, to maintain our operations.  As of January 15,
2010, we had approximately $3.2 million in promissory notes outstanding to a
significant shareholder, our President, Chief Executive Officer and Chairman of
the Board of Directors, an individual investor and others.  These
promissory notes are payable upon demand, not  subject to any premium
or penalty for prepayment, bear simple interest of 8% per annum until
maturity.  An additional 4% interest compounded monthly is charged on
all post-maturity notes.  We are currently in default on substantially
all of the promissory notes.
 
 We have
large unpaid balances with professional and other service
providers.  We are currently in arrears with loan and interest
payments and a majority of our vendors.
 
 As of
March 31, 2009, Apogee’s Directors and Officers Liability Insurance was
cancelled due to non-payment and the Company may be required to pay uninsured
losses.  See Note 10 - to the consolidated financial statements -
Legal and Related Indemnification Arrangements with our Executives and
Others.
 
 On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934 due to failure to timely file periodic reports in 2009.  In
connection with the contemplated proceedings, the staff may seek a suspension or
revocation of each class of the Company’s registered securities. Also, the staff
may consider whether contempt proceedings in a federal district court are
appropriate.  The Company submitted a response to this letter on
November 16, 2009.  Should suspension or revocation of registration of
our stock occur, the Company’s ability to raise additional funding may be
severely impacted.
 
 Our
requirements for additional capital and our ability to generate future revenue
depend on a number of factors, many of which are described in the Risk Factors
Section, of our Annual Report on Form 10-K for the fiscal year ended December
31, 2008, including our ability to develop and generate revenues from the sales
of our sensor and medical device products, which are at a very early stage of
development. We cannot assure you when, if ever, we will generate meaningful
revenues from the sales of these products under
development.


IF
OUR ATTEMPTS TO SECURE ADDITIONAL FINANCING ARE NOT SUCCESSFUL, WE WILL BE
REQUIRED TO CEASE OR CURTAIL OUR OPERATIONS, OR OBTAIN FUNDS ON UNFAVORABLE
TERMS.  THESE FACTORS CREATE A SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.





Our
available resources are not sufficient to fund our operations, without
additional sources of financing we would not be able to continue our business,
and we expect to incur operating losses for the foreseeable
future.  Consequently, in order to maintain our operations, which we
have already curtailed substantially, we will need to access additional equity
or debt capital.  Securing financing is proving even more difficult
than anticipated in light of the current global economic crisis and the turmoil
impacting global financial markets.  These factors create a
substantial doubt about our ability to continue as a going
concern.  In light of our negative stockholders’ equity, there can be
no assurance that we will be able to obtain the necessary additional capital on
a timely basis or on acceptable terms, if at all, to continue our operations
and, to the extent available, to fund the development of our business. In any of
such events, the continuation of our operations would be materially and
adversely affected and we may have to cease conducting
business.


39
 Table of Contents




As noted
above, Apogee is in the process of attempting to secure sufficient financing to
continue operations.  We have been working to obtain financing from
outside investors for more than 24 months, but have not yet been
successful.  In the interim, short-term debt financing provided by
Apogee’s significant shareholders, including our President, Chief Executive
Officer and Chairman of the Board of Directors, and two other employees are
being used to continue our operations and, to the extent possible, continue
product development efforts.  Additionally, cost cutting measures,
including salary reduction for non-PyraDerm employees,
diminished pace of sensor development, deferral of capital expenditures,
non-payment of professional and other services providers and reduced general
spending have been instituted until such time as financing is secured, if
ever.  If we are unable to obtain financing, we will be required to
further curtail our operations or cease conducting business.  Given
our current level of debt, we do not expect that our stockholders would receive
any proceeds if we declare bankruptcy or seek to liquidate the
Company.  As of March 31, 2009, we closed down operations of the
Health Monitoring Product Group.  Costs associated with this cessation
of operations as well as the termination of employees associated with this Group
were not material.





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
document and the documents incorporated by reference herein contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Also, Apogee’s management may make
forward-looking statements orally or in writing to investors, analysts, the
media and others. Forward-looking statements express our expectations or
predictions of future events or results. They are not guarantees and are subject
to many risks and uncertainties. There are a number of factors that could cause
actual events or results to be significantly different from those described in
the forward-looking statements. Forward-looking statements might include
statements regarding one or more of the following:





·
            anticipated
      financing activities;





·
            anticipated
      strategic alliances or arrangements with development or marketing
      partners;





·
            anticipated
      research and product development
results;





·
            projected
      development and commercialization
timelines;





·
            descriptions
      of plans or objectives of management for future operations, products or
      services;





·
            forecasts
      of future economic performance; and





·
            descriptions
      or assumptions underlying or relating to any of the above
      items.


40
 Table of Contents


Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts or events. They use words such as “anticipate”,
“estimate”, “expect”, “project”, “intend”, “opportunity”, “plan”, “potential”,
“believe” or words of similar meaning. They may also use words such as “will”,
“would”, “should”, “could” or “may”.





Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, we do not assume responsibility for the accuracy and
completeness of such statements. We do not intend to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results except as required by law. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. You should carefully
consider that information before you make an investment decision. You should
review carefully the risks and uncertainties identified in this report and in
the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.





ITEM2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





During
the period ended March 31, 2009, our unregistered sales of equity securities
were reported on Current Reports on Form 8-K.





ITEM3 – DEFAULTS UPON SENIOR SECURITIES





As of
March 31, 2009, $1,690,000 was in default and accruing post-maturity interest.
The promissory notes listed below now bear interest at 12%, the interest after
maturity, are payable on demand, and are compounded monthly as a result of
non-payment at maturity date.





David SpiegelAmountAccruing
      PostDate
      of
            Maturity
            
            Maturity
      InterestPromissory Note
            Date
            
            Interest at 12%December
      12, 2007
            March
      10, 2008
            
            $
            150,000February
      21, 2008
            August
      19, 2008
            
            
            100,000March
      20, 2008
            September
      16, 2008
            
            
            100,000April
      1, 2008
            September
      28, 2008
            
            
            50,000May
      15, 2008
            November
      11, 2008
            
            
            50,000June
      16, 2008
            December
      13, 2008
            
            
            65,000June
      18, 2008
            December
      15, 2008
            
            
            50,000July
      15, 2008
            January
      11, 2009
            
            
            50,000July
      28, 2008
            January
      24, 2009
            
            
            50,000August
      12, 2008
            February
      8, 2009
            
            
            35,000August
      27, 2008
            February
      23, 2009
            
            
            35,000September
      5, 2008
            March
      4, 2009
            
            
            35,000Total
            
            
            $
            770,000


41
 Table of Contents




Herbert M. SteinAmountAccruing
      PostDate
      of
            Maturity
            
            Maturity
      InterestPromissory Note
            Date
            
            Interest at 12%December
      12, 2007
            March
      10, 2008
            
            $
            250,000February
      21, 2008
            August
      19, 2008
            
            
            100,000March
      20, 2008
            September
      16, 2008
            
            
            50,000April
      1, 2008
            September
      28, 2008
            
            
            50,000May
      15, 2008
            November
      11, 2008
            
            
            50,000June
      16, 2008
            December
      13, 2008
            
            
            35,000June
      18, 2008
            December
      15, 2008
            
            
            40,000July
      15, 2008
            January
      11, 2009
            
            
            30,000July
      28, 2008
            January
      24, 2009
            
            
            50,000August
      12, 2008
            February
      8, 2009
            
            
            35,000August
      27, 2008
            February
      23, 2009
            
            
            35,000September
      5, 2008
            March
      4, 2009
            
            
            35,000Total
            
            
            $
            760,000




Robert
      Schacter et alAmountAccruing
      PostDate
      of
              Maturity
              
              
              Maturity
      InterestPromissory
      Note
              Date
              
              
              Interest
      at 12%September
      5, 2008
              March
      4, 2009
              
              $
              140,000


OthersAmountAccruing
      PostDate
      of
            Maturity
            
            Maturity
      InterestPromissory Note
            Date
            
            Interest at 12%July
      28, 2008
            January
      24, 2009
            
            $
            20,000





ITEM4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





ITEM5 – OTHER INFORMATION





None.




ITEM6 – EXHIBITS





(a)
            Exhibits:




ExhibitNumber
              
              Description10.1+
              
              Promissory
      Note dated as of January 6, 2009 by and between Apogee Technology, Inc.
      and David Spiegel.  (Previously filed on a Current Report on
      Form 8-K, January 8, 2009.)10.2+
              
              Promissory
      Note dated as of January 6, 2009 by and between Apogee Technology, Inc.
      and Annette Jaynes.  (Previously filed on a Current Report on
      Form 8-K, January 8, 2009.)10.3+
              
              Promissory
      Note dated as of January 6, 2009 by and between Apogee Technology, Inc.
      and Robert Schacter.  (Previously filed on a Current Report on
      Form 8-K, January 8, 2009.)10.4+
              
              Form
      of Warrant. (Previously filed on a Current Report on Form 8-K, January 8,
      2009.)10.5+
              
              Promissory
      Note dated as of January 8, 2009 by and between Apogee Technology, Inc.
      and TYJO Corporation Money Purchase Pension Plan.  (Previously
      filed on a Current Report on Form 8-K, January 12,
  2009.)10.6+
              
              Form
      of Warrant. (Previously filed on a Current Report on Form 8-K, January 12,
      2009.)1075+
              
              Promissory
      Note dated as of February 2, 2009 by and between Apogee Technology, Inc.
      and Herbert M. Stein.  (Previously filed on a Current Report on
      Form 8-K, February 4, 2009.)10.8+
              
              Promissory
      Note dated as of February 2, 2009 by and between Apogee Technology, Inc.
      and TYJO Corporation Money Purchase Pension Plan.  (Previously
      filed on a Current Report on Form 8-K, February 4,
  2009.)10.9+
              
              Form
      of Warrant. (Previously filed on a Current Report on Form 8-K, February 4,
      2009.)10.10+
              
              Promissory
      Note dated as of February 17, 2009 by and between Apogee Technology, Inc.
      and Herbert M. Stein.  (Previously filed on a Current Report on
      Form 8-K, February 19, 2009.)
  42
 Table of Contents




10.11+
              
              Promissory
      Note dated as of February 17, 2009 by and between Apogee Technology, Inc.
      and TYJO Corporation Money Purchase Pension Plan.  (Previously
      filed on a Current Report on Form 8-K, February 19,
  2009.)10.12+
              
              Promissory
      Note dated as of February 17, 2009 by and between Apogee Technology, Inc.
      and Leo Spiegel.  (Previously filed on a Current Report on Form
      8-K, February 19, 2009.)10.13+
              
              Promissory
      Note dated as of February 17, 2009 by and between Apogee Technology, Inc.
      and David B. Meyers.10.14+
              
              Promissory
      Note dated as of February 17, 2009 by and between Apogee Technology, Inc.
      and Annette Jaynes.10.15+
              
              Form
      of Warrant. (Previously filed on a Current Report on Form 8-K, February
      19, 2009.)10.16+
              
              Promissory
      Note dated as of March 19, 2009 by and between Apogee Technology, Inc. and
      David Spiegel.  (Previously filed on a Current Report on Form
      8-K, March 20, 2009.)10.17+
              
              Promissory
      Note dated as of March 19, 2009 by and between Apogee Technology, Inc. and
      Herbert M. Stein.  (Previously filed on a Current Report on Form
      8-K, March 20, 2009.)10.18+
              
              Promissory
      Note dated as of March 19, 2009 by and between Apogee Technology, Inc. and
      TYJO Corporation Money Purchase Pension Plan.  (Previously filed
      on a Current Report on Form 8-K, March 20, 2009.)10.19+
              
              Promissory
      Note dated as of March 19, 2009 by and between Apogee Technology, Inc. and
      Annette Jaynes.10.90+
              
              Form
      of Warrant. (Previously filed on a Current Report on Form 8-K, March 20,
      2009.)31.1
              
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief
      Executive Officer.31.2
              
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief
      Financial Officer.32
              
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief
      Executive Officer and Chief Financial
Officer.




+
Previously filed as indicated.


43
 Table of Contents


SIGNATURES





In
accordance with the requirements 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:
      January 15, 2010
            By:
            /s/
            Herbert
      M. SteinName:
      Herbert M. SteinTitle:
      Chairman of the Board,President,
      Chief Executive Officer(principal
      executive officer)APOGEE
      TECHNOLOGY, INC.Date:
      January 15, 2010
            By:
            /s/
            Paul
      J. MurphyName:
      Paul J. MurphyTitle:
      Chief Financial Officer and Vice President of Finance(principal
      financial officer and principal accounting
  officer)






44