**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-QSB**

 

**(Mark One)**

 

| **ý**                                                                                                                                                             | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                   |       |                                                                                          |
| **For the quarterly period ended  September 30, 2004**                                                                                                                 |
|                                                                                                                                                                   |       |                                                                                          |
| **o**                                                                                                                                                                  | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                   |       |                                                                                          |
| **For the transition period from                         to** |

 

**Commission file number 000-30656**

 

**APOGEETECHNOLOGY, INC.**(Exact name ofregistrant as specified in its charter)

 

| **DELAWARE**                     | ** ** | **04-3005815**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**129MORGAN DRIVE, NORWOOD, MASSACHUSETTS 02062**

(Address of principalexecutive offices)

 

**(781) 551-9450**

(Issuer’s telephonenumber, including area code)

 

**NOTAPPLICABLE.**

(Former name, formeraddress and former fiscal year,

if changed since lastreport)

 

Check whether the issuer: (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý No o

 

Statethe number of shares of each of the Issuer’s classes of common equity, as ofthe latest practicable date:  As ofNovember 5, 2004, there were 11,769,332 shares of Common Stock, $.01 par valueper share, outstanding.

 

Transitional Small Business Disclosure Format (Checkone):  Yes oNo ý

 

** **

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** **

**APOGEETECHNOLOGY, INC.**

 

**INDEX OF INFORMATION CONTAINED INFORM 10-QSB FOR THE**

**QUARTERENDED SEPTEMBER 30, 2004**

 

 
| **PART  I-FINANCIAL INFORMATION** |
|-----------------------------------|
|                              |   |
| Item 1 -                          | Financial  Statements (Unaudited) |
|                              | Condensed Consolidated  Balance Sheets at September 30, 2004 and December 31, 2003. |
|                              | Condensed  Consolidated Statements of Operations and Accumulated Deficit for the Three  and Nine Months Ended September 30, 2004 and September 30, 2003. |
|                              | Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended  September 30, 2004 and September 30, 2003. |
|                              | Notes  to Condensed Consolidated Financial Statements. |
|                              |   |
| Item 2 -                          | Management’s Discussion  and Analysis of Financial Condition and Results of Operations |
|                              |   |
| Item 3 -                          | Quantitative and Qualitative  Disclosures about Market Risk |
|                              |   |
| Item 4 -                          | Controls and  Procedures |
|                              |   |
| **PART  II - OTHER INFORMATION**  |
|                              |   |
| Item 1 -                          | Legal Proceedings |
|                              |   |
| Item 2 -                          | Unregistered  Sales of Equity Securities and Use of Proceeds |
|                              |   |
| Item 3 -                          | Defaults  Upon Senior Securities |
|                              |   |
| Item 4 -                          | Submission  of Matters to a Vote of Security Holders |
|                              |   |
| Item 5 -                          | Other Information |
|                              |   |
| Item 6 -                          | Exhibits |
|                              |   |
| Signatures                        |

 

 

2

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**APOGEE TECHNOLOGY, INC. AND SUBSIDIARY**

 

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                     | ** **   | **September 30, 2004** | ** **    | **DECEMBER 31, 2003** |     |
|----------------------------------------------------------------------------------------------------------------|--------------|------------------------|---------------|-----------------------|----------|
| *** ***                                                                                                   | *** *** | ***(Unaudited)***      | *** ***  | *** ***          | * * |
| **ASSETS**                                                                                                     |         |                   | ** **    |                  |     |
| ** **                                                                                                     |         |                   | ** **    |                  |     |
| **Current assets**                                                                                             |         |                   | ** **    |                  |     |
| Cash and cash equivalents                                                                                      | ** **   | **$**                  | **2,511,338** | ** **            | $        | 2,524,209 |   |
| Accounts receivable, net of allowance for doubtful accounts of  $60,000 in 2004 and $45,000 in 2003            | ** **   | **3,296,494**          | ** **    | 3,522,406             |     |
| Inventories                                                                                                    | ** **   | **1,844,987**          | ** **    | 723,944               |     |
| Prepaid expenses and other current assets                                                                      | ** **   | **220,652**            | ** **    | 180,261               |     |
| Deferred tax asset                                                                                             | ** **   | **195,000**            | ** **    | 195,000               |     |
|                                                                                                           | ** **   | ** **             | ** **    |                  |     |
| Total current assets                                                                                           | ** **   | **8,068,471**          | ** **    | 7,145,820             |     |
|                                                                                                           | ** **   | ** **             | ** **    |                  |     |
| **Property and equipment, net of accumulated  depreciation of $449,085 in 2004 and $391,463 in 2003**          | ** **   | **113,824**            | ** **    | 128,831               |     |
| ** **                                                                                                     | ** **   | ** **             | ** **    |                  |     |
| **Other assets**                                                                                               |         |                   | ** **    |                  |     |
| Digital amplifier patents, net of accumulated amortization of  $120,950 in 2004 and $103,856 in 2003           | ** **   | **109,078**            | ** **    | 87,369                |     |
| Other intangible assets                                                                                        | ** **   | **173,223**            | ** **    | 36,667                |     |
| ** **                                                                                                     | ** **   | **$**                  | **8,464,596** | ** **            | $        | 7,398,687 |   |
| ** **                                                                                                     | ** **   | ** **             | ** **    |                  |     |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                  |         |                   | ** **    |                  |     |
| ** **                                                                                                     |         |                   | ** **    |                  |     |
| **Current liabilities**                                                                                        |         |                   | ** **    |                  |     |
| Accounts payable and accrued expenses                                                                          | ** **   | **$**                  | **1,606,285** | ** **            | $        | 1,528,590 |   |
| Current maturities of capital lease obligations                                                                | ** **   | **—**             | ** **    | 3,318                 |     |
|                                                                                                           | ** **   | ** **             | ** **    |                  |     |
| Total current liabilities                                                                                      | ** **   | **1,606,285**          | ** **    | 1,531,908             |     |
|                                                                                                           | ** **   | ** **             | ** **    |                  |     |
| **Advances**                                                                                                   | ** **   | **95,788**             | ** **    | **—**            |     |
| ** **                                                                                                     | ** **   | ** **             | ** **    | ** **            |     |
| **Stockholders’ equity**                                                                                  |         |                   | ** **    |                  |     |
| Common stock, $.01 par value;                                                                                  |         |                   | ** **    |                  |     |
| 20,000,000 shares authorized, 11,796,332 and 11,327,270 issued and  outstanding in 2004 and 2003, respectively | ** **   | **117,963**            | ** **    | 113,272               |     |
| Additional paid-in capital                                                                                     | ** **   | **18,073,819**         | ** **    | 16,171,611            |     |
| Accumulated deficit                                                                                            | ** **   | **(11,429,259**        | **)**         | (10,418,104           | )        |
|                                                                                                           | ** **   | ** **             | ** **    |                  |     |
| Total stockholders’ equity                                                                                | ** **   | **6,762,523**          | ** **    | 5,866,779             |     |
| ** **                                                                                                     | ** **   | **$**                  | **8,464,596** | ** **            | $        | 7,398,687 |   |

 

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

 

3

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CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONSAND ACCUMULATEDDEFICIT

 
| ** **                                                          | ** ** | **THREE MONTHS ENDED  September 30** | ** **      | **NINE MONTHS ENDED  September 30,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------|-----------------|--------------------------------------|------------|
| ** **                                                          | ** ** | **2004**                             | ** **      | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenues**                                                        |       |                                 | ** **      |                                 |       |   | ** ** |   |   |
| Product sales                                                       | ** ** | **$**                                | **1,132,222**   | ** **                           | $          | 2,626,292 |   | **$** | **3,865,310** | ** ** | $ | 6,831,177 |   |
| Royalties                                                           | ** ** | **790,199**                          | ** **      | 488,739                              |       | **1,601,211** | ** ** | 1,156,073 |   |
| Consulting                                                          | ** ** | **161,270**                          | ** **      | —                               |       | **615,754** | ** ** | — |   |
| ** **                                                          |       | **2,083,691**                        | ** **      | 3,115,031                            |       | **6,082,275** | ** ** | 7,987,250 |   |
| ** **                                                          |       | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Costs and expenses**                                              |       |                                 | ** **      |                                 |       |   | ** ** |   |   |
| Product sales                                                       | ** ** | **759,825**                          | ** **      | 1,858,317                            |       | **2,500,338** | ** ** | 4,791,244 |   |
| Research and development                                            | ** ** | **663,688**                          | ** **      | 433,941                              |       | **1,981,355** | ** ** | 1,163,682 |   |
| Selling, general and administrative                                 | ** ** | **988,180**                          | ** **      | 494,113                              |       | **2,627,986** | ** ** | 1,604,473 |   |
|                                                                | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| ** **                                                          |       | **2,411,693**                        | ** **      | 2,786,371                            |       | **7,109,679** | ** ** | 7,559,399 |   |
| ** **                                                          |       | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Operating (loss) income**                                         | ** ** | **(328,002**                         | **)**           | 328,660                              |       | **(1,027,404** | **)** | 427,851 |   |
| ** **                                                          | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Other (expense) income**                                          |       |                                 | ** **      |                                 |       |   | ** ** |   |   |
| Interest expense                                                    | ** ** | **—**                           | ** **      | (7,060                               | )          | **(93** | **)** | (8,909 | ) |
| Interest income                                                     | ** ** | **5,365**                            | ** **      | 3,524                                |       | **16,342** | ** ** | 8,377 |   |
|                                                                | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| ** **                                                          |       | **5,365**                            | ** **      | (3,536                               | )          | **16,249** | ** ** | (532 | ) |
| **Net (loss) income**                                               | ** ** | **(322,637**                         | **)**           | 325,124                              |       | **(1,011,155** | **)** | 427,319 |   |
| ** **                                                          | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| Accumulated deficit - beginning                                     | ** ** | **(11,106,622**                      | **)**           | (11,072,482                          | )          | **(10,418,104** | **)** | (11,174,677 | ) |
|                                                                | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Accumulated deficit - ending**                                    | ** ** | **$**                                | **(11,429,259** | **)**                                | $          | (10,747,358 | ) | **$** | **(11,429,259** | **)** | $ | (10,747,358 | ) |
| ** **                                                          | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Basic and diluted (loss) income per common share**                | ** ** | **$**                                | **(0.03**       | **)**                                | $          | 0.03 |   | **$** | **(0.09** | **)** | $ | 0.04 |   |
| ** **                                                          | ** ** | ** **                           | ** **      |                                 |       | ** ** | ** ** |   |   |
| **Weighted average common shares outstanding -  basic and diluted** | ** ** | **11,566,166**                       | ** **      | 10,828,019                           |       | **11,428,871** | ** ** | 10,777,401 |   |

* *

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

 

4

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CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

 
| ** **                                                                              | ** ** | **NINE MONTHS ENDED  September 30,** | ** **     |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------|----------------|
| ** **                                                                              | ** ** | **2004**                             | ** **     | **2003** | ** ** |
| **Cash flows from operations**                                                          | ** ** | ** **                           | ** **     | ** ** | ** ** |
| Net (loss) income                                                                       | ** ** | **$**                                | **(1,011,155** | **)** | $ | 427,319 |   |
| *Adjustments to reconcile net (loss) income to net  cash used in operating activities:* |       |                                 | ** **     |   |   |
| Provision for doubtful accounts                                                         | ** ** | **15,000**                           | ** **     | 15,000 |   |
| Depreciation and amortization                                                           | ** ** | **74,716**                           | ** **     | 71,682 |   |
| *Changes in operating assets and liabilities:*                                          |       |                                 | ** **     |   |   |
| Accounts receivable                                                                     | ** ** | **210,912**                          | ** **     | (1,992,958 | ) |
| Inventories                                                                             | ** ** | **(1,121,043**                       | **)**          | (835,309 | ) |
| Prepaid expenses and other current assets                                               | ** ** | **(40,390**                          | **)**          | (94,262 | ) |
| Accounts payable and accrued expenses                                                   | ** ** | **77,693**                           | ** **     | 617,694 |   |
| Deferred revenue                                                                        | ** ** | **95,788**                           | ** **     | — |   |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| Net cash used in operating activities                                                   | ** ** | **(1,698,479**                       | **)**          | (1,790,834 | ) |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| **Cash flows from investing activities**                                                |       |                                 | ** **     |   |   |
| Purchases of property and equipment                                                     | ** ** | **(42,615**                          | **)**          | (43,224 | ) |
| Patent costs                                                                            | ** ** | **(38,802**                          | **)**          | (9,809 | ) |
| Other intangible assets                                                                 | ** ** | **(136,556**                         | **)**          | — |   |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| Net cash used in investing activities                                                   | ** ** | **(217,973**                         | **)**          | (53,033 | ) |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| **Cash flows from financing activities**                                                |       |                                 | ** **     |   |   |
| Proceeds from issuances of common stock                                                 | ** ** | **2,068,328**                        | ** **     | 1,452,439 |   |
| Fees associated with issuance of common stock                                           | ** ** | **(161,429**                         | **)**          | — |   |
| Proceeds from bank line of credit                                                       | ** ** | **—**                           | ** **     | 400,000 |   |
| Repayment of capital lease obligations                                                  | ** ** | **(3,318**                           | **)**          | (15,056 | ) |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| Net cash provided by financing activities                                               | ** ** | **1,903,581**                        | ** **     | 1,837,383 |   |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| **Decrease in cash and cash equivalents**                                               | ** ** | **(12,871**                          | **)**          | (6,484 | ) |
| ** **                                                                              | ** ** | ** **                           | ** **     |   |   |
| Cash and cash equivalents - beginning                                                   | ** ** | **2,524,209**                        | ** **     | 994,296 |   |
|                                                                                    | ** ** | ** **                           | ** **     |   |   |
| **Cash and cash equivalents - ending**                                                  | ** ** | **$**                                | **2,511,338**  | ** ** | $ | 987,812 |   |

 

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

 

5

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NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2004 AND 2003

 

**1.        Basis of Presentation**

 

The condensed consolidated interim financialstatements have been prepared in accordance with the requirements of RegulationS-B and with the instructions to Form 10-QSB. Accordingly, certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted.  In the opinion of management, all adjustments(consisting only of normal recurring accruals) necessary to present fairly thefinancial position, results of operations and cash flows have beenincluded.  The results of operations forthe nine month period ended September30, 2004 are not necessarily indicative of the operating results to beexpected for the year ending December 31, 2004. These financial statements should be read in conjunction with thefinancial statements and accompanying notes for the year ended December 31,2003.

 

The balance sheet at December 31, 2003 has been derived from theaudited financial statements at that date but does not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.

 

The financial statements include the accounts ofApogee Technology, Inc., and its wholly owned inactive subsidiary, DUBLA, Inc.(collectively the “Company”).  Allsignificant intercompany transactions and accounts have been eliminated.

 

The Company is engaged in the development, designand marketing of digital amplifier technology and related sales ofsemi-conductor chips.  The Company ispresently focused on computer based audio and entertainment media applicationsderived from its all-digital amplifier design trademarked as Direct DigitalAmplification (DDX®).

 

2.        Pro-forma Information - Stock Options

 

**The Company has adopted the disclosure provisions ofFinancial Accounting Standard No. 123, “Accounting For Stock-BasedCompensation” (FAS 123).  It applies APBOpinion No. 25, “Accounting For Stock Issued To Employees”, and relatedinterpretations in accounting for its plan and does not recognize compensationexpense for its stock-based compensation plan other than for certain optionsgranted in 2001.**

** **

**The following tables illustrate the effect on net(loss)/ income and (loss)/ income per share if the Company had applied the fairvalue recognition provisions of FAS 123 to stock-based employeecompensation.  The net (loss)/ income pershare information shown below has been adjusted for the stock split referred toin Note 5.**

** **

** **

**6**

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** **
| ** **                     | ** **                                                                                                 | **Nine Months Ended** | ** **     |
|--------------------------------|------------------------------------------------------------------------------------------------------------|-----------------------|----------------|
| ** **                     | ** **                                                                                                 | **September 30,**     | ** **     |
| ** **                     | ** **                                                                                                 | **2004**              | ** **     | **2003** | ** ** |
| Net (loss) income, as reported | ** **                                                                                                 | **$**                 | **(1,011,155** | **)** | $ | 427,319 |   |
|                           |                                                                                                       |                  | ** **     |   |   |
| Deduct:                        | Total stock-based employee compensation expense determined under fair  value based method for all awards * |                  | **(3,782,346** | **)** | (1,342,385 | ) |
|                           |                                                                                                       |                  | ** **     |   |   |
| Pro-forma net loss **          | ** **                                                                                                 | **$**                 | **(4,793,501** | **)** | $ | (915,066 | ) |
|                                |                                                                                                            |                       |                |  |  |  |  |  |  |  |

 

 
| ** **                     | ** ** | **Nine Months Ended** | ** ** |     |
|--------------------------------|------------|-----------------------|------------|----------|
| ** **                     | ** ** | **September 30,**     | ** ** |     |
| ** **                     | ** ** | **2004**              | ** ** | **2003** | ** ** |
| (Loss) income per share:       |       |                  |       |     |   |
|                           |       |                  |       |     |   |
| As reported, basic and diluted | ** ** | **$**                 | **(0.09**  | **)**    | $ | 0.04 |   |
|                           |       |                  |       |     |   |
| Pro-forma, basic and diluted   | ** ** | **$**                 | **(0.42**  | **)**    | $ |  (0.8 | ) |
|                                |            |                       |            |          |  |  |  |  |  |

 

 
| ** **                     | ** **                                                                                                 | **Three Months Ended** | ** **     |
|--------------------------------|------------------------------------------------------------------------------------------------------------|------------------------|----------------|
| ** **                     | ** **                                                                                                 | **September 30,**      | ** **     |
| ** **                     | ** **                                                                                                 | **2004**               | ** **     | **2003** | ** ** |
| Net (loss) income, as reported | ** **                                                                                                 | **$**                  | **(322,637**   | **)** | $ | 325,124 |   |
|                           |                                                                                                       |                   | ** **     |   |   |
| Deduct:                        | Total stock-based employee compensation expense determined under fair  value based method for all awards * |                   | **(777,549**   | **)** | (476,480 | ) |
|                           |                                                                                                       |                   | ** **     |   |   |
| Pro-forma net loss **          | ** **                                                                                                 | **$**                  | **(1,100,186** | **)** | $ | (151,356 | ) |
|                           | ** **                                                                                                 | ** **             | ** **     |   |   |
| (Loss) income per share:       |                                                                                                       |                   | ** **     |   |   |
|                           |                                                                                                       |                   | ** **     |   |   |
| As reported, basic and diluted | ** **                                                                                                 | **$**                  | **(0.03**      | **)** | $ | 0.03 |   |
|                           |                                                                                                       |                   | ** **     |   |   |
| Pro-forma, basic and diluted   | ** **                                                                                                 | **$**                  | **(0.10**      | **)** | $ | (0.01 | ) |
|                                |                                                                                                            |                        |                |  |  |  |  |  |

----

**           *******     All awards refers to awards granted, modified, or settled infiscal periods beginning after December 15, 1994 - awards for which the fairvalue was required to be measured under FAS 123.

 

7

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********       **For purposes of pro-forma disclosures, the estimated fair value of theoptions is amortized over the options’ vesting period.  Pro-forma information regarding earnings andper share information is required by FAS 123, and has been determined as if theCompany had accounted for its employee stock options under the fair valuemethod of that Statement.  The fair valueof these options was estimated at the date of grant using a Black-Scholesoption pricing model for years subsequent to 2000.  Prior to 2001, the fair value of the optionswas valued using the minimum value method.

 

**3.        Inventories**

 

Inventories are stated at the lower of cost(first-in, first-out) or market.  Themajor classifications of inventories are as follows at period end:

 
| ** **     | ** ** | **September 30,** | ** **    | **December 31,** | ** ** |
|----------------|------------|-------------------|---------------|------------------|------------|
| ** **     | ** ** | **2004**          | ** **    | **2003**         | ** ** |
| ** **     | ** ** | **(Unaudited)**   | ** **    | ** **       | ** ** |
| Raw materials  | ** ** | **$**             | **24,444**    |             | $          | 31,528 |   |
| Finished goods | ** ** | **1,829,543**     |          | 692,416          |       |
|           |       |              |          |             |       |
| ** **     |       | **$**             | **1,844,987** |             | $          | 723,944 |   |

 

**4.****                         ****Other Intangible Assets**

 

During May 2004, the Company purchased patents andcertain other intangible assets amounting to $100,000.  The Company is currently assessing theallocation of costs and appropriate estimated useful lives of these assets andpatents and as such has not recorded amortization on these assets during thesecond or thirdquarterof 2004.  The Company intends to completethe allocation by year end.

 

The Company, as a result of this purchase, may besubject to segment reporting in future periods.

 

**5.****                         ****Advances**

 

During September 2004, the Company had entered intoa funding agreement with United Binational Industrial Research and Development(“BIRD”) Foundation of Israel.  Thisagreement will provide funds to the Company for industrial research anddevelopment activities.  The agreementwill provide up to a maximum of $560,000 of which the Company will receive$280,000 and another partner in the agreement will receive the remainder.

 

**6.****                         ****Stockholders’ Equity**

 

                                    ***Private Placements***

 

In August 2004, the Company completed a private placement for 374,242shares of common stock at $4.75 per share. Proceeds received were $1,777,650. In addition, the issuance of warrants were approved by the Board ofDirectors, pursuant to which purchasers shall have the right to acquire up to 50%of the number of shares of Common Stock issued as a result of the privateplacement.  Theses warrants areexercisable immediately upon issuance and for a term of five years at anexercise price of $5.70 per share.  Totalwarrants granted during the quarter ended September 30, 2004 aggregated209,578.  Total fees related to thisprivate placement amounted to $161,429, which were charged to stockholders’equity.

 

8

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**                                 *****Stock Options***

 

**During the three months ended**September 30, 2004the Board of Directors awarded options to purchase 51,000 shares at exerciseprices ranging from $5.20 to $8.45, to certain employees.  These options were granted under the 1997Employee, Director and Consultant Stock Option Plan.  These options vest over five years beginningat the first anniversary of the date of grant.

** **

***OtherStock Issuances***

 

During the third quarter of 2004, 21,320 shares of common stock wereissued as a result of exercised stock options at exercise prices ranging from$2.71 to $3.50 per share.

 

**On August 12, 2003, the Board of Directorsauthorized a 2-for-1 split of the Company’s common stock effected in the formof a 100% stock dividend.  The stockdividend was paid on December 11, 2003 to stockholders of record at the closeof business on November 17, 2003.  Nofractional shares of common stock were issued in connection with the stocksplit.  Par value was not changed andadditional paid-in capital was charged for the par value of the shares issued.**

 

             **Stock split**

** **

**All references to the number of common shares andper-share amounts included in the accompanying condensed consolidated financialstatements for**September 30, 2004 and 2003 have been adjusted to reflect thestock split.

 

**7****.         LicenseAgreement**

 

**On February 7, 2001, the Company signed an exclusivelicense agreement with ST Microelectronics NV (“ST”) of the Netherlands.  The agreement called**for ST to use certain intellectual property rightsowned or controlled by the Company to commercialize and sell related productsutilizing such technology.  Inconsideration for this license, ST paid to the Company a one-time license feeof $1.6 million in cash and a $400,000 credit for future design services.  The Company will also receive royalties basedon certain formulas, as defined in the agreement.  This agreement has no expiration date,however, either party may cancel the agreement upon certain advance notices asdefined in the agreement.  The $400,000credit portion of the license fee was associated with future developmentactivities of the Company.  When the$400,000 amount was recognized in income, it was simultaneously charged toresearch and development costs.

** **

**In prior years, the Company recognized $220,000 ofthe credit for future design services. During the quarter ended March 31, 2004, the Company recognized theremaining $180,000 of income and research and development costs.**

** **

**8.        ****Concentrations**

 

**During the quarter and nine months ended September30, 2004, the Company derived approximately 70% and 71% of its total revenueand 73% and 78% of its product revenue from three and four customers,respectively.**

** **

**During the quarter and nine months ended**September 30, 2003,the Company derived approximately 77% and 75% of its total revenue from fiveand four customers, respectively.  Inaddition, the Company derived approximately 95% and 71 % of its product revenuefrom six and three customers, respectively.

** **

**9**

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** **

**Three of the Company’s major customers accounted forapproximately 72% of the total accounts receivable balance at September 30,2004.**

 

Four of the Company’s major customers accountedfor approximately 69% of the total accounts receivable balance at September 30, 2003.

** **

**During the quarter and nine months ended September30, 2004, 50% and 61%, of the total revenue was derived from customers in Asiaand 38% and 29% of total revenue was derived from customers in Europe,respectively.  In addition, 92% and 94%of the product revenues were derived from customers in Asia, respectively.**

** **

**During the quarter and nine months ended September30, 2003, 100% and 86% of the total revenue was derived from customers in Asia,respectively and 99% of the Company’s product sales were to customers in Asia,respectively.**

 

**One of the Company’s major vendors accounted forapproximately 94% of total purchases for the nine months ended September 30,2004.**

** **

One of the Company’s major vendors accounted for approximately 99% oftotal purchases for the nine months ended September 30, 2003.

** **

**The Company maintains accounts with financialinstitutions.  Balances usually exceedthe maximum coverage provided by the Federal Deposit Insurance Corporation oninsured depositor accounts.**

** **

**10**

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** **

 

**ITEM 2****.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**GENERAL**

 

The following Management’s Discussion and Analysis ofthe Company’s Financial Condition and Results of Operations for the three-andnine-month periods ended September 30, 2004 and September 30, 2003 should beread in conjunction with the Company’s Financial Statements and related Notesincluded elsewhere in this Quarterly Report on Form 10-QSB. This discussioncontains, in addition to historical statements, forward-looking statements thatinvolve risks and uncertainties. The Company’s actual results could differsignificantly from the results discussed in the forward-looking statements.Factors that could cause or contribute to such differences include the factorsdiscussed in the section titled “Certain Risk Factors That May Affect FutureResults of Operations And Our Common Stock Price” as well as other factorsdescribed in the Company’s Annual Report on Form 10-KSB for the year endedDecember 31, 2003. The Company does not intend to update any suchforward-looking statements.

 

**OVERVIEW**

 

The Companydesigns, develops and markets silicon based products incorporating proprietarytechnologies.  The Company’s patentedall-digital, high efficiency Direct Digital Amplification (DDX®) technologyIntegrated Circuits (“ICs”) are used in a range of audio applicationsincluding:  home theater systems, poweredspeakers, car audio, commercial audio, and PC multi-media.  The Company is developingnew System-on-Chip (SOC) products using its analog and digital circuit designsand Micro-Electromechanical Systems (MEMS) technology for the consumer,automotive, communications and medical markets. At theappropriate time, the Company will segment the reporting of the MEMS division.** **Under a licensing agreement with STMicroelectronics NV(ST) signed in February 2001, the Company is developing and providingintellectual property to be used in royalty bearing products produced byST.  In addition, the Company is workingunder a development agreement with ST to develop and market new semiconductorproducts that leverage Apogee’s DDX technology and ST’s intellectual propertyand semiconductor design, development and manufacturing capability. ST is currently shipping eighteen royaltybearing DDX-based semiconductor products to customers.  The Company generates revenue from thesale of DDX-based semiconductor chips and related products as well as royaltiesearned under the licensing agreement with ST. The Company has developed and is marketing twenty different DDX-basedsemiconductor products and has additional DDX and non-DDX IC products indevelopment.  The Company has offices inMassachusetts, New York, Hong Kong and Japan.   The Companymarkets its products using a worldwide network of direct sales staff,independent sales representatives and distributors.  The Company incurred a net loss ofapproximately $322,600 and $1 million for the three and nine months endedSeptember 30, 2004, as compared to a net profit of approximately $325,100 and$427,300 for the three and nine months ended September 30, 2003.  As of September 30, 2004, the Company had anaccumulated deficit of approximately $11.4 million, as compared to a deficit ofapproximately $10.4 million at December 31, 2003. Of this accumulated deficit,approximately $4 million was attributable to the Company’s now defunctloudspeaker business, which was discontinued in 1994. The Company’s net lossesand accumulated deficit (since 1995) result primarily from research costs associatedwith the Company’s efforts to develop and market its DDX technology.

 

As of September 30, 2004, the Company had 34employees, up from 29 as of September 30, 2003.

 

During the three-month period ended September 30,2004, the Company derived approximately 70% of its total revenue and 73% of itsproduct revenue from three customers.  The Company utilizes a network of sales representatives anddistributors, as well as sales offices in Hong Kong and Japan, to support theCompany’s worldwide sales and marketing activities.   In April 2004, the Company further expandedits sales organization with the addition of a Country Manager for Japan.  In October 2004 the Company announced the hiringof a Vice President of Marketing and Sales.

 

**SELECTEDCONSOLIDATED FINANCIAL DATA**

 

Thefollowing selected financial data for the three- and nine-month periods endedSeptember 30, 2004 and September 30, 2003 have been derived from the Company’sfinancial statements.  Any trendsreflected by the following table may not be indicative of future results.

 

11

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| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|------------|------------|

 
| ** **                                  | ** ** | **For the Three-Month Period Ended  September 30,** | ** ** | **For the Nine-Month Period Ended  September 30,** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **2004**                                                 | ** ** | **2003**                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Statement of Operations Data:               |       |                                                     |       |                                                    |       |   |   |   |   |
| Revenue                                     |       | $                                                        | 2,083,691  |                                                    | $          | 3,115,031 |   | $ | 6,082,275 |   | $ | 7,987,250 |   |
| Costs and expenses                          |       | (2,411,693                                               | )          | (2,786,371                                              | )          | (7,109,679 | ) | (7,559,399 | ) |
| Other Income (expenses)                     |       | 5,365                                                    |       | (3,536                                                  | )          | 16,249 |   | (532 | ) |
| Net (Loss) Profit                           |       | $                                                        | (322,637   | )                                                       | $          | 325,124 |   | $ | (1,011,155 | ) | $ | 427,319 |   |
|                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Shares Outstanding                          |       | 11,796,332                                               |       | 11,155,750                                              |       | 11,796,332 |   | 11,155,750 |   |
|                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Balance Sheet Data:                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Total Assets                                |       | $                                                        | 8,464,596  |                                                    | $          | 6,381,246 |   | $ | 8,464,596 |   | $ | 6,381,246 |   |
| Stockholders’ equity                   |       | $                                                        | 6,762,523  |                                                    | $          | 4,358,713 |   | $ | 6,762,523 |   | $ | 4,358,713 |   |
| (Loss) Profit per share (basic and diluted) |       | $                                                        | (0.03      | )                                                       | $          | 0.03 |   | $ | (0.09 | ) | $ | 0.04 |   |
|                                             |            |                                                          |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**RESULTS OF CONTINUING OPERATIONS OFTHE COMPANY**

 

The following table sets forth, for the periodsindicated, the percentage of total revenue represented by certain revenue andexpense items.  The table and thediscussion below should be read in conjunction with the consolidated financialstatements and notes thereto that appear elsewhere in this report.

 
| ** **                        | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                        | ** ** | **2004**                                           | ** ** | **2003**                                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| Product Sales                     |       | 54.34                                              | %          | 84.31                                             | %          | 63.55 | % | 85.53 | % |
| Royalties                         |       | 37.92                                              |       | 15.69                                             |       | 26.33 |   | 14.47 |   |
| Consulting                        |       | 7.74                                               |       | 0.00                                              |       | 10.12 |   | 0.00 |   |
|                              |       |                                               |       |                                              |       |   |   |   |   |
| Cost of Sales                     |       | (36.45                                             | )          | (59.66                                            | )          | (41.09 | ) | (59.99 | ) |
| Research and Development          |       | (31.87                                             | )          | (13.93                                            | )          | (32.60 | ) | (14.57 | ) |
| Sales, General and Administrative |       | (47.42                                             | )          | (15.86                                            | )          | (43.21 | ) | (20.09 | ) |
|                              |       |                                               |       |                                              |       |   |   |   |   |
| Operating (Loss) Profit           |       | (15.74                                             | )%         | 10.55                                             | %          | (16.89 | )% | 5.35 | % |
|                              |       |                                               |       |                                              |       |   |   |   |   |
| Other Income (Expense)            |       | 0.26                                               |       | (0.11                                             | )          | 0.27 |   | (0.01 | ) |
| Net (Loss) Profit                 |       | (15.48                                             | )%         | 10.44                                             | %          | (16.62 | )% | 5.34 | % |

 

Revenue

 

**The Company derives its revenue from three sources: (1)product sales, which consist of merchandise sales made either directly to manufacturersor to distributors, (2) royalty revenue, which consists of royalties paid bySTMicroelectronics under the terms of the licensing agreement signed inFebruary 2001 and (3) consulting income related to the development of customICs for STMicroelectronics and other third parties who are developing DDX andnon-DDX based solutions.  Should it bedetermined that segment reporting is required, b**oth revenuerecognized and expenses incurred by the MEMS division will be segmented at theappropriate time.

 

Total revenue decreased by approximately 33% or $1.0million to approximately $2.1 million for the three months ended September 30,2004 from $3.1 million for the three months ended September 30, 2003.  Total revenue decreased by approximately 24%or $1.9 million to approximately $6.1 million for the nine months endedSeptember 30, 2004 from $8.0 million for the same period in 2003.

 

12

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This decrease in revenue was due to reduced sales tothe Company’s largest customers and we are unable to anticipate when there willbe a turnaround in this trend.

 

Revenue from the sale of the Company’s products,consisting of semiconductor IC’s, as well as, DDX evaluation and referenceboards, decreased by approximately 43% or $1.5 million to approximately $1.1million for the three months ended September 30, 2004 from $2.6 million for thethree months ended September 30, 2003 and by approximately 43% or $2.0 millionto $3.9 million for the nine months ended September 30, 2004 as compared to$6.8 million for the same period in 2003. The Company’s revenue was impacted by unexpected weakness in demand fromits key customers due to program development delays and finished goodsinventory buildup.

 

Revenuefrom non-product related items accounted for approximately 46% and 36% of totalrevenue for the three and nine months ended September 30, 2004, respectively,compared to revenue from non-product related items of approximately 16% and 14%of total revenue for the same periods in 2003. During the three months and nine months ended September 30, 2004, theCompany recorded net royalty payments under the ST agreement of approximately$790,200 and $1.6 million, respectively, compared to royalty payments of$488,700 and $1.2 million for the same periods in 2003, representing anincrease of approximately 62% and 39% for the respective periods.  In addition, during the three- and six-monthperiods ended September 30, 2004, the Company recorded consulting revenue ofapproximately $161,300 and $615,800, respectively.  No consulting revenue was recognized duringthe same periods in 2003.

 

Total Revenue for the Three and Nine MonthsEnded September 30, 2004 and 2003 consisted of:

 
| ** **      | ** ** | **For the Three-Month Period Ended  September 30,** | ** ** | **For the Nine-Month Period Ended  September 30,** | ** ** |
|-----------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **      | ** ** | **2004**                                                 | ** ** | **2003**                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Product Revenue |       | $                                                        | 1,132,222  |                                                    | $          | 2,626,292 |   | $ | 3,865,310 |   | $ | 6,831,177 |   |
| Royalties       |       | 790,199                                                  |       | 488,739                                                 |       | 1,601,211 |   | 1,156,073 |   |
| Consulting      |       | 161,270                                                  |       | —                                                  |       | 615,754 |   | — |   |
|            |       |                                                     |       |                                                    |       |   |   |   |   |
| Total:          |       | $                                                        | 2,083,691  |                                                    | $          | 3,115,031 |   | $ | 6,082,275 |   | $ | 7,987,250 |   |
|                 |            |                                                          |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |

 

Costof Revenue

 

**Cost of revenue decreased as aresult of reduced product revenue to $759,500 and $2.5 million for the threeand nine months ended September 30, 2004, respectively, compared to approximately$1.9 million and $4.8 million for the same periods in 2003.  Cost of revenue includes cost of purchasingfinished semiconductor chips as well as customs and storage fees.  For the three and nine months ended  September 30, 2004, the Company recorded agross margin of approximately 33% and 35%, respectively, from product sales,compared to a gross margin of 29% and 30%, respectively, for the same periodsin 2003.  This increase in gross marginis due to the release of new higher margin products and improved pricing fromthe Company’s primary supplier.**

** **

Research and Development (“R&D”) Expenses

 

Research and developmentexpenses consist primarily of salaries and related expenses in the design,development and technical support of the Company’s products as well as directsupport to current and potential customers in the development of consumerproducts utilizing DDX semiconductor products.  Research and development expenses increased toapproximately $664,000 and $2.0 million for the three months and nine monthsended September 30, 2004, compared to approximately $434,000 and $1.2 millionfor the same periods in 2003. This increase of approximately $235,800 or 55.1%and $800,000 or 70.4%, respectively, was related to increased staffing,tooling, design software, use of third party consultants to assist with productdesigns and increased depreciation and amortization.  In addition, for the nine months endedSeptember 30, 2004, $180,000 was incurred as a result of the final utilizationof the $400,000 design credit from ST, offsetting $180,000 of consultingrevenue recognized during the first quarter ended March 31, 2004.  For the three and nine months ended September30, 2004 third party consultants accounted for approximately $61,400 and$294,300 of total research and development costs, up from $9,000 and $14,600for both the same periods in 2003.  Theseconsultants were retained to support key customers as well as supplementalsupport to the Company for future products. Costs related to human resources for R&D increased to approximately$532,700 and $1.5 million from $379,500 and $1.1 million for the three monthsand nine months ended September 30, 2004, an increase of approximately $153,200or 40.4% and $400,000 or 42.3%, respectively.  The overall increase reflects the Company’s expanded research anddevelopment activity as evidenced by the employment of 21 engineers andtechnical support staff as of September 30, 2004, compared to 18 for the periodended September 30, 2003, an increase of three employees, including theaddition of employees resulting from the MEMS acquisition, completed in May2004.  Depreciation and amortizationexpense increased to approximately $49,200 and $138,300 for the three and ninemonths ended September 30, 2004, an

 

13

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increase of $26,800 or 119.7% and $90,000 or 186%,respectively, compared to $22,400 and $48,300 for the same periods in2003.  This increase was primarily due tothe acquisition of equipment and software required for future chipdesigns.  During the nine months endedSeptember 30, 2004, the Company completed and introduced eleven newsemiconductor products with several additional products currently underdevelopment.  The Company continues toinvest in the development of its next generation of DDX, non-DDX ICs as well asthe continuation of support to both existing and potential customers.  With the acquisition of the intellectualproperty of the former Standard MEMS Company in May 2004, the Company is alsodiversifying and broadening its product base. Due to the technical nature of the Company’s products, engineering anddesign support are critical parts of the Company’s strategy during both thedevelopment of its products and the support to its customers from productdesign to final production.  Managementanticipates that it will continue to commit resources to research, developmentand design activities.  It expects theseexpenses to increase, but to decline as a percentage of revenue as revenueincreases.

 

Selling,General and Administrative (“SG&A”) Expenses

 

Sellingexpenses consist primarily of salaries and related expenses for personnelengaged in the marketing and sales of the Company’s products, as well as costsrelated to trade shows, product literature, travel and other promotionalsupport costs. In addition, selling expenses include costs of its Hong Kong andTaiwan sales offices and support of a sales organization in Japan.  General and administrative costs consist primarilyof executive and administrative salaries, professional fees and otherassociated corporate expenses. The increase in SG & A, described below, wasattributable principally to support for the Company’s Hong Kong Office,increased human resource costs including the hiring of a Japan Country Manager,increased royalties paid to third party representatives and increasedprofessional fees.   SG&A expenseswere approximately $988,200 and $2.6 million for the three months and ninemonths ended September 30, 2004, compared to approximately $494,100 and $1.6million for the same periods in 2003, an increase of approximately $494,100 or99.99% and $1.0 million or 63.8%, respectively. Human resource costs increased approximately $31,500 and $168,200 toapproximately $270,500 and $903,500 during the three months and nine monthsended September 30, 2004 compared to $239,000 and $735,300 during the sameperiods in 2003, an increase of 13.2% and 22.88%, respectively.  This increase was primarily due to highercompensation, as well as, an increased staffing both domestically and at theHong Kong office.  Approximately $77,100and $230,100 of the human resource expense for the three and nine months endedSeptember 30, 2004 was related to staffing the Hong Kong Office.  This compared to approximately $63,100 and$181,000 for the same periods in 2003. Commissions and royalty expense on sales increased approximately$381,100 and $660,700 to $419,200 and $805,100 for the three and nine monthsended September 30, 2004, compared to $38,100 and $144,400 for the same periodsin 2003**. **This was due to discounts given to specific customeraccounts.  Professional expensesincreased approximately $58,600 or 99.36% and $20,200 or 65.31% to $117,700 and$304,400 for the three and nine months ended September 30, 2004 compared to$59,100 and $184,200 for the same periods in 2003.  Of this increase approximately $39,600 and$93,400 was due to the addition of a sales consultant in Japan and increasedcosts for the sales associate in Taiwan. The Company expects that selling, general and administrative expenseswill increase in absolute dollars in future periods as the Company expands itssales channels, marketing efforts and administrative infrastructure, but todecline as a percentage of revenue.

 

InterestIncome (Expense)

 

Interestincome, net of expense, includes income from the Company’s cash and cashequivalents and from investments and expenses related to its financingactivities.  During the three and ninemonths ended September 30, 2004, the Company generated net interest income ofapproximately $5,400 and $16,200 compared to net interest expense ofapproximately $3,500 and $500 during the same periods in 2003.  This increase in net interest income for thethree and nine months ended September 30, 2004 was primarily due to interest onincreased cash as of December 31, 2003 and reduced interest due on leasedequipment.

 

Net Profit (Loss)

 

The Company’s net loss for the three months endedSeptember 30, 2004 was approximately $322,600 or $.03 per basic and dilutedcommon share, compared to a net profit of approximately $325,100 or $.06 perbasic and diluted common share for the three months ended September 30,2003.  For the nine months endedSeptember 30, 2004 the Company reported a loss of approximately $1.0 million or$.09 per basic and diluted common share, compared to a net profit ofapproximately $427,300 or $.08 per basic and diluted common share for the ninemonths ended September 30, 2003.

 

**`UIDITY AND CAPITAL RESOURCES**

 

The Company’s principal source of liquidity at September30, 2004 consisted of approximately $2.5 million in cash and short-terminvestments and no debt.  This comparesto approximately $2.5 million in cash and cash equivalents at December 31,2003.  During the three months endedSeptember 30, 2004, the Company completed a $1.8 million privateplacement.  This decrease in cash fromoperations was due to financing inventory, working capital requirements andlower revenues during the period.  Thelower revenue for the period was a result of reduced sales to our largestcustomers and we are unable to anticipate when there will be a turnaround inthis trend.

 

Net cash used in operations during the nine-monthperiod ended September 30, 2004 decreased to approximately $1.7 millioncompared to approximately $1.8 million for the nine-month period endedSeptember 30, 2003.  As of September 30,2004, inventory 

 

14

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was approximately $1.8 million compared to inventoryof approximately $974,000 as of September 30, 2003.  During the third quarter ended September 30,2004 substantial inventory was purchased for inclusion in the X-box speakersystem.  Production and other delaysresulted in the Company not shipping at the anticipated volume levels.  These issues have now been resolved andproduction has begun for this project. Inventory for this project will decrease as production increases in thecoming months.  Net accounts receivablewas approximately $3.3 million at September 30, 2004, down from approximately$4.0 million at September 30, 2003.  Thisdecrease in accounts receivable was due to aggressive collection and reducedshipments of the Company’s semiconductor products.  As of September 30, 2004, three majorcustomers accounted for approximately 72% of the total accounts receivablebalance.  The Company increased itsreserve against bad debts by $5,000 to $60,000 as of September 30, 2004 from$45,000 as of December 31, 2003.  TheCompany believes this reserve is sufficient at this time as a percentage of theCompany’s receivables.

 

Net cash used in investing activities for the ninemonths ended September 30, 2004 was approximately $218,000, compared toapproximately $53,000 for the nine months ended September 30, 2003.  Of the $218,000, $109,000 was associated withthe acquisition of the intellectual property of the former Standard MEMSCompany in May of 2004.

 

Net cash provided by financing activities for the ninemonths ended September 30, 2004 was approximately $1.9 million, compared to$1.8 million provided by financing activities for the nine months endedSeptember 30, 2003.  On August 24,2004 the Company completed a private placement to accredited third partyinvestors under Section 4(2) of the Securities Act and Regulation D, Rule 506, promulgatedthereunder.  In connection with the PrivatePlacement, the Company issued 374,242 shares at a price of $4.75 pershare.  The Company received net proceedsof $1,648,177 from the sale**. **During the three-month period ended September 30,2004, the Company received $58,820 in cash from the exercise of options by oneformer employee and one former director. During the three-month period ended September 30, 2003, the Companyreceived $75,000 net in cash from the exercise of warrants, $26,689 from theexercise of options by three employees and $1 million from a private placementcompleted on September 19, 2003.  TheCompany believes that cash flow from operations and amounts that may be raisedfrom time to time in private offerings of its common stock will be sufficientto support operations and fund capital equipment requirements over the nexttwelve months.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

The Company prepares its consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America.  The preparation of thesefinancial statements requires us to make estimates, judgments and assumptionsthat we believe are reasonable based upon the information currently available.  On an on-going basis, theCompany evaluates its estimates, including those related to uncollectibleaccounts receivable, inventories, intangibles and other long-lived assets.  The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. These estimates and assumptions affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the periodspresented.  Any future changes to theseestimates and assumptions could have a significant impact on the reportedamounts of revenue, expenses, assets and liabilities in our financialstatements.  The significant accountingpolicies which we believe are the most critical to aid in fully understandingand evaluating our reported financial results include the following:

 

Revenue Recognition

 

Apogee recognizes revenue from product sales at the time of shipment,when the sales price is fixed and determinable and collectibility is reasonablyassured.  The Company’s standard termsand conditions of sale do not offer a right of return on product sales.** **Any price adjustment after shipment of goods isrecorded as an offset to revenue.  Forsales transactions, we comply with the provisions of Staff Accounting Bulletin104, Revenue Recognition, which states that revenue should be recognized whenthe following revenue recognition criteria are met:  (1) persuasive evidence of an arrangementexists; (2) the product has been shipped and the customer takes ownership andassumes the risk of loss; (3) the selling price is fixed or determinable; and(4) collection of the resulting receivable is reasonably assured.   In addition, the Company records royaltyrevenue when earned in accordance with the underlying agreements.  Consulting revenue is recognized as servicesare performed.

 

Accounts Receivable

 

The Company performs credit evaluations of customers and determinescredit limits based upon payment history, customers’ creditworthiness and otherfactors, as determined by our review of their current credit information.  For a majority of our larger sales, we canrequire the issuance of a letter of credit. Smaller accounts must either pay via credit card or in advance ofshipment.  We continuously monitorcollections and payments from our customers, and we maintain a provision forestimated credit losses based upon our historical experience and any specificcustomer collection issues that we have identified.  While we have not had any significant creditlosses to date, we cannot guarantee that we will continue to avoid creditlosses in the future.  If the financialcondition of the Company’s customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired.  Since our accounts receivableare highly concentrated in a small number of customers, a significant change inthe liquidity or financial position of any one of these customers could have amaterial adverse impact on the collectibility of our accounts receivable, ourliquidity or our future results of operations.

 

15

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Inventory

 

Apogee states its inventory at the lower of cost (first-in, first-out)or market.  The Company maintainsallowances for estimated excess or obsolete inventories based on the Company’sreview of inventory levels, projected future sales and comparison of actualmanufacturing costs to standard costs. If actual market conditions are lessthan favorable than those projected by management, additional allowances may berequired.

 

Valuation of Long-Lived Assets

 

Property, plant and equipment, patents, trademarks and other intangibleassets are amortized over their estimated useful lives. Useful lives are basedon management’s estimates over the period that such assets will generaterevenue. Intangible assets are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying value of an asset may notbe recoverable. Future adverse changes in market conditions or poor operatingresults of underlying capital investments or intangible assets could result inlosses or an inability to recover the carrying value of such assets, therebypossibly requiring an impairment charge in the future.

** **

**CERTAIN RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OFOPERATIONS AND OUR COMMON STOCK PRICE**

 

There are a number of important factors that could cause our actualresults to differ materially from those indicated or implied by forward-lookingstatements. Factors that could cause or contribute to such differences includethose discussed below, as well as those discussed elsewhere in this Form10-QSB. We disclaim any intention or obligation to update or revise anyforward-looking statements, whether as a result of new information, future eventsor otherwise except as may be required by law.

 

**RISKS RELATED TO OUR BUSINESS**

 

**WE HAVE HAD A HISTORY OF LOSSES AND MAY NOT BE ABLE TO ACHIEVEOR SUSTAIN PROFITABILITY.**

 

As of September 30, 2004, we had anaccumulated deficit of approximately $11.4 million. Of this amount,approximately $4 million was generated by the Company’s former loudspeakersubsidiary, Apogee Acoustics, Inc., which discontinued operations in 1994.  We recorded a loss of approximately $322,600and $1.0 million for the three- and nine-month periods ended September 30,2004.  The Company recorded a net profitof approximately $756,600 for the year ended December 31, 2003, but had netlosses of $1,065,300 in 2002, $895,000 in 2001, $1.9 million in 2000 and $1.1million in 1999.  We will need togenerate revenue to sustain year-to-year profitability and positive cashflow.  Our ability to generate futurerevenue and sustain profitability will depend on a number of factors, many ofwhich are described throughout this risk factor section.  If we are unable to achieve and maintainprofitability, our share price would likely decline.

 

**THE COMPANY HAS ONLY A SMALL NUMBEROF CUSTOMERS, AND THE LOSS OF ANY OF THESE CUSTOMERS WOULD HAVE A MATERIALADVERSE EFFECT ON THE COMPANY’S BUSINESS.**

 

During the nine months ended September 30, 2004, the Company derivedapproximately 71% of its total revenue and 78% of product revenue from fourcustomers.  The loss of any of theCompany’s customers, or a significant decrease in the amount of revenuegenerated from any of these customers, would have a material adverse effect onits business, financial condition and results of operations.  The Company is working to diversify itscustomer base in order to reduce its dependence on a small number ofcustomers.  The Company may not be ableto succeed in these efforts.

 

**OUR BUSINESS IS CONCENTRATED IN ALIMITED NUMBER OF MARKETS AND ANY SIGNIFICANT CHANGE IN THESE MARKETS COULDHAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY’S BUSINESS.**

 

Approximately 61% and 29% of the Company’s total revenue for the ninemonths ended September 30, 2004 were to customers in Asia and Europe,respectively.  In addition, 94% ofproduct revenue was from customers in Asia. A significant percentage of the Company’s product revenue is to manufacturersproducing DVD Receivers.  This is arelatively new consumer electronic product with a limited sales history.  The Company intends to develop new markets inorder to diversify the market applications of its products.

 

**OUR MARKETSARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR SUCCESS DEPENDSON OUR ABILITY TO INTRODUCE NEW PRODUCTS IN A TIMELY FASHION.**

 

The life cycle ofthe technology and any future products developed by us may be limited by theemergence of new products and technologies, changes in consumer preferences andother factors.  Our future performancewill depend on our ability to consistently:

 

 

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•              identifyemerging technological trends in our market

 

•              identifychanging consumer requirements

 

•              developor maintain competitive technology, including new product offerings

 

•                                          improve the performance, features andreliability of our products, particularly in response to technological changeand competitive offerings

 

•              bringtechnology to market quickly at cost-effective prices, and

 

•              protectour intellectual property.

 

We may not succeedin developing and marketing new products that respond totechnological and competitive developments and changing customer needs, or andsuch products may not gain market acceptance and be incorporated into thetechnology or products of third parties. Any significant delay or failure to develop new enhanced technologies,including new product offerings, and any failure of the marketplace to acceptany new technology and product offerings would have a material adverse effecton our business, financial condition and results of operations.

 

**WE MAYREQUIRE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND RESEARCH AND DEVELOPMENT.**

 

We have frequently incurred net losses from operations and may continueto do so in the future.  We have fundedour operating activities to date primarily from the sale of securities.  We will likely require additional capital inthe future, which may be in the form of additional sales of securities.  The additional capital may not be readilyavailable to us on favorable terms, if at all. Any sale of securities would result in dilution to our currentstockholders’ ownership in the Company.

 

**OUR ABILITYTO ACHIEVE SUSTAINED REVENUE GROWTH WILL BE HARMED IF WE ARE UNABLE TO MAINTAINOUR EXISTING LICENSING RELATIONSHIPS.**

 

Part of our business strategy is to expand our licensing activitieswith STMicroelectronics and to enter into licensing relationships with othercompanies in order to offer products to a larger customer base than could bereached through our own development and marketing efforts.  We believe that such relationships canaccelerate market penetration of our products and technologies, while limitingour manufacturing exposure and sales and marketing costs.  However, we may not be able to expand ormaintain our existing licensing relationships or establish new licensingrelationships on commercially reasonable terms, if at all.  Any future inability by us to maintain andexpand our licensing relationships or to enter into additional licensingrelationships, or the failure of one or more of our licensing relationships tocontribute to the development and maintenance of a market for our products,could have a material adverse effect on our business, operating results andfinancial condition.

 

**OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.**

** **

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

 

•                                            availability and pricing from oursuppliers;

 

•                                            changes in the demand for our products bycustomers;

 

•                                            introductions or enhancements ofproducts, or delays in the introductions or enhancements of products, by us orour competitors;

 

•                                            rate and success of new customerdevelopment;

 

•                                            changes in our pricing policies or thoseof our competitors;

 

•                                            success in attracting, retaining andmotivating qualified personnel; and

 

•                                            changes in general economic conditions.

 

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

 

 

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Fluctuations in our operating results may also result in fluctuationsin our common stock price.  In suchevent, the trading price of our common stock would likely suffer and adverselyaffect our ability to raise capital and the value of your investment in theCompany.

 

**IF WE AREUNABLE TO HIRE OR RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO OPERATE OURBUSINESS SUCCESSFULLY.**

 

We may not be successful in recruiting and retaining executive officersand other key management and technical personnel.  The competition for employees with thenecessary high level of technical expertise to design, market and sell ourproducts is intense, particularly in eastern Massachusetts and Asia.  We will need to hire a number of additionaltechnical personnel if we are to increase the rate at which we develop newproducts.  Because competition for highlyskilled technical personnel is so intense, companies in Apogee’s industry aresubject from time to time to complaints brought by competitors alleging interferencewith contractual relations or wrongful hiring of employees.  Such lawsuits may be costly, may divertmanagement attention and resources from the operation of our business, and maytherefore adversely affect our financial condition and results ofoperations.  In addition, the loss of themanagement and technical expertise of our senior management could seriouslyharm us.  Our employees may also berecruited away from us by our competitors. The Company does not have in place employment contracts for some membersof its senior management, including the COO and Vice President of Engineering.

** **

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

 

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

 

•                                            the ability to maintain foundryrelationships, the failure of which could result in significant delays in  product introduction due to the time necessaryto establish new relationships

 

•                                            delays in production or shortages inproduct delivery as a result of production problems at outside contractors

 

•                                             the loss of foundry priority that maylimit our ability to obtain products on schedule,

 

•                                            limited control over product quality thatcould result in product returns and the loss of customers,

 

•                                             inability to control manufacturing yieldthat could increase production costs, thereby reducing sales potential andoperating margins, and

 

•                                            lack of access or control over newprocess and manufacturing technologies to maintain product competitiveness inthe market.

 

**OUR PRODUCTS USE NEW TECHNOLOGYAND MAY HAVE MANUFACTURING DEFECTS OR OTHER CHARACTERISTICS THAT ARE ONLYDETECTED AFTER INSTALLATION IN CUSTOMER APPLICATIONS, WHICH MAY HARM OURBUSINESS.**

 

Our products are based on recently developed technology and aremanufactured using state-of-the-art manufacturing processes.  Our approach to product qualification andtesting may not fully evaluate or identify product characteristics or defectsthat could adversely affect the product’s ability to operate in the intendedapplication.  If such defects orcharacteristics are discovered after installation, product revenue might besignificantly delayed and our ability to maintain existing customers and toretain new customers may be seriously affected.

 

**OUR ABILITYTO ACHIEVE REVENUE GROWTH WILL BE HARMED IF WE ARE UNABLE TO PERSUADE THEMARKET TO ADOPT OUR TECHNOLOGIES.**

 

We face challenges in persuading manufacturers to adopt our productsusing our DDX amplifier technology, our QRX power supply products, and our MEMStechnology.  Traditional amplifiers usedesign approaches developed in the 1930s. These approaches are still used in most amplifiers and engineers arefamiliar with these design approaches. In order to adopt our products, manufacturers and engineers mustunderstand and accept our new technology. In addition, our amplifier, power supply and MEMS technologies may bemore expensive for some applications than traditional technologies.  For these reasons, prospective customers maybe reluctant to adopt our technology.

 

 

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**INTENSECOMPETITION IN THE SEMICONDUCTOR AND CONSUMER AUDIO INDUSTRY COULD PREVENT USFROM ACHIEVING AND SUSTAINING PROFITABILITY.**

 

The semiconductor and consumer audio industry is highly competitive,and we expect the intensity of the competition to increase. Many of ourcompetitors have greater financial, technical, research, marketing, sales,distribution, service and other resources than we do.  Moreover, our competitors may offer broaderproduct lines and have greater name recognition than we do, and may offerdiscounts as a competitive tactic, forcing intense pricing pressure on our semiconductorproducts.  In addition, severaldevelopment stage companies are currently creating or developing technologiesand products that compete with or are being designed to compete with our technologiesand products.  Our competitors maydevelop or market technologies or products that are more effective or morecommercially attractive than our current or future products, or that may renderour technologies or products less competitive or obsolete.  Accordingly, if competitors introduce superiortechnologies or products and we cannot make enhancements to ourtechnologies and products necessary for them to remain competitive, ourcompetitive position, and in turn, our business, revenues and financialcondition, will be seriously harmed.

 

**RISKS RELATED TO OURINTELLECTUAL PROPERTY**

 

**OURINTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY BE INSUFFICIENT TO PROTECT OURCOMPETITIVE POSITION.**

 

Our business depends, in part, on our ability to protect ourintellectual property.  We rely primarilyon patent, copyright, trademark and trade secret laws to protect ourproprietary technologies.  We cannot besure that such measures will provide meaningful protection for our proprietarytechnologies and processes.  We have fourissued United States patents and three pending patent applications.  In addition, we recently acquired a portfolioof MEMS intellectual property and the Company is reviewing this portfolio todetermine which of the acquired rights will be most useful in itsbusiness.  We cannot be sure that anyexisting or future patents will not be challenged, invalidated or circumvented,or that any rights granted thereunder would provide us meaningfulprotection.  The failure of any patentsto provide protection to our technology would make it easier for ourcompetitors to offer similar products.

 

We also generally enter into confidentiality agreements with ouremployees and strategic partners, and generally control access to anddistribution of our documentation and other proprietary information.  Despite these precautions, it may be possiblefor a third party to copy or otherwise obtain and use our products ortechnology without authorization, develop similar technology independently ordesign around our patents.  In addition,effective copyright, trademark and trade secret protection may be unavailableor limited in certain foreign countries in which we operate.

 

**WE MAY BESUBJECT TO INTELLECTUAL PROPERTY RIGHTS DISPUTES WHICH COULD DIVERTMANAGEMENT’S ATTENTION AND COULD BE COSTLY.**

 

The semiconductor and consumer audio industries are characterized byvigorous protection and pursuit of intellectual property rights. From time totime, we may receive notices of claims of infringement, misappropriation ormisuse of other parties’ proprietary rights. We cannot be sure that we willprevail in these actions, or that other actions alleging infringement by us ofthird-party patents, misappropriation or misuse by us of third-party tradesecrets or the invalidity of one or more patents held by us will not be assertedor prosecuted against us, or that any assertions of infringement,misappropriation or misuse or prosecutions seeking to establish the invalidityof our patents will not seriously harm our business.  For example, in a patent or trade secretaction, an injunction could be issued against us requiring that we withdrawparticular products from the market or necessitating that specific productsoffered for sale or under development be redesigned.

 

Irrespective of the validity or successful assertion of various claimsof infringement, misappropriation or misuse of other parties’ proprietaryrights, we would likely incur significant costs and diversion of our managementand personnel resources with respect to the defense of such claims, which couldseriously harm our business.  If anyclaims or actions are asserted against us, we may seek to obtain a licenseunder a third party’s intellectual property rights.  We cannot be sure that under suchcircumstances a license would be available on commercially reasonable terms, ifat all.  Moreover, we often incorporatethe intellectual property of our strategic customers into our designs, and wehave certain obligations with respect to the non-use and non- disclosure ofsuch intellectual property.  We cannot besure that the steps taken by us to prevent our, or our customers’,misappropriation or infringement of the intellectual property will besuccessful.

** **

**RISKS RELATING TO OUR COMMONSTOCK**

 

**FACTORSUNRELATED TO OUR BUSINESS COULD NEGATIVELY IMPACT THE MARKET PRICE OF OURCOMMON STOCK.**

 

The stock markets have experienced extreme price and volume fluctuationsthat have affected and continue to affect the market prices of equitysecurities of many technology companies. These fluctuations often have been unrelated or disproportionate to theoperating

 

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performance of those companies. We expect that the market price of our Common Stock will fluctuate as aresult of variations in our quarterly operating results, or for other reasonsthat are not related to the performance of our business.  These fluctuations may be exaggerated if thetrading volume of our Common Stock is low. In addition, due to the technology-intensive nature of our business, themarket price for our Common Stock may rise and fall in response to variousfactors, including:

 

•                                            announcements of technologicalinnovations or new products, or competitive developments;

 

•                                            investor perceptions and expectationsregarding our or our competitors’ products;

 

•                                            acquisitions or strategic alliances by usor our competitors; and

 

•                                            the gain or loss of a significantcustomer or order.

 

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

 

**ITEM 3****—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company’s financialinstruments include: cash, cash equivalents, accounts receivable and accountspayable.  At June 30, 2004, the carryingvalue of the Company’s cash, cash equivalents, accounts receivable and accountspayable approximate fair values given the short maturity of these instruments.

 

Although the Company’s sales are predominatelyto international markets, the Company believes that it does not have materialforeign currency exchange rate risk since international sales are in U.S.dollars and material purchases from foreign suppliers are typically alsodenominated in U.S. dollars.  Additionally, the functional currency of the Company’s foreign salesoffices is the U.S. dollar.

 

It is the Company’s policy not to enter intoderivative financial instruments for speculative purposes.

 

**ITEM 4****— CONTROLSAND PROCEDURES**

 

(a)          Evaluation ofDisclosure Controls and Procedures.  TheCompany’s chief executive officer and principal financial officer have reviewedand evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in Exchange Act Rules 13d-15 (e) and 15d-15 (e)) as ofthe end of the period covered by this quarterly report.  Based on that evaluation, the chief executiveofficer and principal financial officer have concluded that the Company’scurrent disclosure controls and procedures are adequate and effective to ensurethat material information relating to the Company was made known to them byothers, particularly during the period in which this Quarterly Report on Form10-QSB was being prepared.

 

(b)         Changes inInternal Controls.  There were no changesin our internal control over financial reporting, identified in connection withthe evaluation of such internal control that occurred during our last fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PARTII** - OTHER INFORMATION

 

**ITEM 1****- LEGAL PROCEEDINGS**

 

None.

 

**ITEM 2****- UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

 

On August 24, 2004, theCompany issued 374,242 shares of the Company’s Common Stock and warrants topurchase another 187,123 shares of Common Stock issuable upon the exercise ofwarrants in a private placement completed on August 24, 2004.  Purchase price for these shares was $4.75 pershare with the warrants exercisable at $5.70 per share.  The offering was conducted in a privateplacement pursuant to the exemption from registration provided by Rule 506 ofRegulation D under Section 4(2) of the Securities Act of 1933, as amended.  In connection with this private placement, aForm S-3 Registration Statement was filed with the Securities and ExchangeCommission on September 22, 2004.  Theproceeds from this private placement are being used for working capitalpurposes.

 

 

During the third quarter ended September 30, 2004,21,320 shares of the Company’s Common Stock were issued to one employee and oneformer director a result of the exercise of certain options pursuant to theCompany’s 1997 Employee, Director and Consultant Stock Option Plan (the“Plan”).  The exercise price for theseshares ranged from $2.71 per share to $3.50 per share.

 

 

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Duringthe third quarter ended September 30, 2004, the Company granted options toemployees to purchase, in the aggregate, up to 51,000 shares of the Company’sCommon Stock at exercise prices ranging from $5.20 per share to $8.45 per shareunder the Plan.

 

**ITEM 3****- DEFAULTS UPON SENIORSECURITIES**

 

None.

 

**ITEM 4****- SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5****- OTHER INFORMATION**

 

None.

 

 

**ITEM 6****- EXHIBITS**

 

 

Exhibits:

 
| 31.1   |   | Statement Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Principal Financial  Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                 |
| 32.1   |   | Statement Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Principal Financial  Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. |

 

 

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** **

**SIGNATURES**

 

In accordance with the requirements of the SecuritiesExchange Act of 1934, as amended, the Registrant has caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
| ** **              | ** APOGEE TECHNOLOGY, INC.**                                                                                                               |
|-------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **              | ** **                                                                                                                                      |
| Date: November 15, 2004 | By: /s/Herbert M. Stein                                                                                                                         |
|                    | Name: Herbert M. Stein                                                                                                                          |
|                    | Title: Chairman of the Board, President, Chief  Executive Officer and Treasurer (principal financial officer and principal  accounting officer) |

 

 

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FORM-10QSBSEPTEMBER 30, 2004

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                      |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                |       | Statement Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Principal Financial  Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. |
|                |       |                                                                                                                                                                                                 |
| 32.1                |       | Statement Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Principal Financial  Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. |

 

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