Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****  ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For thequarterly period ended June 30, 2008**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition periodfrom              to              **

 

**Commission file number 001-10456**

 

**APOGEETECHNOLOGY, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

Indicate by check mark whetherthe issuer: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes   x   No   o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large  accelerated filer  o |   | Accelerated  filer  o |   | Non-accelerated  filer  o(Do not check if a  smaller Reporting company) |   | Smaller  reporting company  x |
|----------------------------------|--------|----------------------------|--------|------------------------------------------------------------------------------|--------|------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). o   Yes   x  No

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:  As of August 1, 2008, there were 12,132,332shares of Common Stock, $0.01 par value per share, outstanding.

 

 

 

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**APOGEE TECHNOLOGY, INC.**

 

**INDEX OF INFORMATION CONTAINED IN FORM 10-Q FORTHE**

**PERIODS ENDED JUNE 30, 2008 AND JUNE 30, 2007**

 
| **PART I - FINANCIAL INFORMATION**                                                                                                                      |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                         |   |
| Item 1 - Financial  Statements                                                                                                                               |   |
| Consolidated Balance Sheets at  June 30, 2008 (unaudited) and December 31, 2007 (audited)                                                          | 3      |
| Consolidated Statements of  Operations and Accumulated Deficit for the Three and Six Months Ended  June 30, 2008 and June 30, 2007 (all unaudited) | 4      |
| Consolidated Statements of  Cash Flows for the Six Months Ended June 30, 2008 and June 30, 2007  (all unaudited)                                   | 5      |
|                                                                                                                                                         |   |
| Notes to  Consolidated Financial Statements (all unaudited)                                                                                                  | 6      |
|                                                                                                                                                         |   |
| Item  2 - Management’s Discussion and Analysis of Financial Condition and Results  of Operations                                                        | 16     |
|                                                                                                                                                         |   |
| Item  3 - Quantitive and Qualitative Disclosures about Market Risk                                                                                           | 25     |
|                                                                                                                                                         |   |
| Item  4T - Controls and Procedures                                                                                                                           | 25     |
|                                                                                                                                                         |   |
| **PART II - OTHER  INFORMATION**                                                                                                                        |   |
|                                                                                                                                                         |   |
| Item 1 -  Legal Proceedings                                                                                                                                  | 25     |
|                                                                                                                                                         |   |
| Item 1A - Risk  Factors                                                                                                                                      | 26     |
|                                                                                                                                                         |   |
| Item  2 - Unregistered Sales of Equity Securities and Use of Proceeds                                                                                        | 27     |
|                                                                                                                                                         |   |
| Item  3 - Defaults Upon Senior Securities                                                                                                                    | 27     |
|                                                                                                                                                         |   |
| Item  4 - Submission of Matters to a Vote of Security Holders                                                                                                | 27     |
|                                                                                                                                                         |   |
| Item 5 -  Other Information                                                                                                                                  | 28     |
|                                                                                                                                                         |   |
| Item 6 - Exhibits                                                                                                                                            | 28     |
|                                                                                                                                                         |   |
| Signatures                                                                                                                                                   | 30     |

 

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**PART I****                                                                                                     ****FINANCIAL INFORMATION**

 

**Item 1.****                                                                                                      ****Financial Statements**

 

**APOGEE TECHNOLOGY, INC. AND SUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                             | ** ** | **JUNE 30,** | ** **    | **DECEMBER 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **2008**          | ** **    | **2007**              | ** ** |
| ** **                                                                                                                                                                             | ** ** | **(Unaudited)**   | ** **    | **(Audited)**         | ** ** |
| **ASSETS**                                                                                                                                                                             |       |              |          |                  |       |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Current assets**                                                                                                                                                                     |       |              |          |                  |       |
| Cash and cash equivalents                                                                                                                                                              | ** ** | **$**             | **39,456**    | ** **            | **$**      | **320,524** | ** ** |
| Accounts receivable, net of allowance for  doubtful accounts of $9,377 in 2008 and $10,570 in 2007, respectively                                                                       | ** ** | **—**        | ** **    | **10,536**            | ** ** |
| Inventories, net                                                                                                                                                                       | ** ** | **—**        | ** **    | **—**            | ** ** |
| Prepaid expenses and other current assets                                                                                                                                              | ** ** | **53,578**        | ** **    | **86,763**            | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| Total current assets                                                                                                                                                                   | ** ** | **93,034**        | ** **    | **417,823**           | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Property and equipment, net**                                                                                                                                                        | ** ** | **151,607**       | ** **    | **183,445**           | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Other assets**                                                                                                                                                                       |       |              |          |                  |       |
| Patents                                                                                                                                                                                | ** ** | **325,430**       | ** **    | **269,694**           | ** ** |
| Exclusive licensing, net                                                                                                                                                               | ** ** | **—**        | ** **    | **26,009**            | ** ** |
| ** **                                                                                                                                                                             | ** ** | ** **        | ** **    | ** **            | ** ** |
| ** **                                                                                                                                                                             | ** ** | **$**             | **570,071**   | ** **            | **$**      | **896,971** |   |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIENCY)**                                                                                                                            |       |              |          |                  |       |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Current liabilities**                                                                                                                                                                |       |              |          |                  |       |
| Accounts payable and accrued expenses                                                                                                                                                  | ** ** | **$**             | **1,660,802** | ** **            | **$**      | **745,545** | ** ** |
| Officer and shareholder loans and notes  payable, net                                                                                                                                  | ** ** | **1,203,453**     | ** **    | **400,000**           | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| Total current liabilities                                                                                                                                                              | ** ** | **2,864,255**     | ** **    | **1,145,545**         | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Commitments and Contingencies**                                                                                                                                                      | ** ** | **—**        | ** **    | **—**            | ** ** |
|                                                                                                                                                                                   |       |              |          |                  |       |
| **Stockholders’ equity (deficiency)**                                                                                                                                             |       |              |          |                  |       |
| Preferred stock, par value $0.0001 per  share; 5,000,000 shares authorized, none issued and outstanding                                                                                | ** ** | **—**        | ** **    | **—**            | ** ** |
|                                                                                                                                                                                   | ** ** | ** **        | ** **    | ** **            | ** ** |
| Common stock, $0.01 par value; 40,000,000  shares authorized, 12,132,332 issued and outstanding at June 30, 2008  and 11,968,332 issued and outstanding at December 31, 2007 | ** ** | **121,323**       | ** **    | **119,683**           | ** ** |
|                                                                                                                                                                                   | ** ** | ** **        | ** **    | ** **            | ** ** |
| Additional paid-in capital                                                                                                                                                             | ** ** | **18,705,084**    | ** **    | **18,492,311**        | ** ** |
| Accumulated deficit                                                                                                                                                                    | ** ** | **(21,120,591**   | **)**         | **(18,860,568**       | **)**      |
|                                                                                                                                                                                   |       |              |          |                  |       |
| Total stockholders’ equity (deficiency)                                                                                                                                           | ** ** | **(2,294,184**    | **)**         | **(248,574**          | **)**      |
| ** **                                                                                                                                                                             | ** ** | **$**             | **570,071**   | ** **            | **$**      | **896,971** |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

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**APOGEE TECHNOLOGY, INC. AND SUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(UNAUDITED)**

** **
| ** **                                                          | ** ** | **THREE MONTHS ENDED  June 30,** | ** **      | **SIX MONTHS ENDED  June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------|-----------------|-----------------------------------------------|------------|
| ** **                                                          | ** ** | **2008**                                        | ** **      | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                                                        | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| Product sales                                                       | ** ** | **$**                                           | **—**      | ** **                                    | $          | 64,997 |   | **$** | **21,951** | ** ** | $ | 118,666 |   |
| Royalties                                                           | ** ** | **25,606**                                      | ** **      | —                                        |       | **25,606** | ** ** | — |   |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| ** **                                                          |       | **25,606**                                      | ** **      | 64,997                                        |       | **47,557** | ** ** | 118,666 |   |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Costs and expenses**                                              | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| Product sales                                                       | ** ** | **—**                                      | ** **      | 1,199                                         |       | **696** | ** ** | 1,415 |   |
| Research and development                                            | ** ** | **366,111**                                     | ** **      | 375,245                                       |       | **779,198** | ** ** | 619,505 |   |
| Selling, general and administrative                                 | ** ** | **804,059**                                     | ** **      | 487,979                                       |       | **1,488,390** | ** ** | 1,041,870 |   |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| ** **                                                          |       | **1,170,170**                                   | ** **      | 864,423                                       |       | **2,268,284** | ** ** | 1,662,790 |   |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Operating loss**                                                  | ** ** | **(1,144,564**                                  | **)**           | (799,426                                      | )          | **(2,220,727** | **)** | (1,544,124 | ) |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Other income (expense)**                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| Interest and other expense                                          | ** ** | **(33,463**                                     | **)**           | —                                        |       | **(46,940** | **)** | — |   |
| Interest and other income                                           | ** ** | **6,401**                                       | ** **      | 24,068                                        |       | **7,644** | ** ** | 55,935 |   |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| ** **                                                          |       | **(27,062**                                     | **)**           | 24,068                                        |       | **(39,296** | **)** | 55,935 |   |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Net loss**                                                        | ** ** | **$**                                           | **(1,171,626**  | **)**                                         | $          | (775,358 | ) | **$** | **(2,260,023** | **)** | $ | (1,488,189 | ) |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| Accumulated deficit - beginning                                     | ** ** | **$**                                           | **(19,948,965** | **)**                                         | $          | (16,368,393 | ) | **$** | **(18,860,568** | **)** | $ | (15,655,562 | ) |
|                                                                |       |                                            | ** **      |                                          |       |   | ** ** |   |   |
| **Accumulated deficit - ending**                                    | ** ** | **(21,120,591**                                 | **)**           | (17,143,751                                   | )          | **(21,120,591** | **)** | (17,143,751 | ) |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Basic and diluted loss per common share**                         | ** ** | **$**                                           | **(0.10**       | **)**                                         | $          | (0.06 | ) | **$** | **(0.19** | **)** | $ | (0.12 | ) |
| ** **                                                          | ** ** | ** **                                      | ** **      | ** **                                    |       | ** ** | ** ** | ** ** | ** ** |
| **Weighted average common shares outstanding  - basic and diluted** | ** ** | **12,110,772**                                  | ** **      | 11,968,332                                    |       | **12,039,552** | ** ** | 11,968,332 |   |

 

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

 

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**APOGEE TECHNOLOGY, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                     | ** ** | **SIX MONTHS ENDED JUNE 30,** | ** **     |
|--------------------------------------------------------------------------------|------------|---------------------------------------------------|----------------|
| ** **                                                                     | ** ** | **2008**                                          | ** **     | **2007** | ** ** |
|                                                                           |       |                                              |           |   |   |
| **Cash flows from operations**                                                 |       |                                              |           |   |   |
| Net loss                                                                       | ** ** | **$**                                             | **(2,260,023** | **)** | $ | (1,488,189 | ) |
| *Adjustments to reconcile net loss to net  cash used in operating activities:* |       |                                              | ** **     |   |   |
| * *                                                                       |       |                                              | ** **     |   |   |
| Provision for doubtful accounts                                                | ** ** | **(1,193**                                        | **)**          | (1,925 | ) |
| Provision for slow moving, excess and  obsolete inventory                      | ** ** | **(1,644,316**                                    | **)**          | (106,940 | ) |
| Depreciation and amortization                                                  | ** ** | **43,840**                                        | ** **     | 37,933 |   |
| Stock compensation expense for employees  and directors                        | ** ** | **32,767**                                        | ** **     | 53,708 |   |
| Original issue discount                                                        | ** ** | **12,581**                                        | ** **     | **—** | ** ** |
| Termination of Patent License Fee                                              | ** ** | **22,329**                                        | ** **     | **—** | ** ** |
| *Changes in operating assets and  liabilities:*                                |       |                                              | ** **     |   |   |
| Accounts receivable                                                            | ** ** | **11,729**                                        | ** **     | 2,158 |   |
| Inventories                                                                    | ** ** | **1,644,316**                                     | ** **     | 106,940 |   |
| Prepaid expenses and other current assets                                      | ** ** | **33,184**                                        | ** **     | 36,629 |   |
| Accounts payable and accrued expenses                                          | ** ** | **915,257**                                       | ** **     | (43,658 | ) |
|                                                                           |       |                                              | ** **     |   |   |
| Net cash used in operating activities                                          | ** ** | **(1,189,529**                                    | **)**          | (1,403,344 | ) |
|                                                                           |       |                                              | ** **     |   |   |
| **Cash flows from investing activities**                                       |       |                                              | ** **     |   |   |
| Purchases of property and equipment                                            | ** ** | **(8,322**                                        | **)**          | (27,610 | ) |
| Patent costs                                                                   | ** ** | **(55,736**                                       | **)**          | (69,134 | ) |
| Leasehold improvements                                                         |       | —                                            | ** **     | (2,480 | ) |
| License fee                                                                    |       | —                                            | ** **     | (11,778 | ) |
|                                                                           |       |                                              | ** **     |   |   |
| Net cash provided by investing activities                                      | ** ** | **(64,058**                                       | **)**          | (111,002 | ) |
|                                                                           |       |                                              | ** **     |   |   |
| **Cash flows from financing activities**                                       |       |                                              | ** **     |   |   |
| Proceeds from shareholder loan and notes  payable                              | ** ** | **465,000**                                       | ** **     | — |   |
| Proceeds from officer loan and notes  payable                                  | ** ** | **355,000**                                       | ** **     | — |   |
| Proceeds from sale of equity securities                                        | ** ** | **152,519**                                       | ** **     | — |   |
|                                                                           |       |                                              | ** **     |   |   |
| Net cash provided by financing activities                                      | ** ** | **972,519**                                       | ** **     | — |   |
|                                                                           |       |                                              | ** **     |   |   |
| **Decrease in cash and cash equivalents**                                      | ** ** | **(281,068**                                      | **)**          | (1,514,346 | ) |
|                                                                           |       |                                              | ** **     |   |   |
| Cash and cash equivalents – beginning                                     | ** ** | **320,524**                                       | ** **     | 3,051,420 |   |
|                                                                           |       |                                              | ** **     |   |   |
| **Cash and cash equivalents – ending**                                    | ** ** | **$**                                             | **39,456**     | ** ** | $ | 1,537,074 |   |
|                                                                           |       |                                              | ** **     |   |   |
| **Supplemental Cash Flow Information:**                                        |       |                                              | ** **     |   |   |
| Cash paid for interest                                                         | ** ** | **$**                                             | **5,933**      | ** ** | $ | — |   |
| Warrants issued in conjunction with notes  payable – non-cash             | ** ** | **$**                                             | **29,128**     | ** ** | $ | — |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

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**APOGEETECHNOLOGY, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**JUNE 30, 2008 AND JUNE 30, 2007 (UNAUDITED)**

 

**1.**                                                   **The Company and Basis ofPresentation**

 

***The Company***

 

Apogee Technology, Inc. and Subsidiary (the “Company”or “Apogee”, “we”, “us”, or “our”) designs and develops, with the long-termgoal of commercializing, advanced drug delivery and sensor-based healthmonitoring devices and systems. Our Life Science Group is developing PyraDermTM,an advanced intradermal drug delivery system to meet the needs of patients,health insurers and companies developing pharmaceuticals, as well as,governments and international health organizations. We believe PyraDermTM hasadvantages over competitive approaches for the delivery of vaccines, highpotency therapeutic protein drugs and other pharmaceuticals. We have evaluatedthe feasibility of *PyraDerm* byperforming in vitro tests with model drugs and are in the process of in vivotesting with two leading research organizations to evaluate the advantages of *PyraDerm* in the delivery of Hepatitis B and the Influenzavaccine antigens. We are working to establish pharmaceutical industry compliantmanufacturing methods and to define regulatory strategies to support thecommercialization of *PyraDerm*. If invitro and in vivo evaluation of *PyraDerm* issuccessful, we intend to pursue licensing/development or partnership agreementswith pharmaceutical companies interested in this technology. In August 2007,we announced an expansion of our sensor business to include the development ofIntellaPALTM, an innovative sensor based monitoring system designed to improvethe security, independence and quality of life for the elderly and theirfamilies. *IntellaPAL* will utilize a wirelesssensor module and advanced software processing to continuously measure a rangeof health characteristics and automatically notify responders when specifiedconditions are detected. In addition, the system will provide monitored dataonline so that approved caregivers will be able to assist in the earlyidentification of certain health characteristics. We are also developing andmarketing proprietary Micro-Electromechanical Systems (“MEMS”)-based pressure sensorsfor the medical, automotive, industrial and consumer markets under theSensilica® brand name.  These devices are produced using a novelmanufacturing technology that we believe reduces size and cost while improvingreliability as compared to alternative MEMS sensor designs. We had no materialrevenues for the three and six months ended June 30, 2008.

 

From 1981 until 1995, Apogee Acoustics Incorporated(“Acoustics”) engineered, manufactured, and marketed high quality, patentedribbon loudspeaker systems for use in home audio and video entertainmentsystems. In 1987, Apogee Technology, Inc. was organized as a Delawarecorporation and operated through its wholly-owned subsidiary, Acoustics. Wediscontinued our loudspeaker business in 1994 and utilized our audio experienceon the development of the worlds’ first all-digital, high efficiency audioamplifier integrated circuits (“IC”), which we trademarked as Direct DigitalAmplification, or DDX®. We transitioned our business to take advantage of thepatent we received in 1991 for related technology and to pursue the marketopportunity created by the industry adoption of digital audio transmission,recording and playback. In 1999, we released our first IC products, andsubsequently released a total of over 25 IC products. In addition to our ICproduct sales, we also licensed DDX technology to several IC companies,including STMicroelectronics NV (“ST”), one of the world’s largestsemiconductor companies. Under this licensing agreement with ST, Apogeedeveloped and provided intellectual property to be used in royalty bearingproducts produced by ST.

 

In May 2004, in order to expand our technologybase and to further diversify our product and market opportunities, we acquireda portfolio of MEMS and nanotechnology intellectual property, trade secrets andknow-how developed by Standard MEMS, Inc. MEMS are devices produced usinghigh volume IC manufacturing techniques that include both electrical circuitsand microscopic mechanical systems. Concurrently, we hired employees from theformer Standard MEMS, Inc. and established a MEMS Division that we havesubsequently consolidated into our Norwood headquarters.  Since thisacquisition, we have been using this acquired know-how plus additionaltechnologies to develop MEMS- and nanotechnology-based drug delivery and sensorsystems.

 

On October 5, 2005, we completed a transactionwith SigmaTel, Inc. (“SigmaTel”) whereby we sold certain assets of ouraudio division, including the DDX technology and the associated royalties fromour license agreement with ST, for approximately $9.78 million. As part of thetransition, a significant portion of Apogee’s engineering and marketing staffrelated to the audio division left Apogee after they were offered positions atSigmaTel. We reorganized our remaining MEMS division into two business groups,the Medical Products Group and the Sensor Products Group, subsequently renamedthe Life Science and Health Monitoring Groups. We also closed our sales officesin China, Japan, Taiwan and Hong Kong and terminated our agreements withindependent sales representatives and distributors that supported our audio 

 

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IC business.   On January 15, 2008,we sold the remaining DDX inventory held in our Norwood office to one of ourcustomers, and on January 24, 2008, we sold the remaining DDX inventoryhoused in Hong Kong to one of our former DDX distributors. Total proceedsreceived from the disposition of the DDX inventory were $17,000.

 

***Basis ofPresentation***

 

***ConsolidatedFinancial Statements***

 

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

 

In management’s opinion all adjustments, consistingof normal recurring accruals considered necessary for a fair presentation, havebeen included in the accompanying unaudited financial statements. Operatingresults for the three and six months ended June 30, 2008 are notnecessarily indicative of the results that may be expected for the full yearended December 31, 2008.

 

***Going Concern***

 

The accompanying consolidated financial statementshave been prepared on a going concern basis, which contemplates the realizationof assets and satisfaction of liabilities in the normal course of business. Asshown in the consolidated financial statements, we have incurred continuing lossesand negative cash flows from operations. Net losses were approximately $2.3million and negative cash flows from operations were approximately $1.2 millionfor the six months ended June 30, 2008. Given our net losses and negativecash flows from operations, we will not be able to continue as a going concernwithout raising additional capital.

 

We had approximately $39,000 of cash at June 30,2008 and approximately $59,000 at August 5, 2008, after receiving anadditional $50,000 on July 15, 2008 from David Spiegel, $50,000 fromHerbert M. Stein, on July 22, 2008, $10,000 each from David Meyers andAnnette Jaynes, and on August 5, 2008, $35,000 each from Herbert M. Steinand David Spiegel. We are actively pursuing various options for additionalfunding. During the six months ended June 30, 2008 Herbert M. Stein, ourPresident, Chief Executive Officer and Chairman of the Board of Directors andDavid Spiegel, a major shareholder, loaned Apogee $605,000 and $615,000,respectively. In addition, on April 9, 2008, we received net proceeds of$152,519 from the sale of 164,000 shares of our common stock in a privateplacement. See Footnote 8 – Stockholders’ Equity – Common Stock.

 

The long-term success of Apogee is dependent uponour ability to raise additional funds to continue our operations, tosuccessfully develop and market our technologies and products and to attainprofitable operations. Although we have modified our business strategy toimprove near-term financial performance, there can be no assurance, however,that we will be able to generate sufficient revenue, become profitable or thatadditional funds will be available to us on acceptable terms, if at all. Accordingly,we may be unable to implement current plans. In addition, if sufficient capitalcannot be obtained, Apogee may be forced to significantly reduce operatingexpenses to a point which would be detrimental to business operations, curtailresearch and development activities or take other actions which could bedetrimental to business prospects and result in charges which could be materialto our operations and financial position, or cease operations altogether. Inthe event that any future financing is affected, to the extent it includesequity securities, the holders of the common stock may experience additionaldilution. In the event of a cessation of operations, there may not besufficient assets to fully satisfy all creditors, in which case the holders ofsecurities may be unable to recoup any of their investment.

 

We are in the process of attempting to securesufficient equity financing to continue development of our products. In theinterim, short-term debt financing provided by two of Apogee’s significantshareholders, including our President, Chief Executive Officer and Chairman ofthe Board of Directors, is being utilized to keep development moving forward. Additionally,cost cutting measures, including salary reduction for non-*PyraDerm*employees, diminished pace of sensor development, deferral of capitalexpenditures, and reduced general spending have been instituted until such timeas financing is secured. Due to the early stages of development of our productscandidates, we cannot estimate at this time the amounts of cash that will berequired to bring our products under development to market. It is expected thatsuch costs will be funded not only by external financing, but also throughpartnership activities. Without additional funding we will be unable tocontinue operations.

 

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***Use of Estimatesin Financial Statements***

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates, and such differences could affect theresults of operations reported in future periods and such differences could bematerial.

 

***Liquidity***

 

During the six months ended June 30, 2008, Apogeereceived proceeds from unsecured interest-bearing promissory notes in theamounts of $355,000 from Mr. Herbert M. Stein, President, ChiefExecutive Officer and Chairman of the Board of Directors and $465,000 from Mr. DavidSpiegel, a major shareholder. These promissory notes are payable upon demand,not  subject to any premium or penaltyfor prepayment, bear simple interest of 8% per annum, and are to be repaid in180 days. An additional 4% interest will be charged on any notes exceeding 180days. Associated with the promissory notes are warrants. Each warrant is athree (3)-year warrant with an exercise price of $1.00, and the warrantsrepresent, in the aggregate, an underlying forty-six thousand five hundred(46,500) shares of common stock for Mr. Spiegel,  an underlying thirty-five thousand fivehundred (35,500) shares of common stock for Mr. Stein. These warrants wereissued as added consideration for the notes. These warrants have beendocumented using customary terms and include a cashless or net exerciseprovision for exercise. In addition, on April 9, 2008, we received$164,000 from the sale of 164,000 shares of our Common Stock in a privateplacement. See Footnote 8 – Stockholders’ Equity – Common Stock.

 

Apogee continues to be an operating entity as wecontinue to receive royalty revenue from our former product line.

 

**2.****                       ****Summary of Significant Accounting Policies**

 

***Revenue Recognition***

 

Apogee recognizes revenue in accordance withSecurities and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB104”), “Revenue Recognition in Financial Statements: Revenue Recognition”,which states that revenue should be recognized when the following revenuerecognition criteria are met:  (1) persuasive evidence of anarrangement exists; (2) the product has been shipped and the customertakes ownership and assumes the risk of loss; (3) the selling price isfixed or determinable; and (4) collection of the resulting receivable isreasonably assured. We had no product revenue during the quarter ended June 30,2008. The following policies apply to Apogee’s two major product salescategories for revenue recognition. Sales to end users (“OEM”):  revenueis recognized under our standard terms and conditions of sale, title and riskof loss transfer to the customer at the time products are shipped from ourwarehouse or delivered to the customer’s representative/freight forwarder.Sales to Distributors:  from time to time, we provided stock rotationrights, price protection and other incentives to our Distributors. As a resultof these incentives, Apogee has adopted a policy of deferring recognition ofrevenue until the distributor sells products to its customers based uponreceipt of point-of-sale reports from the distributors. We accrue the estimatedcost of post-sale obligations including product warranty returns, based onhistorical experience. To date we have experienced minimal warranty returns.

 

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

 

In April of 2008, SigmaTel, Inc. agreed topay Apogee a percentage of the royalties it received from STMicroelectronics NV(“ST”) in exchange for supporting their royalty negotiations with ST. As aresult of this agreement, Apogee received approximately $26,000 during thequarter ended June 30, 2008. With the acquisition of SigmaTel by Freescale, Inc.in April 2008, there can be no assurance of future payments under thisarrangement.

 

***Loss Per Share***

 

Basic net loss per share is computed by dividing thenet profit or loss attributable to common stockholders for the period by theweighted average number of common stock outstanding during the period. Dilutednet loss per share is computed based on the weighted average number of commonstock and dilutive potential common stock outstanding. The calculation ofdiluted net loss per share excluded potential common stock if the effect isanti-dilutive. Potential common stock consists of incremental common stockissuable upon the exercise of stock options and common stock issuable upon theexercise of common stock warrants.

 

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***Research and Development***

 

Costs for research anddevelopment are expensed as incurred.

 

***Legal Fees***

 

We record legal costs (such as fees and expenses ofexternal lawyers and other service providers) when incurred or when it isprobable that a liability has been incurred on or before the balance sheet dateand the amount can be reasonably estimated if invoices have not been received. Significantly higher legal fees were incurredduring the quarter ended June 30, 2008 compared to prior periods, in connectionwith the ongoing SEC investigation and our indemnification of our President, ChiefExecutive Officer and Chairman of the Board of Directors.

 

***Contingencies***

 

Apogee is involved in and/or indemnifies others invarious legal proceedings. Management assesses the probability of loss for suchcontingencies and recognizes a liability when a loss is probable and estimable.See Footnote 10 – Indemnification Arrangements with our Executives and Others.

 

***Inventories***

 

Inventories, including inventory held atdistributors, are stated at the lower of cost on a first-in, first-out basis ormarket.****This policy requires us tomake estimates regarding the market value of our inventory, including anassessment of excess or obsolete inventory.

 

On January 15, 2008, we sold the remaining DDXinventory held in our Norwood office to one of our customers and on January 24,2008, we sold the remaining DDX inventory housed in Hong Kong to one of ourformer DDX distributors. Total proceeds received from the disposition of theDDX inventory were $17,000. In addition, we may share in proceeds from thissale of inventory by our former distributor if sales exceed certain limits.

 

***Inventories purchase commitment losses***

 

Apogee accrues for estimated losses onnon-cancelable purchase orders, which may occur if the future sales pricedeclines below the committed purchase price. There are no outstandingsignificant purchase commitments of product inventory, and therefore, noprovision for estimated losses on non-cancellable purchase orders was requiredat June 30, 2008.

 

***Property andEquipment***

 

Major replacements and betterments of equipment arecapitalized. Cost of normal maintenance and repairs is charged to expense asincurred. Depreciation is provided over the estimated useful lives of theassets using accelerated methods.

 

***Leasehold Improvements***

 

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

 

***Patents***

 

Costs incurred to registerand obtain patents are capitalized and amortized on a straight-line basis overfive years, the patent’s estimated useful lives.

 

***Exclusive License Fee***

 

We capitalized license feespaid to third parties for costs associated with the exclusive rights to theirpatents. We were amortizing these fees over a period of four years. During thequarter ended June 30, 2008, Apogee elected to terminate our 2006 licenseagreement with the University of Akron Research Foundation and expensed theremaining license fees. In addition, during the quarter ended June 30,2008, we expensed an additional $30,000, which represented the minimum royaltydue under this terminated license agreement.

 

***Cash and CashEquivalents***

 

We consider all highly liquid investments with anoriginal maturity of three months or less to be cash equivalents.

 

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***Use of Estimatesin Financial Statements***

 

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

 

***AccountsReceivable***

 

We carry our trade receivables from direct customersless an allowance for doubtful accounts to ensure that trade receivables arecarried at net realizable value. On a periodic basis, we evaluate thecollectibility of our accounts receivable on a variety of factors, includinglength of time receivables are past due, indication of customer willingness topay, significant one-time events and historical experience. An additionalreserve for individual accounts is recorded when we become aware of a customer’sinability to meet its financial obligations, such as in the case of bankruptcyfilings or substantial deterioration in the customer’s operating results orfinancial position. If the financial condition of our customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required. Accounts receivable are generally consideredpast due if any portion of the receivable balance is outstanding for more than90 days. If circumstances related to our customers change, estimates of therecoverability of receivables would be further adjusted.

 

***Fair value offinancial instruments***

 

Carrying amounts of certain of our financialinstruments, including cash and cash equivalents, accounts receivable and notesand accounts payable, approximate their fair values due to their relativelyshort maturities and based upon comparable market information available at therespective balance sheet dates. We do not hold or issue financial instrumentsfor trading purposes.

 

***Stock-BasedCompensation***

 

Apogee had a stock-based compensation plan, the 1997Employee, Director and Consultant Stock Option Plan (the “1997 Plan”), which isdescribed below. This 1997 Plan expired as of May 14, 2007. At our AnnualMeeting held on August 28, 2007, the shareholders approved the adoption ofa new stock-based compensation plan, the 2007 Employee, Director and ConsultantStock Plan (the “2007 Plan”). Prior to fiscal 2006, we accounted for thestock-based compensation under the recognition and measurement provisions ofAccounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees”, and related Interpretations, as permitted by FinancialAccounting Standards Board (FASB) Statement of Financial Accounting Standards, “Accountingfor Stock-Based Compensation” (SFAS 123(R)).

 

Effective January 1, 2006, we adopted SFAS123(R) using the modified-prospective-transition method. Under thistransition method, stock compensation costs recognized beginning January 1, 2006include (a) compensation cost for all stock-based compensation paymentsgranted prior to, but not yet vested as of January 1, 2006, based on thegrant date fair value estimated in accordance with the original provisions ofSFAS 123(R), and (b) compensation cost for all stock-based paymentsgranted on or subsequent to January 1, 2006, based on the grant datefair value estimated in accordance with the provisions of SFAS 123(R). Due tothe adoption of SFAS 123(R), included in our net loss for the three and sixmonths ended June 30, 2008, were stock-based compensation charges ofapproximately $15,000 and $33,000, respectively. This compares to approximately$29,000 and $54,000 for the same periods in 2007.

 

***Concentration ofCredit Risk***

 

At June 30, 2008 we had cash balances at afinancial institution not in excess of federally insured limits. We do notbelieve that such balances are subject to unusual credit risk beyond the normalcredit risk associated with commercial banking relationships.

 

***Accounting forStock Compensation***

 

Stock-based compensation costs are generally basedon the fair value calculated from the Black-Scholes option-pricing model on thedate of grant for stock options. The fair values of option grants are amortizedas compensation expense over the option’s vesting period. Compensation expenserecognized is shown in the operating activities section of theconsolidated statements of cash flow.

 

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In anticipation of adopting SFAS 123(R), Apogeeevaluated the assumptions used by it in applying the Black-Scholes model. Wecontinue to calculate the expected stock price volatility based solely onhistorical volatility. We believe that historical volatility provides the bestestimate of future stock price volatility.

 

The expected term of options was previously and iscurrently calculated based on an analysis of vesting periods and contractuallife. Apogee believes that this analysis provides a better estimate of optionterm periods.

 

We estimate the expected life of the option anddetermine a risk-free rate based on U.S. Treasury issues with remaining termssimilar to the expected life of the option. We have never paid cash dividendsand do not currently intend to pay cash dividends. Additionally, we haveestimated an expected term of 7.5 years, expected volatility of approximately100% and risk free interest rate of 3.665% as of June 30, 2008.

 

Pursuant to SFAS 123(R), we are required to estimatepotential forfeitures of stock grants and adjust compensation cost recordedaccordingly. The estimate of forfeitures will be adjusted over the requisiteservice period to the extent that actual forfeitures differ, or are expected todiffer, from such estimates. Changes in estimated forfeitures will berecognized through a cumulative catch-up adjustment in the period of change andwill also impact the amount of stock compensation expense to be recognized infuture periods.

 

Apogee’s stock compensation activity with respect tothe six months ended June 30, 2008 is summarized below:

 
| **Stock Options**                | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at December 31, 2007 |       | 2,938,100  |       | $                                       | 4.5548     |                                                 |       |                            |       |   |
| Granted                               | ** ** | **—** |       |                                    |       |                                                 |       |                            |       |
| Exercised                             | ** ** | **—** |       |                                    |       |                                                 |       |                            |       |
| Cancelled or expired                  | ** ** | **—** |       |                                    |       |                                                 |       |                            |       |
| Outstanding at June 30, 2008     |       | 2,938,100  |       | $                                       | 4.5548     |                                                 | 5.4370     |                            | $          | 5,100 |   |
|                                  |       |       |       |                                    |       |                                                 |       |                            |       |
| Vested at June 30, 2008          |       | 2,521,800  |       | $                                       | 5.1594     |                                                 | 4.9574     |                            | $          | 300 |   |
|                                  |       |       |       |                                    |       |                                                 |       |                            |       |
| Exercisable at June 30, 2008     |       | 2,521,800  |       | $                                       | 5.1594     |                                                 | 4.9574     |                            | $          | 300 |   |

 

The following table summarizes information aboutoptions outstanding as of June 30, 2008:

 
| ** **                      | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | ** **                   | ** ** | **Weighted**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | ** **                   | ** ** | **Average**                  | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                      | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range of Exercise** | ** ** | **Number**                   | ** ** | **Contractual**              | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**                      | ** ** | **Outstanding**              | ** ** | **Term**                     | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
|                            |       |                         |       |                         |       |   |   |   |   |   |   |
| $0.25 — 1.69               |       | 1,039,900                    |       | 7.3083                       |       | $ | 1.0729 |   | 623,600 |   | $ | 1.0729 |   |
| $2.71 — 6.59               |       | 1,299,200                    |       | 3.7637                       |       | $ | 5.4017 |   | 1,299,200 |   | $ | 5.4017 |   |
| $8.45 — 12.15              |       | 599,000                      |       | 5.8174                       |       | $ | 8.8883 |   | 599,000 |   | $ | 8.8883 |   |
|                            |       |                         |       |                         |       |   |   |   |   |   |   |
| Total at June 30, 2008     |       | 2,938,100                    |       | 5.4370                       |       | $ | 5.15949 |   | 2,521,800 |   | $ | 5.1594 |   |

 

During the six months ended June 30, 2008Apogee did not grant any options nor were any options exercised. During the sixmonths ended June 30, 2007, Apogee granted options to purchase 84,000shares of its common stock at a weighted average exercise price of $1.1893. No options were exercised during the six months ended June 30, 2007. During the six months ended June 30, 2008, options to purchase 54,700shares of Apogee common stock vested. ** **The weighted average exerciseprice of these options was $0.8857.  Total stock-based compensationexpense for the three and six months ended June 30, 2008, wasapproximately $15,000 and $33,000, respectively, compared to approximately$29,000 and $54,000, respectively, for the three and six months ended June 30,2007.

 

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***Recent AccountingPronouncements***

 

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

 

**3.****                                                  ****Accounts Receivable**

 

AccountsReceivable at June 30, 2008 and December 31, 2007 are comprised ofthe following:

 
| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ** **                           | ** ** | **(Unaudited)**   | ** ** | **(Audited)**         | ** ** |
| Distributor                          | ** ** | **$**             | **—** | ** **            | $          | 1,650 |   |
| Direct customers                     | ** ** | **9,377**         | ** ** | 19,456                |       |
| ** **                           |       | **$**             | **9,377**  | ** **            | $          | 21,106 |   |
|                                 |       |              | ** ** |                  |       |
| Less allowance for doubtful accounts | ** ** | **$**             | **(9,377** | **)**                 | (10,570    | ) |
|                                 |       |              | ** ** |                  |       |
| Net accounts receivable              | ** ** | **$**             | **—** |                  | $          | 10,536 |   |

 

**4.****                                               ****Property and Equipment**

 

Propertyand equipment at June 30, 2008 and December 31, 2007 are comprised ofthe following:

 
| ** **                    | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                    | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **                    | ** ** | **(Unaudited)**   | ** **  | **(Audited)**         | ** ** |
|                          |       |              |        |                  |       |
| Equipment                     | ** ** | **$**             | **189,780** | ** **            | $          | 181,459 |   |
| Software                      | ** ** | **32,943**        | ** **  | 32,943                |       |
| Furniture and fixtures        | ** ** | **22,047**        | ** **  | 22,047                |       |
| Leasehold improvements        | ** ** | **92,892**        | ** **  | 92,892                |       |
|                          |       |              | ** **  |                  |       |
| ** **                    |       | **$**             | **337,662** | ** **            | $          | 329,341 |   |
|                          |       |              | ** **  |                  |       |
| Less accumulated depreciation | ** ** | **(186,055**      | **)**       | (145,896              | )          |
|                          |       |              | ** **  |                  |       |
| ** **                    |       | **$**             | **151,607** |                  | $          | 183,445 |   |

 

Depreciationexpense was $12,487 and $24,678 for the three and six months ended June 30,2008, respectively, compared to $17,435 and $34,008 for the three and sixmonths ended June 30, 2007, respectively.

 

Theestimated useful lives of the classes of physical assets were as follows:

 
| **Description**        | ** ** | **Depreciable Lives** | ** ** |
|------------------------|------------|----------------------------|------------|
|                   |       |                       |       |
| Equipment              |       | 5 years                    |       |
| Software               |       | 3 years                    |       |
| Furniture and fixtures |       | 7 years                    |       |
| Leasehold improvements |       | Term of lease              |       |

 

**5.**                                                   **Asset Impairment**

 

We recorded an Intangible Asset impairment charge of$40,000 at December 31, 2007 to reflect lower than anticipated revenuesfrom our MEMS sensor product line. This charge is based on estimates bymanagement and was recorded against $100,000 of intangible assets associatedwith MEMS intellectual property acquired in 2004. No additional charges wererecorded for the three and six months ended June 30, 2008.

 

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**6.**                                                   **Accrued Expenses**

 
| ** **             | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **             | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **             | ** ** | **(Unaudited)**   | ** **  | **(Audited)**         | ** ** |
|                   |       |              |        |                  |       |
| Accrued audit expenses | ** ** | **$**             | **60,000**  |                  | $          | 63,000 |   |
| Accrued legal expenses | ** ** | **33,000**        |        | 7,000                 |       |
| Other accrued expenses | ** ** | **41,000**        |        | 19,000                |       |
|                   |       |              |        |                  |       |
| ** **             |       | **$**             | **134,000** |                  | $          | 89,000 |   |

 

**7.**                                                   **Promissory Notes, Loans andWarrants**

 

During the three and six months ended June 30,2008, Apogee received proceeds from unsecured interest-bearing promissory notesin the amounts of  $205,000 and $355,000, respectively, from Mr. HerbertM. Stein, President, Chief Executive Officer and Chairman of the Board ofDirectors and $265,000 and $465,000, respectively, from Mr. David Spiegel,a major shareholder. These promissory notes are payable upon demand, not  subject to any premium or penalty forprepayment, bear simple interest of 8% per annum, and are to be repaid in 180days. An additional 4% interest will be charged on any notes exceeding 180 days.As added consideration for these and previously issued promissory notes,warrants were issued. The values of these warrants were determined by using theBlack Scholes valuation model. The following tables detail the warrants issuedand assumptions used.

 

** **

 
| **David Spiegel**             | ** ** |
|-------------------------------|------------|
| ** **                    | ** ** | ** ** | ** ** | **Stock Price** | ** ** | ** ** | ** ** | ** ** | ** ** | **Risk Free** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Number of** | ** ** | **At Date of** | ** ** | **Term of** | ** ** | **Strike** | ** ** | **Interest** | ** ** | ** ** | ** ** | **Value Per** | ** ** | ** ** | ** ** |
| **Date of Warrant** | ** ** | **Warrants** | ** ** | **Issuance** | ** ** | **Warrant** | ** ** | **Price** | ** ** | **Rate** | ** ** | **Volatility** | ** ** | **Warrant** | ** ** | **Total Value** | ** ** |
|                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| February 21,  2008       |       | 10,000 |   | $ | 0.65 |   | 3 Years |   | $ | 1.00 |   | 2.23 |   | 98.45824 | % | $ | 0.3462 |   | $ | 3,462.00 |   |
| March 20,  2008          |       | 10,000 |   | $ | 0.70 |   | 3 Years |   | $ | 1.00 |   | 1.71 |   | 99.87467 | % | $ | 0.3867 |   | $ | 3,867.00 |   |
| April 1,  2008           |       | 5,000 |   | $ | 0.85 |   | 3 Years |   | $ | 1.00 |   | 1.94 |   | 100.00925 | % | $ | 0.5042 |   | $ | 2,526.00 |   |
| May 15,  2008            |       | 5,000 |   | $ | 0.83 |   | 3 Years |   | $ | 1.00 |   | 2.70 |   | 102.78266 | % | $ | 0.5036 |   | $ | 2,518.00 |   |
| June 16,  2008           |       | 6,500 |   | $ | 0.63 |   | 3 Years |   | $ | 1.00 |   | 3.33 |   | 104.12541 | % | $ | 0.3555 |   | $ | 2,310.75 |   |
| June 18,  2008           |       | 5,000 |   | $ | 0.61 |   | 3 Years |   | $ | 1.00 |   | 3.19 |   | 104.07197 | % | $ | 0.3397 |   | $ | 1,698.50 |   |
| July 15,  2008           |       | 5,000 |   | $ | 0.87 |   | 3 Years |   | $ | 1.00 |   | 2.70 |   | 104.55357 | % | $ | 0.5429 |   | $ | 2,714.50 |   |
| Total                         |       | 46,500 |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 19,096.75 |   |

 

** **

 
| **Herbert M. Stein**          | ** ** |
|-------------------------------|------------|
| ** **                    | ** ** | ** ** | ** ** | **Stock Price** | ** ** | ** ** | ** ** | ** ** | ** ** | **Risk Free** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Number of** | ** ** | **At Date of** | ** ** | **Term of** | ** ** | **Strike** | ** ** | **Interest** | ** ** | ** ** | ** ** | **Value Per** | ** ** | ** ** | ** ** |
| **Date of Warrant** | ** ** | **Warrants** | ** ** | **Issuance** | ** ** | **Warrant** | ** ** | **Price** | ** ** | **Rate** | ** ** | **Volatility** | ** ** | **Warrant** | ** ** | **Total Value** | ** ** |
|                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| February 21,  2008       |       | 10,000 |   | $ | 0.65 |   | 3 Years |   | $ | 1.00 |   | 2.23 |   | 98.45824 | % | $ | 0.3462 |   | $ | 3,462.00 |   |
| March 20,  2008          |       | 5,000 |   | $ | 0.70 |   | 3 Years |   | $ | 1.00 |   | 1.71 |   | 99.87467 | % | $ | 0.3867 |   | $ | 1,933.50 |   |
| April 1,  2008           |       | 5,000 |   | $ | 0.85 |   | 3 Years |   | $ | 1.00 |   | 1.94 |   | 100.00925 | % | $ | 0.5042 |   | $ | 2,526.00 |   |
| May 15,  2008            |       | 5,000 |   | $ | 0.83 |   | 3 Years |   | $ | 1.00 |   | 2.70 |   | 102.78266 | % | $ | 0.5036 |   | $ | 2,518.00 |   |
| June 16,  2008           |       | 3,500 |   | $ | 0.63 |   | 3 Years |   | $ | 1.00 |   | 3.33 |   | 104.12541 | % | $ | 0.3555 |   | $ | 1,244.25 |   |
| June 18,  2008           |       | 4,000 |   | $ | 0.61 |   | 3 Years |   | $ | 1.00 |   | 3.19 |   | 104.07197 | % | $ | 0.3397 |   | $ | 1,358.80 |   |
| July 15,  2008           |       | 3,000 |   | $ | 0.87 |   | 3 Years |   | $ | 1.00 |   | 2.70 |   | 104.55357 | % | $ | 0.5429 |   | $ | 1,628.70 |   |
| Total                         |       | 35,500 |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 14,671.25 |   |

 

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The promissory notes issued to Messrs. Stein and Spiegel on December 11,2007 for an aggregate of $400,000 began incurring a post-maturity rate ofinterest on March 10, 2008 as a result of non-payment at the maturity date.The promissory notes originally were issued with simple interest of 8% per yearand are to be repaid in cash after 90 days. The promissory notes now bearinterest at 12%, the interest after maturity is payable on demand and iscompounded monthly. The effective interest rate is approximately 15%.

 

Through June 30, 2008, Apogee has receivedtotal proceeds from loans and promissory notes of $605,000 and $615,000 from Mr. Steinand Mr. Spiegel, respectively.

 

The following table represents the net payable dueas of June 30, 2008.

 
| ** **                                      | ** ** | **Herbert M. Stein** | ** **  | **David Spiegel** | ** ** | **Total**   | ** ** |
|-------------------------------------------------|------------|--------------------------------|-------------|------------------------|------------|-------------|------------|
| ** **                                      | ** ** | ** **                     | ** **  | ** **             | ** ** | ** **  | ** ** |
| Total proceeds from Loans and Promissory  Notes | ** ** | **$**                          | **605,000** | ** **             | **$**      | **615,000** | ** ** | **$** | **1,220,000** | ** ** |
|                                            | ** ** | ** **                     | ** **  | ** **             | ** ** | ** **  | ** ** |
| Discount                                        | ** ** | **(7,353**                     | **)**       | **(9,194**             | **)**      | **(16,547** | **)**      |
| ** **                                      | ** ** | **$**                          | **597,647** | ** **             | **$**      | **605,806** | ** ** | **$** | **1,203,453** |   |

 

**8.**                                                   **Stockholders’ Equity**

 

***Preferred Stock***

 

At our Annual Meeting heldon August 28, 2007, our shareholders approved an Amendment to the Amendedand Restated Certificate of Incorporation authorizing 5 million shares ofundesignated preferred stock. These shares will have future rights andpreferences to be determined at the sole discretion of our Board of Directors.

 

***Common Stock***

 

At our Annual Meeting heldon August 28, 2007, our shareholders approved an Amendment to the Amendedand Restated Certificate of Incorporation increasing the number of shares ofcommon stock authorized from 20 million to 40 million. On April 9, 2008, Apogee sold 164,000shares of our common stock to accredited investors at a price of $1.00 pershare. The net proceeds to Apogee were $152,519, which we will use for generalworking capital and corporate purposes. The shares of Apogee’s common stockwere issued and sold in a private placement in reliance on an exemption fromregistration provided by Section 4(2) of Securities Act of 133, asamended, and Rule 506 of Regulation D promulgated thereunder**.**Theshares of common stock issued in this private placement were not registeredunder the Securities Act of 1933 and may not be subsequently offered or sold bythe investors in the United States absent registration or an applicableexemption from the registration requirements.

 

***Stock Options***

 

Duringthe three months ended June 30, 2008, no stock options were awarded.During the three months ended June 30, 2007, Apogee awarded certain of itsemployees’ options to purchase 58,000 shares, in the aggregate, at an exerciseprice of $1.15 per share.  These optionswere granted under the 1997 Employee, Director and Consultant Stock OptionPlan. The options granted to these employees vest over five years beginning onthe first anniversary of the date of grant.

 

**9.****                                                  ****Related Party Transactions**

 

In addition to the Promissory Notes, Loans andWarrants described in Footnote 7, we rent our facility from an entitycontrolled by a stockholder for $4,400 per month pursuant to a lease thatexpired December 31, 2005. Currently, we are renting the facility on amonth-to-month basis.

 

**10.**                                            **Indemnification Arrangementswith our Executives and Others**

 

Apogee has been assuming and will continue to assumethe legal costs and related expenses of Herbert M. Stein, in connection withthe civil action styled 

 

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*Joseph Shamy vs. Herbert M. Stein,Case No.: 50 2005 CA 007719 XXXXMB.* In this action**instituted on August 10, 2005 and pending in Palm BeachCourt Circuit Court, Joseph Shamy has sued Herbert M. Stein, President, Chief ExecutiveOfficer and Chairman of the Board of Apogee, for fraud and breach of fiduciaryduty in connection with Shamy’s purchase of Apogee shares in 2003 and2004.  The initial Complaint wasdismissed for failing to adequately allege fraud.  In his Amended Complaint, Shamy alleged thatin or around October 2003, Mr. Stein, in his capacity as President and ChiefExecutive Officer of Apogee, provided Mr. Shamy with misleading financialprojections for Apogee in the form of a spreadsheet which Shamy attached asExhibit A to the Amended Complaint.  Mr.Stein has vigorously denied the allegations of the Complaint, including that heprepared or ever saw the spreadsheet at any time before it was attached to theAmended Complaint.  Mr. Stein has movedfor summary judgment.  We have incurred approximately $634,000 towardthis indemnification through June 30, 2008. Although we are assuming legalcosts and expenses of Herbert M. Stein, we do not believe that it is probablethat a Company asset will be impaired or a liability will be incurred as aresult of the outcome of the legal matter and, as such, the amount of potentialloss cannot be reasonably estimated.

 

An investigation by the SEC, which the Company firstbecame aware of in May 2005, is ongoing. The Company believes that thesubject matter of this investigation is the Company’s prior revenue recognitionpractices that were addressed in the Company’s restatement of itsfinancial statements for the fiscal year ended December 31, 2004. Aspreviously disclosed in our Annual Report on Form 10-KSB for the fiscalyear ended December 31, 2004, as amended, Apogee’s Audit Committee, withthe assistance of independent counsel, conducted an investigation into Apogee’shistorical accounting practices that resulted in the implementation of remedialactions. See our Annual Report on Form 10-KSB for the year ended December 31,2004, as amended, for detail regarding the restatement.

 

In July 2008, Apogee, its Chief ExecutiveOfficer and other employees received notifications from the Staff of theSEC relating to the Staff’s investigation. The notifications, known as “WellsNotices,” stated that the Staff is considering recommending that the Commissionbring enforcement actions against the Company and certain employees, basedon alleged violations of certain provisions of the federal securities laws,including Section 17(a) of the Securities Act of 1933, as amended, Section 10(b) ofthe Securities Exchange Act of 1934, as amended, and Rule 10b-5thereunder, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of theExchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. The WellsNotice sent to the Company indicates that in any action actually broughtagainst the Company, the Staff would seek an injunction against futureviolations of the federal securities laws as relief. We continue to coordinatewith the Staff with respect to their investigation, and seek to comply withrequests as they arise.

 

We do not believe that it is probable that a Companyasset will be impaired or a liability will be incurred as a result of theoutcome of the legal matters and, as such, the amount of potential loss cannotbe reasonably estimated. We have agreed to indemnify certain employees,directors and a former employee in connection with the SEC investigation. As ofJune 30, 2008, we have incurred approximately $425,000 in legal expensesto indemnify these individuals in association with this matter. During thethree and six months ended June 30, 2008, we recorded approximately$341,000 and $415,000, respectively, toward this indemnification and we couldincur significantly larger costs before this matter is resolved. These costsare not being reimbursed under our Directors and Officers Insurance Policy.

 

**11.**                                            **Tax Loss Carryforwards**

 

Thefollowing approximates the net loss carryforwards we have available in thefuture for federal and state tax purposes as of December 31, 2007:

 
| ** **                           | ** ** | **December  31,** | ** **     | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------|----------------|-----------------------|------------|
| ** **                           | ** ** | **2007**                    | ** **     | **2006**              | ** ** |
| **Net operating loss carryforwards** |       |                        |           |                  |       |
| Federal                              | ** ** | **$**                       | **15,500,000** |                  | $          | 12,300,000 |   |
| State                                | ** ** | **$**                       | **9,200,000**  |                  | $          | 6,000,000 |   |

 

Businesscredits available in the future:

 
| ** **                                   | ** ** | **December  31,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------------|-------------|-----------------------|------------|
| ** **                                   | ** ** | **2007**                    | ** **  | **2006**              | ** ** |
| **Business credits available in the future** |       |                        |        |                  |       |
| Federal                                      | ** ** | **$**                       | **980,000** |                  | $          | 910,000 |   |
| State                                        | ** ** | **$**                       | **300,000** |                  | $          | 290,000 |   |

 

Thenet operating loss carryforwards will begin to expire in 2017 for federal taxpurposes and in 2008 for state tax purposes. The federal and state credits willbegin to expire in 2016.

 

Significantchanges in our ownership may substantially reduce the available carryforwardsand related tax benefits.

 

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**12.****                                           ****Notification from theAmerican Stock Exchange**

 

Asreported on our report on Form 8-K dated November 8, 2007, we werenotified by a letter from the American Stock Exchange (AMEX) on November 2,2007 that the period provided to us by AMEX to regain compliance with itscontinued listing requirements had expired without our having regainedcompliance with the relevant continued listing standards. As a result, thestaff of the AMEX notified us of their intent to remove our common stock fromthe AMEX by filing a delisting application with the Securities and ExchangeCommission (the “SEC”) pursuant to Section 1009(d) of the AMEXCompany Guide (the “Company Guide”), and Rule 12d2-2 of the SecuritiesExchange Act of 1934, as amended.

 

On December 12,2007, a hearing with the Listings Qualifications Panel was conducted. Subsequently,we were notified that the Listings Qualification Panel upheld their decision tocease the continue listing of our stock. We immediately began the transitioningprocess to the Over-the-Counter Bulletin Board® and/or the Pink Sheets© LLC.

 

On January 23,2008, we announced that our shares will be quoted on the Over-the-CounterBulletin Board® under the symbol “ATCS”.

 

**13.****                                           ****Subsequent Events –Additional Financings**

 

OnJuly 15, 2008, we issued unsecured interest-bearing promissory notes, inthe aggregate, for $80,000 received on June 30, 2008. We received $50,000from Mr. Spiegel and $30,000 from Mr. Stein. On July 15, 2008,in connection with the promissory notes, we issued two warrants, onerepresenting five thousand shares of Apogee common stock was issued to Mr. Spiegeland one representing three thousand shares of Apogee common stock was issued toMr. Stein, both at an exercise price of $1.00. On July 28, 2008, weissued unsecured interest-bearing promissory notes, in the aggregate, of$120,000. We received $50,000 each from Messrs. Stein and Spiegel and$10,000 each from Mr. David Meyers and Ms. Annette Jaynes. On July 28,2008, two warrants, each representing five thousand shares of Apogee commonstock, were issued to Messrs. Stein and Spiegel at an exercise price of$1.00, and two warrants, each representing one thousand shares 

ofApogee common stock, were issued to Mr. Meyers and Ms. Jaynes at anexercise price of $1.00. The above referenced promissory notes are payable upondemand, not  subject to any premium or penaltyfor prepayment, bear simple interest of 8% per annum, and are to be repaid in180 days. On August 5, 2008, we received $35,000 each from Messrs. Steinand Spiegel. On August 12, 2008, in connection with the promissory notes,we issued two warrants, each representing three thousand five hundred shares ofApogee common stock, to Messrs. Stein and Spiegel at an exercise price of$1.00 as added consideration for the additional $70,000.

 

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

 

**GENERAL**

 

The following Management’s Discussion and Analysisof the Company’s Financial Condition and Results of Operations for thethree-and six-month periods ended June 30, 2008 and June 30, 2007,should be read in conjunction with the Company’s Financial Statements andrelated footnotes included elsewhere in this Quarterly Report on Form 10-Q.This discussion contains, in addition to historical statements, forward-lookingstatements that involve risks and uncertainties. Our actual results coulddiffer significantly from the results discussed in the forward-lookingstatements. Factors that could cause or contribute to such differences includethe factors discussed in the section titled ITEM 1A – RISK FACTORS as wellas other factors described in our Annual Report on Form 10-KSB for theyear ended December 31, 2007.

 

***OVERVIEW***

* *

We aredeveloping proprietary intradermal drug delivery systems for vaccines and otherpharmaceuticals that we intend to market to pharmaceutical and medical devicecompanies. We are also engaged in the development of proprietary sensor, basedhealth monitoring systems for the elderly care and other markets that we intendto manufacture and market to individuals and health organizations. Our twomajor business activities are organized under the Life Science Group and theHealth Monitoring Group. OurLife Science Group is developing PyraDermTM, an advanced intradermal drugdelivery system to meet the needs of patients, health insurers and companiesdeveloping pharmaceuticals, as well as governments and international healthorganizations. We believe PyraDermTM, has advantages over competitive approachesfor the delivery of vaccines, high potency therapeutic protein drugs and otherpharmaceuticals. We have evaluated the feasibility of *PyraDerm*by performing in vitro tests with model drugs and are in the process of in vivotesting with two leading research organizations to evaluate the advantages of *PyraDerm* in the delivery of Hepatitis B and the PandemicInfluenza vaccine antigens. We are working to establish pharmaceutical industrycompliant manufacturing methods and to define regulatory strategies to support *PyraDerm’s* potential commercialization. If in vitro and invivo evaluation of *PyraDerm* issuccessful, we intend to pursue licensing/development or partnership agreementswith pharmaceutical companies interested in this technology. In August 2007,we announced an expansion of our sensor business to include the development of 

 

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*IntellaPAL*TM,an innovative sensor-based monitoring system designed to improve the security,independence and quality of life for the elderly and their families. *IntellaPAL* will utilize a wireless sensor module andadvanced software processing to continuously measure a range of healthcharacteristics and automatically notify responders when specified conditionsare detected. In addition, the system will provide monitored data online sothat approved caregivers will be able to assist in the early identification ofcertain health characteristics.****We are alsodeveloping and marketing proprietary MEMS-based pressure sensors for themedical, automotive, industrial, and consumer markets under the Sensilica®brand name.  These devices are produced using a novel manufacturingtechnology that we believe reduces size and cost while improving reliability ascompared to alternative MEMS sensor designs. We had no material revenues duringthe three and six months ended June 30, 2008.

 

During the three and six months ended June 30,2008, virtually all of our revenue was derived from the sale of the remainingDDX audio IC inventory and of royalty revenue. In April 2008, SigmaTel, Inc.agreed to pay Apogee a percentage of the royalties it received fromSTMicroelectronics NV (“ST”) in exchange for supporting their royaltynegotiations with ST. As a result of this agreement, Apogee receivedapproximately $26,000 during the quarter ended June 30, 2008. With theacquisition of SigmaTel by Freescale, Inc. in April 2008, there canbe no assurance of future payments under this arrangement.

 

We expect that any future revenue will initially bein the form of potential licensing and development revenues resulting from thegrant of rights to our intellectual property. In order to support ouroperations we need to secure additional funding in 2008. Subject to receipt ofsufficient funding, we plan to add a network of direct sales staff, independentsales representatives and distributors to support our medical and sensorproducts. We currently outsource the manufacturing, assembly and certaintesting of our medical, health monitoring and sensor products.

 

At June 30, 2008, we had an accumulated deficitof approximately $21.1 million, as compared to a deficit of $18.9 million as ofDecember 31, 2007.  Our historical net losses and accumulated deficit(since 1995) result primarily from the costs associated with our efforts todesign, develop and market our DDX technology as well as costs associated withour efforts to develop new medical and sensor products.

 

Asof June 30, 2008, we had 14 employees, compared to 13 employees at June 30,2007. An additional employee was hired in research and development. Effectiveas of June 9, 2008, 10 employees transitioned to part-time in an effort toreduce human resource costs.

 

**SELECTED CONSOLIDATED FINANCIAL DATA**

 

Thefollowing selected financial data for the three- and six-month periods ended June 30,2008 and 2007 have been derived from our unaudited financial statements. Anytrends reflected by the following table may not be indicative of futureresults.

 
| ** **                               | ** ** | **For the Three-Month Period  Ended  June 30,** | ** ** | **For the Six-Month Period  Ended  June 30,** | ** ** |
|------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                                            | ** ** | **2007**                                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                               | ** ** | ** **                                                          | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Statement of Operations Data:            |       |                                                                |       |                                                              |       |   |   |   |   |
| Revenue                                  |       | $                                                                   | 25,606     |                                                              | $          | 64,997 |   | $ | 47,557 |   | $ | 118,666 |   |
| Costs and expenses                       |       | (1,170,170                                                          | )          | (864,423                                                          | )          | (2,268,284 | ) | (1,662,790 | ) |
| Other Income (expenses)                  |       | (27,062                                                             | )          | 24,068                                                            |       | (39,296 | ) | 55,935 |   |
| Net Loss                                 |       | $                                                                   | (1,171,626 | )                                                                 | $          | (775,358 | ) | $ | (2,260,023 | ) | $ | (1,488,189 | ) |
|                                     |       |                                                                |       |                                                              |       |   |   |   |   |
| Shares Outstanding                       |       | 12,132,332                                                          |       | 11,968,332                                                        |       | 12,132,332 |   | 11,968,332 |   |
|                                     |       |                                                                |       |                                                              |       |   |   |   |   |
| Total Assets                             |       | $                                                                   | 570,071    |                                                              | $          | 2,093,077 |   | $ | 570,071 |   | $ | 2,093,077 |   |
| Stockholders’ equity (deficiency)   |       | $                                                                   | (2,294,184 | )                                                                 | $          | 1,426,548 |   | $ | (2,294,184 | ) | $ | 1,426,548 |   |
| Loss per share (basic and fully diluted) |       | $                                                                   | (0.10      | )                                                                 | $          | (0.06 | ) | $ | (0.19 | ) | $ | (0.12 | ) |

 

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**RESULTS OF OPERATIONS OF THE COMPANY**

 

**Revenue**

 

We have traditionally derived our revenue from threesources:

 

·                                   product sales, which formerly consisted ofmerchandise sales of our former DDX products made either directly to originalequipment manufacturers or through point of sale (“POS”) by distributors. Duringthe six months ended June 30, 2008, we had product revenues of $21,951,and all remaining merchandise was sold in January 2008. All shipmentsrelated to the January 2008 sales were fulfilled from our contractedwarehouse in Hong Kong or from our Norwood, Massachusetts office and werereported net of returns;

 

·                                   royalty revenue, which formerly consisted ofroyalties paid by STMicroelectronics under a license agreement, for which weretain limited rights following the SigmaTel transaction; and

 

·                                   consulting income related to contractualservices or development activities for third parties. We may, in thefuture, receive royalties under our remaining audio licensing agreements andfrom potential new licensing agreements contemplated under our two new businessgroups. See Footnote 2 to our consolidated financial statements. We anticipatethat any future revenue streams will come from our life science, healthmonitoring and sensor businesses, generally in the form of strategic alliancesor arrangements with development or marketing partners, direct product salesand distribution arrangements, as well as, from licensing and development-relatedrevenues resulting from the grant of rights to our intellectual property. We envision the future of our medical devices as (i) licensing or sellingour technologies to pharmaceutical or medical device companies; (ii) establishingpartnerships with pharmaceutical and medical device companies to commercializeour products; and (iii) developing, producing and marketing our ownproducts. In order to develop and market any products, we will need to raiseadditional funding.

 

We recognized revenue for the three and six monthsended June 30, 2008 of approximately $26,000 and $48,000, respectively, adecrease of approximately $39,000, or 60.6%, and $71,000, or 59.9%, fromapproximately $65,000 and $119,000 for the three and six months ended June 30,2007. On January 15, 2008, we sold the remaining DDX inventory held in ourNorwood office to one of our customers, and on January 24, 2008, we soldthe remaining DDX inventory housed in Hong Kong to one of our former DDXdistributors. Total proceeds received from the disposition of the DDX inventorywere $17,000. In addition, we may share in proceeds from the sale of thisinventory by our former distributor if sales exceed certain limits.

 

In April 2008, SigmaTel, Inc. agreed topay Apogee a percentage of the royalties it received from STMicroelectronics NV(“ST”) in exchange for supporting their royalty negotiations with ST. As aresult of this agreement, Apogee received approximately $26,000 during thequarter ended June 30, 2008. With the acquisition of SigmaTel by Freescale, Inc.in April 2008, there can be no assurance of future payments under thisarrangement.

 

 We anticipatethat we will not generate any material future revenue until such time, if ever,when we are able to generate revenue from our life science, health monitoringand/or sensor products.

 

**Cost of Revenue**

 

Substantially all of the product revenue recorded inthe three and six months ended June 30, 2008 was from products related toour former audio IC business and had previously been fully reserved at 100%. Allof the revenue recorded for the three months ended June 30, 2008 was forroyalties received as a result of the above-referenced arrangement withSigmaTel. Therefore, we did not record any cost of revenue for the three monthsended June 30, 2008. For the six months ended June 30, 2008, werecorded cost of revenue associated with the sale of sensor products of $696. Costof revenue for the three and six months ended June 30, 2007 associatedwith the sale of sensor products was $1,199 and $1,415, respectively.

 

**Operating Expenses**

 

**Researchand Development Costs**

 

Our research and development, or R&D, expensesconsist primarily of salaries, development material costs, and externalconsulting and service costs related to the development and design of newproducts. Research and development expenses decreased by approximately $9,000,or 2%, to approximately $366,000 for the three months ended June 30, 2008,compared to approximately $375,000 for the three months ended June 30,2007. During the six months ended June 30, 2008, R&D expensesincreased by approximately $160,000, or 26%, to approximately $779,000,compared to approximately $619,000 for the six months ended June 30, 2007.

 

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The decrease in the three month comparison was theresult of a reduction in the utilization of third-party consultants as well asa decrease in reference material partially offset by increases in humanresources, travel and amortization expenses. During the three months ended June 30,2008, the cost of utilization of third-party consultants decreased byapproximately $53,000, or 70%, to approximately $22,000, compared toapproximately $75,000 for the three months ended June 30, 2008. During thesix months ended June 30, 2008, the cost of utilization of third-partyconsultants increased by approximately $31,000, or 34%, to approximately$121,000, compared to approximately $90,000 for the six months ended June 30,2007. This increase was directly related to the continued development of ourfirst generation health monitoring products. During the second quarter of 2008,we were forced to curtail further third-party consultant arrangements tosupport our Health Monitoring Group. If we secure additional financing, we willbe in a position to resume in-depth development in this area and retainthird-party consultants where required.

 

For the three and six months ended June 30,2008, human resource costs increased by approximately $22,000, or 10%, and$87,000, or 22%, to approximately $243,000 and $495,000, respectively, comparedto approximately $221,000 and $407,000 for the same periods in 2007. For thethree and six months ended June 30, 2008, approximately $15,000 and$31,000, respectively, compared to approximately $17,000 and $29,000 for thesame periods in 2007, in human resource expense was the result of our adoptionof SFAS 123(R) effective as of January 1, 2006. Effective as of June 9,2008, human resource expense was reduced by 20% for most R&D employees as aresult of transitioning from full time to part time in order to reduceexpenses.

 

Depreciation andamortization expense increased by approximately $55,000, or 297%, and $58,000,or 166%, to approximately $73,000 and $94,000 for the three and six monthsended June 30, 2008, respectively, from approximately $18,000 and $36,000for the same periods in 2007. We had been capitalizing license fees paid tothird parties for costs associated with the exclusive rights to their patents. Wewere amortizing these fees over a period of four years. During the quarterended June 30, 2008, we elected to terminate our 2006 license agreementwith the University of Akron Research Foundation, as we had developed technologyin-house and licensed a more compatible technology. As a result, we expensedthe remaining $22,000 of unamortized license fees under this license agreement.In addition, during the quarter ended June 30, 2008, we expensed anadditional $30,000, which represented the minimum royalty due under thisterminated license agreement.

 

For the three and six months ended June 30,2008, travel and entertainment expenses increased by approximately $6,000, or100%, and $13,000, or 149%, to approximately $11,000 and $22,000, respectively,compared to approximately $5,000 and $9,000 for the same periods in 2007. Thisincrease was primarily the result of our expanded effort in seeking strategicalliances for both our medical and health monitoring technologies. For the threeand six months ended June 30, 2007, we incurred approximately $25,000 inexpense to support in vivo vaccine studies performed by a prominent university.No comparable expense was incurred in the six months ended June 30, 2008. Inaddition, expenses primarily to support our laboratory decreased byapproximately $6,000, or 27%, to approximately $14,000 for the three monthsended June 30, 2008, compared to approximately $20,000 for the same periodin 2007. During the six months ended June 30, 2008, expenses primarily tosupport our laboratory increased by approximately $7,000, or 22%, toapproximately $38,000 compared to approximately $31,000 for the same period in2007. This increase was the result of increased expenses to support thecontinued development and related testing requirement in our medical laboratoryto support our research collaboration with St. June Children’s ResearchHospital and our agreement with Vaccine and Infectious Disease Organization(VIDO). If we are able to secure additional financing, we anticipate that wewill continue to commit resources to research and development activities as ourfinancial position allows, and as a result, R&D costs are expected toincrease substantially in the future.

 

**Selling,General and Administrative Costs**

 

Selling expenses consist primarily of salaries andrelated expenses for personnel engaged in the marketing and selling of ourproducts, as well as costs related to trade shows, product literature, traveland other promotional support costs.  General and Administrative costsconsist primarily of executive and administrative salaries, professional feesand other associated corporate expenses. Selling, General and Administrative,or SG&A, expenses were approximately $804,000 and $1.5 million for thethree and six months ended June 30, 2008, respectively, compared toapproximately $488,000 and $1.0 million for the three and six months ended June 30,2007. This represents an increase of approximately $316,000, or 65%, and$447,000, or 43%, respectively, for the three and six months ended June 30,2008. The increase in SG&A was attributable primarily to increasedprofessional fees in connection with the ongoing SEC investigation and ourindemnification of our President, Chief Executive Officer and Chairman of theBoard of Directors (as described below), partially offset by decreases inannual listing fees as a result of our transitioning of the listing of ourcommon stock from AMEX to OTCBB, stock-based compensation and other operatingexpenses.

 

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Human resources costs decreased by approximately$43,000, or 19%, and $63,000, or 14%, to approximately $183,000 and $396,000for the three and six months ended June 30, 2008, respectively, comparedto approximately $227,000 and $459,000 for the three and six months ended June 30,2007. This decrease in three and six months ended June 30, 2008 was theresult of a 20% reduction in SG&A employee salaries effective as of June 9,2008, as well as reduced stock-based compensation expenses. For the three andsix months ended June 30, 2008, stock compensation expense decreased byapproximately $12,000, or 100%, and $22,500, or 92%, respectively, to $0 and$1,900 for the three and six months ended June 30, 2008, compared toapproximately $12,000 and $24,400 for the same periods in 2007.

 

Professional expenses increased by approximately$381,000, or 229%, and $560,000, or 154%, to approximately $547,000 and$923,000 for the three and six months ended June 30, 2008, compared toapproximately $166,000 and $363,000 for the three and six months ended June 30,2007. For the three and six months ended June 30, 2008, legal expensesincreased by $374,000, or 320%, and $550,000, or 220%, to approximately $491,000 and $800,000, respectively,compared to approximately $117,000 and $250,000 for the same periods in 2007. Legalfees increased as a result of the ongoing SEC investigation, as well as our indemnificationof our President, Chief Executive Officer and Chairman of the Board ofDirectors.

 

An investigation by the SEC, which the Company firstbecame aware of in May 2005, is ongoing. The Company believes that thesubject matter of this investigation is the Company’s prior revenue recognitionpractices that were addressed in the Company’s restatement of itsfinancial statements for the fiscal year ended December 31, 2004. Aspreviously disclosed in our Annual Report on Form 10-KSB for the fiscalyear ended December 31, 2004, as amended, Apogee’s Audit Committee, withthe assistance of independent counsel, conducted an investigation into Apogee’shistorical accounting practices that resulted in the implementation of remedialactions. See our Annual Report on Form 10-KSB for the year ended December 31,2004, as amended, for detail regarding the restatement.

 

In July 2008, Apogee, its Chief ExecutiveOfficer and other employees received notifications from the Staff of theSEC relating to the Staff’s investigation. The notifications, known as “WellsNotices,” stated that the Staff is considering recommending that the Commissionbring enforcement actions against the Company and certain employees, basedon alleged violations of certain provisions of the federal securities laws,including Section 17(a) of the Securities Act of 1933, as amended, Section 10(b) ofthe Securities Exchange Act of 1934, as amended, and Rule 10b-5thereunder, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of theExchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. The WellsNotice sent to the Company indicates that in any action actually broughtagainst the Company, the Staff would seek an injunction against futureviolations of the federal securities laws as relief. We continue to coordinatewith the Staff with respect to their investigation, and seek to comply withrequests as they arise.

 

We do not believe that it is probable that a Companyasset will be impaired or a liability will be incurred as a result of theoutcome of the legal matters and, as such, the amount of potential loss cannotbe reasonably estimated. We have agreed to indemnify certain employees,directors and a former employee in connection with the SEC investigation. As ofJune 30, 2008, we have incurred approximately $425,000 in legal expensesto indemnify these individuals in association with this matter. During thethree and six months ended June 30, 2008, we recorded approximately$342,000 and $415,000, respectively, toward this indemnification and we could incursignificantly larger costs before this matter is resolved. 

 

Accounting fees increased by approximately $22,000and $19,000 to approximately $23,000 and $45,000 for the three and six monthsended June 30, 2008, respectively, compared to approximately $1,000 and$27,000 for the same periods in 2007. See “Risk Factors—Risks Related to OurBusiness”. In addition, legal fees associated with the indemnification costs inconnection with the civil action styled *Joseph Shamy vs. HerbertM. Stein, Case No.: 50 2005 CA 007719 XXXXMB.* In this action**instituted on August 10, 2005 and pending in Palm BeachCourt Circuit Court, Joseph Shamy has sued Herbert M. Stein, President, ChiefExecutive Officer and Chairman of the Board of Apogee, for fraud and breach offiduciary duty in connection with Shamy’s purchase of Apogee shares in 2003 and2004.  The initial Complaint wasdismissed for failing to adequately allege fraud.  In his Amended Complaint, Shamy alleged thatin or around October 2003, Mr. Stein, in his capacity as President and ChiefExecutive Officer of Apogee, provided Mr. Shamy with misleading financialprojections for Apogee in the form of a spreadsheet which Shamy attached asExhibit A to the Amended Complaint.  Mr.Stein has vigorously denied the allegations of the Complaint, including that heprepared or ever saw the spreadsheet at any time before it was attached to theAmended Complaint.  Mr. Stein has movedfor summary judgment. These costs were approximately $13,000 and $75,000 forthe three and six months ended June 30, 2008 compared to approximately$69,000 and $122,000 for the three and six months ended June 30, 2007. Todate, we have paid $634,000 towards the indemnification of Mr. Stein. See Footnote 10 to the consolidatedfinancial statements—Indemnification Arrangements with our Executives andOthers. We are not receiving reimbursement under our Director and Officerinsurance policy for neither the indemnification of Mr. Stein,nor the ongoing investigation by the SEC.

 

Investor relations expense increased byapproximately $10,000, or 76%, and $27,000, or 92%, to approximately $24,000and $56,000 for the three and six months ended June 30, 2008, compared toapproximately $14,000 and $29,000 for the three and six months ended June 30,2007. This increase was due to our continued efforts to increase awarenessamong the financial and investing community of our scientific and corporatedevelopments. This expense was partially offset by a decrease consultingexpenses related to the Sarbanes-Oxley Act of 2002 by approximately $26,000, or100%, and $37,000, or 98%.

 

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Since we had completed the major implementation phaseof our Sarbanes-Oxley testing requirements, we did not incur anySarbanes-Oxley-related expenses for the three and six months ended June 30,2008, compared to approximately $25,200 and $38,100 for the same periods in2007. As a result of the transition of the listing of our common stock fromAMEX to the OTCBB, our annual listing fees were reduced by approximately$19,000, or 82%, to approximately $4,000 for the six months ended June 30,2008, compared to approximately $23,000 for the six months ended June 30,2007. For the three months ended June 30, 2008, listing fees increased byapproximately $200, or 17%, to approximately $1,500 from approximately $1,300for the same period in 2007.

 

In addition, nominal reductions in travel andentertainment, office, communications, corporate insurance and maintenanceexpenses were partially offset by increases in shareholder-related expenses asa result of the utilization of consultants in our efforts to secure additionalfunding and utilities expenses.

 

Operatingexpenses are expected to increase over the next few quarters, if our financialposition allows, to support our Health Monitoring and Life Science Groups.

 

**Interest Income (Expense)**

 

Interest income includes income from Apogee’s cashand cash equivalents and from investments and expenses related to its financingactivities. During the three and six months ended June 30, 2008, wegenerated interest income of approximately $80 and $780 compared to interestincome of approximately $24,000 and $55,000 during the same periods in 2007.This decrease in interest income for the three and six months ended June 30,2008 was primarily due to reduced cash balances.

 

Interest expense resulting from the issuance ofpromissory notes to Mr. Herbert M. Stein and Mr. David Spiegel wasapproximately $33,000 and $47,000 for the three and six months ended June 30,2008. No interest expense was incurred for the three and six months ended June 30,2007.

 

**Net Loss**

 

Apogee’s net loss for the three months ended June 30,2008 was approximately $1.2 million, or $0.10 per basic and diluted commonshare, compared to a net loss of approximately $775,200, or $0.06 per basic anddiluted common share, for the three months ended June 30, 2007  For the six months ended June 30, 2008,we reported a loss of approximately $2.3 million, or $0.19 per basic anddiluted common share, compared to a net loss of approximately $1.5 million, or$0.12 per basic and diluted common share, for the six months ended June 30,2007. This increase in our net loss was primarily the result of increased legalfees as a result of the ongoing SEC investigation, as well as the indemnificationof our President, Chief Executive Officer and Chairman of the Board ofDirectors and increased consulting expenses in our efforts to secure additionalfunding and increased human resource costs in R&D.

 

**LIQUIDITY AND CAPITAL RESOURCES**

** **

The tables below summarize our outstanding unsecured interest-bearing promissorynotes.

** **
| **Herbert  M. Stein**    | ** ** |
|--------------------------|------------|
| **Date of**         | ** ** | ** ** | ** ** | **Maturity** | ** ** | **Initial** | ** ** | **Current** | ** ** |
| **Promissory Note** | ** ** | **Amount** | ** ** | **Date** | ** ** | **Interest Rate** | ** ** | **Interest Rate** | ** ** |
|                     |       |   |   |   |   |   |   |   |   |
| December 11, 2007   |       | $ | 250,000 |   | March 10,  2008 |   | 8.00 | % | 12.00 | % |
| February 21, 2008   |       | 100,000 |   | August 19,  2008 |   | 8.00 | % | 8.00 | % |
| March 20, 2008      |       | 50,000 |   | September 16,  2008 |   | 8.00 | % | 8.00 | % |
| April 1, 2008       |       | 50,000 |   | September 28,  2008 |   | 8.00 | % | 8.00 | % |
| May 15, 2008        |       | 50,000 |   | November 11,  2008 |   | 8.00 | % | 8.00 | % |
| June 16, 2008       |       | 35,000 |   | December 13,  2008 |   | 8.00 | % | 8.00 | % |
| June 18, 2008       |       | 40,000 |   | December 15,  2008 |   | 8.00 | % | 8.00 | % |
| July 15, 2008       |       | 30,000 |   | January 11,  2009 |   | 8.00 | % | 8.00 | % |
| July 28, 2008       |       | 50,000 |   | January 24,  2009 |   | 8.00 | % | 8.00 | % |
| August 12, 2008     |       | 35,000 |   | February 8,  2009 |   | 8.00 | % | 8.00 | % |
|                     |       | $ | 690,000 |   |   |   |   |   |   |   |

 

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| **David Spiegel**   | ** ** |
|--------------------------|------------|
| **Date of**         | ** ** | ** ** | ** ** | **Maturity** | ** ** | **Initial** | ** ** | **Current** | ** ** |
| **Promissory Note** | ** ** | **Amount** | ** ** | **Date** | ** ** | **Interest Rate** | ** ** | **Interest Rate** | ** ** |
|                     |       |   |   |   |   |   |   |   |   |
| December 11, 2007   |       | $ | 150,000 |   | March 10,  2008 |   | 8.00 | % | 12.00 | % |
| February 21, 2008   |       | 100,000 |   | August 19,  2008 |   | 8.00 | % | 8.00 | % |
| March 20, 2008      |       | 100,000 |   | September 16,  2008 |   | 8.00 | % | 8.00 | % |
| April 1, 2008       |       | 50,000 |   | September 28,  2008 |   | 8.00 | % | 8.00 | % |
| May 15, 2008        |       | 50,000 |   | November 11,  2008 |   | 8.00 | % | 8.00 | % |
| June 16, 2008       |       | 65,000 |   | December 13,  2008 |   | 8.00 | % | 8.00 | % |
| June 18, 2008       |       | 50,000 |   | December 15,  2008 |   | 8.00 | % | 8.00 | % |
| July 15, 2008       |       | 50,000 |   | January 11,  2009 |   | 8.00 | % | 8.00 | % |
| July 28, 2008       |       | 50,000 |   | January 24,  2009 |   | 8.00 | % | 8.00 | % |
| August 12, 2008     |       | 35,000 |   | February 9,  2009 |   | 8.00 | % | 8.00 | % |
|                     |       | $ | 700,000 |   |   |   |   |   |   |   |
|                          |            |  |  |  |  |  |  |  |  |  |  |

 
| **David Meyers and** | ** ** |
|--------------------------------|------------|
| **Annette Jaynes**        | ** ** |
| **Date of**               | ** ** | ** ** | ** ** | **Maturity** | ** ** | **Initial** | ** ** | **Current** | ** ** |
| **Promissory Note**       | ** ** | **Amount** | ** ** | **Date** | ** ** | **Interest Rate** | ** ** | **Interest Rate** | ** ** |
|                           |       |   |   |   |   |   |   |   |   |
| July 28, 2008             |       | $ | 10,000 |   | January 24,  2009 |   | 8.00 | % | 8.00 | % |
| July 28, 2008             |       | $ | 10,000 |   | January 24,  2009 |   | 8.00 | % | 8.00 | % |

 

Our principal source of liquidity at June 30, 2008 consisted ofapproximately $39,000 in cash and cash equivalents with a working capitaldeficit of approximately $2.8 million. We consider all highly liquid investments with an original maturity ofthree months or less to be cash equivalents.  This compares to approximately $321,000 in cash and cash equivalents asof December 31, 2007. In addition, as of December 31, 2007, we had aworking capital deficit of approximately $728,000.  During the three and six months ended June 30,2008, we received proceeds from loans and unsecured interest-bearing promissorynotes totaling $265,000 and $465,000, respectively, from David Spiegel, a majorshareholder, and totaling $205,000 and $355,000, respectively, from Herbert M.Stein, President, Chief Executive Officer and Chairman of the Board ofDirectors.  These promissory notes arepayable upon demand and were not subject to any premium or penalty forprepayment. The loan interest rate is 8% per annum, payable monthly in arrearson the outstanding balance.  Anadditional 4% interest will be charged on any notes exceeding 180 days.  In addition, on April 9, 2008, Apogee sold164,000 shares of our common stock to accredited investors at a price of $1.00per share.  The aggregate net proceeds toApogee, after fees and expenses, were $152,519, which we will use for generalworking capital and corporate purposes.  The shares of Apogee’s common stock were issued and sold in a privateplacement in reliance on an exemption from registration provided by Section 4(2) ofSecurities Act of 133, as amended, and Rule 506 of Regulation Dpromulgated thereunder**. **The shares of the common stock issued in this private placement have notbeen registered under the Securities Act of 1933 and may not be subsequentlyoffered or sold by the investors in the United States absent registration or anapplicable exemption from the registration requirements.  As of June 30, 2007, we hadworking capital of approximately $914,000.

 

Net cash used in operatingactivities for the six-month period ended June 30, 2008 decreased toapproximately $1.2 million compared to approximately $1.4 million in the six-monthperiod ended June 30, 2007. As of March 31, 2008, we sold theremaining DDX inventory for a total of $17,000 and offset the remainingreserves for slow moving, excess and obsolete 

 

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inventory.  As of June 30, 2008, our net accountsreceivable were approximately $10,000 with an offset allowance of approximately$10,000.  As of June 30, 2007, ournet accounts receivable were approximately $10,900 with a reserve against baddebt of approximately $11,300.

 

Net cash used in investingactivities for the six months ended June 30, 2008 was approximately$64,000, compared to approximately $111,000 for the six months ended June 30,2007.  We purchased additional equipmentfor our laboratory as well as supported our existing patent applications, allof which related to our Life Science Group.

 

Net cash provided byfinancing activities was $984,000 for the six months ended June 30,2008.  This compares to no cash providedby financing activities for the six months ended June 30, 2007.  During the six-month period ended June 30,2008, we received the proceeds from unsecured interest bearing promissory notestotaling $465,000 from David Spiegel, a major shareholder and $355,000 fromHerbert M. Stein, President, Chief Executive Officer and Chairman of the Boardof Directors.  These loans arepayable upon demand and are not subject to any premium or penalty forprepayment. The loan interest rate is 8% per annum, payable monthly inarrears on the outstanding balance.  See Footnote 7 of the consolidated financials statements - PromissoryNotes, Loans and Warrants.****In addition, on April 9, 2008, Apogee sold 164,000 shares ofour common stock to accredited investors at a price of $1.00 per share.  The aggregate gross proceeds to Apogee,before fees and expenses, were $164,000. We must raise additional capital to continue operations.

 

Apogee is in the processof attempting to secure sufficient financing to continue operations. In theinterim, short-term debt financing provided by two of Apogee’s significantshareholders, including our President, Chief Executive Officer and Chairman ofthe Board of Directors, is being utilized to keep product development movingforward.  Due to the early stages ofdevelopment of our products candidates, we cannot estimate at this time theamounts of cash that will be required to bring our products under developmentto market.  It is expected that suchcosts will be funded not only by external financing, but also throughpartnership activities.  Additionally,cost cutting measures, including salary reduction for non-*PyraDerm*employees, diminished pace of sensor development, deferral of capital expenditures,and reduced general spending have been instituted until such time as equityfinancing is secured.  We do not expectany significant changes in the number of employees until funding has beensecured.  Management remains confidentthat we will raise sufficient capital in the near-term to fund operations forat least the next twelve months.  If,however, we are unable to generate or obtain financing, we may be required tofurther curtail our operations, including a reduction in the number of employees,or cease conducting business.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Apogee prepares itsconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America. The preparation of thesefinancial statements requires us to make estimates, judgments and assumptionsthat we believe are reasonable based upon the information currently available.These estimates and assumptions affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the periods presented. 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 accounting policies which we believe are the mostcritical to aid in fully understanding and evaluating our reported financialresults include the following:

 

**Revenue Recognition**

 

Apogee recognizes revenue inaccordance with Securities and Exchange Commission Staff Accounting Bulletin “104”,or SAB “104”**,**“Revenue Recognition in Financial Statements: Revenue Recognition”,which states that revenue should be recognized when the following revenuerecognition criteria are met:  (1) persuasive evidence of anarrangement exists; (2) the product has been shipped and the customertakes ownership and assumes the risk of loss; (3) the selling price isfixed or determinable; and (4) collection of the resulting receivable isreasonably assured.  We had no productrevenue during the quarter ended June 30, 2008.  The following policies apply to Apogee’s twomajor product sales categories for revenue recognition. Sales to end users,OEM:  revenue is recognized under our standard terms and conditions ofsale, title and risk of loss transfer to the customer at the time products areshipped from our warehouse or delivered to the customer’srepresentative/freight forwarder. Sales to Distributors:  from time totime we provide stock rotation rights, price protection and other incentives toour Distributors. See Footnote 2 of the consolidated financials statements. Asa result of these incentives, Apogee has adopted a policy of deferringrecognition of revenue until the distributor sells products to its customersbased upon receipt of point-of-sale reports from the distributors. We accruethe estimated cost of post-sale obligations including product warranty returns,based on historical experience. To date, we have experienced minimal warrantyreturns.

 

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In addition, we recordroyalty revenue when earned in accordance with the underlying agreements. Consultingand licensing revenue is recognized as services are performed.

 

**Accounts Receivable**

 

Apogee performs creditevaluations of customers and determines credit limits based upon paymenthistory, customers’ creditworthiness and other factors, as determined by ourreview of their current credit information. For a majority of our larger sales,we can require the issuance of a Letter of Credit. Smaller accounts must eitherpay via credit card or in advance of shipment. 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 anysignificant credit losses to date, we cannot guarantee that we will continue toavoid credit losses in the future. If the financial condition of our customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required. Since our accountsreceivable are highly concentrated in a small number of customers, asignificant change in the liquidity or financial position of any one of thesecustomers could have a material adverse impact on our ability to collect ouraccounts receivable, our liquidity or our future results of operations.

 

**Inventory**

 

Inventories are stated atthe lower of cost on a first-in, first-out basis or market. This policyrequires Apogee to make estimates regarding the market value of our inventory,including an assessment of excess or obsolete inventory. On January 15,2008, we sold the remaining DDX inventory held in our Norwood office to one ofour customers, and on January 24, 2008, we also sold the remaining DDXinventory housed in Hong Kong to one of our former DDX distributors.  Total proceeds received from the dispositionof the DDX inventory were $17,000.  Inaddition, we may share in proceeds from the sale of this inventory by our formerdistributor if sales amounts exceed certain limits.

 

**Valuation of Long-Lived Assets**

 

Property, plant andequipment, patents, trademarks and other intangible assets are amortized overtheir estimated useful lives. Useful lives are based on management’s estimatesover the period that such assets will generate revenue. Intangible assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying value of an asset may not be recoverable. In 2007, welowered the value of certain intangible assets due to less than expected salesto date in our sensor business.  Futureadverse changes in market conditions or poor operating results of underlyingcapital investments or intangible assets could result in losses or an inabilityto recover the carrying value of such assets, thereby possibly requiring an impairmentcharge in the future.

 

**Stock-Based Compensation**

 

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

 

Effective January 1, 2006,we adopted SFAS 123(R) using the modified-prospective-transition method.Under this transition method, stock compensation costs recognized beginning January 1, 2006include (a) compensation cost for all stock-based compensation paymentsgranted prior to, but not yet vested as of January 1, 2006, based on thegrant date fair value estimated in accordance with the original provisions ofSFAS 123(R), and (b) compensation cost for all stock-based paymentsgranted on or subsequent to January 1, 2006, based on the grant datefair value estimated in accordance with the provisions of SFAS 123(R).  Due to the adoption of SFAS 123(R), included inour net loss for the three and six months ended June 30, 2008 werestock-based compensation charges of approximately $15,000 and $33,000,respectively.  This compares tostock-based compensation charges of approximately $29,000 and $54,000 for thethree and six months ended June 30, 2007.

 

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**Legal Fees**

 

We record legalcosts (such as fees and expenses of external lawyers and other serviceproviders) when incurred or when it is probable that a liability has beenincurred on or before the balance sheet date and the amount can be reasonablyestimated if invoices have not been received. Significantlyhigher legal fees were incurred during the quarter ended June 30, 2008,compared to prior periods, in connection with the ongoing SEC investigation andour indemnification of our President, Chief Executive Officer and Chairman ofthe Board of Directors.

 

**Contingencies**

 

Apogee is involvedin and/or indemnifies others in various legal proceedings.  Management assesses the probability of lossfor such contingencies and recognizes a liability when a loss is probable andestimable.  See Footnote 10 –Indemnification Arrangements with our Executives and Others.

 

**Off-Balance Sheet Arrangements**

 

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

 

**ITEM 3 – QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Our financial instruments include: cash, cashequivalents, accounts receivable and accounts payable.  At June 30, 2008 the carrying value ofour cash, cash equivalents, accounts receivable and accounts payableapproximated fair values given the short maturity of these instruments.

 

We believe that our financial instruments do notcarry material foreign currencyexchange rate risk because any products that we may sell outside the UnitedStates will be paid for in U.S. dollars, and material purchases from foreignsuppliers are typically also denominated in U.S. dollars.

 

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

 

**ITEM 4T – CONTROLS AND PROCEDURES**

 

(a)    Evaluation of Disclosure Controls andProcedures. The Company’s management, with the participation of the Company’sChief Executive Officer and Chief Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended, or the Exchange Act) as of the end of the periodcovered by this report.  Based on thisevaluation, the Company’s Chief Executive Officer and Chief Financial Officerconcluded that, as of the end of such period, the disclosure controls andprocedures were effective in providing reasonable assurance that theinformation required to be disclosed in our Securities and Exchange Commissionreports (i) is recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules andforms, and (ii) is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

 

(b)    Changes in Internal Controls. There have notbeen any changes in the Company’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal quarter to which this report relates that havematerially affected, or are reasonably likely to materially affect the Company’sinternal control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

**ITEM 1 – LEGAL PROCEEDINGS**

 

From time to time, we may bea party to various legal proceedings arising in the ordinary course of ourbusiness.  If and when these proceedings arise, we are committed tovigorously defending the Company in any such legal actions.

 

An investigation by the SEC,which the Company first became aware of in May 2005, is ongoing. The Companybelieves that the subject matter of this investigation is the Company’s priorrevenue recognition practices that were addressed in the Company’srestatement of its financial statements for the fiscal year ended December 31,2004. As previously disclosed in our Annual Report on Form 10-KSB for thefiscal year ended December 31, 2004, as amended, Apogee’s Audit Committee,with the assistance of independent counsel, conducted an investigation intoApogee’s historical accounting practices that 

 

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resulted in theimplementation of remedial actions. See our Annual Report on Form 10-KSBfor the year ended December 31, 2004, as amended, for detail regarding therestatement.

 

In July 2008, Apogee,its Chief Executive Officer and other employees receivednotifications from the Staff of the SEC relating to the Staff’s investigation.The notifications, known as “Wells Notices,” stated that the Staff isconsidering recommending that the Commission bring enforcement actions againstthe Company and certain employees, based on alleged violations of certainprovisions of the federal securities laws, including Section 17(a) ofthe Securities Act of 1933, as amended, Section 10(b) of theSecurities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder,Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20,13a-1 and 13a-13 thereunder. The Wells Notice sent to the Company indicatesthat in any action actually brought against the Company, the Staff would seekan injunction against future violations of the federal securities laws asrelief. We continue to coordinate with the Staff with respect to their investigation,and seek to comply with requests as they arise.

 

In an action styled *Joseph Shamy vs. Herbert M. Stein*, Case No.:  50 2005 CA 007719 XXXXMB, instituted onAugust 10, 2005 and pending in Palm Beach Court Circuit Court, Joseph Shamy hassued Herbert M. Stein, President, Chief Executive Officer and Chairman of theBoard of Apogee, for fraud and breach of fiduciary duty in connection withShamy’s purchase of Apogee shares in 2003 and 2004.  The initial Complaint was dismissed forfailing to adequately allege fraud.  Inhis Amended Complaint, Shamy alleged that in or around October 2003, Mr. Stein,in his capacity as President and Chief Executive Officer of Apogee, providedMr. Shamy with misleading financial projections for Apogee in the form of a spreadsheetwhich Shamy attached as Exhibit A to the Amended Complaint.  Mr. Stein has vigorously denied theallegations of the Complaint, including that he prepared or ever saw thespreadsheet at any time before it was attached to the Amended Complaint.  Mr. Stein has moved for summary judgment. 

 

**ITEM 1A – RISK FACTORS**

 

There are a number ofimportant factors that could cause our actual results to differ materially fromthose indicated or implied by forward-looking statements. We disclaim anyintention or obligation to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise, except asmay be required by law.

 

Aside from those risksdiscussed below, there have been no material changes to the risk factorsincluded in our Annual Report on Form-KSB for the fiscal year ended December 31,2007.

 

**RISKSRELATED TO OUR BUSINESS**

 

**WE REQUIRE ADDITONAL CAPITAL TO CONTINUEOPERATIONS AND HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.**

 

As of June 30, 2008, we had cash and cash equivalents of $39,456,a stockholders’ deficiency of approximately $2.3 million, an accumulateddeficit of approximately $21.1 million and a working capital deficit ofapproximately $2.8 million.  Wehad a net loss of approximately $1.2 million and $2.3 million for the three andsix months ended June 30, 2008. In the fiscal year ended December 31,2007, we recorded a net loss of approximately $3.2 million.

 

We have substantial debt and interest obligations.  As of July 15, 2008, we had $1,270,000in promissory notes outstanding to a large shareholder and our President, ChiefExecutive Officer and Chairman of the Board of Directors.  These promissory notes generally bearinterest at 8% and are of short duration. The original December 11, 2007 promissory notes ($400,000) beganincurring a post-maturity rate of interest of 12%, compounded monthly, on March 10,2008 as a result of non-payment at the maturity date.

 

We have large unpaid balances with professional service providers.  We anticipate significant future legalexpenses resulting from our indemnification arrangements with our employees,officers and directors. The ongoing investigation by the SEC and theindemnification of Mr. Stein in connection with the *Joseph Shamyvs. Herbert M. Stein, case No.:50 2005 CA 007719 XXXXMB*, matter haveresulted in substantial unplanned expenses that we are required to absorb andthese expenses are expected to continue. Presently, none of the items for which we have an indemnificationresponsibility are receiving reimbursement from the insurance carrier of ourDirector and Officer insurance policy. We need to obtain financing or generate revenue to continueoperations.  See Footnote 10 of theconsolidated financials statements – Indemnification Arrangements with ourExecutives and Others.

 

Ourrequirements for additional capital and our ability to generate future revenuedepend on a number of factors, many of which are described in the Risk FactorsSection, of our Annual Report on Form 10-KSB for the fiscal year ended December 31,2007, including our ability to develop and generate revenues from the sales ofour sensor and medical device products, which are at a very early stage ofdevelopment. We cannot assure you when, if ever, we will generate meaningfulrevenues from the sales of these products under development.

 

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Apogeeis in the process of attempting to secure sufficient financing to continueoperations.  In the interim, short-termdebt financing provided by two of the Apogee’s significant shareholders,including our President, Chief Executive Officer and Chairman of the Board ofDirectors, is being utilized to keep product development moving forward.  Additionally, cost cutting measures,including salary reduction for non-*PyraDerm*employees, diminished pace of sensor development, deferral of capitalexpenditures, and reduced general spending have been instituted until such timeas equity financing is secured.  If we are unable to obtain financing, we maybe required to further curtail our operations or cease conducting business.

 

**SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

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

 

·              anticipatedfinancing activities;

 

·              anticipatedstrategic alliances or arrangements with development or marketing partners;

 

·              anticipatedresearch and product development results;

 

·              projecteddevelopment and commercialization timelines;

 

·              descriptionsof plans or objectives of management for future operations, products orservices;

 

·              forecastsof future economic performance; and

 

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

 

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

 

Although we believe that theexpectations reflected in the forward-looking statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievements. Moreover, we do not assume responsibility for the accuracy andcompleteness of such statements. We do not intend to update any of theforward-looking statements after the date of this report to conform suchstatements to actual results except as required by law. Given theseuncertainties, you should not place undue reliance on these forward-lookingstatements, which speak only as of the date of this report. You shouldcarefully consider that information before you make an investment decision. Youshould review carefully the risks and uncertainties identified in this reportand in the Company’s Annual Report on Form 10-KSB for the year ended December 31,2007.

 

**ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS**

 

During the period ended June 30, 2008, our unregistered sales ofequity securities were reported on Current Reports on Form 8-K.

 

**ITEM 3 – DEFAULTS UPON SENIOR SECURITIES**

 

The promissory notes issued to Messrs. Stein and Spiegel on December 11,2007 for an aggregate of $400,000 began incurring a post-maturity rate ofinterest on March 10, 2008 as a result of non-payment at the maturitydate.  The promissory notes originallywere issued with simple interest of 8% per year and were to be repaid in cashafter 90 days.  The promissory notes nowbear interest at 12%, the interest after maturity is payable on demand and iscompounded monthly.

 

**ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

TheAnnual Meeting of shareholders of the Company was held on May 15,2008.  The following matters were votedupon:

 

(1)           Mr. Craig A.Dubitsky and Mr. Alan W. Tuck were elected by a plurality of the sharesentitled to vote at the meeting to serve as directors of the Company to holdoffice until the annual meeting in 2011. This proposal was approved with 7,546,509 votes for the proposal, 39,684votes against the proposal and no abstentions.

 

(2)           The shareholdersratified the appointment of Miller Wachman LLP as the registered independentpublic accounting firm for the 

 

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Company for the fiscal year ending December 31, 2008.  This proposal was approved with 7,557,702votes for the proposal, 26,891 votes against the proposal, 600 abstentions andno broker non-votes.

 

Following the annual meeting, the Company’s Board of Directors consistsof Mr. Craig A. Dubitsky, Mr. Arthur S. Reynolds, Mr. Herbert M.Stein, Ms. Sheryl B. Stein and Mr. Alan W. Tuck.

 

**ITEM 5 – OTHER INFORMATION**

 

The promissory notes issued to Messrs. Stein and Spiegel on December 11,2007 for an aggregate of $400,000 began incurring a post-maturity rate ofinterest on March 10, 2008 as a result of non-payment at the maturitydate.  The promissory notes originallywere issued with simple interest of 8% per year and were to be repaid in cashafter 90 days.  The promissory notes nowbear interest at 12%, the interest after maturity is payable on demand and iscompounded monthly.

 

**ITEM 6 – EXHIBITS**

 

(a)     Exhibits:

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                      |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                                                                 |
|        |       |                                                                                                                                                                                            |
| 10.1+       |       | Promissory Note dated as of April 1, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, April 2, 2008.) |
| 10.2+       |       | Promissory Note dated as of April 1, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, April 2, 2008.)    |
| 10.3+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, April 2, 2008.)                                                                                             |
| 10.4+       |       | Promissory Note dated as of May 15, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, May 15, 2008.)   |
| 10.5+       |       | Promissory Note dated as of May 15, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, May 15, 2008.)      |
| 10.6+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, May 15, 2008.)                                                                                              |
| 10.7+       |       | Promissory Note dated as of June 16, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, June 18, 2008.) |
| 10.8+       |       | Promissory Note dated as of June 16, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, June 18, 2008.)    |
| 10.9+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, June 18, 2008.)                                                                                             |
| 10.10+      |       | Promissory Note dated as of June 18, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, June 19, 2008.) |
| 10.11+      |       | Promissory Note dated as of June 18, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, June 19, 2008.)    |
| 10.12+      |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, June 19, 2008.)                                                                                             |
| 10.13+      |       | Promissory Note dated as of July 15, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, July 17, 2008.) |
| 10.14+      |       | Promissory Note dated as of July 15, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, July 17, 2008.)    |
| 10.15+      |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, July 17, 2008.)                                                                                             |

 

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| 10.16+ |   | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17+ |   | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.)    |
| 10.18+ |   | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and Annette Jaynes. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.)   |
| 10.19+ |   | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and David Meyers. (Previously filed on a Current Report  on Form 8-K, July 30, 2008.)     |
| 10.20+ |   | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, July 30, 2008.)                                                                                             |
| 10.21+ |   | Promissory Note dated as of August 12, 2008, 2008 by and between  Apogee Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, August 13, 2008.)         |
| 10.22+ |   | Promissory Note dated as of August 12, 2008, 2008 by and between  Apogee Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, August 13, 2008.)      |
| 10.23+ |   | Form of Warrant. (Previously filed on a Current Report on Form 8-K,  August 13, 2008.                                                                                                           |
| 31.1   |   | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 by Chief Executive Officer.                                                                                       |
| 31.2   |   | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 by Chief Financial Officer.                                                                                       |
| 32     |   | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 by Chief Executive Officer and Chief Financial Officer.                                                           |

 

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+  Previously filed as indicated.

 

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**SIGNATURES**

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, asamended, the registrant has caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| ** **                  |   |   | **APOGEE TECHNOLOGY, INC.**                               |
|-----------------------------|--------|--------|----------------------------------------------------------------|
|                        |   |   |                                                           |
| Date: August  14, 2008 |   |   | By:                                                            | /s/        Herbert M. Stein |
|                        |   |   | Name: Herbert M. Stein                                         |
|                        |   |   | Title: Chairman of the Board,                                  |
|                        |   |   | President, Chief Executive Officer                             |
|                        |   |   | (principal executive officer)                                  |
|                        |   |   |                                                           |
|                        |   |   |                                                           |
| ** **                  |   |   | **APOGEE TECHNOLOGY, INC.**                               |
|                        |   |   |                                                           |
| Date: August 14, 2008  |   |   | By:                                                            | /s/        Paul J. Murphy |
|                        |   |   | Name: Paul J. Murphy                                           |
|                        |   |   | Title: Chief Financial Officer and Vice President of Finance   |
|                        |   |   | (principal financial officer and principal accounting officer) |

 

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EXHIBITINDEX

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                      |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                                                                 |
| 10.1+       |       | Promissory Note dated as of April 1, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, April 2, 2008.) |
| 10.2+       |       | Promissory Note dated as of April 1, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, April 2, 2008.)    |
| 10.3+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, April 2, 2008.)                                                                                             |
| 10.4+       |       | Promissory Note dated as of May 15, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, May 15, 2008.)   |
| 10.5+       |       | Promissory Note dated as of May 15, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, May 15, 2008.)      |
| 10.6+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, May 15, 2008.)                                                                                              |
| 10.7+       |       | Promissory Note dated as of June 16, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, June 18, 2008.) |
| 10.8+       |       | Promissory Note dated as of June 16, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, June 18, 2008.)    |
| 10.9+       |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, June 18, 2008.)                                                                                             |
| 10.10+      |       | Promissory Note dated as of June 18, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, June 19, 2008.) |
| 10.11+      |       | Promissory Note dated as of June 18, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, June 19, 2008.)    |
| 10.12+      |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, June 19, 2008.)                                                                                             |
| 10.13+      |       | Promissory Note dated as of July 15, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, July 17, 2008.) |
| 10.14+      |       | Promissory Note dated as of July 15, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, July 17, 2008.)    |
| 10.15+      |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, July 17, 2008.)                                                                                             |
| 10.16+      |       | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.) |
| 10.17+      |       | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.)    |
| 10.18+      |       | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and Annette Jaynes. (Previously filed on a Current  Report on Form 8-K, July 30, 2008.)   |
| 10.19+      |       | Promissory Note dated as of July 28, 2008 by and between Apogee  Technology, Inc. and David Meyers. (Previously filed on a Current Report  on Form 8-K, July 30, 2008.)     |
| 10.20+      |       | Form of Warrant. (Previously filed on a Current Report on  Form 8-K, July 30, 2008.)                                                                                             |
| 10.21+      |       | Promissory Note dated as of August 12, 2008, 2008 by and between  Apogee Technology, Inc. and David Spiegel. (Previously filed on a Current  Report on Form 8-K, August 13, 2008.)         |
| 10.22+      |       | Promissory Note dated as of August 12, 2008, 2008 by and between  Apogee Technology, Inc. and Herbert M. Stein. (Previously filed on a Current  Report on Form 8-K, August 13, 2008.)      |
| 10.23+      |       | Form of Warrant. (Previously filed on a Current Report on Form 8-K,  August 13, 2008.                                                                                                           |
| 31.1        |       | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 by Chief Executive Officer.                                                                                      |
| 31.2        |       | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 by Chief Financial Officer.                                                                                      |
| 32          |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 by Chief Executive Officer and Chief Financial Officer.                                                           |

 

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+  Previously filed as indicated.

 

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