**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

**(MarkOne)**

| **x**  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------|---------------------------------------------------------------------------------------------------------|
|   | ** **                                                                                              |
|   | **For the  quarterly period ended June 30, 2007**                                                       |
|   | ** **                                                                                              |
| **o**  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

                                                

**For the transition periodfrom                   to                   **

**Commission file number 001-10456**

**APOGEETECHNOLOGY, INC.**

(Exact name of small business issuer as specified inits 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**                                    |
| (Issuer’s  telephone number, including area code) |
|                                                   |   |                 |
| **NOT  APPLICABLE**                                    |
| (Former name,  former address and former fiscal year,  |
| if changed since  last report)                         |

 

Check whether theissuer: (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes   x  No   o

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

State the numberof shares outstanding of each of the Issuer’s classes of common equity, as ofthe latest practicable date:  As of August 1, 2007, there were 11,968,332shares of Common Stock, $.01 par value per share, outstanding.

Transitional SmallBusiness Disclosure Format (Check one):  Yes  o    No  x

 

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**APOGEETECHNOLOGY, INC.**

**INDEXOF INFORMATION CONTAINED IN FORM 10-QSB FOR THEPERIODS ENDED JUNE 30, 2007 AND JUNE 30, 2006**
| **PART I - FINANCIAL  INFORMATION** |                                                                                                                                               |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                               |   |
| Item 1 -                                 | Financial  Statements                                                                                                                              |   |
|                                     | Consolidated  Balance Sheets at June 30, 2007 (unaudited) and December 31, 2006 (audited)                                                     |   |
|                                     | Consolidated  Statements of Operations and Accumulated Deficit for the Three and Six Months  Ended June 30, 2007 and June 30, 2006 (all unaudited) |   |
|                                     |                                                                                                                                               |   |
|                                     | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 2007 and June 30,  2006 (all unaudited)                                   |   |
|                                     |                                                                                                                                               |   |
|                                     | Notes to  Consolidated Financial Statements (all unaudited)                                                                                        |   |
|                                     |                                                                                                                                               |   |
| Item 2 -                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                        |   |
|                                     |                                                                                                                                               |   |
| Item 3 -                                 | Controls and  Procedures                                                                                                                           |   |
|                                     |                                                                                                                                               |   |
| **PART II - OTHER  INFORMATION**    |                                                                                                                                               |
|                                     |                                                                                                                                               |   |
| Item 1 -                                 | Legal Proceedings                                                                                                                                  |   |
|                                     |                                                                                                                                               |   |
| Item 2 -                                 | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                       |   |
|                                     |                                                                                                                                               |   |
| Item 3 -                                 | Defaults  Upon Senior Securities                                                                                                                   |   |
|                                     |                                                                                                                                               |   |
| Item 4 -                                 | Submission  of Matters to a Vote of Security Holders                                                                                               |   |
|                                     |                                                                                                                                               |   |
| Item 5 -                                 | Other Information                                                                                                                                  |   |
|                                     |                                                                                                                                               |   |
| Item  6 -                                | Exhibits                                                                                                                                           |   |
|                                     |                                                                                                                                               |   |
| Signatures                               |                                                                                                                                               |

 

2

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

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

**APOGEE TECHNOLOGY, INC. ANDSUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                  | ** ** | **JUNE 30,  2007** | ** **    | **DECEMBER 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|---------------|-----------------------------|------------|
| ** **                                                                                                                                  | ** ** | **(Unaudited)**         | ** **    | **(Audited)**               | ** ** |
| **ASSETS**                                                                                                                                  | ** ** | ** **              | ** **    | ** **                  | ** ** |
| ** **                                                                                                                                  | ** ** | ** **              | ** **    | ** **                  | ** ** |
| **Current assets**                                                                                                                          | ** ** | ** **              | ** **    | ** **                  | ** ** |
| Cash and cash  equivalents                                                                                                                  | ** ** | **$**                   | **1,537,074** | ** **                  | **$**      | **3,051,420** | ** ** |
| Accounts  receivable, net of allowance for doubtful accounts of $11,320 in 2007 and  $13,245 in 2006, respectively                          | ** ** | **10,962**              | ** **    | **11,196**                  | ** ** |
| Inventories, net                                                                                                                            | ** ** | **—**              | ** **    | **—**                  | ** ** |
| Prepaid expenses  and other current assets                                                                                                  | ** ** | **32,837**              | ** **    | **69,465**                  | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| Total current  assets                                                                                                                       | ** ** | **1,580,873**           | ** **    | **3,132,081**               | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| **Property and equipment, net**                                                                                                             | ** ** | **203,941**             | ** **    | **117,217**                 | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| **Other assets**                                                                                                                            | ** ** | ** **              | ** **    | ** **                  | ** ** |
| Patents                                                                                                                                     | ** ** | **277,837**             | ** **    | **208,703**                 | ** ** |
| Exclusive  licensing, net                                                                                                                   | ** ** | **30,426**              | ** **    | **22,574**                  | ** ** |
| Construction in  progress                                                                                                                   | ** ** | **—**              | ** **    | **90,642**                  | ** ** |
| ** **                                                                                                                                  | ** ** | ** **              | ** **    | ** **                  | ** ** |
| ** **                                                                                                                                  | ** ** | **$**                   | **2,093,077** | ** **                  | **$**      | **3,571,217** | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                              | ** ** | ** **              | ** **    | ** **                  | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| **Current liabilities**                                                                                                                     | ** ** | ** **              | ** **    | ** **                  | ** ** |
| Accounts payable  and accrued expenses                                                                                                      | ** ** | **$**                   | **666,529**   | ** **                  | **$**      | **710,187** | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| Total current  liabilities                                                                                                                  | ** ** | **666,529**             | ** **    | **710,187**                 | ** ** |
|                                                                                                                                        |       |                    |          |                        |       |
| **Commitments and Contingencies**                                                                                                           | ** ** | **—**              | ** **    | **—**                  | ** ** |
| ** **                                                                                                                                  | ** ** | ** **              | ** **    | ** **                  | ** ** |
| **Stockholders’ equity**                                                                                                               | ** ** | ** **              | ** **    | ** **                  | ** ** |
| Common stock,  $.01 par value; 20,000,000 shares authorized, 11,968,332 issued and  outstanding at June 30, 2007 and December 31, 2006 | ** ** | **119,683**             | ** **    | **119,683**                 | ** ** |
| Additional  paid-in capital                                                                                                                 | ** ** | **18,450,616**          | ** **    | **18,396,909**              | ** ** |
| Accumulated  deficit                                                                                                                        | ** ** | **(17,143,751**         | **)**         | **(15,655,562**             | **)**      |
|                                                                                                                                        |       |                    |          |                        |       |
| Total  stockholders’ equity                                                                                                            | ** ** | **1,426,548**           | ** **    | **2,861,030**               | ** ** |
| ** **                                                                                                                                  | ** ** | **$**                   | **2,093,077** | ** **                  | **$**      | **3,571,217** | ** ** |

 

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

3

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**APOGEE TECHNOLOGY, INC. ANDSUBSIDIARY**

**CONSOLIDATED STATEMENTS OF INCOME**

**(UNAUDITED)**
| ** **                                                             | ** ** | **THREE MONTHS ENDED  June 30,** | ** **      | **SIX MONTHS ENDED  June 30,** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------|-----------------|-----------------------------------------------|------------|
| ** **                                                             | ** ** | **2007**                                        | ** **      | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                                                           | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Product sales                                                          | ** ** | **$**                                           | **64,997**      |                                          | $          | 339,549 | ** ** | **$** | **118,666** |   | $ | 1,324,947 |   |
| Royalties                                                              |       | —                                          |            | 1,250                                         |       | — |   | 1,250 |   |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| ** **                                                             | ** ** | **64,997**                                      |            | 340,799                                       | ** ** | **118,666** |   | 1,326,197 |   |
| **Costs  and expenses**                                                | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Product sales                                                          | ** ** | **1,199**                                       |            | 271,844                                       | ** ** | **1,415** |   | 997,089 |   |
| Research and  development                                              | ** ** | **375,245**                                     |            | 605,738                                       | ** ** | **619,505** |   | 1,000,313 |   |
| Selling, general  and administrative                                   | ** ** | **487,979**                                     |            | 531,884                                       | ** ** | **1,041,870** |   | 1,158,593 |   |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| ** **                                                             | ** ** | **864,423**                                     |            | 1,409,466                                     | ** ** | **1,662,790** |   | 3,155,995 |   |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  loss**                                                    | ** ** | **(799,426**                                    | **)**           | (1,068,667                                    | )          | **(1,544,124** | **)** | (1,829,798 | ) |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  (expense) income**                                            | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| SigmaTel  earn-out                                                     |       | —                                          |            | 84,108                                        |       | — |   | 84,108 |   |
| Interest/other  expense                                                |       | —                                          |            | (864                                          | )          | — |   | (22,451 | ) |
| Interest income                                                        | ** ** | **24,068**                                      |            | 53,790                                        | ** ** | **55,935** |   | 107,506 |   |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| ** **                                                             | ** ** | **24,068**                                      |            | 137,034                                       | ** ** | **55,935** |   | 169,163 |   |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  loss**                                                          | ** ** | **(775,358**                                    | **)**           | (931,633                                      | )          | **(1,488,189** | **)** | (1,660,635 | ) |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| Accumulated  deficit—beginning                                    | ** ** | **(16,368,393**                                 | **)**           | (13,413,561                                   | )          | **(15,655,562** | **)** | (12,684,559 | ) |
|                                                                   |       |                                            |            |                                          |       |   |   |   |   |
| **Accumulated  deficit—ending**                                   | ** ** | **$**                                           | **(17,143,751** | **)**                                         | $          | (14,345,194 | ) | **$** | **(17,143,751** | **)** | $ | (14,345,194 | ) |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic  and diluted loss per common share**                           | ** ** | **$**                                           | **(0.06**       | **)**                                         | $          | (0.08 | ) | **$** | **(0.12** | **)** | $ | (0.14 | ) |
| ** **                                                             | ** ** | ** **                                      | ** **      | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Weighted average common shares  outstanding—basic and diluted** | ** ** | **11,968,332**                                  |            | 11,968,332                                    | ** ** | **11,968,332** |   | 11,968,332 |   |

 

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

4

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**APOGEE TECHNOLOGY, INC. ANDSUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**
| ** **                                                                              | ** ** | **SIX MONTHS ENDED  June 30,** | ** **     |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------|----------------|
| ** **                                                                              | ** ** | **2007**                                      | ** **     | **2006** | ** ** |
|                                                                                    |       |                                          |           |   |   |
| **Cash  flows from operations**                                                         | ** ** | ** **                                    | ** **     | ** ** | ** ** |
| Net loss                                                                                | ** ** | **$**                                         | **(1,488,189** | **)** | $ | (1,660,635 | ) |
| *Adjustments  to reconcile net income (loss) to net cash used in operating activities:* | * *   | * *                                      | * *       | * * | * * |
| Provision for doubtful accounts                                                         | ** ** | **(1,925**                                    | **)**          | (131,755 | ) |
| Provision for slow moving, excess and obsolete  inventory                               | ** ** | **(106,940**                                  | **)**          | 21,411 |   |
| Depreciation and amortization                                                           | ** ** | **37,933**                                    |           | 8,130 |   |
| Stock compensation expense                                                              | ** ** | **53,708**                                    |           | 97,354 |   |
| Disposal of property and equipment                                                      |       | —                                        |           | 11,032 |   |
| *Changes in operating assets and liabilities:*                                          | * *   | * *                                      | * *       | * * | * * |
| Accounts receivable                                                                     | ** ** | **2,158**                                     |           | 155,181 |   |
| Inventories                                                                             | ** ** | **106,940**                                   |           | 952,311 |   |
| Prepaid expenses and other current assets                                               | ** ** | **36,629**                                    |           | 56,488 |   |
| Accounts payable and accrued expenses                                                   | ** ** | **(43,658**                                   | **)**          | (324,818 | ) |
| Deferred distributor revenue                                                            | ** ** | **—**                                    |           | (903,253 | ) |
|                                                                                    |       |                                          |           |   |   |
| Net cash used in operating activities                                                   | ** ** | **(1,403,344**                                | **)**          | (1,718,554 | ) |
|                                                                                    |       |                                          |           |   |   |
| **Cash  flows from investing activities**                                               | ** ** | ** **                                    | ** **     | ** ** | ** ** |
| Purchases of property and equipment                                                     | ** ** | **(27,610**                                   | **)**          | (32,035 | ) |
| Patent costs                                                                            | ** ** | **(69,134**                                   | **)**          | (6,326 | ) |
| Leasehold improvements                                                                  | ** ** | **(2,480**                                    | **)**          | **—** | ** ** |
| License fee                                                                             | ** ** | **(11,778**                                   | **)**          | **—** | ** ** |
|                                                                                    |       |                                          |           |   |   |
| Net cash used in investing activities                                                   | ** ** | **(111,002**                                  | **)**          | (38,361 | ) |
|                                                                                    |       |                                          |           |   |   |
| **Cash  flows from financing activities**                                               | ** ** | ** **                                    | ** **     | ** ** | ** ** |
|                                                                                    |       | —                                        |           | — |   |
| Net cash provided by financing activities                                               |       | —                                        |           | — |   |
|                                                                                    |       |                                          |           |   |   |
| **Decrease  in cash and cash equivalents**                                              | ** ** | **(1,514,346**                                | **)**          | (1,756,915 | ) |
|                                                                                    |       |                                          |           |   |   |
| Cash and cash equivalents—beginning                                                | ** ** | **3,051,420**                                 |           | 5,512,974 |   |
|                                                                                    |       |                                          |           |   |   |
| **Cash and cash  equivalents—ending**                                              | ** ** | **$**                                         | **1,537,074**  |   | $ | 3,756,059 |   |

 

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

3

5

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**APOGEE TECHNOLOGY, INC. ANDSUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**JUNE 30, 2007 AND JUNE 30, 2006(UNAUDITED)**

**1.        The Company and Basis of Presentation**

***The Company***

Apogee Technology, Inc. and Subsidiary (the “Company”or “Apogee”, “we”, “us”, or “our”) designs, develops and commercializesadvanced drug delivery and sensor solutions based upon its proprietary MicroElectromechanical Systems (“MEMS”), nano fabrication and drug deliverytechnologies. Our Medical Products Group is developing PyraDermTM an advancedintradermal drug delivery system to meet the needs of patients, healthinsurers, companies’ developing pharmaceuticals, as well as, governments andinternational health organizations. We believe PyraDermTM has advantages overcompetitive approaches for the delivery of vaccines, high potency therapeuticprotein drugs and non FDA regulated cosmeceutical and nutraceutical activeingredients. We have evaluated the feasibility of PyraDerm by performing invitro tests with model drugs and are planning to start in vivo testing thisyear to complement positive in vivo results already obtained with vaccines bythird party researchers using our delivery technology.  We are working toestablish pharmaceutical industry compliant manufacturing methods and to defineregulatory strategies to support its commercialization. Our business strategyincludes: (i) the licensing or selling of our technologies to pharmaceutical ormedical device companies; (ii) establish partnerships with pharmaceutical and devicecompanies to commercialize our products; and (iii) developing, producing andmarketing our own medical products. Our Sensor Products Group has been focusingon the design, development and marketing of proprietary MEMS/Nanotechnologybased sensors for the medical, automotive, industrial and consumer markets. InDecember 2005, we introduced our first sensor products, a family of miniaturepressure sensor die, trademarked under the Sensilica® brand name.  Thesedevices are produced using a novel manufacturing technology that we believereduces size and cost while improving reliability as compared to alternativeMEMS sensor solutions.  We are currentlyevaluating our sensor products business strategy and exploring opportunities toapply our sensor experience to develop products for the health monitoringmarket.

From 1981 until 1995, Apogee Acoustics Incorporated (“Acoustics”)engineered, manufactured, and marketed high quality, patented ribbonloudspeaker systems for use in home audio and video entertainment systems. In1987 Apogee Technology, Inc. was organized as a Delaware corporation andoperated through its wholly owned subsidiary, Acoustics. We discontinued ourloudspeaker business in 1994 and utilized our audio experience on thedevelopment of the worlds’ first all-digital, high efficiency audio amplifierintegrated 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 in 1999, andsubsequently released a total of over 25 IC products. In addition to our IC productsales, we also licensed DDX technology to several IC companies, includingSTMicroelectronics NV (“ST”), one of the world’s largest semiconductorcompanies. Under this licensing agreement with ST, Apogee developed andprovided intellectual property to be used in royalty bearing products producedby ST.

In May 2004, in order to expand our technology baseand to further diversify our product and market opportunities, we acquired aportfolio of MEMS and nanotechnology intellectual property, trade secrets andknow-how developed by Standard MEMS, Inc. MEMS are devices produced using highvolume IC manufacturing techniques that include both electrical circuits andmicroscopic 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 transaction withSigmaTel, Inc. (“SigmaTel”) whereby we sold certain assets of our audiodivision, including the DDX technology and the associated royalties from ourlicense 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. By the terms of a non-compete with SigmaTel, signed in connectionwith our sale of assets to them, we can no longer compete in the Class Daudio/amplifier business for a period of two years. We reorganized ourremaining MEMS division into two business groups, the Medical Products Groupand the Sensor Products Group. We also closed our sales offices in China,Japan, Taiwan and Hong Kong and terminated our agreements with our independentsales representatives and distributors that supported our audio ICbusiness.   As of June 30, 2007, we are carrying inventory withan original cost of approximately $1.7 million and a net value of zero, afterreserves for slow moving, excess and obsolete inventory.  This inventoryis available for sale.

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***Basis of Presentation***

***Consolidated Financial Statements***

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

***Going Concern***

The accompanying consolidated financial statements havebeen prepared on a going concern basis, which contemplates the realization ofassets and satisfaction of liabilities in the normal course of business. Asshown in the consolidated financial statements, we have incurred continuinglosses and negative cash flows from operations. Net losses were approximately$1.5 million and negative cash flows from operations were approximately $1.4million for the six months ended June 30, 2007. This raises substantial doubtabout our ability to continue as a going concern without raising additionalcapital.

We sold certain tangible and intangible assetsassociated with our audio business in 2005 and has approximately $1.5 millionof cash at June 30, 2007. We have reduced, in the short-term, ouroperating expenses for payroll and related costs, rents and third partyconsulting fees. We believe that our current working capital and amounts thatmay be raised to support operations will be sufficient to fund its capital andoperational requirements at least through December 31, 2007.  Weare actively pursuing various options for additional funding. Also see Footnote11—Notification from the American Stock Exchange.

The long-term success of Apogee is dependent upon ourability to successfully develop and market our medical device products whichare based upon our MEMS technology, to attain profitable operations and raiseadditional funds as needed for such purposes. There can be no assurance,however, that we will be able to generate sufficient revenue, become profitableor that additional funds will be available to us on acceptable terms, if atall.

**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. The following policies apply to our major product sales categoriesfor revenue recognition.

Sales to OEM Customers:  Revenue is recognizedunder Apogee’s standard terms and conditions of sale, title and risk of losstransfer to the customer at the time products are shipped to the customer orthe customers’ representative/freight forwarder (shipping terms Ex Works). Wehave experienced minimal warranty or other returns and based upon historicalexperience we have recorded a $10,000 provision for such returns.

7

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Apogee records royalty revenue when earned in accordancewith the underlying agreement. Royalties are based upon sales of productscommercialized from our licensed technology. Consulting revenue is recognizedas services are performed in accordance with the terms of the underlyingagreements.

***Loss Per Share***

Basic net loss per share is computed by dividing thenet loss attributable to common stockholders for the period by the weightedaverage number of common stock outstanding during the period.  Diluted netloss per share is computed based on the weighted average number of common stockand 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.

***Research and Development***

Costs for research and development are expensed asincurred.

***Inventories***

Inventories are stated at the lower of cost on a first-in,first-out basis or market. See Footnote 4 to the financial statements. This policy requires Apogee to make estimates regarding the market value of ourinventory, including an assessment of excess or obsolete inventory. Wedetermine excess and obsolete inventory based on an estimate of the futuredemand and estimated selling prices for our products within a specified timehorizon, generally 12 to 24 months.

During the six months ended June 30, 2007, we recordeda recovery of previously reserved provisions for slow moving, excess andobsolete inventory of approximately $107,000 to adjust for current inventorylevels.  The inventory as of June 30, 2007, consisting entirely ofApogee held inventory, was approximately $1.707 million before reserves of approximately$1.707 the allowance for slow moving, excess and obsolete inventory.  Thiscompares to inventory at December 31, 2006, net of reserves, ofapproximately $1.814 million.

 ***Purchase commitment losses***

Apogee accrues for estimated losses on non-cancelablepurchase orders of products, which may occur if the future sale pricedeclines below the committed purchase price. There are no outstanding purchasecommitments of product inventory and therefore no provision was required atJune 30, 2007.

***Property and Equipment***

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 are amortized overeither the term of lease or the estimated useful life of the improvement.

***Leasehold Improvements/Construction in Progress***

Construction in progress consists of costs related tothe renovations and construction of a laboratory to be used for the developmentof medical device products.  On January 3, 2007 we announced thecompletion of an analytical and formulation laboratory at ourheadquarters.  Subsequently, all costs previously recorded as Constructionin Progress were reclassified to Leasehold Improvements and are being amortizedon a straight-line basis over a three-year period.

***Patents***

Costs incurred to register and obtain patents will becapitalized and amortized on a straight-line basis over their estimated usefullives.  This policy to be formalized once a patent has been approved andplaced into service.  During the fiscal year ended December 31, 2006, theApogee submitted five U. S. patent applications.  Subsequently, in July 2007, we submitted twoadditional U. S. patent applications.

***License Fees***

License fees paid to third parties for costsassociated with the exclusive rights to their patents are capitalized and areamortized over a four-year period.

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***Cash and Cash Equivalents***

We consider all highly liquid investments with anoriginal maturity of three months or less to be cash equivalents. Substantiallyall of our cash is held in high quality money market funds comprised ofshort-term, fixed income securities earning interest at 4.94% at June30, 2007.

***Use of Estimates in 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.

***Accounts Receivable***

Apogee carries our trade receivables from directcustomers less an allowance for doubtful accounts to ensure that tradereceivables are carried at net realizable value.  On a periodic basis, weevaluate the collectibility of our accounts receivable on a variety of factors,including length of time receivables are past due, indication of customers’willingness to pay, significant one-time events and historical experience. Anadditional reserve for individual accounts is recorded when we become aware ofa customer’s inability to meet its financial obligations, such as in the caseof bankruptcy filings or substantial deterioration in the customer’s operatingresults or financial position. If the financial condition of a customer were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.  Accounts receivable are generallyconsidered past due if any portion of the receivable balance is outstanding formore than 90 days.  If circumstances related to our customers change,estimates of the recoverability of receivables would be further adjusted.

***Fair value of financial 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 relative shortmaturities and based upon comparable market information available at therespective balance sheet dates. We do not hold or issue financial instrumentsfor trading purposes.

***Stock Based Compensation***

Apogee had a stock-based compensation plan, the 1997Employee, Director and Consultant Stock Option Plan (“Plan”), which isdescribed below.  This Plan expired as ofMay 14, 2007.  The Board of Directors isseeking approval of a new stock-based compensation plan, the 2007 Employee,Director and Consultant Option Plan at our Annual Meeting to be held on August28, 2007.  Prior to fiscal 2006, weaccounted for the Plan 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(SFAS) No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).Compensation costs related to stock options granted at fair value under thePlan were not recognized in the consolidated statements of income.

In December 2004, FASB issued SFAS 123 (revised2004), “Share-Based Payments” (SFAS 123(R)). Under the new standard, companiesare no longer able to account for stock-based compensation transactions usingthe intrinsic value method in accordance with APB Opinion No. 25. Insteadcompanies are required to account for such transactions using a fair-valuemethod and recognize the expense in the consolidated statement of income.

Prior to January 1, 2006, we adopted only thedisclosure provisions of SFAS 123(R). It applied APB Opinion No. 25, “AccountingFor Stock Issued To Employees”, and related interpretations in accounting for thePlan and did not recognize compensation expense for the Plan.

Effective January 1, 2006, we adopted SFAS123(R) using the modified-prospective-transition method. Under this transitionmethod, 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, and (b) compensation cost for all stock-based payments grantedon or subsequent to January 1, 2006, based on the grant date fairvalue estimated in accordance with the provisions of SFAS 123(R). Results forprior periods have not been restated.

Due to the adoption of SFAS 123(R), included in ournet loss for the three and six months ended June 30, 2007 werecompensation charges of approximately $29,000 and $54,000, respectively.  This compares to approximately $23,000 and$97,000 for same periods in 2006

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***Accounting for Stock Compensation***

Stock-based compensation costs are generally based onthe fair value calculated from the Black-Scholes option-pricing model on thedate of grant for stock options.  The fair values of stock grants areamortized as compensation expense over the options’ vesting period.Compensation expense recognized is shown in the operating activitiessection of the consolidated statements of cash flow.

In anticipation of adopting SFAS 123(R), we evaluatedthe assumptions used in the Black-Scholes model. Apogee continues to calculatethe expected volatility based solely on historical volatility. We believe thathistorical volatility provides the best estimate of future stock pricevolatility.

The expected term was previously and is currentlycalculated based on an analysis of vesting periods and contractual life. Webelieve that this analysis provides a better estimate of option term periods.

Apogee continues to base the estimate of risk-freerate on the U.S. Treasury yield curve in effect at the time of grant. We havenever paid cash dividends and do not currently intend to pay cash dividends,and thus we have assumed a 0% dividend yield.

As part of the requirements of SFAS 123(R), weare required to estimate potential forfeitures of stock grants and adjust compensationcost recorded accordingly. The estimate of forfeitures will be adjusted overthe requisite service period to the extent that actual forfeitures differ, orare expected to differ, from such estimates. Changes in estimated forfeitureswill be recognized through a cumulative catch-up adjustment in the period ofchange and will also impact the amount of stock compensation expense to berecognized in future periods.

During the six-month period ended June 30, 2007, thestock option activity under our 1997 Employee, Director and Consultant StockOption Plan is summarized below:
| Stock Options                          | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  December 31, 2006 |       | 2,899,100  |       | $                                       | 4.6512     |                                                 |       |                            |       |   |
| Granted                                     |       | 84,000     |       | 1.1893                                  |       |                                                 |       |                            |       |
| Exercised                                   |       | -0-        |       |                                    |       |                                                 |       |                            |       |
| Cancelled or  expired                       |       | (36,000    | )          | 6.1793                                  |       |                                                 |       |                            |       |
| Outstanding at  June 30, 2007               |       | 2,947,100  |       | $                                       | 4.5339     |                                                 | 6.0498     |                            | $          | 13,361,751 |   |
|                                        |       |       |       |                                    |       |                                                 |       |                            |       |
| Vested at June  30, 2007                    |       | 2,519,500  |       | $                                       | 5.1273     |                                                 | 5.5517     |                            | $          | 12,918,279 |   |
|                                        |       |       |       |                                    |       |                                                 |       |                            |       |
| Exercisable at June 30,  2007               |       | 2,519,500  |       | $                                       | 5.1273     |                                                 | 5.5517     |                            | $          | 12,918,279 |   |

 

The following table summarizes information about stockoptions outstanding at June 30, 2007:
|                                             | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                        | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-----------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $0.25 — 1.69                           |       | 1,048,900                    |       | 7.2007                                              |       | $ | 0.9276 |   | 621,300 |   | $ | 0.9276 |   |
| $2.71 — 6.590                          |       | 1,299,200                    |       | 4.7658                                              |       | $ | 5.4017 |   | 1,299,200 |   | $ | 5.4017 |   |
| $8.45 — 12.15                          |       | 599,000                      |       | 6.8194                                              |       | $ | 8.8883 |   | 599,000 |   | $ | 8.8883 |   |
|                                        |       |                         |       |                                                |       |   |   |   |   |   |   |
| Total at June  30, 2007      |       | 2,947,100                    |       | 6.0498                                              |       | $ | 5.1273 |   | 2,519,500 |   | $ | 5.1273 |   |

 

During the six months ended June 30, 2007, Apogeegranted options to purchase 84,000 shares of its common stock at a weightedaverage fair market value of $1.1893.  No options were exercised duringthe six months ended June 30, 2007.  During the six months ended June 30,2007, options to purchase 28,500 shares of Apogee common stock vested.  Theweighted average fair value of these options was $0.1150.  Totalstock-based compensation expense for the six months ended June 30, 2007, wasapproximately $54,000 compared to approximately $97,400 for the six monthsended June 30, 2006.

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***Recent Accounting Pronouncements***

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

**3.        Accounts Receivable**

Accounts Receivable at June 30, 2007 andDecember 31, 2006 are comprised of the following:
|                                      | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                           | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| ** **                           | ** ** | **(Unaudited)**   | ** **  | **(Audited)**         | ** ** |
| Distributor                          | ** ** | **$**             | **2,580**   |                  | $          | 11,162 |   |
| Direct customers                     | ** ** | **19,702**        |        | 13,279                |       |
| ** **                           | ** ** | **$**             | **22,282**  |                  | $          | 24,441 |   |
|                                 |       |              |        |                  |       |
| Less allowance for doubtful accounts | ** ** | **$**             | **(11,320** | **)**                 | (13,245    | ) |
|                                 |       |              |        |                  |       |
| Net accounts  receivable             | ** ** | **$**             | **10,962**  |                  | $          | 11,196 |   |

 

**4.        Inventories**

Inventories are stated at the lower of cost (first-in,first-out) or market. The major classifications of inventories are as follows:
|                                                                | ** ** | **June 30,** | ** **    | **December 31,** | ** ** |
|----------------------------------------------------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **                                                     | ** ** | **2007**          | ** **    | **2006**              | ** ** |
| ** **                                                     | ** ** | **(Unaudited)**   | ** **    | **(Audited)**         | ** ** |
|                                                           |       |              |          |                  |       |
| Raw materials                                                  | ** ** | **$**             | **—**    | ** **            | **$**      | **—** | ** ** |
| Finished goods  held by Apogee                                 | ** ** | **1,707,088**     |          | 1,814,028             |       |
| Finished goods held  by distributors                           | ** ** | **—**        | ** **    | **—**            | ** ** |
|                                                           |       |              |          |                  |       |
| ** **                                                     | ** ** | **$**             | **1,707,088** |                  | $          | 1,814,028 |   |
| Less allowance for slow moving, excess and obsolete  inventory | ** ** | **(1,707,088**    | **)**         | (1,814,028            | )          |
|                                                           |       |              |          |                  |       |
| Inventory—net                                             | ** ** | **$**             | **—**    | ** **            | **$**      | **—** | ** ** |

 

**5.        Property and Equipment**

Property and equipment at June 30, 2007 andDecember 31, 2006 are comprised of the following:
|                               | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                    | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| ** **                    | ** ** | **(Unaudited)**   | ** **  | **(Audited)**         | ** ** |
|                          |       |              |        |                  |       |
| Equipment                     | ** ** | **$**             | **164,371** |                  | $          | 136,761 |   |
| Software                      | ** ** | **32,943**        |        | 32,943                |       |
| Furniture and  fixtures       | ** ** | **22,047**        |        | 22,047                |       |
| Leasehold  improvements       | ** ** | **93,122**        |        | 22,954                |       |
|                          |       |              |        |                  |       |
| ** **                    | ** ** | **$**             | **312,483** |                  | $          | 214,715 |   |
|                          |       |              |        |                  |       |
| Less accumulated depreciation | ** ** | **(108,542**      | **)**       | (97,488               | )          |
|                          |       |              |        |                  |       |
| ** **                    | ** ** | **$**             | **203,941** |                  | $          | 117,217 |   |

 

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Depreciation expense was $17,435 and $34,008 for thethree and six months ended June 30, 2007.

The estimated useful lives of the classes of physicalassets were as follows:
| Description             | ** ** | **Depreciable Lives** |
|-------------------------|------------|----------------------------|
|                    |       |                       |
| Equipment               |       | 5 years                    |
| Software                |       | 3 years                    |
| Furniture and  fixtures |       | 7 years                    |
|                    |       |                       |
| Leasehold  improvements |       | Term of lease              |

 

**6.        Accrued Expenses**
|                         | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **              | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| ** **              | ** ** | **(Unaudited)**   | ** **  | **(Audited)**         | ** ** |
|                    |       |              |        |                  |       |
| Accrued audit  expenses | ** ** | **$**             | **45,000**  |                  | $          | 60,000 |   |
| Accrued legal  expenses | ** ** | **35,000**        |        | 25,000                |       |
| Accrued taxes           | ** ** | **—**        | ** **  | **—**            | ** ** |
| Other accrued  expenses | ** ** | **72,000**        |        | 64,000                |       |
|                    |       |              |        |                  |       |
| ** **              | ** ** | **$**             | **152,000** |                  | $          | 149,000 |   |

 

**8.        Stockholders’ Equity**

***Stock Options***

During the three months ended June 30, 2007, Apogeeawarded certain of its employees options to purchase 58,000 shares, in theaggregate, at an exercise price of $1.15 per share.   These options were granted under the 1997Employee, Director and Consultant Stock Option Plan. The options granted tothese employees vest over five years beginning at the first anniversary of thedate of grant.

**9.        Related Party Transactions**

Apogee rents our facility from an entity controlled bya stockholder for $4,400 per month pursuant to a lease that expiredDecember 31, 2005. Currently, we are renting the facility on amonth-to-month basis.  In addition, see Footnote 10 — IndemnificationAgreements with our Executives.

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**10.      Indemnification Arrangements with our Executives**

Apogee has been assuming and will continue to assumethe legal costs and related expenses of Herbert M. Stein, in connection withthe civil case in the Circuit Court of the Fifteenth Judicial Circuit in andfor Palm Beach County, Florida entitled*  Joseph Shamy v. Herbert M. Stein, case No.:50 2005 CA 007719 XXXXMB.*   To date we have incurredapproximately $401,000 toward this indemnification.

**11.     Notification from the American Stock Exchange**

As reported on our report on Form 8-K datedJanuary 12, 2007, Apogee was notified on January 12, 2007, by theAmerican Stock Exchange (“AMEX”) that AMEX accepted our plan to regaincompliance with AMEX continued listing standards, and that Apogee’s listingwill be continued pursuant to an extension.

We submitted a plan of compliance to AMEX (the “Plan”)on November 30, 2006, which was amend on December 20, 2006, outliningour operational plan and strategic objectives towards regaining compliance withcertain of the AMEX continued listing standards. The Plan was prepared inresponse to a letter received from AMEX on November 1, 2006, indicatingthat we no longer met certain continued listing standards.  Apogeecontinues to not meet the standards as a result of having shareholders’ equityof less than $4 million and losses from continuing operations and/or net lossesin three out of its four most recent fiscal years, as is required inSection 1003 (a) (ii) of the Company Guide; and because we arealso not in compliance with Section 1003 (a) (iii) of theCompany Guide, as we have shareholders’ equity of less than $6 million andlosses from continuing operations in our five most recent fiscal years.

We will be subject to periodic review by the AMEXStaff during the extension period, which ends on November 1, 2007. Failureto make progress consistent with the plan or to regain compliance with thecontinued listing standards by the end of the extension period could result inour being delisted from the AMEX.

**12.     Notification of Complaint by Former Employee**

On March 29, 2007 Apogee received a complaint, whichhad been filed at the Superior Court in Norfolk County, Massachusetts, entitled*Michael S. Danielson v. Apogee Technology, Case No.0700512*.  A former Apogee employee initiated the complaintalleging, among other things, that Apogee failed to pay certain bonuses andretirement contributions in connection with a compensatory arrangementconcerning the development of certain digital amplifier technology.  Theformer employee claims unpaid compensation of approximately $155,000 and therequest for relief asks for the amount to be trebled, and include costs andattorneys’ fees.  The management of Apogee believes the former employee’sclaim to be without merit and we will defend ourselves vigorously against allof the claims asserted in this legal action.

**13.    Subsequent Events**

On July 26, 2007, Apogee signed a financial advisoryagreement whereby Apogee agreed to issue an upfront non-refundable retainer of65,000 shares of restricted common stock pursuant to Section 4(2) of theSecurities Act of 1933, as amended.

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**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.**

**GENERAL**

The following Management’s Discussion and Analysis ofthe Company’s Financial Condition and Results of Operations for the three-andsix-month periods ended June 30, 2007 and June 30, 2006 should be read inconjunction with the Company’s Financial Statements and related Notes includedelsewhere in this Quarterly Report on Form 10-QSB. This discussioncontains, in addition to historical statements, forward-looking statements thatinvolve risks and uncertainties. The Company’s actual results could differsignificantly from the results discussed in the forward-looking statements.Factors that could cause or contribute to such differences include the factorsdiscussed in the section titled “Certain Risk Factors That May AffectFuture Results of Operations And Our Common Stock Price” as well as otherfactors described in the Company’s Annual Report on Form 10-KSB for theyear ended December 31, 2006, as amended.

**OVERVIEW**

Apogee designs, develops and commercializes advanceddrug delivery and sensor solutions based upon its proprietary MicroElectromechanical Systems (“MEMS”), nano fabrication and drug deliverytechnologies. Our Medical Products Group is developing PyraDermTM an advanced intradermaldrug delivery system to meet the needs of patients, health insurers, companies’developing pharmaceuticals, as well as, governments and international healthorganizations. We believe PyraDermTM will have advantages over competitiveapproaches for the delivery of vaccines, high potency therapeutic protein drugsand non FDA regulated cosmeceutical and nutraceutical active ingredients. Wehave evaluated the feasibility of PyraDerm by performing in vitro tests withmodel drugs and are planning to start in vivo testing this year to complementpositive in vivo results already obtained with vaccines by third partyresearchers using our delivery technology.  We are working to establishpharmaceutical industry compliant manufacturing methods and to define regulatorystrategies to support its commercialization. Our business strategy includes:(i) the licensing or selling of our technologies to pharmaceutical or medicaldevice companies, (ii) establish partnerships with pharmaceutical and devicecompanies to commercialize our products and; (iii) develop, have made andmarket our own medical products. Our Sensor Products Group has been focusing onthe design, development and marketing of proprietary MEMS/Nanotechnology basedsensors for the medical, automotive, industrial and consumer markets. InDecember 2005, we introduced our first sensor products, a family of miniaturepressure sensor die, trademarked under the Sensilica® brand name.  These devices are producedusing a novel manufacturing technology that we believe reduces size and costwhile improving reliability as compared to alternative MEMS sensorsolutions.  We are currently evaluatingour sensor products business strategy and exploring opportunities to apply our sensorexperience to develop products for the health monitoring market.

During the three and six months ended June 30, 2007,virtually all of our revenue was derived from the sales of the remaining audioIC inventory.  We expect that future revenue will initially be the resultof potential licensing and development revenues resulting from the grant ofrights to our intellectual property. In order to support our operations andmaintain our AMEX listing, we intend to secure additional funding in 2007. Weplan to add a network of direct sales staff, independent sales representativesand distributors to support our medical and sensor products. We currentlyoutsource the manufacturing, assembly and certain testing of our medical andsensor products.

At June 30, 2007, we had an accumulated deficit of approximately$17.1 million, as compared to a deficit of $15.7 million as ofDecember 31, 2006. 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 product.

As of June 30, 2007 and June 30, 2006, we had 13employees.

During the three- and six-month periods ended June 30,2007, we derived approximately 98% and 68% our revenue as a result of sales totwo and three customers, respectively.  As of June 30, 2006, Apogeerecognized substantially all of the deferred revenue, approximately $452,000,related to two of our former distributors. At December 31, 2005, we had formallyterminated these distributor contracts. At June 30, 2006, it was determinedthat we would have no continuing involvement with these distributors as theyrelated to the former audio IC business. All of the revenue was attributable tothe former audio IC division.

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**SELECTED CONSOLIDATED FINANCIAL DATA**

The following selected financial data for the three-and six-month periods ended June 30, 2007 and 2006 have been derived from ourunaudited financial statements. Any trends reflected by the following tablemay not be indicative of future results.
|                                           | ** ** | **For the Three-Month Period  Ended  June 30,** | ** ** | **For the Six-Month Period  Ended  June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                                            | ** ** | **2006**                                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | ** **                                                          | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Statement of  Operations Data:            |       |                                                                |       |                                                              |       |   |   |   |   |
| Revenue                                   |       | $                                                                   | 64,997     |                                                              | $          | 340,799 |   | $ | 118,666 |   | $ | 1,326,197 |   |
| Costs and  expenses                       |       | (864,423                                                            | )          | (1,409,466                                                        | )          | (1,662,790 | ) | (3,155,995 | ) |
| Other Income  (expenses)                  |       | 24,068                                                              |       | 137,034                                                           |       | 55,935 |   | 169,163 |   |
| Net Loss                                  |       | $                                                                   | (775,358   | )                                                                 | $          | (931,633 | ) | $ | (1,488,189 | ) | $ | (1,660,635 | ) |
|                                      |       |                                                                |       |                                                              |       |   |   |   |   |
| Shares Outstanding                        |       | 11,968,332                                                          |       | 11,968,332                                                        |       | 11,968,332 |   | 11,968,332 |   |
|                                      |       |                                                                |       |                                                              |       |   |   |   |   |
| Balance Sheet  Data:                      |       |                                                                |       |                                                              |       |   |   |   |   |
| Total Assets                              |       | $                                                                   | 2,093,077  |                                                              | $          | 4,905,755 |   | $ | 2,093,077 |   | $ | 4,905,755 |   |
| Stockholders’  equity (deficiency)   |       | $                                                                   | 1,426,548  |                                                              | $          | 3,976,266 |   | $ | 1,426,548 |   | $ | 3,976,266 |   |
| Loss per share (basic  and fully diluted) |       | $                                                                   | (0.06      | )                                                                 | $          | (0.08 | ) | $ | (0.12 | ) | $ | (014 | ) |

 

 **RESULTS OF OPERATIONS OF THE COMPANY**

**Revenue**

We have traditionally derived our revenue from threesources: (1) product sales, which consist of merchandise sales made eitherdirectly to original equipment manufacturers or sell through point of sale (“POS”)by distributors. All such shipments are fulfilled from our contracted warehousein Hong Kong or from our Norwood, Massachusetts office and are reported net ofreturns; (2) royalty revenue, which formerly consisted of royalties paidby STMicroelectronics, which have now been sold as part of the transactionwith SigmaTel and (3) consulting income related to contractual services ordevelopment activities for third parties. The Company may, in the future,receive royalties under its remaining audio licensing agreements and from newagreements contemplated under its two new business groups. See Footnote 2 of the financial statements.  Weanticipate that future revenue streams will come from both our sensor andmedical device products, generally in the form of strategic alliances orarrangements with development or marketing partners, direct product sales anddistribution arrangements.  We envision the future of our medical devicesas (i) licensing or selling of our technologies to pharmaceutical or medicaldevice companies; (ii) establishing partnerships with pharmaceutical and devicecompanies to commercialize our products; and (iii) developing, producing andmarketing our own medical products..

Total revenue declined by approximately $275,800 or81% to approximately $65,000 for the three months ended June 30, 2007 fromapproximately $340,800 for the three months ended June 30, 2006. Total revenue declined by approximately $1.207 million or 91% to approximately$118,700 for the six months ended June 30, 2007, compared to approximately$1.326 million for the six months ended June 30, 2006.  During the three and six months ended June30, 2007 and June 30, 2006 substantially all revenue recorded wasfrom the sale of remaining inventory related to the former audio IC business.

Some revenue from the sale of products related to theformer audio IC business is expected to continue over the short term as theremaining inventory is sold.  We expect that the decline in our revenueswill continue until such time as we are able to generate revenues from the saleof our medical and sensor products.

**Cost of Revenue**

Cost of revenue decreased as a result of reducedproduct revenue to $1,199 and $1,415 for the three and six months ended June30, 2007, respectively, compared to approximately $271,800 and $997,100 for thethree and six months ended June 30, 2006. Cost of revenue from our formeraudio IC business primarily consists of purchased finished semiconductor chipsand storage fees associated with warehousing a large portion of oursemiconductor products in Asia.  The nominal cost of goods for the threeand six months ended June 30, 2007 is a result of our having previouslyreserved 100% of the remaining from the audio IC business inventory.

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**Operating Expenses**

**Research and Development (“R&D”)Expenses**

The Company’s research and development (“R&D”) expenses consistprimarily of salaries, development material costs, external consulting andservice costs related to the design of new products and the refinement ofexisting products. Research and development expenses were reduced toapproximately $375,200 and $619,500 for the three and six months ended June 30,2007, respectively, compared to approximately $605,700 and $1 million for thethree and six months ended June 30, 2006. This decrease of approximately$230,500 or 38% and approximately $380,800 or 38%, respectively, was the resultof reduced utilization of third party consultants as well as a reduction inbusiness development expenses and the expensing of development wafers anddevelopment mask costs related to our sensor business in 2006.  Thesedecreases were partially offset by increases in human resource and depreciationand amortization expense associated with the amortization of exclusive patentlicense fees and depreciation of our new laboratory and related equipment.  For the three and six months ended June 30,2007, expenses incurred from utilization of third party consultants decreasedby approximately $40,200 or 35% and $143,000 or 61% to approximately $75,500and $90,100, compared to approximately $115,700 and $233,100 for the sameperiods in 2006.

In addition to the reduction in the use of third party consultants,expense reductions in development costs related to the sensor group, lesstravel and entertainment expense, fewer software expenditures, the Company alsoclosed its facility in Long Island and a laboratory located in Connecticut,which contributed to the overall decrease in R&D expenses.  For the three and six months ended June 30,2006, we expensed approximately $129,000 in wafers related to our sensorbusiness as well as approximately $53,000 and $63,000, respectively, indevelopmental mask costs for the same periods. In addition, business development costs decreased to approximately$4,400 and $4,700 for the three and six months ended June 30, 2007,respectively, compared to approximately $50,500 and $84,600 for the sameperiods in 2006, representing decreases of approximately $46,000 or 91% and$79,900 or 94%, respectively.

For the three and six month ended June 30, 2007, human resource costsincreased by approximately $37,600 or 20% and $40,400 or 11% to approximately$221,400 and $407,200 for the three and six months ended June 30, 2007,respectively, compared to approximately $183,800 and $366,800 for the sameperiods in 2006.  Depreciation andamortization expense increased approximately $15,300 and $29,700 toapproximately $18,800 and $36,200 for the three and six months ended June 30,2007, respectively, from approximately $3,500 and $6,500 for the same periodsin 2006.  For the three and six monthsended June 30, 2007, we incurred approximately $25,000 in expense to support invivo vaccine studies performed by a prominent university.  We anticipate that we will continue to commitresources to research and development activities as our financial positionallows, and as a result, R&D costs are expected to increase substantiallyin the future.

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

Selling expenses consist primarily of salaries and related expenses forpersonnel engaged in the marketing and selling of the Company’s products, aswell as costs related to trade shows, product literature, travel and otherpromotional support costs. In addition, selling expenses had included costsrelated to the operation of Apogee’s Hong Kong and Japan sales offices.Subsequent to the SigmaTel transaction, the Taiwan and China offices wereclosed. In February 2006 we closed our Hong Kong office and inJuly 2006 we closed our Japanese office.  General and Administrativecosts consist primarily of executive and administrative salaries, professionalfees and other associated corporate expenses. General and administrative costsconsist primarily of executive and administrative salaries, professional feesand other associated corporate expenses. Selling, General and Administrative (“SG&A”)expenses were approximately $488,000 and $1.042 million for the three and sixmonths ended June 30, 2007, compared to approximately $531,900 and $1.159million for the three and six months ended June 30, 2006.  This represents a decrease of approximately$43,900 or 8% and $117,000 or 10% for the respective periods.  The decrease in SG&A was attributableprimarily to the closing of the Hong Kong and Japanese offices as well asdecreased human resource costs, business development and travel andentertainment costs partially offset by increases in professional fees andcorporate insurance.

Human resource costs decreased approximately $57,600 or 20% and $131,500or 22% to approximately $227,100 and $459,000 for the three and six monthsended June 30, 2007 compared to approximately $284,700 and $590,500 for thesame periods in 2006. This decrease reflects the reduction in staffing andsubsequent closing of the Hong Kong and Japanese offices as well as a reductionin the stock compensation expense for the three and six months ended June 30,2007.  As of June 30, 2007, Apogee employed a total of 13 employees alllocated in Norwood, Massachusetts.  As of June 30, 2006, we employed atotal of 13 employees, 12 domestically with 1 employee located in Japan.

Professional expenses increased by approximately $57,500 or 52% and$114,300 or 47% to approximately $167,100 and $356,900 for the three and sixmonths ended June 30, 2007, compared to approximately $109,600 and $242,600 forthe same periods in 2006. Of these increases, approximately $41,500 and$81,800, respectively, were as a result of an increase in legal expenses. Investor relations and Sarbanes-Oxley consultants accounted for the remainingincrease in professional fees.  Legal expenses increased to approximately$117,000 and $249,700 for the three- and six-month period ended June30, 2007, compared to approximately $75,500 and $168,000 for the three andsix months ended June 30, 2006. This increase was as a result ofindemnification costs, which were approximately $68,600 and $122,100 for thethree and six months ended June 30, 2007, compared to approximately $67,200 and$102,300, respectively, for the three and six months ended June 30, 2006. SeeFootnote 11 of the financial statements—Indemnification Arrangements withour Executives.  Costs associated with investor relations and Sarbanes-Oxleyconsultants were approximately $13,500 and $25,300, respectively for the threemonths ended June 30, 2007.  For the six months ended June 30, 2007investor relations and Sarbanes Oxley consultants were approximately $29,100and $38,100, respectively.

Other expenses contributing to the decrease in SG&A were reducedexpenses due to the timing of our Annual Meeting which is scheduled for August28, 2007.  Our 2006 Annual Meeting washeld on May 25, 2006 causing the expenses associated with that meeting to berecognized in the quarter ended June 30, 2006. In addition, nominal reductions in corporate taxes, travel andentertainment and utilities, partially offset by an increase in corporateinsurance as a result of our obtaining Directors’ and Officers’ insuranceeffective as of November 27, 2006, contributed to the overall decrease inSG&A.  For the three and six monthsended June 30, 2007, Directors’ and Officers’ insurance expense was $18,200 and$36,400, respectively

Operating expenses are expected to increase over the next few quartersto support our Medical Product and Sensor groups.

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**Interest Income (Expense)**

Interest income includes income from Apogee’s cash and cash equivalentsand from investments and expenses related to its financing activities. Duringthe three and six months ended June 30, 2007, we generated interest incomeof approximately $24,000 and $55,900, respectively, compared to interest incomeof approximately $54,000 and $107,500 during the same periods in 2006. Thisdecrease in interest income for the three and six months ended June30, 2007 was primarily due to reduced interest on reduced cash balances asof June 30, 2007.  In addition,during the three and six months ended June 30, 2006 we recorded approximately$84,000 of income as a result of the earn-out in connection with the SigmaTeltransaction.

No interest expense was incurred for the three and six months endedJune 30, 2007 and 2006.  For the three and six months ended June 30,2006, we incurred approximately $20,000 in other expense which resulted from aloss on the disposal of fixed assets and additional expenses in connection withthe SigmaTel transaction.

**Net Loss**

Apogee’s net loss for the three months ended June 30, 2007 wasapproximately $775,400 or $0.06 per basic and diluted common share, compared toa net loss of approximately $931,600 or $0.08 per basic and diluted commonshare for the three months ended June 30, 2007 For the six months ended June 30, 2007 the Company reported a lossof approximately $1.5 million or $0.12 per basic and diluted common share,compared to a net loss of approximately $1.7 million or $0.14 per basic anddiluted common share for the six months ended June 30, 2006.

**LIQUIDITY AND CAPITAL RESOURCES**

Our principal source of liquidity at June 30, 2007, consisted ofapproximately $1.5 million in cash and cash equivalents. We consider all highlyliquid investments with an original maturity of three months or less to be cashequivalents. Substantially all of our cash is held in high quality money marketfunds comprised of short-term, fixed income securities earning interest at4.94% at June 30, 2007. This compares to approximately $3.1 millionin cash and cash equivalents as of December 31, 2006. In addition, asof June 30, 2007, we had working capital of approximately $914,000 compared toworking capital of approximately $3.4 million at June 30, 2006.  Asof June 30, 2007 and June 30, 2006 we had no debt.

Net cash used in operating activities for the six-month period endedJune 30, 2007 decreased to approximately $1.4 million compared toapproximately $1.7 million in the six-month period ended June 30, 2006.The decrease was primarily due to a decrease operating expenses as a result ofdecreased spending following the closing of the Hong Kong and Japanese offices.

As of June 30, 2007, reserves for slow moving, excess and obsoleteinventory was at 100% of the remaining inventory related to the former audio ICbusiness.  This compares to inventory, net of reserves of approximately$354,200 as of June 30, 2006.  Net accounts receivable was approximately$10,900 at June 30, 2007, down from approximately $102,300 at June 30,2006.  As of June 30, 2007 we had reserves against bad debt ofapproximately $11,300 compared to a reserve of $13,200 as of June 30, 2006.Given the quality of current accounts receivable, we believe that the remainingreserve is sufficient at this time.

Net cash used in investing activities for the six months ended June 30,2007 was approximately $111,000, compared to approximately $38,400 for the sixmonths ended June 30, 2006.  As previously reported, on January 3, 2007we announced the completion of our state-of-the-art laboratory to be used todevelop advanced drug delivery systems.  Along with the laboratory wecompleted renovations to the entire facility. In addition, during the six-month period ended June 30, 2007, wesupported the filing and prosecution of our existing patent applications aswell as prepared two new patent applications related to our medical devicegroup.  Subsequently, in July 2007 wefiled these two patent applications.

No cash was provided by financing activities for the six months endedJune 30, 2007 and June 30, 2006.

We believe that cash flow from operations as well as the funds from theaudio division sale will be sufficient to support operation and fund itscapital requirements at least through December 31, 2007.  Apogeewill require additional funding and we are currently reviewing our capitalneeds and exploring alternatives to accomplish our funding goals.  We willrequire additional capital to conduct the research and development activityneeded to support our medical device and sensor businesses.  Also seeFootnote 12 of the financial statements—Notification from the American StockExchange.

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

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

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**Revenue Recognition**

Apogee recognizes revenue in accordance with Securities and ExchangeCommission Staff Accounting Bulletin No. 104 (“SAB 104”), “RevenueRecognition in Financial Statements: Revenue Recognition”, which states thatrevenue should be recognized when the following revenue recognition criteriaare met:  (1) persuasive evidence of an arrangement exists;(2) the product has been shipped and the customer takes ownership andassumes the risk of loss; (3) the selling price is fixed or determinable;and (4) collection of the resulting receivable is reasonably assured. Thefollowing policies apply to Apogee’s two major product sales categories forrevenue recognition. Sales to end users (“OEM”):  Revenue is recognizedunder our standard terms and conditions of sale, title and risk of losstransfer to the customer at the time products are shipped from our warehouse ordelivered to the customer’s representative/freight forwarder. Sales toDistributors:  From time to time we provide stock rotation rights, priceprotection and other incentives to our Distributors. See Footnote 2 of thefinancial statements. As a result of these incentives, Apogee has adopted apolicy of deferring recognition of revenue until the distributor sells productsto its customers based upon receipt of point-of-sale reports from thedistributors. We accrue the estimated cost of post-sale obligations includingproduct warranty returns, based on historical experience. To date we haveexperienced minimal warranty returns.

In addition, we record royalty revenue when earned in accordance withthe underlying agreements. Consulting and licensing revenue is recognized asservices are performed.

**Accounts Receivable**

Apogee performs credit evaluations of customers and determines creditlimits based upon payment history, customers’ creditworthiness and otherfactors, as determined by our review of their current credit information. For amajority of our larger sales, we can require the issuance of a Letter ofCredit. Smaller accounts must either pay via credit card or in advance ofshipment. We continuously monitor collections and payments from our customers,and we maintain a provision for estimated credit losses based upon ourhistorical experience and any specific customer collection issues that we haveidentified. While we have not had any significant credit losses to date, wecannot guarantee that we will continue to avoid credit losses in the future. Ifthe financial condition of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired. Since our accounts receivable are highly concentrated in a smallnumber of customers, a significant change in the liquidity or financialposition of any one of these customers could have a material adverse impact onthe collectibility of our accounts receivable, our liquidity or our futureresults of operations.

**Inventory**

Apogee states its inventory at the lower of cost (first-in, first-out)or market. This policy requires that we make certain estimates regarding themarket value of the inventory, including an assessment of excess or obsoleteinventory. In the recent past, Apogee had determined excess and obsoleteinventory based on estimated future demands and estimated selling prices forour products within a specified time frame, which was generally 12 months. Theestimates used for expected demand were also used for short-term capacityplanning and inventory purchasing and were consistent with revenue forecasts.Our entire current inventory is associated with our former audio business. Wehave chosen to expense our sensor die and sensor packaged products until suchtime as we have material results from this business. We are still in theresearch and developmental phase of our medical products business and thus donot have any related inventory. As of June 30, 2007 we have approximately $1.7million of inventory related to our former audio IC business that has been 100%reserved and has no carrying value on our balance sheet. This compares toinventory at December 31, 2006, of approximately $1.8 million of audio ICinventory which had been 100% reserved and carried no value on the balancesheet.

**Valuation of Long-Lived Assets**

Property, plant and equipment, patents, trademarks and other intangibleassets are amortized over their estimated useful lives. Useful lives are basedon management’s estimates over the period that such assets will generaterevenue. Intangible assets are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying value of an assetmay not be recoverable. Future adverse changes in market conditions orpoor operating results of underlying capital investments or intangible assetscould result in losses or an inability to recover the carrying value of suchassets, thereby possibly requiring an impairment charge in the future.

**Stock Compensation**

Prior to fiscal 2006, we accounted for stock-based compensation plansunder the recognition and measurement provisions of APB Opinion No. 25.Effective January 1, 2006, we adopted the provisions ofSFAS 123(R) using the modified-prospective-transition method.SFAS 123(R) requires companies to recognize the fair-value of stock-basedcompensation transactions in the statement of income. The fair value of ourstock-based awards is estimated at the date of grant using the Black-Scholesoption pricing model. The Black-Scholes valuation calculation requires us toestimate key assumptions such as future stock price volatility, expected terms,risk-free rates and dividend yield.

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Expected stock price volatility is based on implied volatility fromtraded options on our stock in the marketplace and historical volatility of ourstock. We use historical data to estimate option exercises and employeeterminations within the valuation model.

The expected term of options granted is derived from an analysis ofhistorical exercises and remaining contractual life of stock options, andrepresents the period of time that options granted are expected to beoutstanding. The risk-free rate is based on the U.S. Treasury yield curve ineffect at the time of grant. We have never paid cash dividends, and do notcurrently intend to pay cash dividends, and thus have assumed a 0% dividendyield. If our actual experience differs significantly from the assumptions usedto compute our stock-based compensation cost, or if different assumptions hadbeen used, we may have recorded too much or too little stock-basedcompensation cost. In addition, we are required to estimate the expectedforfeiture rate of our stock grants and only recognize the expense for thoseshares expected to vest. If the actual forfeiture rate is materially differentfrom our estimate, our stock-based compensation expense could be materiallydifferent.

**Off Balance Sheet Arrangements**

We have no off balance sheet arrangements, nor do we have any specialpurpose entities.

**RISKFACTORS**

There are a number of important factors that could cause our actualresults to differ materially from those indicated or implied by forward-lookingstatements. We disclaim any intention or obligation to update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise, except as may be required by law.

Aside from those risks discussed below, there have been no materialchanges to the risk factors included in our Annual Report on Form-KSB, asamended, for the fiscal year December 31, 2006.

**RISKSRELATED TO OUR BUSINESS**

**WE HAVE A HISTORY OF LOSSES, EXPECTFUTURE LOSSES AND MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.**

As of June 30, 2007, we had stockholders’ equity of approximately $1.4million, an accumulated deficit of approximately $17.1 million and workingcapital of approximately $914,300. We had a net loss of approximately $775,400and $1.5 million for the three and six months ended June 30, 2007. In thefiscal year ended December 31, 2006, we recorded net loss of approximately$3.0 million. We will need to generate revenue to sustain profitability andpositive cash flow. Our ability to generate future revenue and sustainprofitability depends on a number of factors, many of which are describedthroughout this risk factor section, including our ability to develop andgenerate revenues from the sales of our sensor and medical device products,which are at a very early stage of development. We cannot assure you when, ifever, we will generate meaningful revenues from the sales of these productsunder development. If we are unable to achieve and sustain profitability, theCompany’s share price would likely decline.

**SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS**

This document and the documents incorporated by reference hereincontain forward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Also, Apogee’s management may makeforward-looking statements orally or in writing to investors, analysts, themedia and others. Forward-looking statements express our expectations or predictionsof future events or results. They are not guarantees and are subject to manyrisks and uncertainties. There are a number of factors that could cause actualevents or results to be significantly different from those described in theforward-looking statements. Forward-looking statements might include one ormore of the 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.

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Forward-looking statements can be identified by the fact that they donot relate strictly to historical or current facts or events. They use wordssuch as “anticipate”, “estimate”, “expect”, “project”, “intend”, “opportunity”,“plan”, “potential”, “believe” or words of similar meaning. They may also usewords such as “will”, “would”, “should”, “could” or “may”.

Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, performance or achievements. Moreover, we do not assumeresponsibility for the accuracy and completeness of such statements. We do notintend to update any of the forward-looking statements after the date of thisreport to conform such statements to actual results except as required by law.Given these uncertainties, you should not place undue reliance on theseforward-looking statements, which speak only as of the date of this report. Youshould carefully consider that information before you make an investmentdecision. You should review carefully the risks and uncertainties identified inthis report and in the Company’s Annual Report on Form 10-KSB, as amended.

**ITEM 3—CONTROLS AND PROCEDURES**

   (a)   Evaluation of DisclosureControls and Procedures. The Company’s chief executive officer and principalfinancial officer have reviewed and evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) as of the end of the period covered bythis quarterly report. Based on that evaluation, the chief executive officerand principal financial officer have concluded that the Company’s currentdisclosure controls and procedures are adequate and effective to ensure thatmaterial information relating to the Company was made known to them by others,particularly during the period in which this Quarterly Report onForm 10-QSB was being prepared.

   (b)   Changes in InternalControls. There were no changes in our internal control over financialreporting, identified in connection with the evaluation of such internalcontrol that occurred during our last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

**PART II—OTHER INFORMATION**

 **ITEM 1—LEGALPROCEEDINGS**

From time to time, Apogee may be a party to various legal proceedingsarising in the ordinary course of its business.  If and when theseproceedings arise, Apogee is committed to vigorously defending itself in anysuch legal actions.

On March 29, 2007 Apogee received a complaint, which had been filed atthe Superior Court in Norfolk County, Massachusetts, entitled*Michael S. Danielson v. Apogee Technology*,*Case No. 0700512*.  A former Apogeeemployee initiated the complaint alleging, among other things, that Apogeefailed to pay certain bonuses and retirement contributions in connection with acompensatory arrangement concerning the development of certain digital amplifiertechnology.  The former employee claims unpaid compensation ofapproximately $155,000 and the request for relief asks for the amount to betrebled, and include costs and attorneys’ fees.  The management of Apogeebelieves the former employee’s claim to be without merit and the Company willdefend itself vigorously against all of the claims asserted in this legalaction.
| **ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-----------------------------------------------------------------------------|
|                                                                        |
| None.                                                                       |
| ** **                                                                  |
| **ITEM 3—DEFAULTS UPON SENIOR  SECURITIES**                            |
|                                                                        |
| None.                                                                       |
| ** **                                                                  |
| **ITEM 4—SUBMISSION OF MATTERS TO  A VOTE OF SECURITY HOLDERS**        |
|                                                                        |
| None.                                                                       |
| ** **                                                                  |
| **ITEM 5—OTHER INFORMATION**                                           |
|                                                                        |
| None.                                                                       |
| ** **                                                                  |
| **ITEM 6—EXHIBITS**                                                    |
|                                                                        |
| (a) Exhibits:                                                               |
|                                                                        |
| See Exhibit Index                                                      |

 

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**SIGNATURES**

In accordance with the requirements of the Securities Exchange Act of1934, as amended, the registrant has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                        | ** ** | **APOGEE TECHNOLOGY, INC.**                                |
|------------------------|------------|-----------------------------------------------------------------|
|                   |       |                                                            |
| Date: August 14,  2007 |       | 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,  2007 |       | 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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FORM-10-QSB

JUNE 30, 2007

**EXHIBIT INDEX**
| Exhibit  Number | ** ** | **Description**                                                                                                                    |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                               |
| 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              |       | Statement pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Chief Financial  Officer. |

 

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