Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, we do not assume responsibility for the accuracy and
completeness of such statements. We intend that
the forward-looking statements will be covered by the safe harbor provisions for
forward-looking statements contained in Section 27A of the Securities Act of
1933, as amended, and Section 21E, as amended, of the Securities Exchange Act of
1934, as amended. We do not intend to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results except as required by law. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. You should carefully
consider all available information about Apogee before you make an investment
decision. You should review carefully the risks and uncertainties identified in
this Annual Report on Form
10-K.
PART
I
Item
1. DESCRIPTION
OF BUSINESS.
Corporate
Overview
Apogee
Technology, Inc., (“Apogee”, “we”, “us” or “our”) is developing PyraDerm™, a proprietary
intradermal drug delivery system for vaccines and other pharmaceuticals that we
intend to market to pharmaceutical and medical device
companies. Until March 31, 2009, we were also engaged in the
development of IntellaPAL™, a proprietary
sensor-based health monitoring systems for the elderly care and other markets
that we intended to manufacture and market to individuals and health
organizations. Our two major business activities were organized under our Life
Science Group and our Health Monitoring Products Group. Apogee is
currently considered to be a development stage company, as defined by Statement
of Financial Accounting Standards No. 7.
Our Life
Science Group is developing PyraDerm, an advanced
intradermal drug delivery system to meet the needs of patients, health insurers,
companies developing pharmaceuticals, as well as, governments and international
health organizations. PyraDerm is designed to be a
low-cost, effective, painless delivery system that can be self administered and
easily stored while potentially providing pharmaceutical companies an extended
patent position for their current drug formulations. We are evaluating the
feasibility of PyraDerm
by performing in vitro and in vivo tests with model drugs and vaccines. In 2008,
in collaboration with Vaccine and Infectious Disease Organization, or VIDO, we
successfully completed in vivo studies investigating the potential of our
delivery approach for vaccination using large animals. VIDO is one of the
world’s leaders in the research and development of vaccine and immunotherapeutic
technologies for both human and animal diseases. The results of these studies
indicated the ability of the adjuvanted PyraDerm system to improve
the efficiency of immunization and provide a significant dose sparing effect.
Technologies that reduce the required vaccine dose would allow faster production
of vaccines, which is especially important in case of vaccine shortages during
epidemic emergencies, such as pandemic influenza. Based on the results of in
vivo studies, on July 3, 2008, Apogee filed a new U.S. patent application
relating to its intradermal drug delivery technology. The patent application
encompasses formulations and compounds that have the potential to be
instrumental in the development of efficient intradermal vaccines. The company
believes that the results of in vivo studies validate the feasibility of
Apogee’s microneedle delivery technology in an important animal model and
provide directions towards creating new generation systems for intradermal
vaccine delivery. The patent application is designed to protect formulations and
compounds capable of improving both the device production technology and the
efficacy of intradermal vaccines. Our expectations are that the new findings
will favorably situate the company in the field of intradermal vaccine delivery
and strengthen its competitive position. This filing is an important step in
building our robust intellectual property position. In 2008, we also
continued our research collaboration with St. Jude Children's Research Hospital.
The research group at St. Jude is recognized as a leader in the public health
and epidemiology fields and is especially known for its expertise in the area of
influenza vaccines. We also intensified our efforts on further development of a
manufacturing process and focused on conducting experiments on thermal stability
of microneedle formulations as we believe that potential improved shelf-life is
one of the critical advantages of our technology. Upon completion of our in
vitro and in vivo studies, if successful, we intend to pursue licensing and
partnership agreements for multiple product applications with pharmaceutical,
and medical device companies, and government and world health
organizations interested in drug delivery systems and
technologies.
In 2009,
we have closed down the operations of the Health Monitoring Product
Group. Costs associated with this cessation of operations and
terminations of related employees were not material.
Subject
to additional funding, Apogee’s sole focus will remain on developing and growing
the Life Science Group.
History
Apogee
was organized as a Delaware corporation in 1987, and initially operated through
its wholly owned subsidiary, Apogee Acoustics Incorporated, or Acoustics.
Acoustics engineered, manufactured, and marketed high quality, high-end patented
ribbon loudspeaker systems for use in home audio and video entertainment
systems. This technology was considered so innovative that a pair of Apogee
loudspeakers is on display at the Smithsonian Museum.
We
discontinued our loudspeaker business in 1994 and utilized our audio experience
on the development of the worlds’ first all-digital, high efficiency audio
amplifier integrated circuits, or ICs, which we trademarked as Direct Digital
Amplification or DDX®. We transitioned our business to take advantage of the
patent we received in 1991 for related technology and to pursue the market
opportunity created by the industry adoption of digital audio transmission,
recording and playback. In 1999, we released our first DDX IC and subsequently
released over twenty additional DDX ICs. In addition to our IC
product sales, we also licensed DDX technology to several IC companies,
including STMicroelectronics NV, or ST, one of the world’s largest semiconductor
companies. In conjunction with ST, our principal licensee, DDX technology became
the market standard and over 35 million DDX ICs were sold in between 1999 and
2002 to consumer electronic companies, such as Sony, Sharp, Samsung, LG,
Philips, RCA and Zenith. During the growth of this business, we won the Deloitte
Technology Fast 50 award in 2003 as the second fastest and in 2004 as the
fastest growing technology company in New England.
In May
2004, in order to expand our technology base and to further diversify our
product and market opportunities, we acquired a portfolio of Micro Electro
Mechanical Systems “(MEMS”) and nanotechnology intellectual property, trade
secrets and know-how developed by Standard MEMS, Inc. MEMS are devices produced
using high volume IC manufacturing techniques that include both electrical
circuits and microscopic mechanical systems. During this time, we also hired
employees from the former Standard MEMS, Inc. and established a MEMS Division
that we subsequently consolidated into our Norwood
headquarters. Since this acquisition, we have been using this
acquired know-how plus additional technologies to develop MEMS and
nanotechnology-based drug delivery and sensor products.
On
October 5, 2005, we sold our audio IC business, including the DDX technology and
the associated royalties from our license agreement with ST, to SigmaTel, Inc.,
or SigmaTel, for approximately $9.4 million plus a one-year earn-out that
subsequently amounted to $383,000. After the sale, we reorganized our remaining
MEMS division into two major business groups, the Medical Products Group and the
Sensor Products Group. We also closed our sales offices in China, Japan, Taiwan
and Hong Kong and terminated our agreements with our independent sales
representatives and distributors.
In 2007,
the majority of our revenue was derived from the sale of the remaining DDX IC
inventory.
In 2008,
all our revenue was derived from royalties received as a result of an agreement
between Apogee and Freescale (formerly SigmaTel, Inc.) whereby Freescale agreed
to pay Apogee a percentage of the royalties it received from ST in exchange for
supporting their royalty negotiations with ST, as well as revenue from the sale
of the remaining DDX inventory. Upon acceptance by Freescale of
lower royalty payments, the arrangement agreed to between Freescale and Apogee
in April 2008 was cancelled. No further revenue is expected under
this arrangement. We expect future revenue, if any, will initially be
the result of licensing and development-related revenues resulting from the
grant of rights to our intellectual property. In order to support our
operations, we intend to secure additional funding in 2009. See Note
19 of the consolidated financial statements beginning on page F-1 of the Annual
Report on Form 10-K.
Since
October 1, 2008, we have operated as a technology research and development
company, and have invested our resources substantially in the development of our
Life Science Group and to a limited extent our Health Monitoring Product
Group. In 2009, we closed down the operations of the
Health Monitoring Product Group. Costs associated with this cessation
of operations and termination of related employees were not
material.
Apogee
maintains an Internet site at http://www.apogeebio.com. The
information contained on our Internet site is not incorporated by reference in
this report and should not be considered part of this
report. Apogee’s Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are
available free of charge on our website as soon as reasonably practicable after
they are filed with, or furnished to, the Securities and Exchange
Commission.
Life Science Business
Overview
Background
The drug
delivery market is driven by the needs of patients, health insurers, companies
developing pharmaceuticals, as well as governments and international health
organizations. Patients desire drug delivery systems that are effective,
inexpensive, easy to use, can be self applied, are painless, and do not require
any special storage or handling. We believe that health insurers desire similar
standards in drug delivery systems as well as reduction of treatment
cost. If such goals are realized, the ancillary benefits could be
higher efficacy, as a result of improved patient compliance, and wider
self-administration, avoiding the cost and inconvenience of doctor or hospital
visits. We believe pharmaceutical companies desire delivery systems that improve
efficacy, are safe, reduce side effects and the associated liabilities, and have
the potential to extend the patent life of drugs to protect market
position. Similarly, we believe that both government and
international health organizations desire low cost drug delivery systems that
can be applied without the involvement of health care professionals and can be
easily stored and distributed efficiently.
We
believe that existing drug delivery technologies of parenteral (i.e. intra muscular,
subcutaneous and intra venous injection), oral, nasal, and transdermal
administration do not meet all of the needs or stated goals for existing and
emerging therapies. For example, protein drugs do not lend themselves to oral
delivery because of poor bioavailability. Consequently, these drugs are
delivered parenterally by health care professionals resulting in increased costs
and reduced patient compliance. Traditional
transdermal patches cannot be used to deliver large molecule drugs because they
will not penetrate the skin under normal conditions. In order to overcome this
problem, drug delivery companies are developing active transdermal systems that
use electrical forces (iontophoresis), chemical enhancers and microporation
methods, which include: RF energy, lasers, thermal energy and
microneedles.
PyraDerm
Solution
Our PyraDerm delivery system
consists of an array of microneedles incorporating a solid-state formulation
that can be utilized to deliver drugs and vaccines into the skin. We
apply micro-fabrication techniques to create our microneedle arrays using
biocompatible materials. We have developed unique methodologies to incorporate
solid state formulations into our microneedles. Our formulation is
designed to work with various types of drugs and vaccines, improve drug or
vaccine shelf-life, and to have a desired release profile, for example, to
dissolve rapidly or in a prolonged manner, to meet specific drug delivery
requirements.
We
believe PyraDerm offers
several advantages over competitive transdermal delivery technologies and
non-transdermal systems for vaccines, small-dose high-potency protein drugs and
other active ingredients. We also believe that our technology has the potential
to enhance the delivery rate of certain small-molecule drugs compared to
existing passive transdermal systems or patches. When compared with other active
transdermal systems that utilize electrical/thermal/RF/laser energy or particle
ablation, we believe our system will be lower in cost, safely disposable and
will have the potential for self-administration. We believe our system has the
potential to reduce or eliminate pain, safer to dispose and decrease the
reliance on refrigerated chain supply. In addition, our system may
provide improved efficacy for vaccines. Compared to oral
administration, our approach avoids the digestion system, thereby potentially
reducing side effects, and improving the bioavailability for specific
drugs.
We are
developing novel solid microneedle systems containing formulations capable of
releasing biologically active compounds in a controlled manner when applied to
the skin. We currently have rights to patents and have filed patent applications
concerning polymer formulations for use in targeted applications and related
manufacturing processes. We believe that our microneedle technology can offer
significant benefits. A summary of our system’s performance in previously
conducted in vivo and in vitro studies along with important potential advantages
is presented below.
|
·
|
In Vivo
Performance: We have demonstrated in a relevant large animal model
that our microneedle system is capable of delivering formulations of
biologically active compounds, such as formulations of vaccine antigens,
intradermally. We found that some important vaccine formulations delivered
intradermally using our microneedle systems are superior to similar
formulations delivered by conventional routes, such as intramuscular
route.
|
|
·
|
Stability/Shelf
Life: We have demonstrated that our microneedle formulations appear
to improve the stability of certain biologically active compounds as
compared to liquid formulations. This advantage could provide a longer
potential shelf-life without loss of efficacy, while at the same time
reducing the cost of storage and reliance on cold chain
supply.
|
|
·
|
Controlled
Release: We have demonstrated that our formulation technology may
be tailored to modulate the release of biologically active compounds. Our
systems can be formulated either for almost instantaneous release or, if
desired, for sustained release of biologically active
compound.
|
|
·
|
Dose
Control: We have demonstrated that our proprietary microneedle
coating process appears to provide for high efficiency of drug
incorporation to minimize losses, or wasted bio-active material, so that a
precise dose of drug can be applied
reliably.
|
|
·
|
Microneedle
Design: We believe the advantages of our microneedle
array designs are that: (i) the components of our microneedles are either
excipients of approved formulations or have a history of human use (ii)
the dimensions of our micro needles can be precisely manufactured to meet
the needs of the optimal delivery depth in the skin, (iii) our design
approach utilizes manufacturing methods that can be scaled to high volume
production to meet cost goals.
|
We also
believe that the design of our microneedles can provide additional
simplifications and benefits to address the needs of patients, pharmaceutical
companies, health insurers, government, and world health
organizations.
Needs
|
Design
Advantages
|
Patient
|
|
Safety
|
-
Single use
-
Lower probability of needle sticks
-
Less chance of accidental overdose
|
Reduced
or no Pain
|
- Minimal
or no pain due to size of microneedles
- Patient
friendly and easy to use applicator
|
Ease
of Administration
|
-
Easier administration with a possibility of self-administration limits
need for doctor and hospital visits
|
|
|
Health
Insurers
|
|
Treatment
Cost of Patient
|
-
Low cost design
-
Designed for higher efficacy (vaccines) potentially reducing need for
multiple administrations
-
Self administration limits cost of doctor/hospital visits
-
Painless and easy delivery improves compliance and patient realizes the
benefits of enhanced compliance
|
|
|
Government/World
Health Organizations
|
|
Low
Treatment Cost
|
-
Low cost design
|
Long
Term Storage/ Ease of Transport
|
-
Solid-state formulation may provide extended shelf life and minimizes
reliance on refrigerated chain supply
|
Rapidly
Deployable
|
-
Easy or self-administration – no health care professionals
required
|
Disposable/No
Reuse/Contamination
|
-
Single use for no cross contamination
-
Easier to dispose
-
All of the drug is consumed; no disposal abuse
|
|
|
Pharmaceutical
Companies
|
|
Higher
Efficacy
|
-
Targeted intradermal delivery of vaccines may lead to higher immune
responses (more effective vaccines), dose sparing, and potentially new
vaccines
|
Improved
Safety/Less Side Affects
|
-
No potential for needle reuse and cross contamination
-
No gastric tract related side affects
-
Less chance of accidental overdose with the single use
design
|
Extend
Patent Life
|
-
New formulation and delivery route may extend drug patent
life
|
Release
Control
|
-
Solid-state drug formulation has potential to be customized for rapid or
prolonged release
|
Targeted
Delivery
|
-
Delivery to targeted area of skin possible
|
Platform
Design for Wide Use
|
-
Potentially suitable for vaccines, high potency large molecule drugs and
active ingredients
|
Market
Opportunities
We
believe that the advantages of PyraDerm’s design, targeted
intradermal delivery, self-administration and controlled release, may have
particular benefits for the delivery of vaccines, small dose high potency
protein based therapeutics and non-pharmaceutical ingredients as summarized
below.
Vaccines: Today most vaccines are
delivered by painful intramuscular injection, even though below the top layer of
the skin are cells whose function is to facilitate the body’s protective immune
response mechanism. PyraDerm is designed to
deliver vaccines to the skin layer rich in such cells thereby potentially
increasing efficacy over intramuscular injection. This targeted approach may
have the potential to reduce the vaccine dose required for an effective
immunization. In addition, new vaccines that currently do not meet efficacy
requirements using an intramuscular injection may be viable using PyraDerm thus expanding
market opportunities. Because our delivery system is designed for a possibility
of self-administration, vaccines can be deployed rapidly to a large population
in the event of a flu outbreak or a bioterrorism attack. We believe that the
anticipated stability of our solid-state formulation will have benefits for the
viability and utility of such vaccines.
The
vaccine market is well established and is projected, by a leading research firm,
to grow to $18.2 billion. We believe that emerging vaccines, such as
for pandemic flu, cancer and bioterrorism, will be driving most of the vaccine
market growth over the next 10 years. Over 80 million doses of flu
vaccine are administered in the United States on an annual basis.
Protein/Polypeptide
Drugs: Protein
and polypeptide therapeutics are among the most effective treatments available
today for certain diseases. These large molecule pharmaceuticals can be a
challenge to deliver orally because they are usually inactivated during
digestion and therefore are typically administered parenterally. The need for
professional administration of these therapies is one of the challenges limiting
their acceptance and market growth. For the protein drugs that only
require a small dosage, PyraDerm may offer the
following potential advantages:
|
·
|
painless
self administration thereby avoiding the need for a hospital or doctors
visit,
|
|
·
|
simplified
storage and extended product shelf life of large molecule drugs,
and
|
|
·
|
extension
to the patent life of specific drugs through the adoption of a new
transdermal formulation protecting pharmaceutical market share and product
revenue.
|
There
currently are more than 40 marketed peptide/protein based drugs for the
treatment of diseases such as diabetes, osteoporosis, hepatitis and
cancer. The total market for these therapies is expected to grow to
$90 billion in the foreseeable future.
Government
Regulation
Drug
delivery products require FDA approval for many of the applications discussed
above before they can be sold in the United States. If these products
are marketed abroad, they will also be subject to export requirements as well as
to regulation by foreign governments. The FDA administers the Federal Food, Drug
and Cosmetic Act, the FFDCA, and has adopted regulations to administer the
FFDCA. These regulations include policies that: i) govern the introduction of
new medical devices, drugs, and excipients; ii) require observing certain
standards and practices in the manufacture and labeling of medical devices; and
iii) require medical device and drug companies to maintain certain records and
report related deaths, serious injuries and certain malfunctions to the
FDA. The FDA approval process can last several years before a product
can be marketed and sold. Because of these regulations we have
retained experienced FDA consultants to support our research and development
efforts.
Our
Business Strategy
Upon
completion of in vitro and in vivo evaluation of PyraDerm, if successful, we intend to pursue
licensing/development and partnership agreements with pharmaceutical companies,
government and world health organizations. We do not intend to enter clinical
trials with PyraDerm
due to the significant cost and time associated with the FDA approval process.
Under a licensing/development agreement with a pharmaceutical company, we would
provide rights to our intellectual property for specific applications in
exchange for license fees, milestone payments and/or royalties tied to product
sales. Under a partnership agreement, we would jointly invest in the product
development and share on some basis the resulting revenues. We may also sell the
rights to our technologies for specific applications.
Competition
As
presented above, we believe that we are positioned to compete effectively in the
drug delivery marketplace. However, our major competitors are substantially
larger and have financial resources significantly greater than our own.
Companies developing similar drug delivery technologies include; 3M Company,
Zosano Pharma, Becton Dickinson and Company and Corium International
Incorporated.
Business
Operations
Research
and Development
During
the year ended December 31, 2008, we spent approximately $1.6 million on
research and development, or R&D, activities to support our Life Science
Group and to a limited extent our Health Monitoring Product
Group. During the year ended December 31, 2007, Apogee spent
approximately $1.3 million on R&D. At December 31, 2008 we
recorded a patent impairment charge of approximately $188,000 to reflect a
decline in valuation of certain patent applications due to a technology decision
we made subsequent to year end. If we are able to secure additional
financing to support our operations and repay our existing indebtness, we
anticipate that we will continue to commit resources to research and development
activities as our financial position allows, and as a result, R&D costs are
expected to increase substantially in the future. In 2009, we closed
down the operations of the Health Monitoring Product Group.
Intellectual
Property
Our
policy is to protect the technology important to the success of our business by
filing U.S. patent applications and, where appropriate, corresponding foreign
patent applications. In 2008, we filed a U.S. patent application
encompassing formulations and compounds that can be instrumental in the
development of efficient intradermal vaccines. We also continued with an
exclusive license agreement with the Georgia Tech Research Corporation , which
grants us exclusive rights to a patent application and know-how related to the
design and manufacturing of microneedle-based drug delivery systems. Previously,
we have filed other patent applications related to our microneedle technology to
protect rights for microneedle formulations with improved coating efficiency,
methods and systems for precise dose control. In May 2004, we
acquired a portfolio of MEMS intellectual property, trade secrets and know-how
developed by Standard MEMS, Inc, which has certain rights and royalty
obligations associated with it. We continue to evaluate this
intellectual property to determine what intellectual property could be utilized
and if additional patent protection is warranted to support our current business
operations. At December 31, 2008 we recorded a patent
impairment charge of approximately $188,000 to reflect a decline in valuation of
certain patent applications due to a technology decision we made subsequent to
year end. In addition, at December 31, 2009, we amortized
approximately $37,000 of patent application related expenses.
Marketing
and Sales
If our
products reach commercialization phase, we intend to add business development
management to market our technology.
Manufacturing
and Quality
We are
developing manufacturing methods to produce and to apply drugs in a controlled
manner to our micro-needle designs. We believe these methods are
scalable and compatible with the pharmaceutical industry. We have also worked
with FDA consultants to help us develop our technologies to meet regulatory
requirements.
Environmental
Laws and Regulations
We
operate a formulation and analytical laboratory at our headquarters in Norwood,
MA. This laboratory supports our Life Science Group and, as a result, we use
materials, from time to time, that are potentially biologically hazardous. These
materials are segregated and handled in accordance with specific procedures that
minimize the potential exposure for our employees. Such materials are disposed
of in accordance with specific accepted safety procedures. The costs of
compliance with these procedures are not significant.
Scientific
Advisory Board
Our
Scientific Advisory Board is comprised of scientists who provide specific
expertise on a consulting basis. The Scientific Advisory Board assists us on
issues related to fundamental technologies, product development, potential
applications and clinical testing. Its members, and their affiliations and area
of expertise, include:
Name
|
Affiliation
|
Area
of Expertise
|
Alexander
K. Andrianov, Ph. D.
|
Chairman
of the Scientific Advisory Board, Apogee Technology, Inc.
|
Chemistry
and Drug Delivery Formulation
|
R.
Rox Anderson, M.D.
|
Mass
General Hospital
Harvard
Medical School
Massachusetts
Institute of Technology
|
Dermatology
|
Mark
Prausnitz, Ph.D.
|
Georgia
Institute of Technology
|
Drug
Delivery Technologies
|
Hans
Wigzell, M.D., Ph.D., Professor of Hagersten
|
Royal
Swedish Academy of Sciences
Chief
Scientific Advisor to the Swedish Government
American
Society for Immunology
Finnish
Society of Sciences and Letters
Danish
Academy of Sciences and Letters
Academia
Europea
|
Immunology
|
Employees
As of
December 31, 2008, Apogee had 4 full-time and 9 part-time employees, including 9
in research and development and 4 in general and
administration. Currently, we have 6 full-time and 2 part-time
employees, including 4 in research and development and 4 in general and
administration. None of our employees are represented by a collective
bargaining agreement, nor have we experienced work stoppages. It is
our belief that relations with our employees are good.
Executive
Officers of the Company
The
following table sets forth certain information with respect to the executive
officers of Apogee Technology as of December 31, 2008. All officers
serve at the pleasure of the Board of Directors.
Name
|
|
Age
|
|
Position
|
Herbert
M. Stein
|
|
80
|
|
President,
Chief Executive Officer and Chairman of the Board
|
Paul
J. Murphy
|
|
61
|
|
Chief
Financial Officer and Vice President of Finance
|
Alexander K.
Andrianov, Ph.D.
|
|
51
|
|
Vice
President Research and Development
|
Mr.
Herbert M. Stein has served as Apogee’s Chief Executive Officer since January
2001. Mr. Stein has been a Director of the Company since 1996 and has been
Chairman of the Board since January 2000. Mr. Stein was Chief Executive Officer
of Organogenesis, Inc from 1987 through 1999 and was Chairman of the Board of
Directors of Organogenesis from 1991 through 1999.
Mr. Paul
J. Murphy joined Apogee in June 2005 in the role of Chief Financial Officer and
Vice President of Finance, including the responsibilities of the Company’s
Principal Accounting Officer. Prior to joining Apogee, from June 2004 to June
2005, Mr. Murphy was an independent contractor with JH Cohn, LLP, an accounting
firm, working on engagements with public companies to design, assess and test
controls for compliance with Section 404 of the Sarbanes-Oxley Act of
2002. From March 2002 until June 2004, Mr. Murphy worked as a
self-employed consultant for companies on short-term projects of the type
ordinarily undertaken by a Chief Financial Officer. From February
1999 through January 2002, Mr. Murphy was the Senior Vice President, Chief
Financial Officer and Treasurer of Artel Video Systems, Inc., a video networking
technology company. Previous to 1999, Mr. Murphy worked as a Chief
Financial Officer with four companies, three of which were publicly traded
issuers.
Dr.
Alexander K. Andrianov joined Apogee in September 2006 as the Vice President of
Research and Development. Dr. Andrianov brings over 25 years
experience in the application of polymers as biomaterials and drug delivery
systems. Most recently, he was the founder and Chief Scientific Officer of
Parallel Solutions, Inc. from 2001 until 2005, where he developed biodegradable
polymers for protein delivery and discovered a new class of potent vaccine
immunoadjuvants. Prior to starting Parallel, he worked for Physical Science,
Inc. as Principal Research Scientist and at Avant Immuonotherapeutics, Inc. as
Director of Polymer Synthesis and Formulation. Dr. Andrianov is listed as an
inventor on over 35 patents and patent applications and has published numerous
technical papers. Dr. Andrianov received his Ph.D. in Polymer Science from
Moscow State University in 1985 and served as a faculty member until 1991. He
continued his academic training at the Massachusetts Institute of
Technology.
Item
1A. RISKS
RELATED TO OUR BUSINESS
WE REQUIRE ADDITONAL CAPITAL TO
CONTINUE OPERATIONS AND HAVE A HISTORY OF LOSSES AND EXPECT FUTURE
LOSSES.
As of
December 31, 2008, we had no cash, a stockholders’ deficiency of approximately
$4.0 million, an accumulated deficit of approximately $22.9 million and a
working capital deficit of approximately $4.2 million. We had a net
loss of approximately $4.0 million for the fiscal year ended December 31, 2008,
compared to a net loss of $3.2 million for the fiscal year ended December 31,
2007.
We have substantial debt and interest obligations and expect to
incur additional debt to the extent available, to maintain our
operations. As of December 18, 2009, we had approximately $3,069,000
in promissory notes outstanding to a significant shareholder, our President,
Chief Executive Officer and Chairman of the Board of Directors, an individual
investor and others. These promissory notes are payable upon demand,
not subject to any premium or penalty for prepayment, bear simple
interest of 8% per annum until maturity. An additional 4% interest
compounded monthly is charged on all post-maturity notes. We are
currently in default on substantially all of the promissory notes.
We have large unpaid balances with professional and other service
providers. We are currently in arrears with loan and interest
payments, majority of our vendors, payroll, payroll withholding and payroll
taxes. On December 11, 15, 16, and 18, 2009, Apogee received an additional
$133,000 from Herbert M. Stein and David Spiegel. The proceeds
from these loans were used to pay unpaid payroll and payroll taxes up through
and including payroll for the period ended December 15, 2009. These
amounts exclude payroll and payroll taxes for Mr. Herbert M. Stein, who has not
drawn cash compensation from Apogee since June 30, 2009.
As of
March 31, 2009, Apogee’s Directors and Officers Liability Insurance was
cancelled due to non-payment and the Company maybe required to pay uninsured
losses. See Note 10 to the consolidated financial statements
beginning on page F-1 of the Annual Report on Form 10-K.
On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934. In connection with the contemplated proceedings, the staff
may seek a suspension or revocation of each class of the Company’s registered
securities. Also, the staff may consider whether contempt proceedings in a
federal district court are appropriate. The Company submitted a
response to this letter on November 16, 2009. Should suspension or
revocation of registration of our stock occur, the Company’s ability to raise
additional funding may be severely impacted.
Even if
we are able to secure additional financing to support our operations and repay
our existing indebtness, our ability to generate future revenue and achieve
profitability depends on a number of factors, many of which are described
throughout this risk factor section, including our ability to develop and
generate revenues from the sales of our medical device products, which are at a
very early stage of development. We cannot assure when, if ever, we
will generate meaningful revenues from the sales of these products under
development. If we are unable to generate revenue or obtain
financing, our share price will likely decline and we may be forced to
liquidate.
IF
OUR ATTEMPTS TO SECURE ADDITIONAL FINANCING ARE NOT SUCCESSFUL, WE WILL BE
REQUIRED TO CEASE OR CURTAIL OUR OPERATIONS, OR OBTAIN FUNDS ON UNFAVORABLE
TERMS. THESE FACTORS CREATE A SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
Our
available resources are already not sufficient, without additional sources of
financing, to continue our business, and we expect to incur operating losses for
the foreseeable future. Consequently, in order to maintain our
operations, which we have already curtailed substantially, we will need to
access additional equity or debt capital. Securing financing is
proving even more difficult than anticipated in light of the current global
economic crisis and the turmoil impacting global financial
markets. These factors create a substantial doubt about our ability
to continue as a going concern. In light of our negative
stockholders’ equity, there can be no assurance that we will be able to obtain
the necessary additional capital on a timely basis or on acceptable terms, if at
all, to continue our operations and, to the extent available, to fund the
development of our business. In any of such events, the continuation of our
operations would be materially and adversely affected and we may have to cease
conducting business.
As noted
above, Apogee is in the process of attempting to secure sufficient financing to
continue operations. In the interim, short-term debt financing
provided by Apogee’s significant shareholders, including our President, Chief
Executive Officer and Chairman of the Board of Directors, and two other
employees are being used to continue our operations and, to the extent possible,
continue product development efforts. Additionally, cost cutting
measures, including salary reduction for non-PyraDerm employees,
diminished pace of sensor development, deferral of capital expenditures,
non-payment of professional and other services providers and reduced general
spending have been instituted until such time as financing is secured, if
ever. If we are unable to obtain financing, we may be required to
further curtail our operations or cease conducting business. Given
our current level of debt, we do not expect that our stockholders would receive
any proceeds if we declare bankruptcy or seek to liquidate the
Company. In 2009, Apogee closed down operations of the Health
Monitoring Product Group. Costs associated with this cessation of
operations as well as the termination of employees associated with this Group
were not material.
FAILURE
TO COMPLY WITH LAWS AND GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR
ABILITY TO OPERATE OUR BUSINESS.
Some of
our activities are regulated by federal and state statutes and government
agencies. The expected manufacturing, processing, formulation, packaging,
labeling, distribution and advertising of our products, and disposal of waste
products arising from these activities, maybe subject to regulation by one or
more federal agencies, including the US Food and Drug Administration, or the
FDA, the Drug Enforcement Agency, which we refer to as the, DEA, the Federal
Trade Commission, the Consumer Product Safety Commission, the U.S. Department of
Agriculture, the Occupational Safety and Health Administration, and the
Environmental Protection Agency, or the EPA, as well as by foreign governments
and their in country agencies where we distribute some of our
products.
Noncompliance
with applicable FDA policies or requirements could subject us to enforcement
actions, such as suspensions of manufacturing or distribution, seizure of
products, product recalls, fines, criminal penalties, injunctions, failure to
approve pending drug product applications or withdrawal of product marketing
approvals, if previously received. Similar civil or criminal penalties could be
imposed by other government agencies, such as the DEA, the EPA or various
agencies of states and localities. These enforcement actions, if they
were to occur, could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The FDA
has the authority and discretion to withdraw approvals and review the regulatory
status of marketed products at any time. For example, the FDA may require an
approved marketing application for any drug product marketed if new information
reveals questions about a drug’s safety or efficacy. All drugs must
be manufactured in conformity with current Good Manufacturing Practices and drug
products subject to an approved application must be manufactured, processed,
packaged, held and labeled in accordance with information contained in the
approved application.
WE
MAY NOT BE ABLE TO LICENSE OUR TECHNOLOGY OR OBTAIN DEVELOPMENT PARTNERS, IN
WHICH CASE WE WILL BE SIGNIFICANTLY LIMITED IN OUR ABILITY TO GENERATE REVENUE
FROM OUR DRUG DELIVERY TECHNOLOGIES
In order
to potentially commercialize our drug delivery technologies, we intend to pursue
licensing, development and partnership agreements with pharmaceutical and
medical device companies, as the cost to develop and obtain regulatory approval
for drug delivery products is high. If we are unable to complete
agreements with potential partners or we are unable to raise sufficient funds to
commercialize our products, ourselves we may not be able to receive a return on
our investment in our drug delivery technologies.
IF
WE ARE UNABLE TO HIRE OR RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS SUCCESSFULLY.
We may
not be successful in recruiting and retaining executive officers and other key
management and technical personnel. The competition for employees with the
necessary high level of technical expertise to design, market and sell our
products is intense, particularly in eastern Massachusetts. As a
result of the October 2005 sale of certain assets to SigmaTel, we will need to
hire, if funds permit in the future, a number of additional technical personnel
if we are to sustain the development of new products and our ability to sell
those products. Because competition for highly skilled technical
personnel is so intense, companies in Apogee’s industry are subject from time to
time to complaints brought by competitors alleging interference with contractual
relations or wrongful hiring of employees. Such lawsuits may be
costly, may divert management attention and resources from the operation of our
business, and may therefore adversely affect our financial condition and results
of operations. In addition, the loss of the management and technical
expertise of our senior management could seriously harm us. Our
employees may also be recruited away from us by our competitors. We do not have
in place employment contracts for members of our senior management, including
the Chief Financial Officer and our Vice President of Research and
Development.
WE
DO NOT HAVE MANUFACTURING CAPABILITIES, AND AS A RESULT, WE WILL RELY ON OUTSIDE
MANUFACTURERS TO PRODUCE OUR PRODUCTS.
We have
no manufacturing capabilities to produce our potential products. Accordingly, we
utilize outside manufacturers, assembly and in some cases test companies to
produce and qualify our potential products. There are significant
risks associated with our reliance on these manufacturers that can adversely
affect our business, operating results and financial condition. These
risks include:
|
· the ability
to maintain manufacturing relationships, the failure of which could result
in significant delays in product introduction due to the time necessary to
establish new relationships;
|
|
· delays in
production or shortages in product delivery as a result of production
problems at outside contractors;
|
|
· the loss of
manufacturing priority that may limit our ability to obtain products on
schedule;
|
|
· limited
control over product quality that could result in product returns and the
loss of customers;
|
|
· inability to
control manufacturing yield that could increase production costs, thereby
reducing sales potential and operating margins;
and
|
|
· lack of
access or control over new process and manufacturing technologies to
maintain product competitiveness in the
market.
|
OUR
MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE; THEREFORE, OUR SUCCESS
DEPENDS ON OUR ABILITY TO INTRODUCE NEW PRODUCTS IN A TIMELY
FASHION.
The life
cycle of the technology and any future products developed by us may be limited
by the emergence of new products and technologies, changes in customer
preferences and other factors. Our future performance will depend on
our ability to consistently:
|
· identify
emerging technological trends in our
market;
|
|
· identify
changing customer requirements;
|
|
· develop or
maintain competitive technology, including new product
offerings;
|
|
· improve the
performance, features and reliability of our products, particularly in
response to technological change and competitive
offerings;
|
|
· bring
technology to market quickly at cost-effective prices;
and
|
|
· protect our
intellectual property.
|
We may
not succeed in developing and marketing new products that respond to
technological and competitive developments and changing customer needs, and such
products may not gain market acceptance or be incorporated into the technology
or products of third parties. Any significant delay or failure to
develop new enhanced technologies, including new product offerings, and any
failure of the marketplace to accept any new technology and product offerings
would have a material adverse effect on our business, financial condition and
results of operations.
WE
MAY NOT BE ABLE TO OBTAIN FDA OR FOREIGN REGULATORY APPROVAL FOR OUR PRODUCTS IN
A TIMELY MANNER, OR AT ALL, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
ABILITY TO SELL AND MARKET OUR MEDICAL DEVICE PRODUCTS.
Drug
delivery systems that we may develop in the future cannot be sold in the United
States until the FDA approves such products for medical use. Similar
foreign regulatory approvals will be needed in order to sell any drug delivery
system outside of the U.S. We may not or any of our potential
partners may not be able to obtain FDA or foreign regulatory approval for
products incorporating our technologies, in a timely manner, or at
all. Delays in obtaining FDA or foreign approvals could result in
substantial additional costs to us, and, therefore, could adversely affect our
ability to compete with other drug delivery companies. If we do not
obtain such approvals at all, our revenues may be insufficient to support
continuing operations.
OUR
ABILITY TO GENERATE REVENUE WILL BE HARMED IF WE ARE UNABLE TO MARKET OUR
PRODUCTS.
We face
challenges in persuading manufacturers and customers to adopt our products based
upon new MEMS and nanotechnologies. In order to adopt our products,
customers and their development staff must understand and accept our new
technology. In addition, our products may be more expensive or
difficult to use for some applications than products based on traditional
technologies. For these reasons, prospective customers may be
reluctant to adopt our products.
COMPETITION
IN THE MEDICAL DEVICE INDUSTRY COULD PREVENT US FROM ACHIEVING
PROFITABILITY.
The
medical device industry is highly competitive, and we expect the intensity of
the competition to increase. Our competitors have greater financial, technical,
research, marketing, sales, distribution, service and other resources than we
do. Moreover, our competitors may offer broader product lines and
have greater name recognition than we do, and may offer discounts as a
competitive tactic, forcing intense pricing pressure on our potential
products. In addition, several development-stage companies are
currently creating or developing technologies and products that compete with or
are being designed to compete with our technologies and products. Our
competitors may develop or market technologies or products that are more
effective or more commercially attractive than our current products candidates
or future products, or that may render our technologies or products less
competitive or obsolete. Accordingly, if competitors introduce
superior technologies or products and we cannot make enhancements to our
technologies and products necessary for them to remain competitive,
our competitive position, and in turn, our business, revenues and
financial condition, will be seriously harmed.
OUR
COMPLIANCE WITH THE SARBANES-OXLEY ACT AND SEC RULES CONCERNING INTERNAL
CONTROLS MAY BE TIME-CONSUMING, DIFFICULT AND COSTLY FOR US.
We expect
that it will be time-consuming and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley
Act. We may need to hire additional financial reporting, internal
controls and other finance staff in order to develop and implement appropriate
internal controls and reporting procedures. If we are unable to comply with the
internal controls requirements of the Sarbanes-Oxley Act, we may not be able to
obtain the independent accountant certifications that the Sarbanes-Oxley Act
requires publicly-traded companies to obtain.
RISKS
RELATED TO OUR INTELLECTUAL PROPERTY
OUR
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY BE INSUFFICIENT TO PROTECT OUR
COMPETITIVE POSITION.
Our
business depends, in part, on our ability to protect our intellectual
property. We rely primarily on patent, copyright, trademark and trade
secret laws to protect our proprietary technologies. We cannot be
sure that such measures will provide meaningful protection for our proprietary
technologies and processes. We cannot be sure that any existing or
future patents will not be challenged, invalidated or circumvented, or that any
rights granted thereunder would provide us meaningful protection. The failure of
any patents to provide protection to our technology would make it easier for our
competitors to offer similar products.
We also
generally enter into confidentiality agreements with our employees and strategic
partners, and generally control access to and distribution of our documentation
and other proprietary information. Despite these precautions, it may
be possible for a third party to copy or otherwise obtain and use our products
or technology without authorization, develop similar technology independently or
design around our patents. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries in which we operate.
WE
MAY BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS DISPUTES, WHICH THAT COULD DIVERT
MANAGEMENT’S ATTENTION AND COULD BE COSTLY.
The
medical device industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, we may receive notices of
claims of infringement, misappropriation or misuse of other parties’ proprietary
rights. We cannot be sure that we will prevail in these actions, or
that other actions alleging infringement by us of third-party patents,
misappropriation or misuse by us of third-party trade secrets or the invalidity
of one or more patents held by us will not be asserted or prosecuted against us,
or that any assertions of infringement, misappropriation or misuse or
prosecutions seeking to establish the invalidity of our patents will not
seriously harm our business. For example, in a patent or trade secret
action, an injunction could be issued against us requiring that we withdraw
particular future products from the market or necessitating that specific
products offered for sale or under development be redesigned.
Irrespective
of the validity or successful assertion of various claims of infringement,
misappropriation or misuse of other parties’ proprietary rights, we would likely
incur significant costs and diversion of our management and personnel resources
with respect to the defense of such claims, which could seriously harm our
business. If any claims or actions are asserted against us, we may
seek to obtain a license under a third party’s intellectual property
rights. We cannot be sure that under such circumstances a license
would be available on commercially reasonable terms, if at
all. Moreover, we often incorporate the intellectual property of our
strategic customers into our designs, and we have certain obligations with
respect to the non-use and non- disclosure of such intellectual
property. We cannot be sure that the steps taken by us to prevent our
or our customers’ misappropriation or infringement of the intellectual property
will be successful.
RISKS
RELATED TO OUR COMMON STOCK
AS WE ARE NO LONGER TRADED ON AN EXCHANGE, BLUE-SKY LAWS
MAY LIMIT RESALES AND TRADING OF OUR COMMON STOCK, WHICH COULD REDUCE LIQUITIY
AND YOUR ABILITY TO SELL OUR COMMON STOCK.
Under the National Securities Markets Improvement Act of
1996, the resale of our common stock may be exempt from state registration
requirements as a result of the exemption provided for ordinary brokerage
transactions where the parties have not been solicited by the broker-dealer or
in some circumstances because we will file periodic and annual reports under the
Securities Exchange Act of 1934, as amended. However, states are
permitted to require notice filings and collect fees with regard to these
transactions and a state may suspend the offer and sale of common stock within
such state if any such required filing is not made or fee is not paid. As of the
date of this Annual Report, we are not current with our filings therefore we are
not entitled to exemptions for Blue Sky laws. As of the date of the
Annual Report, we have sought no exemptions.
WE
MAY BE SUBJECT TO HAVING OUR COMMON STOCK SUSPENSED AND THE REGISTRATION OF OUR
COMMON STOCK REVOCKED.
On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934. In connection with the contemplated proceedings, the staff
may seek a suspension or revocation of each class of the Company’s registered
securities. Also, the staff may consider whether contempt proceedings in a
federal district court are appropriate. The Company submitted a
response to this letter on November 16, 2009. Should suspension or
revocation of registration of our stock occur, the Company’s ability to raise
additional funding may be severely impacted.
WE
MAY BE SUBJECT TO “PENNY STOCK” RULES AND THESE
REGULATIONS MAY LIMIT THE LIQUIDITY OF OUR COMMON STOCK.
Our
common stock was listed on the AMEX until December 2007. On January 23, 2008, we announced that our shares
were being quoted on the Over–the-Counter Bulletin Board® or OTCBB, under the
symbol “ATCS.OB”. Since May 2009 our stock is listed on the Pink
Sheets, LLC under the symbol “ATCS.PK.”
The SEC has promulgated rules governing over-the-counter
trading in penny stocks, defined generally as securities trading below $5 per
share that are not quoted on a securities exchange or which do not meet other
substantive criteria. Under these rules, our common stock is currently
classified as a penny stock. As a penny stock, our common stock is
currently subject to rules promulgated by the SEC that impose additional sales
practice requirements on broker-dealers that might sell such securities to
persons other than established customers and institutional accredited
investors. For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser’s written consent to the transaction prior to
sale. Further, if the price of the stock is below $5 per share and
the issuer does not have $2.0 million or more net tangible assets or is not
listed on a registered national securities exchange, sales of such stock in the
secondary trading market are subject to certain additional rules promulgated by
the SEC. These rules generally require, among other things, that
brokers engaged in secondary trading of penny stocks provide customers with
written disclosure documents, monthly statements of the market value of penny
stocks, disclosure of the bid and asked prices, and disclosure of the
compensation to the broker-dealer and the salesperson working for the
broker-dealer in connection with the transaction. If a trading market
for our common stock develops, these rules and regulations may affect the
ability of broker-dealers to sell our common stock, thereby effectively limiting
the liquidity of our common stock. These rules may also adversely
affect the ability of persons that acquire our common stock to resell their
securities in any trading market that may exist at the time of such intended
sale.
ISSUANCE
OF PREFERRED STOCK COULD MATERIALLY ADVERSELY AFFECT HOLDERS OF COMMON STOCK AND
ANY EXPANSION OR SALES OPPORTUNITIES.
We may be required to issue a series of
preferred stock for continued funding of operations. The issuance of
any preferred stock could materially adversely affect the rights of the holders
of shares of our common stock and, therefore, could reduce the value of the
common stock. In addition, specific rights granted to holders of
preferred stock could be used to restrict our ability to merge with, or sell our
assets to, a third party. The ability of the Board of Directors to
issue preferred stock could have the effect of rendering more difficult,
delaying, discouraging, preventing, or rendering more costly an acquisition of
us or a change in control of us, hereby preserving our control by the current
stockholders.
FACTORS
UNRELATED TO OUR BUSINESS COULD NEGATIVELY IMPACT THE MARKET PRICE OF OUR COMMON
STOCK.
The stock
markets have experienced extreme price and volume fluctuations that have
affected and continue to affect the market prices of equity securities of many
technology companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. We
expect that the market price of our common stock will
fluctuate. These fluctuations may be exaggerated if the trading
volume of our common stock is low. In addition, due to the
technology-intensive nature of our business, the market price for our common
stock may rise and fall in response to various factors, including:
|
·
|
announcements
of technological innovations or new products, or competitive
developments;
|
|
·
|
investor
perceptions and expectations regarding our or our competitors’ products;
and
|
|
·
|
acquisitions
or strategic alliances by us or our
competitors.
|
In
addition, market fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency
fluctuations, may negatively impact the market price of our Common
stock.
NEITHER
OUR DISCLOSURE CONTROLS AND PROCEDURES NOR OUR INTERNAL CONTROLS OVER FINANCIAL
REPORTING CAN PREVENT ALL ERRORS OR FRAUD.
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting could prevent all errors or
fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system will be attained. Furthermore, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their
costs. Because of the inherent limitations in a cost-effective
control system, no evaluation of controls can provide absolute assurance that
all misstatements due to error or fraud, if any, may occur and not be detected
on a timely basis. These inherent limitations include the possibility
that judgments in decision-making can be faulty and that breakdowns can occur
because of errors or mistakes. Our controls and procedures can also
be circumvented by the individual acts of some persons, by collusion of two or
more people or by management override of the controls.
The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Furthermore, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with policies
or procedures.
While we
seek to design our controls and procedures to provide reasonable assurance that
information required to be disclosed in our periodic filings is timely
disclosed, these inherent limitations expose us to breakdowns in such controls
and procedures.
Item
2. DESCRIPTION
OF PROPERTIES.
Apogee
rents approximately 5,000 square feet of office space at 129 Morgan Drive,
Norwood, Massachusetts from an entity controlled by a major
stockholder. See Note 9 of the consolidated financial statements –
Related Party Transactions. The lease for this office space expired
on December 31, 2005. Currently, Apogee is renting this facility on a
month-to-month basis and believes that this rent is at or below market
rate. Rent has been accrued and remains unpaid since September
2008.
Item
3. LEGAL
PROCEEDINGS.
From time
to time, we may be a party to various legal proceedings arising in the ordinary
course of our business. If and when these proceedings arise, we are
committed to vigorously defending ourselves in any such legal
actions.
An
investigation by the Security and Exchange Commission (“SEC”), which the Company
first became aware of in May 2005, was ongoing in 2008. The subject matter of
this investigation is the Company's prior revenue recognition practices that
were addressed in the Company's restatement of its financial statements for the
fiscal year ended December 31, 2004. As previously disclosed in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2004, as amended,
Apogee’s Audit Committee, with the assistance of independent counsel, conducted
an investigation into Apogee’s historical accounting practices that resulted in
the implementation of remedial actions. See our Annual Report on Form 10-KSB for
the year ended December 31, 2004, as amended, for detail regarding the
restatement.
In July
2008, Apogee, it’s Chief Executive Officer and other employees received
notifications from the Staff of the SEC relating to the Staff's 2005
investigation. These notifications, known as “Wells Notices,” stated that the
Staff is considering recommending that the Commission bring enforcement actions
against the Company and certain employees, based on alleged violations of
certain provisions of the federal securities laws, including Section 17(a) of
the Securities Act of 1933, as amended, Section 10(b) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 thereunder, Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13
thereunder. The Wells Notice sent to the Company indicated that in any action
actually brought against the Company, the Staff would seek an injunction against
future violations of the federal securities laws as relief.
On May
19, 2009, the SEC filed a settled the enforcement action with the Company, one
employee, and one former employee (“Others”). Each of the
Defendants has agreed to settle this matter, without admitting or denying the
allegations of the SEC’s complaint. Apogee and Others agreed to the
entry of a final judgment permanently enjoining them from variously violating or
aiding and abetting violations of Sections of the Securities Act of 1933, as
amended, and Sections of the Securities Exchange Act of 1934, as amended, and
various Rules thereunder. Others also agreed to financial and other
sanctions.
In an
action styled Joseph Shamy vs.
Herbert M. Stein, Case No.: 50 2005 CA 007719 XXXXMB,
instituted on August 10, 2005 in Palm Beach Circuit Court, Joseph Shamy has sued
Herbert M. Stein, President, Chief Executive Officer and Chairman of the Board
of Apogee, for fraud and breach of fiduciary duty in connection with Mr. Shamy’s
purchase of Apogee shares in 2003 and 2004. The parties reached a
settlement in 2009. In October 2009, the Court entered a Final
Judgment against Mr. Stein. Apogee was not a party to this
settlement. It is expected that the remaining legal fees to be indemnified by
Apogee will not be significant. See Note 10 to the consolidated
financial statements beginning on F-1 of this Annual Report on Form
10-K.
Due to
its financial condition, the Company had been unable to fund payments to its
independent auditors as well as its financial printer. Accordingly, it has not
filed its 2008 Annual Report on 10-K, as well as quarterly reports on Form 10-Q
for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009.
Additionally, we did not file timely Current Reports on a Form 8-K and reports
under Section 16 of the Securities Exchange Act of 1934, as
amended. Subsequently, during the fourth quarter of 2009, we paid the
outstanding balance to our auditors.
On
October 28, 2009, the Company received a “Wells Notice” from the Staff of the
SEC, which states the Staff’s intent to recommend that the SEC institute a
public administrative proceeding against the Company, alleging that it violated
Section 13(a) of the Securities Exchange Act of 1934, as amended for failing to
file its 2008 Form 10-K and other periodic reports in a timely
fashion.
In
connection with the contemplated proceedings, the Staff may seek a suspension or
revocation of each class of the Company’s registered securities. Also, the Staff
may consider whether contempt proceedings in a federal district court are
appropriate. The Company submitted a response to this letter on
November 16, 2009. Should suspension or revocation of registration of
our stock occur, the Company’s ability to raise additional funding may be
severely impacted.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
No
matters were submitted to a vote of security holders during the year ended
December 31, 2008.
|
MARKET
FOR REGISTANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
After
exhausting the appeals process with the American Stock Exchange, or AMEX, and
pursuant to the final hearing with the Listings Qualifications Panel of the
American Stock Exchange, we were notified on January 30, 2008 that the Listings
Qualification Panel upheld their decision to cease the continued listing of our
stock. We immediately began the transitioning process to the OTC
Bulletin Board® and/or the Pink Sheets© LLC.
For a
short period of time following the delisting, we were traded solely on the Pink
Sheets, however, on January 23, 2008, we announced that our shares were being
quoted on the Over –the-Counter Bulletin Board® or OTCBB, under the symbol
“ATCS.OB”. Since May 2009 our stock is listed on the Pink Sheets, LLC
under the symbol “ATCS.PK.” See Note 18 to the consolidated financial statements
beginning on page F-1 of this Annual Report on Form 10-K.
The
following table sets forth, for the periods indicated, the high and low sales
prices for the Common stock as reported by the American Stock Exchange until
December 31, 2007 and Pink Sheets from January 2, 2008 to present.
|
|
Common stock
|
|
|
|
High
|
|
|
Low
|
|
2007:
|
|
|
|
|
|
|
First
Quarter
|
|
|
1.64 |
|
|
|
0.98 |
|
Second
Quarter
|
|
|
1.34 |
|
|
|
0.49 |
|
Third
Quarter
|
|
|
0.95 |
|
|
|
0.50 |
|
Fourth
Quarter
|
|
|
1.45 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.90 |
|
|
|
0.28 |
|
Second
Quarter
|
|
|
1.01 |
|
|
|
0.51 |
|
Third
Quarter
|
|
|
1.01 |
|
|
|
0.55 |
|
Fourth
Quarter
|
|
|
0.79 |
|
|
|
0.38 |
|
Penny
Stock Regulations
Our stock
is presently regulated as a penny stock and broker-dealers will be subject to
such regulations that impose additional requirements on us and on broker-dealers
that want to publish quotations or make a market in our common
stock.
Holders
As of
November 23, 2009, there were approximately 67 registered holders of record of
Apogee’s common stock. This number does not include “street name” or
beneficial holders, whose shares are held of record by banks, brokers and other
financial institutions.
Recent
Sales of Unregistered Equity Securities
During
the period ended December 31, 2008, our unregistered sales of equity securities
were reported on Current Reports on Form 8-K. See Note 8 to the
consolidated financial statements beginning on page F-1 of the Annual Report on
Form 10-K.
Default
Upon Securities
The
promissory notes issued to Messrs. Stein and Spiegel from December 11, 2007
through June 18, 2008 for an aggregate of $1,140,000 began incurring a
post-maturity rate of interest as detailed below. The promissory
notes originally were issued with simple interest rate of 8% per year and were
to be repaid in cash after 90 days for the December 11, 2007 notes and 180 for
the promissory notes issued subsequent to December 11, 2007. The
following tables detail promissory notes outstanding as of December 31, 2008
that are in default, remain unpaid and bear interest at 12%. Interest
after maturity is payable on demand, and is compounded
monthly.
Promissory
Notes Due To Herbert
M. Stein |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 11,
2007
|
|
$ |
250,000 |
|
March 10,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February 21,
2008
|
|
|
100,000 |
|
August 19,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March 20,
2008
|
|
|
50,000 |
|
September 16,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April 1,
2008
|
|
|
50,000 |
|
September 28,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May 15,
2008
|
|
|
50,000 |
|
November 11,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June 16,
2008
|
|
|
35,000 |
|
December 13,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June 18,
2008
|
|
|
40,000 |
|
December 15,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
|
|
$ |
575,000 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes Due To David
Spiegel |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 11,
2007
|
|
$ |
150,000 |
|
March 10,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February 21,
2008
|
|
|
100,000 |
|
August 19,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March 20,
2008
|
|
|
100,000 |
|
September 16,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April 1,
2008
|
|
|
50,000 |
|
September 28,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May 15,
2008
|
|
|
50,000 |
|
November 11,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June 16,
2008
|
|
|
65,000 |
|
December 13,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June 18,
2008
|
|
|
50,000 |
|
December 15,
2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
|
|
$ |
565,000 |
|
|
|
|
|
|
|
|
|
|
See Notes
7 and Note 19 to the consolidated financial statements beginning on page F-1 of
this Annual Report on Form 10-K
Dividends
During
the last four years, we did not declare any dividends on our common
stock. It is the present intention of our board of directors to not
pay any dividends and retain any earnings to provide funds for the operation and
expansion of our business. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on
our results of operations, financial conditions, contractual and legal
restrictions and other factors the board of directors deems
relevant.
Item
6. SELECTED
CONSOLIDATED FINANCIAL DATA.
The
following selected financial data should be read together with "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements, including the related
notes, found elsewhere in this Form 10-K. The tables that follow present
selected historical financial data for the years ended December 31, 2008 and
2007 and for the period from October 1, 2008, the date Apogee re-entered
development stage, through December 31, 2008.
|
|
For
the Twelve-Month Period Ended
December 31,
|
|
|
(Cumulative
from Re-entering Development Stage on October 1, 2008 to
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
85,450 |
|
|
$ |
150,172 |
|
|
$ |
-0- |
|
Costs
and expenses
|
|
|
(3,939,920 |
) |
|
|
(3,482,411 |
) |
|
|
(917,680 |
) |
Other
Income (expenses)
|
|
|
(166,044 |
) |
|
|
127,236 |
|
|
|
(71,695 |
) |
Net
Loss
|
|
$ |
(4,020,514 |
) |
|
$ |
(3,205,003 |
) |
|
$ |
(989,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
12,132,332 |
|
|
|
11,968,332 |
|
|
|
12,132,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
268,376 |
|
|
$ |
896,971 |
|
|
$ |
268,376 |
|
Stockholders’
deficiency
|
|
$ |
(3,973,710 |
) |
|
$ |
(248,574 |
) |
|
$ |
(989,375 |
) |
Loss
per share (basic and diluted)
|
|
$ |
(0.33 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.08 |
) |
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
THE
FOLLOWING DISCUSSION AND ANALYSIS OF APOGEE’S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-K. THIS DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL STATEMENTS,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNDERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE FACTORS DISCUSSED ABOVE IN THE SECTION ENTITLED “RISK
FACTORS” AS WELL AS OTHER FACTORS IN THIS ANNUAL REPORT ON FORM
10-K.
OVERVIEW
We are developing proprietary intradermal drug delivery
systems for vaccines and other pharmaceuticals that we intend to market to
pharmaceutical and medical device companies, government and world health
organizations. Our Life Science Group is developing PyraDerm™,
an advanced intradermal drug delivery system to meet the needs of patients,
health insurers and companies developing pharmaceuticals, as well as,
governments and international health organizations. We believe that PyraDerm has advantages over
competitive approaches for the delivery of vaccines, high potency therapeutic
protein drugs and other pharmaceuticals. We have evaluated the feasibility of
PyraDerm by performing
in vitro tests with model drugs and conducted successful in vivo testing of
PyraDerm in the
intradermal immunization experiments. We are working to establish pharmaceutical
industry compliant manufacturing methods and to define regulatory strategies to
support its commercialization. Upon completion of in vitro and in
vivo evaluation of PyraDerm, if successful, we
intend to pursue licensing/development or partnership agreements with
pharmaceutical companies interested in our technologies.
Our sole
focus will remain on developing and growing the Life Science Group subject to
our ability to secure additional financing to support our operations and repay
our existing indebtness.
In 2007,
the majority of our revenue was derived from the sale of the remaining DDX IC
inventory. We expect that any future revenue will initially be the
result of potential licensing and development revenues resulting from the grant
of rights to our intellectual property. In order to support our operations, we
must continue to secure additional funding in 2009 and/or 2010 to pay our
vendors who are mostly in arrears, payroll, payroll withholding, payroll taxes,
and note holders.
At
December 31, 2008, we had an accumulated deficit of approximately $22.9 million,
as compared to a deficit of $18.9 million as of December 31,
2007. Our historical net losses and accumulated deficit (since 1995)
result primarily from the costs associated with our efforts to design, develop
and market our DDX technology as well as costs associated with our efforts to
develop PyraDerm™.
As of December 31, 2008, we have received approximately $1.9
million in loans. Since December 31, 2008, we have received
approximately $1.2 million in loans, which have been inadequate to meet the
current needs of the Company resulting in non-payment of loan principal and
interest, vendors, payroll, payroll withholding, and payroll taxes for the third
and fourth quarters of 2009. On December 11, 15, 16, and 18,
2009, Apogee received an additional $133,000 from Herbert M. Stein and
David Spiegel. The proceeds from these loans were used to pay unpaid
payroll and payroll taxes up through and including payroll for the period ended
December 15, 2009. These amounts exclude payroll and payroll taxes
for Mr. Herbert M. Stein, who has not drawn cash compensation from Apogee since
June 30, 2009. See Note 19 to the consolidated financial statements
beginning on page F-1 of this Annual Report on Form 10-K.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Apogee
prepares its consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates, judgments and
assumptions that we believe are reasonable based upon the information currently
available. These estimates and assumptions affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. Any future changes to
these estimates and assumptions could have a significant impact on the reported
amounts of revenue, expenses, assets and liabilities in our financial
statements. The significant accounting policies which we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results include the following:
Revenue
Recognition
Apogee
recognizes revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin “ SAB “104”, “Revenue Recognition in
Financial Statements: Revenue Recognition”, which states that revenue should be
recognized when the following revenue recognition criteria are
met: (1) persuasive evidence of an arrangement exists; (2) the
product has been shipped and the customer takes ownership and assumes the risk
of loss; (3) the selling price is fixed or determinable; and (4) collection of
the resulting receivable is reasonably assured. We had no product
sales since the first quarter ended March 31 2008. The following
policies applied to Apogee’s two major product sales categories for revenue
recognition. Sales to end users, OEM: revenue is recognized under our
standard terms and conditions of sale, title and risk of loss transfer to the
customer at the time products are shipped from our warehouse or delivered to the
customer’s representative/freight forwarder. We accrue the estimated
cost of post-sale obligations including product warranty returns, based on
historical experience. To date, we have experienced minimal warranty
returns.
In
addition, we record royalty revenue when earned in accordance with the
underlying agreements. Consulting and licensing revenue is recognized as
services are performed.
Accounts
Receivable
Apogee
performs credit evaluations of customers and determines credit limits based upon
payment history, customers’ creditworthiness and other factors, as determined by
our review of their current credit information. For a majority of our larger
sales, we can require the issuance of a Letter of Credit. Smaller accounts must
either pay via credit card or in advance of shipment. We continuously monitor
collections and payments from our customers, and we maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While we have not had any
significant credit losses to date, we cannot guarantee that we will continue to
avoid credit losses in the future. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Since our accounts receivable
are highly concentrated in a small number of customers, a significant change in
the liquidity or financial position of any one of these customers could have a
material adverse impact on our ability to collect our accounts receivable, our
liquidity or our future results of operations.
Inventory
Inventories
are stated at the lower of cost on a first-in, first-out basis or market. This
policy requires Apogee to make estimates regarding the market value of our
inventory, including an assessment of excess or obsolete
inventory. On January 15, 2008, we sold the remaining DDX
inventory held in our Norwood office to one of our customers, and on January 24,
2008, we also sold the remaining DDX inventory housed in Hong Kong to one of our
former DDX distributors. Total proceeds received from the disposition
of the DDX inventory were $17,000.
Valuation
of Long-Lived Assets
Property,
plant and equipment, patents and trademarks are amortized over their estimated
useful lives. Useful lives are based on management’s estimates over the period
that such assets will generate revenue. Intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. In 2007, we lowered the value
of certain assets due to less than expected sales in our sensor
business. Future adverse changes in market conditions or poor
operating results of underlying capital investments or certain assets could
result in losses or an inability to recover the carrying value of such assets,
thereby possibly requiring an impairment charge in the future. At
December 31, 2008, we recorded a patent impairment charge of approximately
$188,000 to reflect a decline in valuation of certain patent applications due to
a technology decision we made subsequent to year end. Additionally,
we amortized the balance of our patent applications over five years, which
resulted in a $37,000 charge for the twelve months ended December 31,
2008.
Stock-Based
Compensation
Apogee
had a stock-based compensation plan, the 1997 Employee, Director and Consultant
Stock Option Plan, also referred to as the 1997 Plan. The 1997 Plan
expired as of May 14, 2007. At our Annual Meeting held on August 28,
2007, our stockholders approved the adoption of a new stock-based compensation
plan, the 2007 Employee, Director and Consultant Stock Plan, also referred to as
the 2007 Plan. Prior to fiscal 2006, we accounted for the stock-based
compensation under the recognition and measurement provisions of Accounting
Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees”, and related Interpretations, as permitted by Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards, “Accounting
for Stock-Based Compensation” (SFAS 123(R)).
Effective
January 1, 2006, we adopted SFAS 123(R) using the
modified-prospective-transition method. Under this transition method, stock
compensation costs recognized beginning January 1, 2006 include (a) compensation
cost for all stock-based compensation payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123(R), and (b) compensation
cost for all stock-based payments granted on or subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R). Due to the adoption of SFAS 123(R), included in our
net loss for the twelve months ended December 31, 2008 and 2007 were stock-based
compensation charges of approximately $75,000 and $95,000,
respectively.
Legal
Fees
We record
legal costs (such as fees and expenses of outside legal counsel and other
service providers) when incurred or when it is probable that a liability has
been incurred on or before the balance sheet date and the amount can be
reasonably estimated if invoices have not been
received. Significantly higher legal fees were incurred during the
fiscal year ended December 31, 2008, compared to the prior fiscal year ended
December 31, 2007, in connection with the SEC investigation, partially offset by
a decrease in legal fees associated with our indemnification of our President,
Chief Executive Officer and Chairman of the Board of Directors for the Shamy
matter.
Contingencies
Apogee is
involved in and/or indemnifies others in various legal
proceedings. Management assesses the probability of loss for such
contingencies and recognizes a liability when a loss is probable and
estimable. See Note 10 to the consolidated financial statements
beginning on page F-1 of this Annual Report on Form 10-K.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements nor do we have any special purpose
entities.
Results
of Operations
Year
Ended December 31, 2008 Compared to Year Ended December 31,
2007
Revenue
We have
historically derived our revenue from three sources:
● Product
sales, which formerly consisted of merchandise sales of our former DDX products
made either directly to original equipment manufacturers or through point of
sale (“POS”) by distributors. During the twelve months ended December
31, 2008, we had product revenues of $21,951. All remaining inventory
related to our former audio DDX products was sold in January
2008. All shipments related to the January 2008 sales were fulfilled
from our contracted warehouse in Hong Kong or from our Norwood, Massachusetts
office and were reported net of returns. During the fiscal year ended
December 31, 2007, substantially all revenue recorded was from the sale of
remaining inventory related to our former audio IC business.
● Royalties
received as a result of an agreement between Apogee and SigmaTel, Inc. whereby
SigmaTel, Inc. agreed to pay Apogee a percentage of the royalties it received
from STMicroelectronics NV (“ST”) in exchange for supporting their royalty
negotiations with ST, as well as revenue from the sale of the remaining DDX
inventory.
●
Consulting income related to contractual services or development activities for
third parties.
We
anticipate that future revenue streams, if any, will come from our Life Science
Group, , generally in the form of strategic alliances or arrangements with
development or marketing partners, as well as, from licensing and
development-related revenues resulting from the grant of rights to our
intellectual property. We envision the future of our medical devices
as (i) licensing or selling our technologies to pharmaceutical or medical device
companies; (ii) establishing partnerships with pharmaceutical and medical device
companies to commercialize our products; and (iii) developing, producing and
marketing our own products. In order to develop and market any
products, we will need to secure additional funding.
We
recognized revenue for the twelve months ended December 31, 2008 of
approximately $85,000, a decrease of approximately $65,000, or 43%, from
approximately $150,000 for the twelve months ended December 31,
2007. On January 15, 2008, we sold the remaining DDX inventory held
in our Norwood office to one of our customers, and on January 24, 2008, we sold
the remaining DDX inventory housed in Hong Kong to one of our former DDX
distributors. Total proceeds received from the disposition of the DDX
inventory were $17,000.
During
the twelve months ended December 31, 2008, we recorded approximately $63,000 in
royalty revenue under the arrangement with SigmaTel, Inc. Upon
acceptance by Freescale (formerly SigmaTel, Inc.) of lower royalty payments from
ST, the arrangement agreed to between Freescale and Apogee in April 2008 was
cancelled. No further revenue is expected under this
arrangement.
We
anticipate that we will not generate any material future revenue until such
time, if ever, that we are able to generate revenue from our PyraDerm™
technology.
Total
revenue for the years 2008 and 2007 consisted of:
|
|
For
the Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Product
Revenue
|
|
$ |
21,951 |
|
|
$ |
150,172 |
|
Royalties
|
|
|
63,499 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
85,450 |
|
|
$ |
150,172 |
|
Cost
of Revenue
Substantially
all of the product revenue recorded in the twelve months ended December 31 2008
was from products related to our former audio IC business and had previously
been fully reserved at 100%. All of the non-product-related revenue
recorded for the twelve months ended December 31, 2008 was for royalties
received as a result of the above-referenced arrangement with
SigmaTel. For the twelve months ended December 31, 2008, we recorded
cost of revenue associated with the sale of sensor products of
$696. Cost of revenue for the twelve months ended December 31, 2007
associated with the sale of sensor products was $1,570.
Operating
Expenses
Research
and Development Costs
Our
research and development, or R&D, expenses consist primarily of salaries,
development material costs, and external consulting and service costs related to
the development and design of new products. Research and development expenses
were approximately 1.6 million for the twelve months ended December 31, 2008,
compared to approximately $1.3 million for the twelve months ended December 31,
2007.
Reductions
in the purchase of supplies and consumables for the medical laboratory and
utilization of third-party consultants were partially offset by increases in
human resources and amortization expenses. Expenses primarily to support our
laboratory decreased by approximately $17,000, or 27%, to approximately $45,000
for the twelve months ended December 31, 2008, compared to approximately $62,000
for the same period in 2007. This decrease was the result of our having
previously supplied materials toward the initial development and related testing
requirements in our medical laboratory to support our research collaboration
with St. Jude Children’s Research Hospital and the completion of our agreement
with Vaccine and Infectious Disease Organization (VIDO). In addition,
this reduction is a direct result of our efforts to limit purchases and
utilization of third-party consultants until additional funding is
secured. During the twelve months ended December 31, 2008, the cost
of utilization of third-party consultants decreased by approximately $21,000, or
10%, to approximately $181,000, compared to approximately $202,000 for the
twelve months ended December 31, 2007. For the twelve months ended
December 31, 2008, we incurred approximately $8,000 in expense to support in
vivo vaccine studies performed by a prominent university, compared to
approximately $24,000 for the same periods in 2007. In addition, we
incurred approximately $26,000 in expense to support our research collaboration
with St. Jude Children’s Research Hospital in 2007. No comparable
expense was incurred in the twelve months ended December 31,
2008. During the fourth quarter of 2008, we curtailed further
third-party consultant arrangements in support of Health Monitoring Product
Group.
For the
twelve months ended December 31, 2008, human resource costs increased by
approximately $58,000, or 7%, to approximately $933,000, compared to
approximately $875,000 for the same period in 2007. For the twelve
months ended December 31, 2008, approximately $43,000, compared to approximately
$53,000 for the same period in 2007, in human resource expense was the result of
our adoption of SFAS 123(R) effective as of January 1, 2006. Effective as of
June 9, 2008, human resource expense was reduced by 20% for some R&D
employees as a result of transitioning from full time to part time schedules in
order to reduce expenses.
At
December 31, 2008, we recorded a patent impairment charge of approximately
$188,000 to reflect a decline in valuation of certain patent applications due to
a technology decision we made subsequent to year end.
Depreciation
and amortization expense increased by approximately $95,000, or 128%, to
approximately $170,000 for the twelve months ended December 31, 2008, from
approximately $75,000 for the same period in 2007. We have been
capitalizing license fees paid to third parties for costs associated with the
exclusive rights to their patents, and have been amortizing these fees over a
period of four years. During the second quarter ended
June 30, 2008, we terminated our 2006 license agreement with the University of
Akron Research Foundation, as we had developed similar technology in-house and
licensed a more compatible technology. As a result, we expensed the
remaining $22,000 of unamortized license fees under this license
agreement. In addition, during this same quarter, we expensed an
additional $30,000, which represented the minimum royalty due under this
terminated license agreement. For the twelve months ended December
31, 2007, we incurred approximately $24,000 in expense to support in vivo
immunization studies performed by a prominent organization. During
the fourth quarter ended December 31, 2008 we amortized approximately $37,000 of
patent application related expenses.
In 2009
we reduced R&D spending to the minimal level required for preservation of
our intellectual property, maintenance of our technical capabilities and
know-how, and support of our technology development in accordance to our
licensing agreement.
If we are
able to secure additional financing to support our operations and repay our
existing indebtness, we anticipate that we will continue to commit resources to
research and development activities as our financial position allows, and as a
result, R&D costs would be expected to increase substantially in the
future.
Selling,
General and Administrative Costs
General
and Administrative costs consist primarily of executive and administrative
salaries, professional fees and other associated corporate expenses. Selling,
General and Administrative, or SG&A, expenses were approximately $2.4
million for the twelve months ended December 21, 2008, compared to approximately
$2.1 million for the twelve months ended December 31, 2007. The
increase in SG&A for the twelve months ended December 31, 2008 was
attributable primarily to increased professional fees in connection with the
ongoing SEC investigation and our indemnification of our President, Chief
Executive Officer and Chairman of the Board of Directors (as described below),
partially
offset by decreases in annual listing fees as a result of our transitioning of
the listing of our common stock from AMEX to OTCBB, human resource costs and
other operating expenses.
Human
resources costs decreased by approximately $190,000, or 21%, to approximately
$700,000 for the twelve months ended December 31, 2008, compared to
approximately $890,000 for the same period in 2007. This decrease was
the result of a 20% reduction in SG&A employee salaries effective as of June
9, 2008, as well as reduced stock-based compensation expenses. In addition, our
Chief Executive Officer has not taken a salary since June 30,
2009. For the twelve months ended December 31, 2008, stock
compensation expense decreased by approximately $10,000, or 24%, to
approximately $32,000 for the twelve months ended December 31, 2008, compared to
approximately $42,000 for the twelve months ended December 31,
2007.
Professional
expenses increased by approximately $531,000, or 64%, to approximately $1.37
million for the twelve months ended December 31, 2008, compared to approximately
$834,000 for the same period in 2007. For the twelve months ended
December 31, 2008, legal expenses increased by $617,000, or 107%, to
approximately $1.9 million, compared to approximately $576,000 for the same
period in 2007. Legal fees increased primarily as a result of the
ongoing SEC investigation, as well as our indemnification of our President,
Chief Executive Officer and Chairman of the Board of Directors.
An
investigation by the SEC since resolved on May 19, 2009, which the Company first
became aware of in May 2005, was ongoing in 2007 and 2008. The subject matter of
this investigation was the Company's prior revenue recognition practices that
were addressed in the Company's restatement of its financial statements for the
fiscal year ended December 31, 2004. As previously disclosed in our
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, as
amended, Apogee’s Audit Committee, with the assistance of independent counsel,
conducted an investigation into Apogee’s historical accounting practices that
resulted in the implementation of remedial actions. See our Annual Report on
Form 10-KSB for the year ended December 31, 2004, as amended, for detail
regarding the restatement. In July 2008, Apogee’s Chief Executive
Officer and other employees received notifications from the Staff of the SEC
relating to the Staff's 2005 investigation. These notifications, known as “Wells
Notices,” stated that the Staff considered recommending that the Commission
bring enforcement actions against the Company and certain employees, based on
alleged violations of certain provisions of the federal securities laws,
including Section 17(a) of the Securities Act of 1933, as amended, Section 10(b)
of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder,
Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules
12b-20, 13a-1 and 13a-13 thereunder. The Wells Notice sent to the Company
indicated that in any action actually brought against the Company, the Staff
would seek an injunction against future violations of the federal securities
laws as relief.
We have
agreed to indemnify certain employees, directors and a former employee in
connection with the SEC investigation. As of December 31, 2008, we have incurred
approximately $552,000 in legal expenses to indemnify these individuals in
association with this matter. During the twelve months ended December
31, 2008 and 2007, we recorded approximately $542,000 and $10,000, respectively,
toward this indemnification. We do not expect significant legal indemnification
costs related to these matters in the future. See “Risk Factors-Risks
Related to Our Business.”
In
October 2009, Apogee received an additional “Wells Notice”. See Note
19 to the consolidated financial statements beginning on page F-1 of this Annual
Report on Form 10-K.
On May
19, 2009, the SEC filed a settled enforcement action against the Company, and
one employee, and one former employee in connection with scheme to inflate
Apogee’s earnings in 2003 and 2004. See Note 19 to the consolidated
financial statements beginning on page F-1 of this Annual Report on Form
10-K.
In
addition, we incurred legal fees associated with the indemnification costs in
connection with the civil action styled Joseph Shamy vs. Herbert M. Stein
Case No.: 50 2005 CA 007719 XXXXMB. In this action instituted
on August 10, 2005 in Palm Beach Court Circuit Court, Joseph Shamy has sued
Herbert M. Stein, President, Chief Executive Officer and Chairman of the Board
of Apogee, for fraud and breach of fiduciary duty in connection with Mr. Shamy’s
purchase of Apogee shares in 2003 and 2004. The parties reached a settlement in
2009. In October 2009, a Court entered a Final Judgment against Mr.
Stein. Apogee was not a party to this settlement. It is expected that
the remaining legal fees to be indemnified by Apogee will not be
significant. See Note 10 to the consolidated financial statements
beginning on page F-1 of this Annual Report on Form 10-K. Through
December 1, 2009 we have incurred approximately $881,000 toward this
indemnification. For the twelve months ended December 31, 2008 and
2007, we have incurred approximately $230,000 and $280,000,
respectively. It is expected that the remaining legal fees to be
indemnified by the Company will not be significant. See Note 10 to
the consolidated financial statements beginning on page F-1 of this Annual
Report on Form 10-K.
We are
not receiving reimbursement under our Director and Officer insurance policy for
either the indemnification of Mr. Stein or
the investigation by the SEC.
Accounting
fees increased by approximately $9,000, or 12%, to approximately $82,000 for the
twelve months ended December 31 2008, compared to approximately $73,000 for the
same period in 2007.
Investor
relations expense decreased by approximately $28,000, or 53%, to approximately
$25,000 for the twelve months ended December 31, 2008, compared to approximately
$53,000 for the twelve months ended December 31, 2007. As part
of our cost reduction, we were forced to limit our investor relations expenses
during the twelve months December 31, 2008. If additional funding is
sufficient, we will be in a position to resume focusing on increasing awareness
of our scientific and corporate developments. Expenses related to the
Sarbanes-Oxley Act of 2002 also decreased by approximately $52,000, or 100%, for
the twelve-month period ended December 31, 2008, since we had completed the
major implementation phase of our Sarbanes-Oxley program. As a result
of the transition of the listing of our common stock from AMEX to the OTCBB, our
annual listing fees were reduced by approximately $25,000, or 79%, to
approximately $7,000 for the twelve months ended December 31, 2008, compared to
approximately $32,000 for the same period in 2007.
Travel
and Entertainment costs decreased by approximately $28,000, or 42% for the
twelve months ended December 31, 2008, to approximately $38,000, compared to
approximately $67,000 for the same period in 2007. Office expenses
decreased by approximately $15,000, or 36%, to approximately $26,000 for the
twelve months ended December 31, 2008, compared to approximately $41,000 for the
twelve months ended December 31 2007. In addition, we had
reductions to various other overhead expenses, including: communication,
corporate insurance marketing and maintenance. Operating
expenses are expected to increase when our financial position
allows.
Interest
and Other Income (Expense)
Interest
income includes income from Apogee’s cash and cash equivalents and from
investments and expenses related to its financing activities. During the twelve
months ended December 31, 2008, we generated interest income of $847, compared
to interest income of approximately $74,000 for the twelve months ended December
31, 2007. This decrease in interest income was due to reduced cash
balances.
Interest
expense resulting from the issuance of promissory notes to Mr. Herbert M. Stein,
Mr. David Spiegel, Mr. Robert Schacter et al and others was approximately
$175,000 for the twelve months ended December 31, 2008, compared to
approximately $1,800 for the twelve months ended December 31,
2007. During the twelve months ended December 31 2008, we
recorded miscellaneous income of approximately $8,000. During the
twelve months ended December 31, 2007, we recorded miscellaneous income of
approximately $54,000.
Net
Loss
Apogee’s
net loss for the twelve months ended December 31, 2008 was approximately $4.0
million, or $0.33 per basic and diluted common share, compared to a net loss of
approximately $3.2 million, or $0.27 per basic and diluted common share, for the
twelve months ended December 31, 2007. This increase in our net loss
was primarily the result of increased legal fees as a result of the SEC
investigation and the indemnification of our President, Chief Executive Officer
and Chairman of the Board of Directors, as well as increases in the patent
valuation reserve and human resource costs in R&D.
Income
Taxes
Apogee
incurred no State income taxes for the 12 months ended December 31, 2008 and
2007. There was no Federal income tax expense for either 2008 or
2007. As of December 31, 2008 and 2007, we had available a Federal net operating
loss carryforward of approximately $19 million and $15 million, respectively and
a State net operating loss carryforward of approximately $12 million and $9
million,
respectively. These net operating loss carryforwards will
expire at various times between 2009 and 2028.
Significant
changes in ownership may significantly restrict the use of these
carryforwards.
Liquidity
and Capital Resources
The
tables below summarize our outstanding unsecured interest-bearing promissory
notes (including amounts subsequent to December 31, 2008). All
Promissory Notes remain unpaid and substantially all are in
default.
Promissory
Notes and Loans Due To
|
|
Herbert
M. Stein
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
December
11, 2007
|
|
$ |
250,000 |
|
March
10, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
21, 2008
|
|
|
100,000 |
|
August
19, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
20, 2008
|
|
|
50,000 |
|
September
16, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
1, 2008
|
|
|
50,000 |
|
September
28, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
15, 2008
|
|
|
50,000 |
|
November
11, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
16, 2008
|
|
|
35,000 |
|
December
13, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
18, 2008
|
|
|
40,000 |
|
December
15, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
15, 2008
|
|
|
30,000 |
|
January
11, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
28, 2008
|
|
|
50,000 |
|
January
24, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
August
12, 2008
|
|
|
35,000 |
|
February 8,
2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
August
27, 2008
|
|
|
35,000 |
|
February
23, 3009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
September
5, 2008
|
|
|
35,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
October
27, 2008
|
|
|
25,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
2, 2009
|
|
|
30,000 |
|
August
1, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
17, 2009
|
|
|
10,000 |
|
August
16 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
19, 2009
|
|
|
25,900 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
13, 2009
|
|
|
33,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
18, 2009
|
|
|
12,000 |
|
November
14, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
1, 2009
|
|
|
20,000 |
|
December
28, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
November
5, 2009
|
|
|
42,500 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
8.00 |
% |
November
25, 2009
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
December
11, 2009
|
|
|
52,000 |
|
|
|
|
|
|
|
|
|
|
December
14, 2009
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,046,900 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes and Loans Due To
|
|
David
Spiegel
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
December
11, 2007
|
|
$ |
150,000 |
|
March
10, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
21, 2008
|
|
|
100,000 |
|
August
19, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
20, 2008
|
|
|
100,000 |
|
September
16, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
1, 2008
|
|
|
50,000 |
|
September
28, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
15, 2008
|
|
|
50,000 |
|
November
11, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
16, 2008
|
|
|
65,000 |
|
December
13, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
18, 2008
|
|
|
50,000 |
|
December
15, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
15, 2008
|
|
|
50,000 |
|
January
11, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
28, 2008
|
|
|
50,000 |
|
January
24, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
August
12, 2008
|
|
|
35,000 |
|
February
8, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
August
27, 2008
|
|
|
35,000 |
|
February
23, 3009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
September
5, 2008
|
|
|
35,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
October
27, 2008
|
|
|
35,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
January
6, 2009
|
|
|
80,000 |
|
July
5, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
19, 2009
|
|
|
64,000 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
19, 2009
|
|
|
35,000 |
|
November
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
10, 2009
|
|
|
25,000 |
|
December
7, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
July
1, 2009
|
|
|
32,000 |
|
December
28, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
November
5, 2009
|
|
|
103,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
8.00 |
% |
November
18, 2009
|
|
|
17,000 |
|
|
|
|
|
|
|
|
|
|
December
11, 2009
|
|
|
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,182,000 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes and Loans Due To
|
|
Robert
Schacter et al
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Notes
|
Name
on Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
5, 2008
|
TYJO
Corporation Money Purchase Pension Plan
|
|
$ |
100,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
September
5 2008
|
Mr. Robert Schacter, as Custodian
for Tyler Schacter UTMA/CA
|
|
|
20,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
September
5 2008
|
Mr. Robert Schacter, as Custodian
for Joseph Schacter UTMA/CA
|
|
|
20,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
October
27, 2008
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
100,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
January
8, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
100,000 |
|
July
7, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
2, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
50,000 |
|
August
1, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
17, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
50,000 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
19, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
50,000 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
13, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
20,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
10, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
25,000 |
|
December
7, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
November
5, 2009
|
TYJO
Corporation Money Purchase Pension Plan
|
|
|
50,000 |
|
May
10, 2010
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
|
$ |
585,000 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes and Loans Due to
|
|
Spiegel
et al, JAZFund and Erica Stein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of
|
Name
on
|
|
|
|
Maturity
|
|
Initial
|
|
|
Current
|
|
Promissory
Note
|
Promissory
Note
|
|
Amount
|
|
Date
|
|
Interest
Rate
|
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2009
|
Leo
Spiegel
|
|
$ |
35,000 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
November
5, 2009
|
Leo
Spiegel
|
|
$ |
10,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
8.00 |
% |
April
13, 2009
|
Spiegel
Family Limited Partnership
|
|
$ |
31,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
18, 2009
|
Spiegel
Family Limited Partnership
|
|
$ |
32,000 |
|
November
14, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
26, 2009
|
JAZFund
LLC
|
|
$ |
30,000 |
|
October
10, 2009
|
|
|
12.00 |
% |
|
|
16.00 |
% |
November
5, 2009
|
Erica
Stein
|
|
$ |
60,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
|
$ |
198,000 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes and Loans Due To
|
|
Others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2008
|
|
$ |
20,000 |
|
January
24, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
October
27, 2008
|
|
|
6,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
January
6, 2009
|
|
|
500 |
|
July
6, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
17, 2009
|
|
|
2,000 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
19, 2009
|
|
|
500 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
13, 2009
|
|
|
500 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
19, 2009
|
|
|
500 |
|
November
15, 2009
|
|
|
8.00 |
% |
|
|
12.00 |
% |
November
30, 2009
|
|
|
2,563 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,563 |
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008, we had a working capital deficiency of approximately $4.2
million and a cash overdraft of approximately $49,000. This compares
to approximately $321,000 in cash and cash equivalents as of December 31, 2007
and a working capital deficiency of approximately $728,000. During
the twelve months ended December 31, 2008, we received proceeds from loans and
unsecured interest-bearing promissory notes totaling approximately $1.9 million;
$858,000, $795,000, $240,000 and $28,000, respectively from David Spiegel, a
major shareholder, Herbert M. Stein, President, Chief Executive Officer and
Chairman of our Board of Directors, Mr. Robert Schacter et al and others,
respectively. These promissory notes are payable upon demand and were
not subject to any premium or penalty for prepayment. The loan interest rate is
8% per annum, payable monthly in arrears on the outstanding
balance. An additional 4% interest is charged on any notes exceeding
maturity. In addition, post maturity notes are compounded
monthly.
On April
9, 2008, Apogee sold 164,000 shares of its common stock to accredited investors
at a price of $1.00 per share. The aggregate net proceeds to Apogee,
after fees and expenses, were $152,519, which was used for general working
capital and corporate purposes. The shares of Apogee’s common
stock were issued and sold in a private placement in reliance on an exemption
from registration provided by Section 4(2) of Securities Act of 1933, as
amended, and Rule 506 of Regulation D promulgated thereunder. The shares of the
common stock issued in this private placement have not been registered under the
Securities Act of 1933 and may not be subsequently offered or sold by the
investors in the United States absent registration or an applicable exemption
from the registration requirements.
Net cash used in operating activities for the twelve-month period
ended December 31, 2008 decreased to approximately $1.9 million compared to
approximately $3.0 million in the twelve-month period ended December 31, 2007.
As of March 31, 2008, we sold the remaining DDX inventory for a total of $17,000
and offset the remaining reserves for slow moving, excess and obsolete
inventory. At December 31, 2008, we recorded a patent impairment
charge of approximately $188,000 to reflect a decline in valuation of certain
patent applications due to a technology decision we made subsequent to year end.
As of December 31, 2008, our accounts payable and accrued expenses were
approximately $2.3 million, of which a majority is composed of professional
fees. We are currently in arrears with loan and interest
payments, a majority of our vendors, payroll, payroll withholding and payroll
taxes. On December 11, 15, 16, and 18, 2009, Apogee received an
additional $133,000 from Herbert M. Stein and David Spiegel. The
proceeds from these loans were used to pay unpaid payroll and payroll taxes up
through and including payroll for the period ended December 15,
2009. These amounts exclude payroll and payroll taxes for Mr. Herbert
M. Stein, who has not drawn cash compensation from Apogee since June 30,
2009. See Note 19 to the consolidated financial statements beginning on
page F-1 of the Annual Report on Form 10-K.
Net cash
used in investing activities for the twelve months ended December 31, 2008 was
approximately $113,000, compared to approximately $160,000 for the twelve months
ended December 31, 2007. During 2007, we purchased additional
equipment for our laboratory as well as supported our existing patent
applications, all of which related to our Life Science Group.
Net cash
provided by financing activities was approximately $1.7 million for the twelve
months ended December 31, 2008. This compares to approximately
$400,000 for the twelve months ended December 31, 2007. During the
twelve-month period ended December 31, 2008, we received the proceeds from
unsecured interest bearing promissory notes totaling $735,000 from David
Spiegel, a major shareholder, $535,000 from Herbert M. Stein, President, Chief
Executive Officer and Chairman of our Board of Directors, $240,000 from Mr.
Robert Schacter and $28,000 from others. These loans are payable upon
demand and are not subject to any premium or penalty for prepayment. The loan
interest rate is 8% per annum, payable monthly in arrears on the outstanding
balance. See Note 7 to the consolidated financial statements
beginning on page F-1 of this Annual Report on Form 10-K. We are
currently in default on substantially all of the promissory notes.
Apogee is
in the process of attempting to secure sufficient financing, to pay its
indebtedness and to continue operations. As of December 18, 2009
approximately $2.7 million in promissory notes are in default. In the
interim, short-term debt financing provided primarily by two of Apogee’s
significant shareholders, including our President, Chief Executive Officer and
Chairman of the Board of Directors as well as Mr. Robert Schacter, et al and
others, is being utilized to keep product development moving
forward. Due to the early stages of development of our products
technology, we cannot estimate at this time the amounts of cash and length of
time that will be required to bring our products under development to
market. It is expected that such costs will be funded not only by
external financing, but also through partnership
activities. Additionally, cost cutting measures, including salary
reduction for non-PyraDerm employees,
discontinuation of sensor development, deferral of capital expenditures, and
reduced general spending have been instituted until such time as financing is
secured. We do not expect any significant changes in the number of
employees until funding has been secured, if ever. Management remains
confident that we will raise sufficient capital in the near-term to fund
operations for at least the next twelve months. If, however, we are
unable to generate or obtain financing, we may be required to further curtail
our operations, including a reduction in the number of employees, or cease
conducting business.
Item
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Apogee’s
financial instruments include: cash, cash equivalents, accounts receivable and
accounts payable. At December 31, 2008 and December 31, 2007, the
carrying value of our cash, cash equivalents, accounts receivable and accounts
payable approximate fair values given the short maturity of these
instruments.
We
believe that our financial instruments do not carry a material foreign currency
exchange rate risk since any international sales will be paid in U.S. dollars
and material purchases from foreign suppliers are typically also denominated in
U.S. dollars.
It is our
policy not to enter into derivative financial instruments for speculative
purposes.
Item
8. FINANCIAL
STATEMENTS.
The
consolidated financial statements and the related report and notes, which are
attached hereto, beginning at on page F-1, are incorporated herein by
reference.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
There was
no change in accountants or disagreements with accountants on accounting and
financial disclosure during the fiscal year ended December 31, 2008 and
2007.
Item 9A
(T). CONTROLS AND PROCEDURES.
|
(a)
|
Evaluation
of Disclosure Controls and Procedures. Our chief executive
officer (principal executive officer) and chief financial officer
(principal financial and accounting
officer) have reviewed and evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this annual report. Based on that evaluation, our chief
executive officer and chief financial officer have concluded that our
current disclosure controls and procedures were effective to ensure that
we record, process, summarize, and report the information we must disclose
in reports that we file or submit under the Exchange Act, within the time
periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer as appropriate to allow
timely discussions regarding required
disclosures.
|
|
(b)
|
Changes
in Internal Controls. There were no changes in our internal
control over financial reporting, identified in connection with the
evaluation of such internal control that occurred during our fiscal
quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
|
|
(c)
|
Management’s Report on Internal Control over
Financial Reporting. The management of the Company is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by,
or under the supervision of, the Company’s principal executive and
principal financial officers and effected by the Company’s board of
directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control
over financial reporting includes those policies and procedures
that:
|
|
·
|
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the
Company;
|
|
·
|
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the Company;
and
|
|
·
|
provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
|
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
The Company’s management assessed the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2008.
In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on our assessment,
management believes that, as of December 31, 2008, the Company’s internal
control over financial reporting is effective based on those
criteria.
This Annual Report on Form 10-K does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was
not subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the SEC that permit the company to provide only a
management’s report in this Annual Report on Form 10-K.
As of
December 18, 2009, the Company is in default on approximately $2.7 million
dollars in promissory notes.
PART
III
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.
|
Directors
and Executive Officers
The
Company’s Restated Certificate of Incorporation, as amended, and Restated
By-Laws provide for the Company’s business to be managed by or under the
direction of the Board of Directors. Under the Company’s Restated Certificate of
Incorporation, as amended, and Restated Bylaws, the number of directors is fixed
from time to time by the Board of Directors. The number of Directors is
currently fixed at a minimum of four (4) and a maximum of nine (9). There are
currently five members on the Board of Directors.
Set forth
below are the names of the directors as of the date of this report, their ages,
their offices in the Company, if any, their principal occupations or employment
for the past five years, the length of their tenure as directors and the names
of other public companies in which such persons hold directorships.
Name
|
|
Age
|
|
Position
with the Company
|
|
Term
Ending at Annual Meeting
|
Herbert
M. Stein
|
|
|
80
|
|
|
Chairman
of the Board, President and Chief Executive Officer
|
|
2010
|
Craig
A. Dubitsky(3)
|
|
|
43
|
|
|
Director
|
|
2011
|
Arthur
S. Reynolds(1), (2), (3)
|
|
|
65
|
|
|
Director
|
|
Until
successors are duly elected
|
Sheryl
B. Stein
|
|
|
54
|
|
|
Director
|
|
Until
successors are duly elected
|
Alan
W. Tuck(1), (2), (3)
|
|
|
60
|
|
|
Director
|
|
2011
|
(1)
|
Member
of the Audit Committee
|
(2)
|
Member
of the Compensation Committee
|
(3)
|
Member
of the Governance and Nominating
Committee
|
Mr.
Herbert M. Stein, a Class III director, has served as the Company’s President
and Chief Executive Officer since January 2001. Mr. Stein has been a director of
the Company since 1996 and has been Chairman of the Board since January 2000.
Mr. Stein was Chairman of the Board of Directors of Organogenesis Inc. from 1991
through 1999 and was Chief Executive Officer of Organogenesis from 1987 through
1999.
Mr. Craig
A. Dubitsky, a Class I director, has served as a director since June
2004. Mr. Dubitsky is the Founder and Managing Partner of 20-10 LLC,
and early stage venture capital and strategic advisory firm focused on the
consumer sector. From December 2005 through August 2009, Mr. Dubitsky
was Co-Founder and Managing Partner of The Kind Group, a consumer packaged goods
incubator and holding company, where he led the creation, design and
distribution efforts for Kind's first brand, eos (tm). Mr. Dubitsky
served as SVP of Venture Development for Simon Property Group, the largest
retail REIT in the U.S. from October 2000 through March of 2002. Mr.
Dubitsky served on the Board of Directors of Method Products, a consumer
packaged goods company, from 2001 to 2005. In addition, Mr. Dubitsky
was Founder and CEO of Bigmove, Inc./Masterkey, which was acquired by Public
Storage in 2000. He also served as VP and LME Specialist at Citigroup
from 1994 through 1999. Mr. Dubitsky currently serves on the Board of
Directors of The Art Directors Club, the oldest global marketing,
communications, and design organization, and serves on the Advisory Board of
Tonic, a news media concern, and Help Remedies, a transformational over the
counter drug company.
Mr.
Arthur S. Reynolds, a Class II director, has served as a director since November
2003. Mr. Reynolds is the Founder of Rexon Limited of London and New York where,
since 1999, he has served as Managing Director. Mr. Reynolds was Founder,
Co-owner and Managing Partner of London-based Value Management & Research
(UK) Limited from 1997 to 1999. In addition, Mr. Reynolds has held executive
positions at Merrill Lynch International Bank Limited, Banque de la Societe
Financiere Europeene, J.P. Morgan & Company and Mobil
Corporation.
Ms.
Sheryl B. Stein, a Class II director, has served as a director of the Company
since August 2000. Since January 1993, Ms. Stein has been employed at Bedford
Group, Inc. where she currently serves as Co-Chief Executive
Officer.
Mr. Alan
W. Tuck, a Class I director, has served as a director of the Company since 1998.
He was Chief Strategic Officer of Organogenesis Inc. from September 1997 to July
2000, and, at various times from August 1996 to June 1998, was Strategic Advisor
to Dyax Corp., Executive Vice President and Chief Strategic Officer of Biocode,
Inc., and Chief Strategic Officer of ImmuLogic Pharmaceutical Corporation. Mr.
Tuck was President and Chief Executive Officer of T Cell Sciences, Inc. from
February 1992 to May 1996. He is currently a director of GTC Biotherapeutics,
Inc. and a Partner at the Bridgespan Group, a non-profit consulting
company.
The names
of, and certain information regarding, executive officers of the Company who are
not also directors, are set forth below. The executive officers serve at the
pleasure of the Board of Directors.
Name
|
|
Age
|
|
Position
with the Company
|
Paul
J. Murphy
|
|
|
61
|
|
|
Chief
Financial Officer and Vice President of Finance
|
Alexander
K. Andrianov
|
|
|
51
|
|
|
Vice
President Research and Development
|
Mr. Paul
J. Murphy joined the Company in June 2005 in the role of Chief Financial Officer
and Vice President of Finance, including the responsibilities of the Company’s
Principal Accounting Officer. Prior to joining the Company, from June 2004 to
June 2005, Mr. Murphy was an independent contractor with JH Cohn, LLP, an
accounting firm, working on engagements with public companies to design, assess
and test controls for compliance with Section 404 of the Sarbanes-Oxley Act of
2002. From March 2002 until June 2004, Mr. Murphy worked as a self-employed
consultant for companies on short-term projects of the type ordinarily
undertaken by a Chief Financial Officer. From February 1999 through January
2002, Mr. Murphy was the Senior Vice President, Chief Financial Officer and
Treasurer of Artel Video Systems, Inc., a video networking technology company.
From 1979 through 1999, Mr. Murphy worked as a Chief Financial Officer with four
companies, three of which were publicly traded issuers.
Dr.
Alexander K. Andrianov joined the Company in September 2006. Dr. Andrianov
supports the design and development of novel drug coating and encapsulation
technologies for the Company’s PyraDerm™ intradermal drug delivery system. Dr.
Andrianov brings over 20 years experience in applications of polymers as
biomaterials and drug delivery systems. Most recently, he was the founder and
Chief Scientific Officer of Parallel Solutions from 2001 until 2006, where he
developed biodegradable polymers for protein delivery and discovered a new class
of potent vaccine immunoadjuvants. Prior to starting Parallel, he worked for
Physical Science, Inc. as Principal Research Scientist and at Avant
Immuonotherapeutics, Inc. as Director of Polymer Synthesis and Formulation. Dr.
Andrianov is listed as an inventor on over 35 patents and patent applications
and has published numerous scientific papers. Dr. Andrianov received his Ph.D.
in Polymer Science from Moscow State University in 1985 and served as a faculty
member until 1991. He continued his academic training at the Massachusetts
Institute of Technology working with Professor Robert Langer.
Herbert
M. Stein is the father of Sheryl B. Stein. There are no other family
relationships among our directors, executive officers or persons nominated or
chosen to become directors or executive officers.
Involvement
in Certain Legal Proceedings
No events
have occurred during the past five years that are required to be disclosed
pursuant to Item 401(d) of Regulation S-B.
General
Information Concerning the Board of Directors and its
Committees
During
the fiscal year ended December 31, 2008, there were four (4) meetings of the
Board of Directors. In addition, from time to time, the members of the Board of
Directors acted by unanimous written consent pursuant to Delaware law. The Board
of Directors has four standing committees: the audit committee, the compensation
committee, the nominating and corporate governance committee, and the executive
committee. Each of the directors attended at least 75% of all the meetings of
the Board and/or Board Committees (of which he or she was a member) held during
the last fiscal year.
The Board
of Directors has established a separately designated, standing Audit Committee
that performs the role described in section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The Audit Committee is currently comprised of Messrs.
Arthur S. Reynolds, Chairman, and Alan W. Tuck, each of whom is independent in
accordance with the applicable rules promulgated by the SEC and The American
Stock Exchange Listing Standards. The Audit Committee selects and retains the
independent auditors to audit the Company’s financial statements, approves the
terms of the engagement of the independent auditors and reviews and approves all
fees charged for audits and for any non-audit projects. The Audit Committee’s
responsibilities also include: overseeing the integrity of the Company’s
financial statements, the Company’s compliance with legal and regulatory
requirements, the independent auditors’ qualifications and independence, the
performance of the Company’s independent auditors and other such matters as may
be assigned by the Board of Directors. The Board of Directors has
adopted a written charter for the Audit Committee, a copy of which is posted on
the Company’s website at: http://www.apogeebio.com.
The Board
of Directors has concluded that Mr. Reynolds meets the definition of an Audit
Committee Financial Expert as such term is defined in the rules and regulations
of the SEC. During the fiscal year ended December 31, 2008, the Audit Committee
held five (5) meetings.
The
Compensation Committee is currently comprised of Messrs. Alan W. Tuck, Chairman,
and Arthur S. Reynolds, each of whom qualifies as an independent director under
the rules of The American Stock Exchange. The Compensation Committee reviews and
determines salaries, equity grants and incentive compensation of the chief
executive officer and other executive officers and is responsible for performing
the other related responsibilities set forth in its Duties and Responsibilities.
During the fiscal year ended December 31, 2008, the Compensation Committee held
two (2) meetings.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee is currently comprised of Messrs.
Craig Dubitsky, Chairman, Arthur S. Reynolds, and Alan W. Tuck each of whom is
independent in accordance with the applicable American Stock Exchange Listing
Standards. The Nominating and Corporate Governance Committee selects and
recommends individuals to be presented to the shareholders of the Company for
election or re-election to the Board or Directors, oversees the evaluation of
the Board of Directors and Company management, monitors corporate governance
principles, practices and guidelines for the Board of Directors and the Company
and is responsible for performing other responsibilities as set forth in its
written charter, a copy of which is posted on the Company’s website
at: http://www.apogeebio.com. During
the fiscal year ended December 31, 2008, no meetings were held by the Nominating
and Corporate Governance Committee.
In
evaluating director nominees, the nominating and corporate governance committee
considers the following factors:
|
·
business-related knowledge, skills and experience of the
nominee;
|
|
· experience
with corporate governance matters and compliance obligations of a public
company, including experience with disclosure and accounting rules and
practices;
|
|
· integrity of
the nominee;
|
|
· mix of talent
and experience and diversity of the directors as a
group;
|
|
· other
professional and business commitments of the nominee, including the number
of other boards on which the nominee serves, including public and private
boards; and
|
|
· other factors
as may be deemed to be in the best interests of the Company and its
stockholders.
|
The Board
of Directors currently does not have a written policy regarding attendance by
directors at the Company’s annual meeting of stockholders; however, the Board
has passed a resolution stating a policy that they are strongly encouraged to
attend, and the Company schedules a meeting of the Board of Directors on the
same date as the annual stockholders meeting. Arthur S. Reynolds and
Sheryl B. Stein, directors of the Company, attended the annual stockholders
meeting in 2008.
The Board
of Directors has determined that Messrs. Tuck, Reynolds and Dubitsky are
independent in accordance with the rules of the Securities and Exchange
Commission and The American Stock Exchange. Mr. Stein is not considered
independent because he is currently serving as the Company’s President and Chief
Executive Officer. Ms. Stein is not considered independent because she is the
daughter of Mr. Stein, the Company’s President and Chief Executive
Officer.
Our Board
of Directors has adopted a code of ethics, which applies to all of our
directors, officers and employees. Our code of ethics is specifically intended
to comply with Item 406 of Regulation S-K. This code of ethics, which is
included as part of the Company’s Code of Conduct and Ethics, is posted on the
Company’s website at: http://www.apogeebio.com.
Stockholder
Communications with the Board
Any
stockholder may contact the Chairman of the Board or other members of the Board
of Directors by sending an email to the following address: [email protected]. Alternatively,
a stockholder can contact the Chairman of the Board or the other members of the
Board of Directors by writing to: Board of Directors, c/o Compliance
Officer, Apogee Technology, Inc., 129 Morgan Drive, Norwood, Massachusetts
02062. All communications received either electronically or in writing will be
distributed to the Chairman of the Board or the other appropriate member or
members of the Board depending on the facts and circumstances outlined in the
communication received.
Director
Nominations and Qualifications
The
Company’s By-Laws contain provisions that address the process by which a
stockholder may nominate an individual to stand for election to the Company’s
Board of Directors at the Annual Meeting of Stockholders. No recommendations
were received from stockholders requesting that the Nominating and Corporate
Governance Committee consider a candidate for inclusion as a nominee to be
presented at the 2009 Annual Meeting of Stockholders. The nominating and
corporate governance committee will consider qualified candidates for director
suggested by a stockholder. Stockholders can suggest qualified candidates for
director by writing to our corporate secretary at 129 Morgan Drive, Norwood,
Massachusetts 02062.
Submissions
received that meet the criteria set forth below will be forwarded to the
chairman of the nominating and corporate governance committee for further review
and consideration. To be timely, a stockholder’s notice pertaining to an annual
meeting shall be delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the sixtieth (60th)
day nor earlier than the close of business on the ninetieth (90th) day prior to
the first anniversary of the preceding year’s annual meeting; provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. A stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended (or any
successor provision), and the rules and regulations thereunder with respect to
the matters set forth in the By-laws. Nominations not received, in the
appropriate manner or during the time frame discussed above will not be voted on
at the Annual Meeting. Even if a nomination is received in the correct manner
and during that time frame, the proxies that the Company solicits for the
meeting may still exercise discretionary voting authority on the nomination
under circumstances consistent with the proxy rules of the Securities and
Exchange Commission.
Compensation
Committee Interlocking, Insider, and Relation Party
Relationships
No
members of the Apogee Compensation Committee are also employees or former
employees of the Company. Nor have any members of the Apogee Compensation
Committee had any transactions described under the heading “Certain
Relationships and Related Transactions” (Reg. S-K Item 404) or nor have they had
any are interlocking relationships with compensation committees of other
companies’ Boards of Directors.
Section
16(A) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the
Company’s directors and officers, and persons who own more than 10% of the
Company’s Common Stock, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of the Common Stock and
other equity securities of the Company. Officers, directors and greater than 10%
beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the
Company’s knowledge, based solely on its review of copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2008, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
|
EXECUTIVE, OFFICER, AND
DIRECTOR COMPENSATION.
|
Summary
Compensation Table
The
following table shows the total compensation paid or accrued during the last two
fiscal years ended December 31, 2008 and 2007 to (1) our Chief Executive Officer
and President and (2) our two next highly compensated executive officers who
earned more than $100,000 during the fiscal year ended December 31,
2008.
Name
and Principal Position(1)
|
|
Year
|
|
Salary
($)
|
|
|
Option
Awards
($)(4)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($) |
Herbert
M. Stein, President and Chief Executive Officer (7)
|
|
2008
|
|
$ |
236,000 |
(2)(3) |
|
$ |
-0- |
|
|
$ |
229,875 |
(5) |
|
$ |
465,875 |
|
Paul
J. Murphy, Vice President Finance and Chief Financial
Officer
|
|
2008
|
|
$ |
128,000 |
(3) |
|
$ |
9,145 |
|
|
$ |
-0- |
|
|
$ |
137,145 |
|
Alexander
K. Andrianov, Vice President Research and Development
|
|
2008
|
|
$ |
145,000 |
|
|
$ |
12,456 |
|
|
$ |
-0- |
|
|
$ |
157,456 |
|
Name
and Principal Position(1)
|
|
Year
|
|
Salary
($)
|
|
|
Option
Awards
($)(4)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
Herbert
M. Stein, President and Chief Executive Officer
|
|
2007
|
|
$ |
295,000 |
(2) (3) |
|
$ |
-0- |
|
|
$ |
280,399 |
(5) |
|
$ |
575,399 |
|
Paul
J. Murphy, Vice President Finance and Chief Financial
Officer
|
|
2007
|
|
$ |
160,000 |
(3) |
|
$ |
11,474 |
|
|
$ |
-0- |
|
|
$ |
171,474 |
|
David
B. Meyers (6)
|
|
2007
|
|
|
170,000 |
|
|
$ |
7,506 |
|
|
$ |
-0- |
|
|
$ |
177,506 |
|
Alexander
K. Andrianov, Vice President Research and Development
|
|
2007
|
|
$ |
145,000 |
|
|
$ |
10,901 |
|
|
$ |
-0- |
|
|
$ |
155,901 |
|
(1)
|
Currently,
none of the officers of the Company are under employment contracts with
the exception of Mr. Herbert M.
Stein.
|
(2)
|
Mr.
Stein is compensated pursuant to an employment agreement of which the
initial term ended on January 1, 2007; the agreement is automatically
extended for additional two-year periods unless terminated by Mr. Stein or
the Board of Directors no later than 120 days prior to the end of the
initial term or any successive term. Mr. Stein is entitled to an annual
base salary, effective January 1, 2004, of $295,000 which may be increased
at the discretion of the Company’s Board of Directors, and annual bonuses
as determined by the Company’s Board of
Directors.
|
(3)
|
In
June of 2008, a majority of employees, including Mr. Stein and Mr. Murphy,
agreed to reduce their salary by twenty percent
(20%).
|
(4)
|
The
amounts in this column reflect the dollar amount recognized for financial
statement reporting purposes for the fiscal year ended December 31, 2008,
in accordance with SFAS 123(R) of awards of stock options and thus include
amounts from awards granted in and prior to 2006. Assumptions used in this
calculation are included in Part II - Item 8, Financial Statements and
Supplementary Data of the Annual Report on Form 10-K, and Notes 2 and 17
of the Financial Statements beginning on F-1 of this Annual Report on Form
10-K, contained therein.
|
(5)
|
The
Company has been assuming and will continue to assume the legal costs and
related expenses of Herbert M. Stein, in connection with the civil case in
the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Joseph Shamy v. Herbert M. Stein, case No.: 50
2005 CA 007719 XXXXMB. Mr. Stein reached a settlement with Mr.
Shamy in early 2009. The Company was not a party to this settlement. It is
expected that the remaining legal fees to be indemnified by the Company
will not be significant.
|
(6)
|
Mr.
Meyers was formerly our Chief Operating Officer. Mr. Meyers’
new title is Vice President, Sensor Division. As a result of
this change, Mr. Meyers is no longer subject to the reporting requirements
of Section 16 of the Securities Exchange Act of 1934, as
amended.
|
(7)
|
Mr.
Stein has not drawn cash compensation since June 30,
2009.
|
In March
2004, the Company entered into an employment agreement with Herbert M. Stein
pursuant to which Mr. Stein serves as the Company’s Chief Executive Officer and
President, as well as Chairman of the Board of Directors, subject to the rights
of the shareholders of the Company to elect the Company’s directors. The
employment agreement is for an initial term ended on January 1, 2007 and is
automatically extended for additional two-year periods unless terminated by
either party no later than 120 days prior to the end of the initial term or any
successive term. Mr. Stein is entitled to an annual base salary, effective
January 1, 2004, of $295,000, which may be increased at the discretion of the
Company’s Board of Directors, and annual bonuses as determined by the Company’s
Board of Directors. Upon a change of control of the Company, as defined in the
agreement, all stock options held by Mr. Stein shall become fully vested. The
Company may terminate the employment agreement with or without cause, as defined
in the agreement. In the event of Mr. Stein’s death or disability, the agreement
provides that he (or his estate) shall be entitled to accrued salary through the
date of termination, any bonus the Board of Directors has determined
appropriate, and any proceeds or other benefits from insurance policies or other
benefit plans to which he (or his estate) would be entitled. In the event that
Mr. Stein’s employment is terminated for cause, he shall only be entitled to
accrued salary through the date of termination. In the event that Mr. Stein’s
employment is terminated without cause, he shall be entitled to accrued salary
through the date of termination, continued base salary payments for the greater
of 24 months or the remainder of the term of the agreement, continued medical
plan benefits for 24 months following the date of termination, and an amount
equal to the highest bonus he has previously received under the agreement,
prorated to the date of termination. In the event that Mr. Stein voluntarily
terminates his employment, he shall be entitled to accrued salary through the
date of termination and an amount equal to the highest bonus he has previously
received under the agreement, prorated to the date of termination.
Outstanding
Equity Awards At Fiscal Year-End
The
following table shows grants of stock options and grants of unvested incentive
plan awards as of December 1, 2009, to each of the executive officers named in
the Summary Compensation Table.
|
|
Option
Awards
|
Name
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
Herbert
M. Stein
|
|
|
300,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
0.950 |
|
08/17/2016
|
|
|
|
200,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
8.920 |
|
06/07/2014
|
|
|
|
175,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
8.650 |
|
03/25/2014
|
|
|
|
200,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
4.080 |
|
03/27/2013
|
|
|
|
100,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
2.710 |
|
01/21/2013
|
|
|
|
100,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
5.500 |
|
04/03/2012
|
|
|
|
350,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
6.300 |
|
12/21/2011
|
|
|
|
100,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
6.300 |
|
08/16/2011
|
|
|
|
100,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
6.250 |
|
02/12/2011
|
|
|
|
80,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
1.240 |
|
05/19/2010
|
Paul
J. Murphy
|
|
|
15,000 |
|
|
|
10,000 |
(1) |
|
|
-0- |
|
|
$ |
0.950 |
|
08/17/2016
|
|
|
|
48,000 |
|
|
|
12,000 |
(2) |
|
|
-0- |
|
|
$ |
1.270 |
|
06/01/2015
|
Alexander
K. Andrianov
|
|
|
16,000 |
|
|
|
24,000 |
(3) |
|
|
-0- |
|
|
$ |
0.450 |
|
11/19/2017
|
|
|
|
36,000 |
|
|
|
24,000 |
(4) |
|
|
-0- |
|
|
$ |
0.800 |
|
09/12/2016
|
(1)
|
25,000
options granted on August 17, 2006; vesting at 20% per year beginning at
the first anniversary of the grant
date.
|
(2)
|
60,000
options granted on June 1, 2005; vesting at 20% per year beginning at the
first anniversary of the grant
date.
|
(3)
|
40,000
options granted on November 19, 2007; vesting at 20% per year beginning at
the first anniversary of the grant
date.
|
(4)
|
60,000
options granted on September 12, 2006; vesting at 20% per year beginning
at the first anniversary of the grant
date.
|
Termination
or Change in Control Arrangements
Other
than Mr. Stein’s employment agreement, which may provides for payments in
connection with his termination, as discussed above, there are no arrangements
with any executive officer that would provide for payments in connection with
their termination or a change in control of the Company.
Directors
who are also employees of the Company do not receive compensation for serving as
directors. Directors who are not employees of the Company are paid a retainer
and are reimbursed for ordinary and necessary travel expenses incurred in
connection with attendance at each board meeting. The annual retainer in fiscal
2008 was $5,000. In fiscal 2008, each non-employee director earned $1,250 per
quarter. In addition members of both the Audit Committee and Compensation
Committee received an annual retainer of $2,000 payable quarterly. During fiscal
2008, the Audit Committee chairperson earned an annual retainer $13,000 and the
Compensation Committee chairperson received an annual retainer of $4,000,
payable quarterly. Except for $10,000 paid to Mr. Reynolds for the
first two quarters of 2008, director fees remain outstanding and
payable.
In
addition to the cash compensation discussed above, directors are eligible to
participate in the Company’s 2007 Employee, Director and Consultant Stock Option
Plan (the “Plan”). Options granted under the Plan to non-employee directors’
vest over a five year period beginning on the first anniversary of the date of
grant. Options to purchase 40,000 shares of the Company’s Common stock, at an
exercise price of $1.00 per share, vesting over five years, were granted under
the Plan during the year ended December 31, 2008 to each of Craig A. Dubitsky,
Arthur S. Reynolds, Sheryl B. Stein and Alan W. Tuck. See Apogee
Technology’s 2007 Proxy Statement dated August 1, 2007, for a description of our
1997 and 2007 Employee, Director and Consultant Stock Option Plans.
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
Option
Awards
($)
|
|
|
Total
($)
|
|
Craig
A. Dubitsky
|
|
$ |
5,000 |
|
|
$ |
6,337 |
|
|
$ |
11,337 |
|
Arthur
S. Reynolds
|
|
$ |
20,000 |
|
|
$ |
9,540 |
|
|
$ |
29,540 |
|
Sheryl
B. Stein
|
|
$ |
5,000 |
|
|
$ |
6,337 |
|
|
$ |
11,337 |
|
Alan
W. Tuck
|
|
$ |
11,000 |
|
|
$ |
7,940 |
|
|
$ |
18,940 |
|
Securities
Authorized For Issuance Under Equity Compensation Plans
The table
below provides certain aggregate information with respect to the Company’s
former 1997 Employee, Director and Consultant Stock Option Plan and the 2007
Employee, Director and Consultant Stock Option Plan in effect as of
December 31, 2008.
Plan
Category
|
|
Number
of Securities to be Issued Upon Exercise of Outstanding
Options
|
|
|
Weighted
Average Exercise Price of Outstanding Options
|
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in first
column)
|
|
Equity
Compensation Plans Approved by Security Holders(1)
|
|
|
3,068,100 |
|
|
$ |
4.40 |
|
|
|
479,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans not Approved by Security Holders
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
Total
|
|
|
3,068,100 |
|
|
$ |
4.40 |
|
|
|
479,000 |
|
(1)
This primarily consists of grants made under the 1997 Employee, Director and
Consultant Stock Option Plan initially approved by the Company’s stockholders in
1997 and 271,000 shares underling options granted pursuant to the 2007 Employee,
Director and Consultant Stock Option Plan. The 1997 Employee,
Director and Consultant Stock Option Plan expired by its terms on May 14,
2007. On August 28, 2008, the stockholders approved the 2007
Employee, Director and Consultant Stock Option Plan. The 2007
Employee, Director and Consultant Stock Option Plan authorized 750,000 shares
eligible for issuance, however the Plan has an “evergreen” feature that
replenishes and restores the Plan to a maximum of 750,000 shares eligible for
issuance per year provided, however in no event shall the number of shares
eligible for issuance under the Plan be greater than 7% of the number of shares
of Common Stock outstanding on a fully diluted basis on the close of business on
the on the day prior to the increase.
|
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
|
The
following table sets forth certain information as of December 1, 2009 concerning
the beneficial ownership of Common stock by each Stockholder known by the
Company to be the beneficial owner of more than 5% of its outstanding shares of
Common stock, each current member of the Board of Directors, each executive
officer named in the Summary Compensation Table, and all current directors and
executive officers as a group.
Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities.
|
|
Shares
Beneficially Owned (1)
|
|
Name
and Address**
|
|
Number
|
|
|
Percent
|
|
Herbert
M. Stein
71
Fairlee Road, Waban, MA 02468
|
|
|
3,444,674 |
(2) |
|
|
28.39 |
% |
H.M.
Stein Associates
C/o
Herbert M. Stein
71
Fairlee Road, Waban, MA 02468
|
|
|
1,466,334 |
(3) |
|
|
12.09 |
% |
David
Spiegel
129
Morgan Drive, Norwood, MA 02062
|
|
|
1,920,232 |
(4) |
|
|
15.83 |
% |
Sheryl
B. Stein
150
East 57th Street, New York, NY 10022
|
|
|
900,470 |
(5) |
|
|
7.42 |
% |
Leo
Spiegel
3720
South Ocean Boulevard
Unit
801, Highland Beach, FL 33487
|
|
|
793,386 |
|
|
|
6.54 |
% |
Alan
W. Tuck
|
|
|
327,500 |
(6) |
|
|
2.70 |
% |
Arthur
S. Reynolds
|
|
|
86,500 |
(7) |
|
|
* |
|
Paul
J. Murphy
|
|
|
63,000 |
(8) |
|
|
* |
|
Alexander
K. Andrianov
|
|
|
52,000 |
(9) |
|
|
* |
|
Craig
A. Dubitsky
|
|
|
40,000 |
(10) |
|
|
* |
|
All
executive officers and directors as a group (7 persons)
|
|
|
4,914,144 |
(11) |
|
|
33.81 |
% |
*
|
Represents
beneficial ownership of less than 1% of the Company’s outstanding shares
of common stock.
|
**
|
Addresses
are given for beneficial owners of more than 5% of the Company’s
outstanding stock only.
|
(1)
The number of shares of common stock issued and outstanding on December 1, 2009
was 12,132,332. The calculation of percentage ownership of each listed
beneficial owner is based upon the number of shares of common stock issued and
outstanding on December 1, 2009, including shares of common stock subject to
options and/or warrants held by such person at December 1, 2009 and exercisable
within 60 days thereafter. On December 28, 2005, Apogee filed a Form 8-K with
the SEC announcing that the Board of Directors approved the accelerated vesting
of certain unvested stock options awarded to employees and non-employee members
of the Board of Directors. As a result of the Board’s approval, the vesting
provisions for options covering approximately 880,000 underlying shares of
common stock were accelerated. Approximately 665,000 of the underlying Shares,
of the total accelerated, belong to executive officers and non-employee members
of the Board of Directors. The Board only accelerated the vesting of those
options having exercise prices in excess of $2.00 per share and did not
accelerate the vesting of any options with exercise prices below $2.00 per
share. The persons and entities named in the table have sole voting and
investment power with respect to all Shares shown as beneficially owned by them,
except as noted below.
(2)
|
Includes
91,100 shares of common stock owned directly by Mr. Stein, 1,705,000
shares of common stock which may be purchased by Mr. Stein upon the
exercise of fully vested options, 70,840 shares of common stock which may
be purchased by Mr. Stein upon exercise of fully vested warrants, 111,400
shares of common stock owned by Mr. Stein’s wife, and 1,466,334 shares of
common stock owned by H.M. Stein Associates
(“HMSA”).
|
(3)
|
The
partners of HMSA are Herbert M. and Renee Stein, their daughters, Erica,
Sheryl and Sharyn and Fairlee Corporation. Mr. Stein has an 8% general
partnership interest in HMSA. Mr. Stein and his wife, Renee Stein, are the
sole stockholders of Fairlee Corporation, which has a 1% general
partnership interest in HMSA. Mr. Stein disclaims beneficial ownership of
91% of such shares.
|
(4)
|
Includes
1,731,232 shares of common stock owned directly by Mr. Spiegel, 99,400
shares of common stock which may be purchased by Mr. Spiegel upon exercise
of fully vested warrants, 200 shares of common stock owned by Mr.
Spiegel’s wife and 400 shares of common stock owned by Mr. Spiegel’s wife
as custodian for two minor children. Includes 82,700 shares of common
stock owned by The Spiegel Family Limited Partnership, 6,300 shares of
common stock which may be purchased by The Spiegel Family Limited
Partnership upon exercise of fully vested warrants. Mr. Spiegel
has sole voting and investment power with respect to these shares, but
disclaims beneficial ownership of 68% of such
shares.
|
(5)
|
Includes
260,400 shares of common stock owned directly by Ms. Stein, 120,000 shares
of common stock which may be purchased by Ms. Stein upon exercise of fully
vested options. Includes 19,400 shares of common stock owned by
H.M. Stein & Co. and 500,670 shares of common stock owned by
HMSA.
|
(6)
|
Includes
127,000 shares of common stock owned directly by Mr. Tuck, 130,500 shares
of common stock which may be purchased by Mr. Tuck upon exercise of fully
vested options, 60,000 shares owned by Mr. Tuck’s wife and 10,000 shares
held in a trust for Mr. Tuck’s brother of which Mr. Tuck disclaims
beneficial ownership.
|
(7)
|
Includes
86,500 shares of common stock which may be purchased by Mr. Reynolds upon
exercise of fully vested options.
|
(8)
|
Includes
63,000 shares of common stock which may be purchased by Mr. Murphy upon
exercise of fully vested options.
|
(9)
|
Includes
52,000 shares of common stock which may be purchased by Mr. Andrianov upon
exercise of fully vested options.
|
(10)
|
Includes
40,000 shares of common stock which may be purchased by Mr. Dubitsky upon
exercise of fully vested options.
|
(11)
|
Includes
2,197,000 shares of common stock which may be purchased upon exercise of
fully vested options, 186,290 shares of common stock which may be
purchased upon exercise of fully vested
warrants.
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR
INDEPENDENCE.
|
In April
1997, the Company moved its principal executive offices to a facility owned by
Mr. David Spiegel, a major shareholder of the Company. On October 1, 2001 the
Company signed a 24-month lease for this facility, expiring September 30, 2003.
Subsequently, the Company signed two lease extensions. The most recent lease
extension expired on December 31, 2005.
The
Company is currently renting this facility on a month-to-month basis. The
Company rents the facility for $4,400 per month effective October 1, 2001. Rent
paid during 2007, 2006 and 2005 amounted to $158,400 in the aggregate. The
Company believes that amounts paid pursuant to this lease are at or below market
value.
Policy
for Approval of Related Transactions
Pursuant
to the written charter of our Audit Committee, the Audit Committee is
responsible for reviewing and approving, prior to our entry into any such
transaction, all transactions in which we are a participant and in which any of
the following persons has or will have a direct or indirect material
interest:
·
|
our
executive officers;
|
·
|
the
beneficial owners of more than 5% of our
securities;
|
·
|
the
immediate family members of any of the foregoing persons;
and
|
·
|
any
other persons whom the Board determines may be considered related
persons.
|
·
|
loans
by directors and executive officers to Apogee “See Note 7 to the
consolidated financial statements beginning on page F-1 of this Annual
Report on Form 10-K.
|
For
purposes of these procedures, “immediate family members” means any child,
stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and any person
(other than a tenant or employee) sharing the household with the executive
officer, director or 5% beneficial owner.
In
reviewing and approving such transactions, the Audit Committee shall obtain, or
shall direct our management to obtain on its behalf, all information that the
committee believes to be relevant and important to a review of the transaction
prior to its approval. Following receipt of the necessary information, a
discussion shall be held of the relevant factors if deemed to be necessary by
the committee prior to approval. If a discussion is not deemed to be necessary,
approval may be given by written consent of the committee. This approval
authority may also be delegated to the chairman of the Audit Committee in some
circumstances. No related person transaction shall be entered into prior to the
completion of these procedures.
The Audit
Committee or its chairman, as the case may be, shall approve only those related
person transactions that are determined to be in, or not inconsistent with, the
best interests of us and our stockholders, taking into account all available
facts and circumstances as the committee or the chairman determines in good
faith to be necessary. These facts and circumstances will typically include, but
not be limited to, the benefits of the transaction to us; the impact on a
director’s independence in the event the related person is a director, an
immediate family member of a director or an entity in which a director is a
partner, shareholder or executive officer; the availability of other sources for
comparable products or services; the terms of the transaction; and the terms of
comparable transactions that would be available to unrelated third parties or to
employees generally. No member of the Audit Committee shall participate in any
review, consideration or approval of any related person transaction with respect
to which the member or any of his or her immediate family members is the related
person.
Item
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
The
following table presents fees for professional audit services rendered by Miller
Wachman LLP, our independent registered public accounting firm, for the audit of
the Company’s annual financial statements for the years ended December 31, 2008
and December 31, 2007, and fees billed for other services rendered by Miller
Wachman LLP during those periods.
|
|
|
2008* |
|
|
|
2007 |
|
Audit
fees:(1)
|
|
$ |
60,620 |
|
|
$ |
66,240 |
|
Audit
related fees:(2)
|
|
|
-0- |
|
|
|
-0- |
|
Tax
fees:(3)
|
|
|
7,380 |
|
|
|
14,828 |
|
All
other fees:(4)
|
|
|
-0- |
|
|
|
-0- |
|
Total
|
|
$ |
68,000 |
|
|
$ |
81,068 |
|
|
(1)
Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory
audits.
|
|
(2)
The Company incurred no fees in this category during fiscal years 2008 and
2007.
|
|
(3)
Tax fees consist principally of assistance with matters related to tax
compliance and reporting.
|
|
(4)
The Company incurred no fees in this category during fiscal years 2008 and
2007.
|
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of
Independent Auditors
Consistent
with SEC policies regarding auditor independence, the Audit Committee has
responsibility for appointing, setting compensation and overseeing the work of
the independent auditor. In recognition of this responsibility, the Audit
Committee has established a policy to pre-approve all audit and permissible
non-audit services provided by the independent auditor.
Prior to
engagement of the independent auditor for the next year’s audit, management will
submit an aggregate of services expected to be rendered during that year for
each of four categories of services to the Audit Committee for
approval.
1. Audit
services include audit work performed in the preparation of financial
statements, as well as work that generally only the independent auditor can
reasonably be expected to provide, including comfort letters, statutory audits,
and attest services and consultation regarding financial accounting and/or
reporting standards.
2. Audit-Related services
are for assurance and related services that are traditionally performed by the
independent auditor, including due diligence related to mergers and
acquisitions, employee benefit plan audits, and special procedures required to
meet certain regulatory requirements.
3. Tax services
include all services performed by the independent auditor’s tax personnel except
those services specifically related to the audit of the financial statements,
and includes fees in the areas of tax compliance, tax planning, and tax
advice.
4. Other
Fees are those associated with services not captured in
the other categories. The Company generally does not request such services from
the independent auditor.
Prior to
engagement, the Audit Committee pre-approves these services by category of
service. The fees are budgeted and the Audit Committee requires the independent
auditor and management to report actual fees versus the budget periodically
throughout the year by category of service. During the year, circumstances may
arise when it may become necessary to engage the independent auditor for
additional services not contemplated in the original pre-approval. In those
instances, the Audit Committee requires specific pre-approval before engaging
the independent auditor.
The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
PART
IV
The following is a list of exhibits
filed as part of this Annual Report on Form 10-K.
Exhibit
No
|
|
Description
|
3.1
|
|
Certificate
of Incorporation of Apogee Technology, Inc., incorporated herein by
reference to Exhibit 3.1 to the Registrant's Form 10-KSB, as amended (File
No. 000-17053).
|
3.2
|
|
Certificate
of Amendment of the Certificate of Incorporation of Apogee Technology,
Inc. as filed with the Secretary of State of the State of Delaware on
August 29, 2007.
|
3.3
|
|
Amendment
of Certificate of Incorporation of Apogee Technology, Inc., incorporated
herein by reference to Exhibit 3.2 to the Registrant's Form 10-QSB, as
amended (File No. 000-17053).
|
3.4
|
|
Certificate
of Amendment to Certificate of Incorporation of Apogee Technology, Inc.,
incorporated herein by reference from Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 (File.
No. 000-30656).
|
3.5
|
|
Restated
By-Laws of Apogee Technology, Inc., incorporated herein by reference from
Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2001 (File. No. 000-30656).
|
4.1
|
|
Apogee
Technology, Inc. Amended and Restated Common stock Purchase Warrant, filed
with the Current Report on Form 8-K, dated December 7, 2005 (File No.
001-10456).
|
4.2
|
|
Form
of Biscayne Capital Markets, Inc. Warrant, incorporated herein by
reference from Exhibit 10.7 to the Registrant’s Form 8-K as filed on
August 9, 2005 (File No. 001-10456).
|
4.3
|
|
Form
of Warrant previously filed on a Current Report on Form 8-K, August 29,
2008 as an exhibit to a Current Report on
Form 8-K.
|
4.4
|
|
Form
of Warrant previously filed on a Current Report on Form 8-K, September 10,
2008 as an exhibit to a Current Report on
Form 8-K.
|
4.5
|
|
Form
of Warrant previously filed on a Current Report on Form 8-K, October 30,
2008 as an exhibit to a Current Report on
Form 8-K.
|
10.1
|
|
1997
Employee, Director and Consultant Stock Plan.
|
10.2*
|
|
License
Agreement dated February 2, 2001 by and between the Registrant and
STMicroelectronics, NV, incorporated herein by reference from Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2001. (File No. 000-30656).
|
10.3
|
|
Termination
of Registration Rights Agreement, dated December 5, 2005 filed with the
Current Report on Form 8-K, dated December 7, 2005 (File No.
001-10456).
|
10.4
|
|
Asset
Purchase Agreement dated as of October 5, 2005, by and among SigmaTel,
Inc., Apogee Technology, Inc., certain stockholders, and with respect to
the provisions of Section 8.15 only, David B. Meyers, incorporated herein
by reference from Exhibit 99.1 to the Registrant’s Form 8-K as filed on
October 7, 2005 (File No. 001-10456).
|
10.5
|
|
Indemnification
Agreement dated as of October 5, 2005, among SigmaTel, Inc., Apogee
Technology, Inc., Herbert M. Stein, H.M. Stein Associates, and Sheryl B.
Stein. incorporated herein by reference from Exhibit 99.3 to the
Registrant’s Form 8-K as filed on October 7, 2005 (File No.
001-10456).
|
10.6*
|
|
Transfer
Employment and Royalty Agreement, dated May 11, 2004 and incorporated
herein by reference from Exhibit 10.16 to the Registrant’s Form 10-KSB for
the fiscal year ended December 31, 2005 (File No.
001-10456).
|
10.7
|
|
2007 Employee, Director and Consultant Stock
Plan.
|
10.8
|
|
Promissory Note dated as of December 11, 2007 by
and between Apogee Technology, Inc. and Herbert M. Stein, previously filed
on December 14, 2007 as an exhibit to a Current Report on Form
8-K.
|
10.9
|
|
Promissory Note dated as of December 11, 2007 by
and between Apogee Technology, Inc. and David Spiegel, previously filed on
December 14, 2007 as an exhibit to a Current Report on Form
8-K..
|
10.10
|
|
Promissory
Note dated as of August 27, 2008 by and between Apogee Technology, Inc.
and Herbert M. Stein previously filed on a Current Report on Form 8-K,
August 29, 2008 as an exhibit to a Current
Report on Form 8-K.
|
10.11
|
|
Promissory
Note dated as of August 27, 2008 by and between Apogee Technology, Inc.
and David Spiegel previously filed on a Current Report on Form 8-K, August
29, 2008 as an exhibit to a Current Report
on Form 8-K.
|
10.12
|
|
Promissory
Note dated as of September 5, 2008 by and between Apogee Technology, Inc.
and Herbert M. Stein previously filed on a Current Report on Form 8-K,
September 10, 2008 as an exhibit to a
Current Report on Form 8-K.
|
10.13
|
|
Promissory
Note dated as of September 5, 2008 by and between Apogee Technology, Inc.
and David Spiegel previously filed on a Current Report on Form 8-K,
September 10, 2008 as an exhibit to a
Current Report on Form 8-K.
|
10.14
|
|
Promissory
Note dated as of September 5, 2008 by and between Apogee Technology, Inc.
and TYJO Corporation Money Purchase Pension Plan previously filed on a
Current Report on Form 8-K, September 10, 2008 as an exhibit to a Current Report on Form
8-K.
|
10.15
|
|
Promissory
Note dated as of September 5, 2008 by and between Apogee Technology, Inc.
and Robert Schacter, as Custodian for Tyler Schacter UTMA/CA previously
filed on a Current Report on Form 8-K, September 10, 2008 as an exhibit to a Current Report on Form
8-K.
|
10.16
|
|
Promissory
Note dated as of September 5, 2008 by and between Apogee Technology, Inc.
and Robert Schacter as Custodian for Tyler Schacter UTMA/CA previously
filed on a Current Report on Form 8-K, September 10, 2008 as an exhibit to a Current Report on Form
8-K.
|
10.17
|
|
Promissory
Note dated as of October 27, 2008 by and between Apogee Technology, Inc.
and Herbert M. Stein previously filed on a Current Report on
Form 8-K, October 30, 2008 as an exhibit to
a Current Report on Form 8-K.
|
10.18
|
|
Promissory
Note dated as of October 27, 2007 by and between Apogee Technology, Inc.
and David Spiegel previously filed on a Current Report on Form 8-K,
October 30, 2008 as an exhibit to a Current
Report on Form 8-K.
|
10.19
|
|
Promissory
Note dated as of October 27, 2008 by and between Apogee Technology, Inc.
and TYJO Corporation Money Purchase Pension Plan previously filed on a
Current Report on Form 8-K, October 30, 2008 as an exhibit to a Current Report on Form
8-K.
|
23
|
|
Consent
of Independent Accountants
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal
Executive Officer.
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal
Financial Officer.
|
|
|
Statement
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief
Executive Officer and Principal Financial
Officer.
|
*
Confidential treatment requested as to certain portions of the document, which
portions have been omitted and filed separately with the Securities and Exchange
Commission.
Where a
document is incorporated by reference from a previous filing, the exhibit number
of the document in that previous filing is indicated in parentheses after the
description of such document.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
APOGEE
TECHNOLOGY, INC.
|
|
|
/s/
Herbert M. Stein
|
|
By:
|
|
|
|
|
Herbert
M. Stein, President
|
|
|
Chief
Executive Officer,
|
|
|
Chairman
of the Board
|
Date: December
18, 2009
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated below and on the dates indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Herbert M. Stein
|
|
|
|
|
|
|
|
President,
Chief Executive Officer
|
|
December 18,
2009
|
|
Herbert
M. Stein
|
|
and
Chairman of the Board
|
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/
Paul J. Murphy
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
December 18,
2009
|
|
Paul
J. Murphy
|
|
Vice
President of Finance and Treasurer
|
|
|
|
|
|
(Principal
Financial Office and Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/
Craig A. Dubitsky
|
|
|
|
|
|
|
|
Director
|
|
December 18,
2009
|
|
Craig
A. Dubitsky
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Arthur S. Reynolds
|
|
|
|
|
|
|
|
Director
|
|
December 18,
2009
|
|
Arthur
S. Reynolds
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Sheryl B. Stein
|
|
|
|
|
|
|
|
Director
|
|
December 18,
2009
|
|
Sheryl
B. Stein
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Alan W. Tuck
|
|
|
|
|
|
|
|
Director
|
|
December 18,
2009
|
|
Alan
W. Tuck
|
|
|
|
|
ANNUAL
REPORT ON FORM 10-K
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2008 AND 2007
APOGEE
TECHNOLOGY, INC.
(A
DEVELOPMENT STAGE COMPANY)
Report
of Independent Registered Public Accounting Firm.
|
|
F-1
|
Consolidated
Balance Sheets-December 31, 2008 and December 31, 2007
|
|
F-2
|
Consolidated
Statements of Operations-Years Ended December 31, 2008 and 2007 and for
the period from October 1, 2008 (date re-entering development stage)
through December 31, 2008
|
|
F-3
|
Consolidated
Statements of Stockholders’ Deficiency-Years ended December 31, 2008 and
2007 and for the period from October 1, 2008 (date re-entering development
stage) through December 31, 2008
|
|
F-4
|
Consolidated
Statements of Cash Flows-Years Ended December 31, 2008 and 2007 and for
the period from October 1, 2008 (date re-entering development stage)
through December 31, 2008
|
|
F-5
|
Notes
to Consolidated Financial Statements
|
|
F-6
|
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
Apogee
Technology, Inc.
We have
audited the accompanying consolidated balance sheets of Apogee Technology, Inc.
and Subsidiary (a development stage company) as of December 31, 2008 and 2007
and the related consolidated statements of operations, stockholders’ deficiency,
and cash flows for each of the years in the two-year period ended December 31,
2008 and for the period from re-entering the development stage on October 1,
2008 through December 31, 2008. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has had recurring
operating losses, has negative cash flows from operations of approximately
$2,000,000, negative working capital of approximately $4,200,000 and a
stockholders’ deficiency of approximately $4,000,000, is in arrears with a
majority of its vendors, and is in default on a majority of its promissory
notes. Additionally, the Company received a “Wells Notice” from
the Securities and Exchange Commission in October 2009 concerning its
non-compliance with and violation of its rules and regulations. This
raises substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
discussed in Note 1. The viability of the Company is dependent upon
the continued forbearance of its creditors, its ability to successfully raise
sufficient funds to meet its obligations and to successfully develop and market
its technology. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In our
opinion, the 2007 consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
Apogee Technology, Inc. and Subsidiary as of December 31, 2007, and the results
of its operations, stockholders’ deficiency and cash flow for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
Because
of the significance of the uncertainty described in the third paragraph, we are
unable to express, and do not express, an opinion on the 2008 consolidated
financial statements referred to in the first paragraph.
/s/
Miller Wachman LLP
Boston,
Massachusetts
December
18, 2009
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
|
DECEMBER 31,
2008
|
|
|
DECEMBER 31,
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
— |
|
|
$ |
320,524 |
|
Accounts
receivable, net of allowance for doubtful accounts of $9,377 in
2008 and $10,570 in 2007, respectively
|
|
|
— |
|
|
|
10,536 |
|
Inventories,
net
|
|
|
— |
|
|
|
— |
|
Prepaid
expenses and other current assets
|
|
|
8,335 |
|
|
|
86,763 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
8,335 |
|
|
|
417,823 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
111,152 |
|
|
|
183,445 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Patents
|
|
|
148,889 |
|
|
|
269,694 |
|
Exclusive
licensing, net
|
|
|
— |
|
|
|
26,009 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
268,376 |
|
|
$ |
896,971 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$ |
49,236 |
|
|
$ |
— |
|
Accounts
payable and accrued expenses
|
|
|
2,267,273 |
|
|
|
745,545 |
|
Officer
loans and notes payable
|
|
|
783,524 |
|
|
|
250,000 |
|
Shareholder
loans and notes payable
|
|
|
882,431 |
|
|
|
150,000 |
|
Other
loans and notes payable
|
|
|
259,622 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,242,086 |
|
|
|
1,145,545 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficiency
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value per share; 5,000,000 shares authorized, none
issued and outstanding.
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value per share; 40,000,000 shares authorized, 12,132,332
issued and outstanding at December 31, 2008 and 11,968,332 issued and
outstanding at December 31, 2007.
|
|
|
121,323 |
|
|
|
119,683 |
|
Additional
paid-in capital
|
|
|
18,786,046 |
|
|
|
18,492,308 |
|
Accumulated
deficit
|
|
|
(21,891,704 |
) |
|
|
(18,860,565 |
) |
Accumulated
deficit during development stage
|
|
|
(989,375 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficiency
|
|
|
(3,973,710 |
) |
|
|
(248,574 |
) |
|
|
$ |
268,376 |
|
|
$ |
896,971 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
Cumulative
from Re-entering of Development Stage on October 1, 2008 through
December 31, 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$ |
21,951 |
|
|
$ |
150,172 |
|
|
$ |
— |
|
Royalties
|
|
|
63,499 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,450 |
|
|
|
150,172 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
|
696 |
|
|
|
1,570 |
|
|
|
— |
|
Research
and development
|
|
|
1,558,042 |
|
|
|
1,339,324 |
|
|
|
479,080 |
|
Selling,
general and administrative
|
|
|
2,381,182 |
|
|
|
2,141,517 |
|
|
|
438,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,939,920 |
|
|
|
3,482,411 |
|
|
|
917,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,854,470 |
) |
|
|
(3,332,239 |
) |
|
|
(917,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other expense
|
|
|
(174,931 |
) |
|
|
(1,778 |
) |
|
|
(72,379 |
) |
Interest
and other income
|
|
|
8,887 |
|
|
|
129,014 |
|
|
|
684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166,044 |
) |
|
|
127,236 |
|
|
|
(71,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,020,514 |
) |
|
$ |
(3,205,003 |
) |
|
$ |
(989,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.33 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common sharesoutstanding – basic and diluted
|
|
|
12,086,195 |
|
|
|
11,985,428 |
|
|
|
12,132,332 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
APOGEE TECHNOLOGY, INC. AND
SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
|
|
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Deficit During the Development Stage
|
|
|
Total
|
|
Balance
January 1, 2007
|
|
|
11,968,332 |
|
|
$ |
119,683 |
|
|
$ |
18,396,909 |
|
|
$ |
(15,655,562 |
) |
|
$ |
— |
|
|
$ |
2,861,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,205,003 |
) |
|
|
— |
|
|
|
(3,205,003 |
) |
Issuance
of stock
|
|
|
65,000 |
|
|
|
650 |
|
|
|
35,100 |
|
|
|
— |
|
|
|
— |
|
|
|
35,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of stock
|
|
|
(65,000 |
) |
|
|
( 650 |
) |
|
|
( 35,100 |
) |
|
|
— |
|
|
|
— |
|
|
|
(35,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation for employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
95,399 |
|
|
|
— |
|
|
|
— |
|
|
|
95,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
11,968,332 |
|
|
$ |
119,683 |
|
|
$ |
18,492,308 |
|
|
$ |
(18,860,565 |
) |
|
$ |
— |
|
|
$ |
(248,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,031,139 |
) |
|
|
(989,375 |
) |
|
|
(4,020,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock
|
|
|
164,000 |
|
|
|
1,640 |
|
|
|
150,880 |
|
|
|
— |
|
|
|
— |
|
|
|
152,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
on warrants
|
|
|
— |
|
|
|
— |
|
|
|
67,757 |
|
|
|
— |
|
|
|
— |
|
|
|
67,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation for employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
75,101 |
|
|
|
— |
|
|
|
— |
|
|
|
75,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
12,132,332 |
|
|
$ |
121,323 |
|
|
$ |
18,786,046 |
|
|
$ |
(21,891,704 |
) |
|
$ |
(989,375 |
) |
|
$ |
(3,973,710 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements.
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
YEARS
ENDED
DECEMBER 31,
|
|
|
Cumulative from Re-entering of
Development Stage on October 1, 2008 through December 31,
2008
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operations
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,020,514 |
) |
|
$ |
(3,205,003 |
) |
|
$ |
(989,375 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
(1,193 |
) |
|
|
(2,675 |
) |
|
|
— |
|
Provision
for slow moving, excess and obsolete inventory
|
|
|
— |
|
|
|
(169,712 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
121,519 |
|
|
|
79,703 |
|
|
|
57,451 |
|
Stock
compensation expense for employees and directors
|
|
|
75,101 |
|
|
|
95,400 |
|
|
|
28,379 |
|
Original
issue discount
|
|
|
55,334 |
|
|
|
— |
|
|
|
22,484 |
|
Termination
of patent license fee
|
|
|
22,329 |
|
|
|
— |
|
|
|
— |
|
Patent
impairment
|
|
|
188,407 |
|
|
|
40,000 |
|
|
|
188,407 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
— |
|
Accounts
receivable
|
|
|
11,729 |
|
|
|
3,334 |
|
|
|
— |
|
Inventories
|
|
|
— |
|
|
|
169,712 |
|
|
|
— |
|
Prepaid
expenses and other current assets
|
|
|
78,429 |
|
|
|
(17,298 |
) |
|
|
26,779 |
|
Accounts
payable and accrued expenses
|
|
|
1,521,728 |
|
|
|
35,360 |
|
|
|
395,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,947,131 |
) |
|
|
(2,971,179 |
) |
|
|
(270,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(8,322 |
) |
|
|
(44,698 |
) |
|
|
— |
|
Patent
costs
|
|
|
(104,826 |
) |
|
|
(100,991 |
) |
|
|
(22,116 |
) |
Leasehold
Improvements
|
|
|
— |
|
|
|
(2,250 |
) |
|
|
— |
|
License
fee
|
|
|
— |
|
|
|
(11,778 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(113,148 |
) |
|
|
(159,717 |
) |
|
|
(22,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
49,236 |
|
|
|
— |
|
|
|
49,236 |
|
Proceeds
for shareholder loans and notes payable
|
|
|
735,000 |
|
|
|
150,000 |
|
|
|
115,000 |
|
Proceeds
from officer loans and notes payable
|
|
|
535,000 |
|
|
|
250,000 |
|
|
|
25,000 |
|
Proceeds
from other loans and notes payable
|
|
|
268,000 |
|
|
|
— |
|
|
|
108,000 |
|
Proceeds
from sale of equity securities
|
|
|
152,519 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,739,755 |
|
|
|
400,000 |
|
|
|
297,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/decrease
in cash and cash equivalents
|
|
|
(320,524 |
) |
|
|
(2,730,896 |
) |
|
|
4,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — beginning
|
|
|
320,524 |
|
|
|
3,051,420 |
|
|
|
(4,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — ending
|
|
$ |
— |
|
|
$ |
320,524 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
7,700 |
|
|
$ |
— |
|
|
$ |
— |
|
Warrants
issued in connection with notes payable – non-cash
|
|
$ |
67,757 |
|
|
$ |
— |
|
|
$ |
10,955 |
|
Income
taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are an integral part of these consolidated financial
statements
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
1.
|
The
Company and Basis of Presentation
|
The
Company
Apogee
Technology, Inc., (“Apogee”, “we”, “us” or “our”) is developing PyraDerm™, a proprietary
intradermal drug delivery system for vaccines and other pharmaceuticals that we
intend to market to pharmaceutical and medical device
companies. Until March 31, 2009, we were also engaged in the
development of IntellaPAL™, a proprietary
sensor-based health monitoring systems for the elderly care and other markets
that we intended to manufacture and market to individuals and health
organizations. Our two major business activities were organized under our Life
Science Group and our Health Monitoring Products Group. Apogee is
currently considered to be a development stage company, as defined by Statement
of Financial Accounting Standards No. 7.
Our Life
Science Group is developing PyraDerm an advanced
intradermal drug delivery system to meet the needs of patients, health insurers
and companies developing pharmaceuticals, as well as, governments and
international health organizations. We believe PyraDerm™ has advantages over
competitive approaches for the delivery of vaccines, high potency therapeutic
protein drugs and other pharmaceuticals. We have evaluated the feasibility of
PyraDerm by performing
in vitro tests with model drugs and demonstrated its potential for intradermal
immunization in vivo. We are working to establish pharmaceutical industry
compliant manufacturing methods and to define regulatory strategies to support
its commercialization. Upon the completion of in vitro and in vivo evaluation of
PyraDerm™, if successful, we intend
to pursue licensing/development or partnership agreements with pharmaceutical
companies interested in our technologies.
We have
operated as a technology research and development stage company since October 1,
2008, under Statement of Financial Accounting Standards No. 7. We
have not yet generated revenue from our principal operations. During the fiscal
year ended December 31, 2008, due to our limited resources, we have invested
these resources predominately in the development of our Life Science
Group. Consequently, in 2009, we closed down operations of our Health
Monitoring Products Group. Costs associated with the closing of this
group, as well as the termination of related employees are not
material. Our sole focus is and will remain on the development and
growth of our Life Science Group.
In 2008,
the majority of our revenue was derived from royalties received as a result of
an agreement between Apogee and Freescale (formerly SigmaTel, Inc.) whereby
SigmaTel, Inc. agreed to pay Apogee a percentage of the royalties it received
from STMicroelectronics NV (“ST”) in exchange for supporting their royalty
negotiations with ST, as well as revenue from the sale of the remaining DDX
inventory. Upon acceptance by Freescale of lower royalty payments,
the arrangement agreed to between Freescale and Apogee in April 2008 was
cancelled. No future revenue is expected under this
arrangement.
In 2007,
the majority of our revenue was derived from the sale of the remaining DDX IC
inventory primarily as a result of the recognition of all the deferred
distributor revenue. We expect that future revenue, if any, will initially be
the result of potential licensing and development revenues resulting from the
grant of rights to our intellectual property. We need to secure additional
funding to support operations.
Basis
of Presentation
Going
Concern
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has recurring
operating losses, negative cash flows from operations, negative working capital
of approximately $4.2 million and stockholder’s deficiency of approximately $4.0
million, is in arrears with substantially all of its vendors, has unpaid
payroll, payroll withholding and payroll taxes and is in default on a majority
of its Promissory Notes.
On December 11, 15, 16 and 18, 2009, Apogee received an additional
$133,000 from Herbert M. Stein and David Spiegel. The proceeds
from these loans were used to pay unpaid payroll and payroll taxes up through
and including payroll for the period ended December 15, 2009. These
amounts exclude payroll and payroll taxes for Mr. Herbert M. Stein, who has not
drawn cash compensation from Apogee since June 30, 2009. This raises
substantial doubt about its ability to continue as a going concern. Net losses
were approximately $4.0 million and negative cash flows from operations were
approximately $1.9 million for the twelve months ended December 31,
2008. Given our current cash position, net losses and negative cash
flows from operations and our outstanding current obligations, we will not be
able to continue as a going concern without raising additional capital which is
not assured.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
We had an overdraft of approximately $49,000 at December 31,
2008. See Note 19 - Subsequent Events – Additional
Financing. As of December 18, 2009, we had cash of $4,000.
The
long-term success of Apogee is dependent upon our ability to raise additional
funds to continue our operations, pay our outstanding liabilities and to
successfully develop and market our technologies and products and to attain
profitable operations. Although we have modified our business strategy to
improve near-term financial performance, there can be no assurance that we will
be able to obtain funds, to generate sufficient revenue, if any, or become
profitable or that additional funds will be available to us on acceptable terms,
if at all. Accordingly, we may be unable to implement current
plans. In addition, if sufficient capital cannot be obtained, Apogee
may be forced to cease operations. In the event that any future
financing is affected, to the extent it includes equity securities; the holders
of the common stock may experience additional dilution. In the event
of a cessation of operations, there may not be sufficient assets to fully
satisfy all creditors, in which case, the holders of securities may be unable to
recoup any of their investment.
We are in
the process of attempting to secure sufficient financing to meet our current
obligations and to continue development of our technology. In the interim,
short-term debt financing has been provided by Apogee’s significant
shareholders, including our President, Chief Executive Officer and Chairman of
the Board of Directors, an individual investor and others, and has been utilized
to keep product development moving forward. Additionally, cost
cutting measures, including salary reduction for non-PyraDerm employees,
diminished sensor development, deferral of capital expenditures, and reduced
general spending have been instituted until such time as financing is secured,
if ever.
Due to
the early stages of development of our products, we cannot estimate at this time
the amounts of cash or the length of time that will be required to bring our
products under development to market. It is expected that such costs
will be funded not only by external funding, if available, but also through
partnership activities. Without additional financing, we will be
unable to continue operations.
On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934. In connection with the contemplated proceedings, the staff
may seek a suspension or revocation of registration of each class of the
Company’s registered securities. Also, the staff may consider whether contempt
proceedings in a federal district court are appropriate. The Company
submitted a response to this letter on November 16, 2009. Should
suspension or revocation of our stock occur, the Company’s ability to raise
additional funding may be severely impacted.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Accounting
Principles
The
accompanying consolidated financial statements have been prepared using
accounting principles generally accepted in the United States of
America.
Consolidated
Financial Statements
The
financial statements include the accounts of Apogee Technology, Inc. and its
wholly owned inactive subsidiary, DUBLA, Inc. All significant intercompany
transactions and accounts have been eliminated.
Use
of Estimates in Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates, and such
differences could affect the results of operations reported in future periods
and such differences could be material.
2.
Summary of Significant Accounting Policies
Revenue
Recognition
Apogee
recognizes revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial
Statements: Revenue Recognition”, which states that revenue should be recognized
when the following revenue recognition criteria are met: (1)
persuasive evidence of an arrangement exists; (2) the product has been shipped
and the customer takes ownership and assumes the risk of loss; (3) the selling
price is fixed or determinable; and (4) collection of the resulting receivable
is reasonably assured. The following policies apply to Apogee’s two sales
categories for revenue recognition. Sales to end users
(“OEM”): revenue is recognized under our standard terms and
conditions of sale, title and risk of loss transfer to the customer at the time
products are shipped from our warehouse or delivered to the customer’s
representative/freight forwarder. We accrue the estimated cost of post-sale
obligations including product warranty returns, based on historical experience.
To date we have experienced minimal warranty returns.
We record
royalty revenue when earned in accordance with the underlying agreements.
Consulting and licensing revenue is recognized as services are
performed.
In April
of 2008, SigmaTel, Inc. agreed to pay Apogee a percentage of the royalties it
received from STMicroelectronics NV (“ST”) in exchange for supporting their
royalty negotiations with ST. As a result of this agreement, Apogee received
approximately $63,000 during the year ended December 31, 2008. On November 4,
2008 Apogee was notified by STMicroelectronics NV that they had reached an
agreement with Freescale (formerly SigmaTel, Inc.) reducing the quarterly
royalties due Freescale. The original agreement was a result of the
transaction with SigmaTel, Inc. (“SigmaTel”) whereby we sold certain assets of
our audio division, including the DDX technology and the associated royalties
from our license agreement with ST, for approximately $9.78
million. Upon acceptance by Freescale of the lower royalty payments,
the arrangement agreed to between Freescale and Apogee in April 2008 was
cancelled. No further revenue is expected under this
arrangement.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Loss
Per Share
Basic net
loss per share is computed by dividing the net loss attributable to common
stockholders for the period by the weighted average number of common stock
outstanding during the period. Diluted net loss per share is computed
based on the weighted average number of common stock and dilutive potential
common stock outstanding. Potential common stock consists of
incremental common stock issuable upon the exercise of stock options and common
stock issuable upon the exercise of common stock warrants. The
calculation of diluted net loss per share excludes potential common stock as the
effect is anti-dilutive. The weighted average number of shares of common stock
outstanding used to compute basic loss per share for 2008 and 2007 amounted to
12,086,195 and 11,985,428, respectively.
Research
and Development
Costs for
research and development are expensed as incurred.
Legal
Fees
We record
legal costs (such as fees and expenses of external lawyers and other service
providers) when incurred or when it is probable that a liability has been
incurred on or before the balance sheet date and the amount can be reasonably
estimated if invoices have not been received. Legal fees incurred
pursuant to filing patent applications are capitalized as part of the patent
costs.
Contingencies
Apogee is
involved in and/or indemnifies others in various legal
proceedings. Management assesses the probability of loss for such
contingencies and recognizes a liability when a loss is probable and
estimable. See Note 10 - Indemnification Arrangements with our
Executives and Others.
Inventories
Inventories,
including inventory held at distributors, are stated at the lower of cost on a
first-in, first-out basis or market. This policy requires us
to make estimates regarding the market value of our inventory, including an
assessment of excess or obsolete inventory.
On
January 15, 2008, we sold the remaining DDX inventory held in our Norwood office
to one of our customers and on January 24, 2008, we sold the remaining DDX
inventory housed in Hong Kong to one of our former DDX
distributors. Total proceeds received from the disposition of the DDX
inventory were $17,000. In addition, we may share in proceeds from
this sale of inventory by our former distributor if sales exceed certain
limits.
Inventories
purchase commitment losses
Apogee
accrues for estimated losses on non-cancelable purchase orders, which may occur
if the future sales price declines below the committed purchase
price. There are no outstanding significant purchase commitments of
product inventory at December 31, 2008 and no provisions were required at
December 31, 2008 or 2007.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Major
replacements and betterments of equipment are capitalized. Cost of
normal maintenance and repairs is charged to expense as
incurred. Depreciation is provided over the estimated useful lives of
the assets using accelerated methods.
Leasehold
Improvements
Leasehold
improvements are amortized over either the term of lease or the estimated useful
life of the improvement.
Patents
Costs
incurred to register and obtain patents are capitalized and amortized on a
straight-line basis over five years, their estimated useful lives. Management
performs analysis for impairment on a regular basis.
Exclusive
License Fee
We
capitalized license fees paid to third parties for costs associated with the
exclusive rights to their patents. We amortize these fees over a
period of four years. During 2008, Apogee terminated the 2006 license
agreement with the University of Akron Research Foundation and expensed the
remaining license fees. In addition, during 2008, we expensed an
additional $30,000, which represented the minimum royalty due under this
terminated license agreement.
Cash
and Cash Equivalents
We
consider all highly liquid investments with an original maturity of three months
or less to be cash equivalents.
Accounts
Receivable
We carry
trade receivables from customers less an allowance for doubtful accounts to
ensure that trade receivables are carried at net realizable value. On
a periodic basis, we evaluate the collectibility of our accounts receivable
based on a variety of factors, including length of time receivables are past
due, indication of customer ability to pay, significant one-time events and
historical experience. Accounts receivable are generally
considered past due if any portion of the receivable balance is outstanding for
more than 90 days. If circumstances related to our customers change,
estimates of the recoverability of receivables would be further
adjusted.
Advertising
Advertising
costs are expenses when incurred and were not significant for the twelve months
ended December 31, 2008 and 2007.
Fair
value of financial instruments
Carrying
amounts of certain of the our financial instruments, including cash and cash
equivalents, accounts receivable and notes and accounts payable, approximate
their fair values due to their relative short maturities and based upon
comparable market information available at the respective balance sheet dates.
We do not hold or issue financial instruments for trading purposes.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Stock-Based
Compensation
Apogee
had a stock-based compensation plan, the 1997 Employee, Director and Consultant
Stock Option Plan (the “1997 Plan”), which is described below. This
1997 Plan expired as of May 14, 2007. At our Annual Meeting held on
August 28, 2007, the shareholders approved the adoption of a new stock-based
compensation plan, the 2007 Employee, Director and Consultant Stock Plan (the
“2007 Plan”).
Effective
January 1, 2006, we adopted SFAS 123(R) using the
modified-prospective-transition method. Under this transition method, stock
compensation costs recognized beginning January 1, 2006 include (a) compensation
cost for all stock-based compensation payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123(R), and (b) compensation
cost for all stock-based payments granted on or subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R). Due to the adoption of SFAS 123(R), included in our
net loss for the twelve months ended December 31, 2008 and 2007 were stock-based
compensation charges of approximately $75,000 and $95,000,
respectively.
Recent
Accounting Pronouncements
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. We do not expect any significant changes to our financial
accounting and reporting as a result of the issuance of SFAS No.
162.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations". The
objective of SFAS No. 141R is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
SFAS No. 141R retains the purchase method of accounting for acquisitions, but
requires a number of changes, including changes in the way assets and
liabilities are recognized in purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS contains disclosure requirements which are intended to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS No. 141R is effective for our Company
as of January 1, 2009. We currently do not expect any significant impact on our
results of operations, financial position or cash flows as a result of the
adoption of this new accounting standard. However, the adoption of SFAS No. 141R
will impact the accounting for any business combinations occurring subsequent to
December 31, 2008.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of SFAS No. 162” (the Codification). The
Codification will be the single source of authoritative nongovernmental U.S.
accounting and reporting standards, superseding existing FASB, AICPA, EITF and
related literature. The Codification eliminates the hierarchy of
generally accepted accounting standards (“GAAP”) contained in SFAS No. 162 and
establishes one level of authoritative GAAP. All other literature is
considered non-authoritative. This Statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. There will be no change to our consolidated financial
statements upon adoption. In August 2009, the FASB issued ASU
2009-05, “Fair Value
Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value,” which makes amendments to Subtopic 820-10, “ Fair Value Measurements and
Disclosures—Overall” for the fair
value measurement of liabilities and provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the techniques provided for in this
update. Topic 820 assumes that the fair value of a financial
instrument is the price that would be paid to transfer a liability in an orderly
transaction between market participants. However, most liabilities have
restrictions that do not allow them to be transferred and as such there is not a
market for transferring the liabilities. ASU 2009-05 states that in the absence
of a market for the liability a company can use:
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
|
1.
|
The
quoted price of the identical liability when traded as an
asset
|
|
2.
|
a
quoted price for similar liabilities or similar liabilities when traded as
assets; or
|
|
3.
|
another
valuation technique that is consistent with the principles of Topic 820
such as a present value technique.
|
When
using any of these techniques, companies are to apply all of the provisions of
Topic 820 including guidelines for assessing whether the market is active and
orderly. We do not expect any significant changes to our financial
accounting and reporting as a result of the issuance of ASU
2009-05.
Deferred
tax assets and liabilities are recognized for temporary differences between the
financial reporting basis and the tax basis of our assets and
liabilities. Deferred taxes are recognized for the estimated taxes
ultimately payable or recoverable based on enacted tax laws. See Note
13 – Income Taxes and Tax Loss Carryforwards.
Accounts
Receivable at December 31, 2008 and December 31, 2007 are comprised of the
following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Distributor
|
|
$ |
— |
|
|
$ |
1,650 |
|
Direct
customers
|
|
|
9,377 |
|
|
|
19,456 |
|
|
|
$ |
9,377 |
|
|
$ |
21,106 |
|
|
|
|
|
|
|
|
|
|
Less
allowance for doubtful accounts
|
|
|
(9,377 |
) |
|
|
(10,570 |
) |
|
|
|
|
|
|
|
|
|
Net
accounts receivable
|
|
$ |
— |
|
|
$ |
10,536 |
|
4.
|
Property
and Equipment
|
Property
and equipment at December 31, 2008 and December 31, 2007 are comprised of the
following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Equipment
|
|
$ |
189,781 |
|
|
$ |
181,459 |
|
Software
|
|
|
32,943 |
|
|
|
32,943 |
|
Furniture
and fixtures
|
|
|
22,047 |
|
|
|
22,047 |
|
Leasehold
improvements
|
|
|
92,892 |
|
|
|
92,892 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
337,663 |
|
|
$ |
329,341 |
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(226,511 |
) |
|
|
(145,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
111,152 |
|
|
$ |
183,445 |
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Depreciation
expense was $49,652 and $41,025 for the years ended December 31, 2008 and 2007,
respectively.
The
estimated useful lives of the classes of physical assets are as
follows:
Description
|
|
Depreciable
Lives
|
|
|
|
|
|
Equipment
|
|
5
years
|
|
Software
|
|
3
years
|
|
Furniture
and fixtures
|
|
7
years
|
|
Leasehold
improvements
|
|
Term
of lease or useful life of asset
|
|
At
December 31, 2007, we recorded an Intangible Asset impairment charge of $40,000
to reflect lower than anticipated revenues from our MEMS sensor product
line. This charge is based on estimates by management and was
recorded against $100,000 of intangible assets associated with MEMS intellectual
property acquired in 2004.
At
December 31, 2008, we recorded a patent impairment charge of approximately
$188,000 to reflect a decline in valuation of certain patent applications due to
a technology decision we made subsequent to year end. In addition, at
December 31, 2008, we amortized approximately $37,000 of patent application
related expenses.
The value
of Patent costs are summarized in the table below:
|
|
Gross
Carrying Value
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Impairment
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
309,694 |
|
|
|
— |
|
|
|
(40,000 |
) |
|
$ |
269,694 |
|
December
31, 2008
|
|
$ |
414,523 |
|
|
|
(37,227 |
) |
|
|
(228,407 |
) |
|
$ |
148,889 |
|
Estimated
Amortization is as follows:
Year
ended December 31,
|
|
|
|
2009
|
|
|
37,227 |
|
2010
|
|
|
37,227 |
|
2011
|
|
|
37,227 |
|
2012
|
|
|
37,208 |
|
6.
Accounts Payable and Accrued Expenses
Accrued
expenses are included in accounts payable on the Balance Sheet. Accounts payable
and accrued expenses are as follows:
Accounts Payable
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Legal
and accounting expenses
|
|
$ |
1,612,000 |
|
|
$ |
463,000 |
|
Consulting
expenses
|
|
|
137,000 |
|
|
|
92,000 |
|
Interest
owed to Promissory Note holders
|
|
|
113,000 |
|
|
|
1,800 |
|
Corporate
insurance expenses
|
|
|
5,000 |
|
|
|
60,000 |
|
Director
and Advisory Committee fees
|
|
|
43,000 |
|
|
|
13,000 |
|
Rent
expenses
|
|
|
18,000 |
|
|
|
— |
|
Other
expenses
|
|
|
184,000 |
|
|
|
17,200 |
|
|
|
$ |
2,112,000 |
|
|
$ |
647,000 |
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Accrued
Expenses
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Accrued
audit expenses
|
|
$ |
60,000 |
|
|
$ |
63,000 |
|
Accrued
legal expenses
|
|
|
15,000 |
|
|
|
7,000 |
|
Accrued
consulting expenses
|
|
|
56,000 |
|
|
|
1,000 |
|
Other
accrued expenses
|
|
|
24,000 |
|
|
|
28,000 |
|
|
|
$ |
155,000 |
|
|
$ |
99,000 |
|
7.
|
Promissory Notes, Loans and
Warrants
|
During
the twelve months ended December, 31, 2008, Apogee received proceeds from
unsecured interest-bearing promissory notes and loans in the amounts of $535,000
from Mr. Herbert M. Stein, President, Chief Executive Officer and Chairman of
the Board of Directors, $735,000 from Mr. David Spiegel, a major shareholder,
$240,000 from Mr. Robert Schacter et al and $28,000 from
others. These promissory notes and loans are payable upon demand,
not subject to premium or penalty for prepayment, bear simple
interest of 8% per annum, and are to be repaid in 180 days. An
additional 4% interest will be charged after maturity. As
of December 31, 2008, total unpaid interest is approximately
$113,000.
Through
December 31, 2008, Apogee has received total proceeds from loans and promissory
notes of $785,000, $885,000, $240,000 and $28,000 from Mr. Stein, Mr. Spiegel,
Mr. Schacter and others, respectively, as detailed below:
Promissory
Notes and Loans Due To
David
Spiegel
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
December
11, 2007
|
|
$ |
150,000 |
|
March
10, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
21, 2008
|
|
|
100,000 |
|
August
19, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
20, 2008
|
|
|
100,000 |
|
September
16, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
1, 2008
|
|
|
50,000 |
|
September
28, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
15, 2008
|
|
|
50,000 |
|
November
11, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
16, 2008
|
|
|
65,000 |
|
December
13, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
18, 2008
|
|
|
50,000 |
|
December
15, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
July
15, 2008
|
|
|
50,000 |
|
January
11, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
July
28, 2008
|
|
|
50,000 |
|
January
24, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
August
12, 2008
|
|
|
35,000 |
|
February
8, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
August
27, 2008
|
|
|
35,000 |
|
February
23, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
September
5, 2008
|
|
|
35,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
October
27, 2008
|
|
|
35,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
January
6, 2009
|
|
|
80,000 |
|
July
5 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
$ |
885,000 |
|
|
|
|
|
|
|
|
|
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Promissory
Notes and Loans Due To
Herbert
M. Stein
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
December
11, 2007
|
|
$ |
250,000 |
|
March
10, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
February
21, 2008
|
|
|
100,000 |
|
August
19, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
March
20, 2008
|
|
|
50,000 |
|
September
16, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
April
1, 2008
|
|
|
50,000 |
|
September
28, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
May
15, 2008
|
|
|
50,000 |
|
November
11, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
16, 2008
|
|
|
35,000 |
|
December
13, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
June
18, 2008
|
|
|
40,000 |
|
December
15, 2008
|
|
|
8.00 |
% |
|
|
12.00 |
% |
Ju1y
15, 2008
|
|
|
30,000 |
|
January
11, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
July
28, 2008
|
|
|
50,000 |
|
January
24, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
August
12, 2008
|
|
|
35,000 |
|
February
8, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
August
27, 2008
|
|
|
35,000 |
|
February
23, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
September
5, 2008
|
|
|
35,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
October
27, 2008
|
|
|
25,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
$ |
785,000 |
|
|
|
|
|
|
|
|
|
|
Promissory
Notes and Loans Due To
Robert
Schacter et al
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory Note
|
|
Amount
|
|
Maturity
Date
|
|
Initial
Interest Rate
|
|
|
Current
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
September
5, 2008
|
|
$ |
140,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
October
27, 2008
|
|
|
100,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
$ |
240,000 |
|
|
|
|
|
|
|
|
|
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Promissory
Notes and Loans Due To Others |
|
|
|
|
|
|
|
|
|
|
|
|
Date
of
|
|
|
|
Maturity
|
|
Initial
|
|
|
Current
|
|
Promissory
Note
|
|
Amount
|
|
Date
|
|
Interest
Rate
|
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2008
|
|
$ |
20,000 |
|
March
4, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
October
27, 2008
|
|
|
6,000 |
|
April
25, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
January
6, 2009
|
|
|
500 |
|
July
5, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
February
17, 2009
|
|
|
1,500 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
$ |
28,000 |
|
|
|
|
|
|
|
|
|
|
The
promissory notes issued to Messrs. Stein and Spiegel on December 11, 2007,
February 21, 2008, March 20, 2008, April 1, 2008, May 15, 2008, June 16, 2008
and June 18, 2008 for an aggregate of $1,140,000 are incurring a post-maturity
rate of interest 12% compounded monthly. The promissory notes
originally were issued with simple interest of 8% per year and were to be repaid
in cash after 90 days for the December 11, 2007 and 180 days for the remaining
promissory notes. The effective interest rate is approximately
18%.
The
following tables represent the net payable due as of December 31
2008:
|
|
Officer
Loans
Herbert
M. Stein
|
|
|
Shareholder
Loans
David
Spiegel
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total
proceeds from Loans and Promissory Notes
|
|
$ |
785,000 |
|
|
$ |
885,000 |
|
|
$ |
1,670,000 |
|
Discount (Fair
Market Value of Warrants)
|
|
|
(1,476 |
) |
|
|
(2,569 |
) |
|
|
(4,045 |
) |
|
|
$ |
783,524 |
|
|
$ |
882,431 |
|
|
$ |
1,665,955 |
|
As of
December 31, 2008, unpaid interest of $55,561 and $52,186 was due to Mr. Stein
and Mr. Spiegel, respectively.
|
|
Robert
Schacter et al
|
|
|
Others
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total
proceeds from Loans and Promissory Notes
|
|
$ |
240,000 |
|
|
$ |
28,000 |
|
|
$ |
268,000 |
|
Discount
(Fair Market Value of Warrants)
|
|
|
(8,128 |
) |
|
|
(250 |
) |
|
|
(8,378 |
) |
|
|
$ |
231,872 |
|
|
$ |
27,750 |
|
|
$ |
259,622 |
|
As of
December 31, 2008 unpaid interest of $5,071 and $828 is due to Mr. Schacter and
others, respectively.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
The
Carrying value of the Promissory Notes approximates the Fair Value due to their
relatively short-term maturity.
In
connection with the issuance of the promissory notes, we issued warrants to
purchase our common stock. Each warrant expires three years from
issue date with an exercise price of $1.00 per share. These warrants
represent, in the aggregate, an underlying seventy-three thousand five hundred
(73,500) shares of common stock for Mr. Spiegel, an underlying fifty-three
thousand five hundred (53,500) shares of common stock for Mr. Stein, an
underlying thirty-nine thousand (39,000) shares of common stock for Mr. Schacter
et al, and an underlying two thousand six hundred fifty (2,650) shares of common
stock for others. These warrants were issued as added consideration
for the notes. These warrants include customary terms and include a
cashless or net exercise provision for exercise. The values of these warrants
were determined by using the Black Scholes valuation model.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
The
following tables detail the warrants issued and assumptions used.
David
Spiegel
|
|
Date
of Warrant
|
|
Number
of Warrants
|
|
|
Stock
Price At Date of Issuance
|
|
Term
of Warrant
|
|
Strike
Price
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
21, 2008
|
|
|
10,000 |
|
|
$ |
0.65 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.23 |
|
|
|
98.4582 |
% |
|
$ |
0.3462 |
|
|
$ |
3,462.00 |
|
March
20, 2008
|
|
|
10,000 |
|
|
$ |
0.70 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.71 |
|
|
|
99.8746 |
% |
|
$ |
0.3867 |
|
|
$ |
3,867.00 |
|
April
1, 2008
|
|
|
5,000 |
|
|
$ |
0.85 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.94 |
|
|
|
100.0092 |
% |
|
$ |
0.5052 |
|
|
$ |
2,526.00 |
|
May
15, 2008
|
|
|
5,000 |
|
|
$ |
0.83 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.70 |
|
|
|
102.7826 |
% |
|
$ |
0.5036 |
|
|
$ |
2,518.00 |
|
June
16, 2008
|
|
|
6,500 |
|
|
$ |
0.63 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
3.33 |
|
|
|
104.1254 |
% |
|
$ |
0.3555 |
|
|
$ |
2,310.75 |
|
June
18, 2008
|
|
|
5,000 |
|
|
$ |
0.61 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
3.19 |
|
|
|
104.0719 |
% |
|
$ |
0.3397 |
|
|
$ |
1,698.50 |
|
July
15, 2008
|
|
|
5,000 |
|
|
$ |
0.87 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.70 |
|
|
|
104.5535 |
% |
|
$ |
0.5429 |
|
|
$ |
2,714.50 |
|
July
28, 2008
|
|
|
5,000 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.90 |
|
|
|
104.5450 |
% |
|
$ |
0.4481 |
|
|
$ |
2,240.60 |
|
August
12, 2008
|
|
|
3,500 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.73 |
|
|
|
104.9349 |
% |
|
$ |
0.4488 |
|
|
$ |
1,570.80 |
|
August
27, 2008
|
|
|
3,500 |
|
|
$ |
0.85 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.58 |
|
|
|
106.2618 |
% |
|
$ |
0.5331 |
|
|
$ |
1,865.85 |
|
September
5, 2008
|
|
|
3,500 |
|
|
$ |
0.86 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.44 |
|
|
|
106.2112 |
% |
|
$ |
0.5404 |
|
|
$ |
1,891.40 |
|
October
27, 2008
|
|
|
3,500 |
|
|
$ |
0.60 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.83 |
|
|
|
108.8258 |
% |
|
$ |
0.3431 |
|
|
$ |
1,200.85 |
|
January
6, 2009
|
|
|
8,000 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.10 |
|
|
|
108.8013 |
% |
|
$ |
0.4566 |
|
|
$ |
3,652.80 |
|
Total
|
|
|
73,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,518.95 |
|
Herbert
M. Stein Spiegel
|
|
Date
of Warrant
|
|
Number
of Warrants
|
|
|
Stock
Price At Date of Issuance
|
|
Term
of Warrant
|
|
Strike
Price
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
21, 2008
|
|
|
10,000 |
|
|
$ |
0.65 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.23 |
|
|
|
98.4582 |
% |
|
$ |
0.3462 |
|
|
$ |
3,462.00 |
|
March
20, 2008
|
|
|
5,000 |
|
|
$ |
0.70 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.71 |
|
|
|
99.8746 |
% |
|
$ |
0.3867 |
|
|
$ |
1,933.50 |
|
April
1, 2008
|
|
|
5,000 |
|
|
$ |
0.85 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.94 |
|
|
|
100.0092 |
% |
|
$ |
0.5052 |
|
|
$ |
2,526.00 |
|
May
15, 2008
|
|
|
5,000 |
|
|
$ |
0.83 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.70 |
|
|
|
102.7826 |
% |
|
$ |
0.5036 |
|
|
$ |
2,518.00 |
|
June
16, 2008
|
|
|
3,500 |
|
|
$ |
0.63 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
3.33 |
|
|
|
104.1254 |
% |
|
$ |
0.3555 |
|
|
$ |
1,244.25 |
|
June
18, 2008
|
|
|
4,000 |
|
|
$ |
0.61 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
3.19 |
|
|
|
104.0719 |
% |
|
$ |
0.3397 |
|
|
$ |
1,358.80 |
|
July
15, 2008
|
|
|
3,000 |
|
|
$ |
0.87 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.70 |
|
|
|
104.5535 |
% |
|
$ |
0.5429 |
|
|
$ |
1,628.70 |
|
July
28, 2008
|
|
|
5,000 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.90 |
|
|
|
104.5450 |
% |
|
$ |
0.4481 |
|
|
$ |
2,240.60 |
|
August
12, 2008
|
|
|
3,500 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.73 |
|
|
|
104.9349 |
% |
|
$ |
0.4488 |
|
|
$ |
1,570.80 |
|
August
27, 2008
|
|
|
3,500 |
|
|
$ |
0.85 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.58 |
|
|
|
106.2618 |
% |
|
$ |
0.5331 |
|
|
$ |
1,865.85 |
|
September
5, 2008
|
|
|
3,500 |
|
|
$ |
0.86 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.44 |
|
|
|
106.2112 |
% |
|
$ |
0.5404 |
|
|
$ |
1,891.40 |
|
October
27, 2008
|
|
|
2,500 |
|
|
$ |
0.60 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.83 |
|
|
|
108.8258 |
% |
|
$ |
0.3431 |
|
|
$ |
857.75 |
|
Total
|
|
|
53,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,097.55 |
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Other
Warrants
|
|
Date
of Warrant
|
|
Number
of Warrants
|
|
|
Stock
Price At Date of Issuance
|
|
Term
of Warrant
|
|
Strike
Price
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value
|
|
Robert Schacter et
al*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
5, 2008
|
|
|
14,000 |
|
|
$ |
0.86 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.44 |
|
|
|
106.2112 |
% |
|
$ |
0.5404 |
|
|
$ |
7,565.60 |
|
October
27, 2008
|
|
|
25,000 |
|
|
$ |
0.60 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.83 |
|
|
|
108.8258 |
% |
|
$ |
0.3431 |
|
|
$ |
8,577.50 |
|
Others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2008
|
|
|
2,000 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
2.90 |
|
|
|
104.5450 |
% |
|
$ |
0.4460 |
|
|
$ |
892.00 |
|
October
27, 2008
|
|
|
600 |
|
|
$ |
0.60 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.83 |
|
|
|
108.8258 |
% |
|
$ |
0.3431 |
|
|
$ |
205.86 |
|
January
6, 2009
|
|
|
50 |
|
|
$ |
0.75 |
|
3
Years
|
|
$ |
1.00 |
|
|
|
1.10 |
|
|
|
108.8013 |
% |
|
$ |
0.4566 |
|
|
$ |
22.83 |
|
|
|
|
41,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,263.79 |
|
* 10,000
and 25,000 warrants issued in the name of TYJO Corporation Money Purchase
Pension Plan, 2,000 warrants issued in the name of Mr. Robert Schacter, as
Custodian for Tyler Schacter UTMA/CA and 2,000 warrants issued in the name of
Mr. Robert Schacter, as Custodian for Joseph Schacter UTMA/CA.
8.
|
Stockholders’
Deficiency
|
At our
Annual Meeting held on August 28, 2007, our shareholders approved an Amendment
to the Amended and Restated Certificate of Incorporation creating 5 million
shares of undesignated Preferred Stock. These shares will have future
rights and preferences to be determined at the sole discretion of our Board of
Directors. No shares of preferred stock were issued in 2008 and
2007.
Common
stock
On April
9, 2008, Apogee sold 164,000 shares of our common stock to accredited investors
at a price of $1.00 per share. The net proceeds to Apogee were
$152,520, which we used for general working capital and corporate
purposes. The shares of Apogee’s common stock were issued and sold in
a private placement in reliance on an exemption from registration provided by
Section 4(2) of Securities Act of 133, as amended, and Rule 506 of Regulation D
promulgated thereunder. The shares of
common stock issued in this private placement were not registered under the
Securities Act of 1933 and may not be subsequently offered or sold by the
investors in the United States absent registration or an applicable exemption
from the registration requirements.
At our
Annual Meeting held on August 28, 2007, our shareholders approved an Amendment
to the Amended and Restated Certificate of Incorporation increasing the number
of shares of common stock authorized from 20 million to 40 million.
On July
26, 2007, we signed a consulting agreement pursuant to which we issued 65,000
shares of our common stock in a private transaction, exempt from registration
under section 4(2) of the Securities Act of 1933, as amended, (the “Securities
Act”) as an upfront non-refundable retainer as partial compensation to a
financial advisor and exclusive placement agent in connection with a possible
financing transaction. The relationship with this financial advisor
was terminated and as a result, the shares were fully returned. This
termination has been reflected in our financial statements as of December 31,
2007.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Stock
Options
During
the twelve months ended December 31, 2008, we awarded each non-employee member
of the Board of Directors options to purchase 40,000 shares of common stock, at
an exercise price of $1.00 per share. These options were granted under the 2007
Employee, Director and Consultant Stock Option Plan and vest over five years
beginning at the first anniversary of the date of grant.
During
the twelve months ended December 31, 2007, we awarded certain employees options
to purchase 64,000 and 101,000, shares of common stock, in the aggregate, at
exercise prices ranging from $0.45 to $1.20 per share. In addition,
the Board of Directors awarded to members of our Medical Advisory Board options
to purchase 20,000 and 10,000 shares, in the aggregate, at exercise prices
ranging from $0.45 to $1.36 per share. These options were granted under the 1997
and 2007 Employee, Director and Consultant Stock Option Plans. The options
granted to the employee vest over five years beginning at the first anniversary
of the date of grant. The options granted to the member of the
Medical Advisory Board have vested. All of the options awarded under the new
2007 Employee, Director and Consultant Stock Option Plan are
unregistered.
9.
|
Related
Party Transactions
|
Apogee
rents our facility from an entity controlled by a stockholder for $4,400 per
month pursuant to a lease that expired December 31, 2005. Currently, we are
renting the facility on a month-to-month basis. Rent expense was
$52,800 for the fiscal years ended December 31, 2008 and 2007. Rent
has been accrued and remains unpaid since September 2008.
10.
|
Legal
and Related Indemnification Arrangements with our Executives and
Others
|
Apogee
has been assuming and will continue to assume the legal costs and related
expenses of Herbert M. Stein, in connection with the civil action styled Joseph Shamy vs. Herbert M. Stein,
Case No.: 50 2005 CA 007719 XXXXMB. In this action instituted
on August 10, 2005 in Palm Beach Court Circuit Court, Joseph Shamy has sued
Herbert M. Stein, President, Chief Executive Officer and Chairman of the Board
of Apogee, for fraud and breach of fiduciary duty in connection with Shamy’s
purchase of Apogee shares in 2003 and 2004. In October 2009, a Court
entered a Final Judgment against Mr. Stein. Apogee was not a party to
this settlement. It is expected that the remaining legal fees to be indemnified
by Apogee will not be significant. Through December 1, 2009, we have
incurred approximately $881,000 toward this indemnification. For the
twelve months ended December 31, 2008 and 2007, we have incurred approximately
$230,000 and $280,000 of this amount, respectively. It is expected
that the remaining legal fees to be indemnified by the Company will not be
significant.
The
Company first became aware of an investigation by the SEC in May 2005. The
subject matter of this investigation is the Company's prior revenue recognition
practices that were addressed in the Company's restatement of its financial
statements for the fiscal year ended December 31, 2004. As previously disclosed
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004,
as amended, Apogee’s Audit Committee, with the assistance of independent
counsel, conducted an investigation into Apogee’s historical accounting
practices that resulted in the implementation of remedial actions. See our
Annual Report on Form 10-KSB for the year ended December 31, 2004, as amended,
for detail regarding the restatement.
In July
2008, Apogee, it’s Chief Executive Officer and other employees received
notifications from the Staff of the SEC relating to the Staff's 2005
investigation. These notifications, known as “Wells Notices,” stated that the
Staff is considering recommending that the Commission bring enforcement actions
against the Company and certain employees, based on alleged violations of
certain provisions of the federal securities laws, including Section 17(a) of
the Securities Act of 1933, as amended, Section 10(b) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 thereunder, Sections 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13
thereunder. The Wells Notice sent to the Company indicates that in any action
actually brought against the Company, the Staff would seek an injunction against
future violations of the federal securities laws as relief.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
On May
19, 2009, the Securities and Exchange Commission (“commission”) filed a settled
enforcement action against the Company, one employee, and one former
employee (“Others”) in connection with a with the revenue recognition
practices. Each of the defendants has agreed to settle this matter,
without admitting or denying the allegations of the Commission’s
complaint. Apogee and others agreed to the entry of a final judgment
permanently enjoining them from variously violating or aiding and abetting
violations of Sections of the Securities Act of 1933, and Sections of the
Securities Exchange Act of 1934, and various Rules. The others also
agreed to financial and other sanctions. See Note -19 Subsequent
Events.
As of
March 31, 2009, Apogee’s Directors and Officers Liability Insurance was
cancelled due to non-payment. Apogee may be required to pay any
uninsured claims and related costs.
11.
|
Loss
Per Common Share
|
See Note
2 – Loss Per Share
12.
|
Employee
Retirement 401(k) Plan
|
Apogee
sponsors a 401(k) retirement plan for the benefit of its
employees. The plan imposes no contribution requirement or liability
upon Apogee. Plan participation is voluntary and unconditional to all
employees over 18 and plan contributions are discretionary to the limits allowed
by the Internal Revenue Code and are immediately 100% vested. There were no
employer contributions during 2008 or 2007.
13.
|
Tax
Loss Carryforwards
|
The
components of the provision (benefit) for income taxes consisted of the
following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Federal
deferred
|
|
|
(1,200,000 |
) |
|
$ |
(1,090,000 |
) |
State
deferred
|
|
|
(220,000 |
) |
|
|
(192,000 |
) |
Increase
in valuation allowance
|
|
|
1,420,000 |
|
|
|
1,282,000 |
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
$ |
— |
|
|
$ |
— |
|
A
reconciliation of the statutory federal rate to the effective rate for all
periods is as follows:
Statutory
Federal rate benefit
|
|
|
34 |
% |
State,
net of Federal effect
|
|
|
6 |
|
Valuation
allowance for period
|
|
|
(40 |
) |
|
|
|
|
|
Effective
rate
|
|
|
— |
% |
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
The
significant components of our deferred assets and liabilities consist of the
following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Long-term
assets
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
6,400,000 |
|
|
$ |
5,200,000 |
|
Research
and development credits and other
|
|
|
330,000 |
|
|
|
300,000 |
|
Less
valuation reserve
|
|
|
(6,730,000 |
) |
|
|
(5,500,000 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
The
valuation reserve increased by approximately $1.2 million in 2008, primarily due
to the generation of net operating loss carryforwards and credits for which
realization is not reasonably assured.
The
following approximates the net loss carryforwards we have available in the
future for Federal and State tax purposes.
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
Federal
|
|
$ |
19,000,000 |
|
|
$ |
15,000,000 |
|
State
|
|
$ |
12,000,000 |
|
|
$ |
9,200,000 |
|
Business
credits available in the future:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Business
credits available in the future
|
|
|
|
|
|
|
Federal
|
|
$ |
940,000 |
|
|
$ |
980,000 |
|
State
|
|
$ |
330,000 |
|
|
$ |
300,000 |
|
The net
operating loss carryforwards will begin to expire in 2018 for Federal tax
purposes and in 2009 for State tax purposes. The Federal and State
credits will begin to expire in 2017.
Significant
changes in our ownership may substantially reduce the available carryforwards
and related tax benefits.
14.
|
Supplemental
Cash Flow Information
|
For the
fiscal year ended December 31 2008, we recorded approximately $175,000 in
interest expense of which approximately $7,700 was paid.
15.
|
Stock
Based Compensation
|
.
Included
in our net loss for the year ended December 31, 2008 was a stock based
compensation charge of approximately $75,000 due to the adoption of SFAS
123(R). This compares to a compensation charge of approximately
$95,000 for the year ended December 31, 2007. Stock-based compensation costs are
based on the fair value calculated from the Black-Scholes option-pricing model
on the date of grant for stock options.
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
The fair
value of stock options are amortized as compensation expense as earned, which is
generally over the options’ vesting period.
In
anticipation of adopting SFAS 123(R), we evaluated the assumptions used in the
Black-Scholes model. Apogee continues to calculate the expected volatility based
solely on historical volatility. We believe that historical volatility provides
the best estimate of future stock price volatility.
We
estimate the expected life of the option and determine a risk-free rate based on
U.S. Treasury issues with remaining terms similar to the expected life of the
option. We have never paid cash dividends and do not currently intend
to pay cash dividends. Additionally, we have estimated an expected
term of 7.5 years, expected volatility of approximately 106% and risk free
interest rate of 3.285%.
As part
of SFAS 123(R), we estimate potential forfeitures of stock grants and adjust
stock based compensation cost accordingly. The estimate of forfeitures may be
adjusted to the extent that actual forfeitures differ, or are expected to
differ, from such estimates. Changes in estimated forfeitures will be recognized
through a cumulative catch-up adjustment in the period of change and will also
impact the amount of stock compensation expense to be recognized in future
periods.
A summary
of the Apogee’s stock compensation activity with respect to the twelve months
ended December 31, 2008 and 2007 follows:
Stock
Options
|
|
Shares
|
|
|
Weighted- Average
Exercise Price
|
|
|
Weighted- Average Remaining
Contractual Term
|
|
Outstanding
at December 31, 2006
|
|
|
2,899,100 |
|
|
$ |
4.6512 |
|
|
|
6.4563 |
|
Granted
|
|
|
195,000 |
|
|
|
0.8071 |
|
|
|
— |
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cancelled,
forfeited or expired
|
|
|
(156,000 |
) |
|
|
(1.6613 |
) |
|
|
— |
|
Outstanding
at December 31, 2007
|
|
|
2,938,100 |
|
|
|
4.5548 |
|
|
|
5.9352 |
|
Granted
|
|
|
160,000 |
|
|
|
1.0000 |
|
|
|
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cancelled,
forfeited or expired
|
|
|
(30,000 |
) |
|
|
(0.9350 |
) |
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
3,068,100 |
|
|
|
4.4048 |
|
|
|
5.1333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
at December 31, 2008
|
|
|
2,589,600 |
|
|
|
5.0457 |
|
|
|
4.5511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2008
|
|
|
2,589,600 |
|
|
$ |
5.0457 |
|
|
|
4.5511 |
|
The
following table summarizes information about options outstanding as of December
31, 2008:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Weighted
Average Exercise Price
|
|
|
Vested
Number Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25
— 1.69 |
|
|
|
1,169,900 |
|
|
|
7.1737 |
|
|
$ |
1.0023 |
|
|
|
691,400 |
|
|
$ |
1.0476 |
|
$2.71
— 6.50 |
|
|
|
1,299,200 |
|
|
|
3.2599 |
|
|
|
5.4017 |
|
|
|
1,299,200 |
|
|
|
5.4017 |
|
$8.45
— 12.15 |
|
|
|
599,000 |
|
|
|
5.3136 |
|
|
|
8.8883 |
|
|
|
599,000 |
|
|
|
8.8883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
at December 31, 2008
|
|
|
|
3,068,100 |
|
|
|
5.1532 |
|
|
$ |
4.4049 |
|
|
|
2,589,600 |
|
|
$ |
5.0457 |
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
During
the twelve months ended December 31, 2008, Apogee granted options to purchase
160,000 shares of its common stock at a weighted average fair market value of
$0.7405. No options were exercised during the fiscal year ended
December 31, 2008. In addition, during the twelve months ended
December 31, 2008, options to purchase 131,500 shares of Apogee common stock
vested. The weighted average exercise price of these options was
$0.9475. Total stock based compensation expense for the fiscal year
ended December 31, 2008 was approximately $75,000. Total stock based
compensation expense for the fiscal year ended December 31, 2007 was
approximately $95,000. As of December 31, 2008, approximately 478,000 options to
purchase approximately 478,000 shares of Apogee Common Stock with an approximate
value of 153K are not yet vested.
16.
|
Commitments
and Contingencies
|
Leases
We did
not have any operating leases at December 31, 2008 or December 31,
2007.
Employment
Contract
On June
7, 2004, Apogee entered into a three-year employment contract with its chief
executive officer and president whereby he will receive an annual salary of
$295,000. Apogee’s board of directors will annually
consider granting increases in salary, as well as potential
bonuses. In June of 2008, in order to reduce overhead expenses, a 20%
pay cut was imposed on most officers and employees including the chief executive
officer. This employment contract automatically renews for successive
periods of two years unless either party notifies the other of its intension not
to renew.
17.
|
Supplementary
Quarterly Financial Information
(Unaudited)
|
Summarized
quarterly financial information for the 12 months ended December 31, 2008 and
2007 are as follows: (in thousands, except per share data):
|
|
2008
|
|
|
|
1st
Qtr.
|
|
|
2nd
Qtr.
|
|
|
3rd
Qtr.
|
|
|
4th
Qtr.
|
|
Net
revenue
|
|
$ |
22 |
|
|
$ |
26 |
|
|
$ |
38 |
|
|
$ |
— |
|
Costs
and expenses
|
|
|
1,098 |
|
|
|
1,170 |
|
|
|
754 |
|
|
|
918 |
|
Operating
loss
|
|
|
(1,076 |
) |
|
|
(1,144 |
) |
|
|
(716 |
) |
|
|
(918 |
) |
Net
loss
|
|
|
(1,088 |
) |
|
|
(1,172 |
) |
|
|
(771 |
) |
|
|
(989 |
) |
Basic
and diluted loss per common share
|
|
|
(0.09 |
) |
|
|
(0.10 |
) |
|
|
(0.06 |
) |
|
|
(0.08 |
) |
|
|
2007
|
|
|
|
1st
Qtr.
|
|
|
2nd
Qtr.
|
|
|
3rd
Qtr.
|
|
|
4th
Qtr.
|
|
Net
revenue
|
|
$ |
53 |
|
|
$ |
65 |
|
|
$ |
14 |
|
|
$ |
18 |
|
Costs
and expenses
|
|
|
798 |
|
|
|
864 |
|
|
|
794 |
|
|
|
1,026 |
|
Operating loss
|
|
|
(745 |
) |
|
|
(799 |
) |
|
|
(780 |
) |
|
|
(1,008 |
) |
Net
loss
|
|
|
(713 |
) |
|
|
(775 |
) |
|
|
(713 |
) |
|
|
(1,004 |
) |
Basic
and diluted loss per common share
|
|
|
(0.06 |
) |
|
|
(0.06 |
) |
|
|
(0.06 |
) |
|
|
(0.9 |
) |
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
18.
|
Notification
of Delisting
|
We were
notified by the American Stock Exchange (AMEX) on November 2, 2007 that the
period provided to us by AMEX to regain compliance with its continued listing
requirements had expired without our having regained compliance with the
relevant continued listing standards. As a result, the staff of the AMEX
notified us of their intent to remove our common stock from the AMEX by filing a
delisting application with the Securities and Exchange Commission (the “SEC”)
pursuant to Section 1009(d) of the AMEX Company Guide (the “Company Guide”), and
Rule 12d2-2 of the Securities Exchange Act of 1934, as amended.
On
December 12, 2007, a hearing with the Listings Qualifications Panel was
conducted. Subsequently, we were notified that the Listings
Qualification Panel upheld their decision to cease the continue listing of our
stock. We immediately began the transitioning process to the
Over-the-Counter Bulletin Board® and/or the Pink Sheets© LLC.
On
January 23, 2008, we announced that our shares will be quoted on the
Over-the-Counter Bulletin Board® under the symbol “ATCS.OB”.
In May of
2009, our shares began being quoted in the Pink Sheets LLC under the symbol
“ATCS.PK.” Our removal from the OTC Bulletin Board was a result of
lack of timely filing of the Company’s Annual Report on Form 10-K.
Management
has evaluated subsequent events through December 18, 2009, the date the
financial statements were issued.
Additional
Financings
The
following table details all financings subsequent to our year ended December 31,
2008:
Date
of Promissory Note and Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Herbert
M. Stein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
2, 2009
|
|
$ |
30,000 |
|
August 1,
2009
|
|
|
8.00 |
% |
|
|
3,000 |
|
|
|
1.27 |
|
|
|
109.0427 |
% |
|
$ |
0.4188 |
|
|
$ |
1,256.40 |
|
February
17, 2009
|
|
$ |
10,000 |
|
August 16,
2009
|
|
|
8.00 |
% |
|
|
1,000 |
|
|
|
1.22 |
|
|
|
109.0432 |
% |
|
$ |
0.5219 |
|
|
$ |
521.90 |
|
March
19, 2009
|
|
$ |
25,900 |
|
September 15,
2009
|
|
|
8.00 |
% |
|
|
2,590 |
|
|
|
1.21 |
|
|
|
109.8067 |
% |
|
$ |
0.4057 |
|
|
$ |
1,050.76 |
|
April
13, 2009
|
|
$ |
33,000 |
|
October 9,
2009
|
|
|
8.00 |
% |
|
|
3,300 |
|
|
|
1.27 |
|
|
|
110.5920 |
% |
|
$ |
0.3469 |
|
|
$ |
1,144.77 |
|
May
18, 2009
|
|
$ |
12,000 |
|
November 14,
2009
|
|
|
8.00 |
% |
|
|
1,200 |
|
|
|
1.36 |
|
|
|
111.7741 |
% |
|
$ |
0.4288 |
|
|
$ |
514.56 |
|
July
1, 2009
|
|
$ |
20,000 |
|
December 28,
2009
|
|
|
8.00 |
% |
|
|
2,000 |
|
|
|
1.57 |
|
|
|
128.9334 |
% |
|
$ |
0.6295 |
|
|
$ |
1,259.20 |
|
November
5, 2009
|
|
$ |
42,500 |
|
May 4,
2010
|
|
|
8.00 |
% |
|
|
4,250 |
|
|
|
1.44 |
|
|
|
131.4589 |
% |
|
$ |
0.7681 |
|
|
$ |
3,264.43 |
|
November
25, 2009
|
|
$ |
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
11, 2009
|
|
$ |
52,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
14, 2009
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
16, 2009
|
|
$ |
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
256,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
David
Spiegel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
19, 2009
|
|
$ |
64,000 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
6,400 |
|
|
|
1.21 |
|
|
|
109.8067 |
% |
|
$ |
0.4057 |
|
|
$ |
2,596.46 |
|
May
19, 2009
|
|
$ |
35,000 |
|
November
15, 2009
|
|
|
8.00 |
% |
|
|
3,500 |
|
|
|
1.37 |
|
|
|
111.7484 |
% |
|
$ |
0.4288 |
|
|
$ |
1,500.80 |
|
June
10, 2009
|
|
$ |
25,000 |
|
December
7, 2009
|
|
|
8.00 |
% |
|
|
2,500 |
|
|
|
2.00 |
|
|
|
126.1055 |
% |
|
$ |
0.3959 |
|
|
$ |
989.75 |
|
July
1, 2009
|
|
$ |
32,000 |
|
December
28, 2009
|
|
|
8.00 |
% |
|
|
3,200 |
|
|
|
1.57 |
|
|
|
128.9334 |
% |
|
$ |
0.6295 |
|
|
$ |
2,014.40 |
|
November
5, 2009
|
|
$ |
103,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
10,300 |
|
|
|
1.44 |
|
|
|
131.4589 |
% |
|
$ |
0.7681 |
|
|
$ |
7,911.43 |
|
November
18, 2009
|
|
$ |
17,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
14, 2009
|
|
$ |
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
18, 2009 |
|
$ |
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
327,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Robert
Schacter et al
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
8, 2009
|
|
$ |
100,000 |
|
July
7, 2009
|
|
|
8.00 |
% |
|
|
25,000 |
|
|
|
1.16 |
|
|
|
108.8562 |
% |
|
$ |
0.5777 |
|
|
$ |
14,442,50 |
|
February
2, 2009
|
|
$ |
50,000 |
|
August
1, 2009
|
|
|
8.00 |
% |
|
|
12,500 |
|
|
|
1.27 |
|
|
|
109.0427 |
% |
|
$ |
0.4188 |
|
|
$ |
5,235.00 |
|
February
17, 2009
|
|
$ |
50,000 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
12,
500 |
|
|
|
1.22 |
|
|
|
109.0432 |
% |
|
$ |
0.5219 |
|
|
$ |
6,523.75 |
|
March
19, 2009
|
|
$ |
50,000 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
12,500 |
|
|
|
1.21 |
|
|
|
109.8067 |
% |
|
$ |
0.4057 |
|
|
$ |
5,071.25 |
|
April
13, 2009
|
|
$ |
20,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
5,000 |
|
|
|
1.27 |
|
|
|
110.5920 |
% |
|
$ |
0.3469 |
|
|
$ |
1,734.50 |
|
June
10, 1009
|
|
$ |
25,000 |
|
December
7, 2009
|
|
|
8.00 |
% |
|
|
6,250 |
|
|
|
2.00 |
|
|
|
126.1055 |
% |
|
$ |
0.3959 |
|
|
$ |
2,474.38 |
|
November
5, 2009
|
|
$ |
50,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
20,000 |
|
|
|
1.44 |
|
|
|
131.4589 |
% |
|
$ |
0.7681 |
|
|
$ |
15,362.00 |
|
|
|
$ |
345,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Spiegel
Family Limited Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
13, 2009
|
|
$ |
31,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
3,100 |
|
|
|
1.27 |
|
|
|
110.5920 |
% |
|
$ |
0.3469 |
|
|
$ |
1,075.39 |
|
May
18 ,2009
|
|
$ |
32,000 |
|
November
14, 2009
|
|
|
8.00 |
% |
|
|
3,200 |
|
|
|
1.36 |
|
|
|
111.7741 |
% |
|
$ |
0.4288 |
|
|
$ |
1,372.16 |
|
|
|
$ |
63,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Leo
Spiegel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
17, 2009
|
|
$ |
35,000 |
|
February
17, 2009
|
|
|
8.00 |
% |
|
|
8,750 |
|
|
|
1.22 |
|
|
|
109.0432 |
% |
|
$ |
0.5219 |
|
|
$ |
4,566.63 |
|
November
5, 2009
|
|
$ |
10,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
1,000 |
|
|
|
1.44 |
|
|
|
131.4589 |
% |
|
$ |
0.7681 |
|
|
$ |
768.10 |
|
|
|
$ |
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
JAZFund
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
13, 2009
|
|
$ |
30,000 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
7,500 |
|
|
|
1.27 |
|
|
|
110.5920 |
% |
|
$ |
0.3469 |
|
|
$ |
2,601.75 |
|
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Erica
Stein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
5, 2009
|
|
$ |
60,000 |
|
May
4, 2010
|
|
|
8.00 |
% |
|
|
15,000 |
|
|
|
1.44 |
|
|
|
131.4589 |
% |
|
$ |
0.7681 |
|
|
$ |
11,521.50 |
|
Date
of Promissory
Note and
Warrant
|
|
Amount
Of Note
|
|
Maturity
Date
|
|
Interest
|
|
|
Number
Of Warrants
|
|
|
Risk
Free Interest Rate
|
|
|
Volatility
|
|
|
Value
Per Warrant
|
|
|
Total
Value Of Warrants
|
|
Others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
17, 2009
|
|
$ |
2,000 |
|
August
16, 2009
|
|
|
8.00 |
% |
|
|
200 |
|
|
|
1.22 |
|
|
|
109.0432 |
% |
|
$ |
0.5219 |
|
|
$ |
104.38 |
|
March
19, 2009
|
|
$ |
500 |
|
September
15, 2009
|
|
|
8.00 |
% |
|
|
50 |
|
|
|
1.21 |
|
|
|
109.8067 |
% |
|
$ |
0.4057 |
|
|
$ |
20.29 |
|
April
13 2009
|
|
$ |
500 |
|
October
10, 2009
|
|
|
8.00 |
% |
|
|
50 |
|
|
|
1.27 |
|
|
|
110.5920 |
% |
|
$ |
0.3469 |
|
|
$ |
17.35 |
|
May
19, 2009
|
|
$ |
500 |
|
November
15, 2009
|
|
|
8.00 |
% |
|
|
50 |
|
|
|
1.37 |
|
|
|
111.7484 |
% |
|
$ |
0.4288 |
|
|
$ |
21.44 |
|
November
30, 2009
|
|
$ |
2,563 |
|
|
|
|
8.00 |
% |
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
warrants have been issued at an exercise price of $1.00, had a three-year term
and were issued as added consideration for the additional $999,963 as of
December 1, 2009 and all loans to Apogee are still outstanding as well as the
accrued interest. Once loans reach maturity, interest is compounded
monthly and increased by 4 percentage points.
Wages,
Payroll Withholding and Payroll Taxes
APOGEE
TECHNOLOGY, INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
December
31, 2008 and 2007
Due to Apogee’s financial condition, payroll taxes and payroll
withholding have remained unpaid since July 1, 2009. We have accrued
payroll taxes and withholdings based upon our employees gross wages. In
addition, we had not paid wages to employees for the four weeks ended December
10, 2009 of approximately $40,000. As of December 10, 2009,
approximately $85,000 was owed to Federal and State
authorities. Additionally, Apogee has accrued $25,000 for penalties
and interest on such amounts. On December 11, 15, 16, and 18,
2009, Apogee received an additional $133,000 from Herbert M. Stein
and David Spiegel. The proceeds from these loans were used to
pay unpaid payroll and payroll taxes up through and including payroll for the
period ended December 15, 2009. These amounts exclude payroll and
payroll taxes for Mr. Herbert M. Stein, who has not drawn cash compensation from
Apogee since June 30, 2009.
Other
Subsequent
to year end, Apogee closed down operations of the Health Monitoring Product
Group. Costs associated with this cessation of operations as well as
the termination of employees associated with this Group are not
material. Apogee’s sole focus will remain on developing and growing
the Life Science Group.
Notification
from the Securities and Exchange Commission
On May
19, 2009, the Securities and Exchange Commission (“commission”) filed a settled
enforcement action against the Company, one employee, and one former
employee (“Others”) in connection with a with the revenue recognition
practices. Each of the defendants has agreed to settle this matter,
without admitting or denying the allegations of the Commission’s
complaint. Apogee and others agreed to the entry of a final judgment
permanently enjoining them from variously violating or aiding and abetting
violations of Sections of the Securities Act of 1933, and Sections of the
Securities Exchange Act of 1934, and various Rules. The others also
agreed to financial and other sanctions.
SEC
Administrative Proceedings
Due to
its financial condition, the Company had been unable to fund payments to its
auditors as well as its financial printer. Accordingly, the Company has not
filed its 2008 Annual Report on 10-K, as well as quarterly reports on Form 10-Q
for the quarters ending March 31, 2009, June 30, 2009, and September 30, 2009.
Additionally, it had not timely filed a Form 8-K and related Form
4’s.
On
October 28, 2009, the Company received a “Wells Notice” from the staff of the
Securities and Exchange Commission, which states the staff’s intent to recommend
that the Commission institute a public administrative proceeding against the
Company, alleging that it violated Section 13(a) of the Securities Exchange Act
of 1934.
In
connection with the contemplated proceedings, the staff may seek a suspension or
revocation of each class of the Company’s registered securities. Also, the staff
may consider whether contempt proceedings in a federal district court are
appropriate. The Company submitted a response to this letter as of
November 16, 2009. Suspension or revocation may substantially impact
the Company’s ability to obtain funding.
- F28
-