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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB/A2
GENERAL FORM FOR REGISTRATION OF
SECURITIES FOR SMALL BUSINESS ISSUERS
Under Section 12 (b) or (g) of The Securities Exchange Act of 1934
APOGEE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3005815
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
129 Morgan Drive 02062
Norwood, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 551-9450
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value Per Share
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(Title of Class)
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EXPLANATORY NOTE
Apogee Technology, Inc. ("Apogee" or the "Company") is filing this Form
10-SB Registration Statement to comply with recently enacted rules of the
National Association of Securities Dealers, Inc., which require, among other
things, that the Company become a reporting company with the Securities and
Exchange Commission (the "SEC") under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in order for the Company
to become eligible for listing on the OTC Bulletin Board.
Special Note on Forward Looking Statements
This Form 10-SB contains express or implied forward-looking statements.
The words "believes," "expects," "anticipates," "may," "will," "should,"
"intends," "forecasts," "projects," "plans," "estimates" and similar expressions
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and financial performance or
operations and speak only as of the date the statements are made. Such
forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. The
Company's actual results may differ materially from such statements. Factors
that cause or contribute to such differences include, but are not limited to,
the Company's limited operating history, unpredictability of operating results,
loss of market share and pressure on prices from competition in various aspects
of its business, the risks of rapid growth, the Company's dependence on key
personnel, uncertainty of product acceptance, inability to timely develop and
introduce new technologies, products and applications, changes in the level of
activity in the audio industry, changes in economic conditions and an inability
to obtain financing, as well as those discussed elsewhere in this Form 10-SB.
Although the Company believes that the assumptions underlying its
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in such forward-looking statements will be realized. The inclusion
of such forward-looking information should not be regarded as a representation
by the Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. The Company undertakes no
obligation to publicly update, review or revise any forward-looking statements
to reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statements are
based.
Glossary of Terms
"CD" Compact Disc.
"Controller Device" A semiconductor device that implements DDX signal
processing.
"DAC" Digital to Analog Converter. Used to convert digital signals into analog
signals used by conventional amplifier technology.
"DDX" Registered trademark of Apogee Technology, Inc. standing for Direct
Digital Amplification.
"DVD" Digital Versatile Disc.
"Efficiency" The ratio of the useful energy output from a system to the amount
of energy consumed by the system.
"Engineering Samples" The first implementation of a concept in a form suitable
to evaluate the characteristics of such concept.
"Heat Sink" Mechanical component used to conduct heat away from a semiconductor
or other device.
"OEM" Original Equipment Manufacturer.
"MP3" A digital audio compression format for storing music on the World Wide Web
and other components of the Internet.
"Power Device" A semiconductor device that implements DDX interface to the DDX
Controller and high efficiency power transistors.
"1394" Designation of network technology standard developed by Apple Computer,
Inc.
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Item 1. DESCRIPTION OF BUSINESS
History
Apogee was organized as a Delaware corporation on July 1, 1987, and
initially operated through its wholly-owned subsidiary, Apogee Acoustics Inc.
("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 so innovative that a pair of Apogee
loudspeakers is on display at the Smithsonian Museum.
Apogee discontinued its loudspeaker business in 1995 and, since that time,
has focused exclusively on digital amplifier technology development. The Company
initially developed a high efficiency amplifier architecture (US patent #
5,077,539) that it implemented with analog circuitry. To meet broader future
market appeal, the Company subsequently developed and patented in 1997 a
complete digitally-controlled amplifier design (US patent # 5,617,058) which the
Company trademarked as Direct Digital Amplification or DDX(R).
Most current digital audio systems use analog amplifiers to amplify analog
signals produced by a digital to analog converter or DAC. The problem inherent
with this methodology is that it requires digital signal conversion and analog
amplifiers dissipate over half their power as heat. DDX is an amplifier design
that utilizes a digital interface and high-efficiency switching technology.
Embedded signal processing is used to convert digital audio data into Apogee's
tri-state output which enables direct control of the power switching devices.
This design significantly increases efficiency over analog amplifiers and
eliminates analog noise problems. Eliminating the need for digital to analog
conversion permits digital audio sources such as CDs and DVDs to remain digital
from source to speakers resulting in clear digital sound.
In August 1999, the Company signed a licensing agreement with ALST
Technical Excellence Center, ("ALST") a strategic partnership between Altec
Lansing Technologies, Inc. ("Altec") and STMicroelectronics. Altec is one of the
world's leaders in sound systems for personal computers and STMicrolectronics
(formerly SGS-THOMSON) designs, develops, manufactures and markets a broad range
of semiconductor products for the telecommunications, computer, consumer
electronics, automotive and industrial markets. In 1999, STMicroelectronics was
the eighth largest semiconductor company in the world. Under this agreement,
Apogee will license its patented DDX intellectual property on a non-exclusive
basis to ALST to develop integrated semiconductor products for the computer,
consumer electronics, automotive and communications markets. ALST will be
responsible for the overall product development and STMicroelectronics will
manufacture and sell products to ALST and other manufacturers. Apogee will
receive a royalty on sales of all products incorporating Apogee's DDX
technology. Apogee expects that its first commercial production run of chips
incorporating the DDX technology for ALST will be shipped during the fourth
quarter of this year.
Design of the first part of a two-chip semiconductor DDX product solution,
a Controller device, was completed in late 1999. The second part of that
solution, a Power device, is expected to be available for customer testing in
the third quarter of 2000. Production samples of the Controller and Power
devices are projected for the forth quarter of 2000. Apogee plans to begin
marketing semiconductor and amplifier products to audio OEMs through the
establishment of a distribution and representative network during the third
quarter of 2000. Apogee will market circuit boards that incorporate DDX
semiconductor products through this distribution channel.
Industry Trends and the DDX Advantage
The consumer electronics industry is moving toward development of fully
digital integrated systems. In the audio segment, digital recording and
distribution technology, such as Digital Versatile Discs (DVDs) and digital
networks, have been and are being developed. In the near future, most audio (and
much video) material will be recorded and distributed using digital technology.
With this transition, the consumer is also demanding smaller less complicated
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audio systems, thus forcing audio manufacturers to further integrate products.
With more audio channels becoming standardized, such as home theater systems
that utilize six channels, manufacturers are being forced to develop unique
solutions that provide more audio power in smaller spaces.
Current audio amplifier solutions cannot meet the need for fully digital
integrated systems because they utilize low efficiency analog amplifiers to
boost analog signals produced by a digital audio converter. The designs are not
truly digital and can suffer from analog noise problems and the need for large
heat sinks to dissipate the heat resulting from their poor efficiency. Apogee's
DDX design solves both of these problems. DDX is fully digital so that analog
noise problems are eliminated. Since the signal processing is digital, fully-
integrated designs can be developed that operate at high efficiency. DDX uses
patented switching technology to provide greater efficiency than analog designs
playing music, thereby eliminating external heat sinks and simplifying packaging
and manufacturing. DDX is the first all-digital amplifier solution designed to
be offered on a low cost basis to the audio and communications markets.
Apogee is developing DDX solutions for the high volume audio markets and
other applications in the communications field which can directly benefit from
the DDX unique design. The company is focusing its initial development efforts
on DDX software design licensing, semiconductor products and OEM amplifier
products for the PC multimedia, home audio and automotive markets. As these
products are launched, Apogee will direct its development efforts towards
emerging growth markets such as Internet appliances and network systems. Some of
the applications and advantages of DDX technology in current and future markets,
which the Company may pursue in the future, are summarized below. There can be
no assurances that the Company will be successful in developing any of these
products, however, or, that if developed, the Company will be successful in
marketing any of them:
a) Emerging Markets
With DDX technology, new digital products no longer encumbered by analog
designs will evolve. DDX potential solutions are adaptable to DVD, integrated
digital amplification in Digital TVs, speakers, and digital cable systems. New
technologies such as MP3, digital playback and Internet appliances can be fully
digital with DDX amplifier solutions.
DDX's digital to power architecture can be adopted to secure digital music
playback. As music is distributed digitally, it can be copied easily once it has
been decoded. With DDX, the music decoding can be made so that unsecured digital
data is not available for copy.
b) Traditional Audio Segments
Apogee's high efficiency technology provides audio clarity and cost
effective solutions in many audio applications. In the home audio and PC
multimedia markets, OEM manufacturers will be able to realize efficiencies
through the incorporation of smaller configuration DDX amplifiers in powered
speakers. DDX's smaller and more efficient design will enable car audio designs
to deliver more power in a smaller space. Portable boom boxes, MP3 players and
mobile communication devices will also benefit from longer battery life due to
DDX efficiency.
c) Network Audio
Apogee's digital design is a natural solution for distributed audio on
network systems. With the emergence of home networking applications, such as
Apple's 1394, DDX can provide low cost audio solutions to this market. DDX's
digital processing can be integrated with network interface designs to provide
consumers with pure digital sound throughout their homes at lower cost. Audio
systems may also be installed in wall or ceiling spaces without the typical
thermal problems associated with analog amplifier installations. In addition,
because of DDX's higher efficiency, more amplifiers and higher audio output can
be achieved in network applications compared with analog systems operating from
a remote power source.
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Product
Apogee is developing a range of DDX products to meet the needs of large
and small OEM customers.
a) Technology Licenses
Apogee is licensing its DDX technology, in the form of software and
hardware logic designs, to meet the needs of large audio OEMs and semiconductor
companies. The Company completed its first technology solution, the "DDX-S200",
in June 1999 and plans to release an enhanced version of this design during the
fourth quarter of 2000. As well as improving existing functionality, Apogee
continues to add additional audio functions to improve the marketability of its
DDX technology.
b) Semiconductors
Apogee is developing DDX semiconductor solutions for sale to audio OEMs.
The Company has developed a DDX amplifier chip set consisting of a DDX
Controller device, the "DDX-2000", and a DDX Power device, the "DDX-2060". The
DDX Controller interfaces to standard digital audio designs and directly
controls the DDX Power device. This design can provide from 7 to 30 watts per
channel of power output. Because of the device's high efficiency, the DDX
amplifier can be mounted on a circuit board without an external heat sink, thus
simplifying manufacturing. Sample devices of this chip set became available in
July 2000. The Company intends to start production of these devices during the
fourth quarter of 2000. Apogee plans to develop additional semiconductor devices
at different power levels and with different performance features to broaden
market appeal for its DDX technology.
c) OEM Amplifier Products
Apogee plans to develop and market evaluation and reference circuit boards
that utilize DDX semiconductors. These amplifier products will be used to
support DDX semiconductor marketing activities and will also be made available
for sale to audio OEMs. The first of these products that utilized the DDX-2000
was demonstrated at the Consumer Electronics Show in Las Vegas in January 2000.
The Company is currently developing a DDX-2000/DDX-2060 evaluation board that
will be available in the fourth quarter 2000.
Marketing
The Company's technology is marketed through direct sales of technology
licenses, semiconductors and amplifier products. This approach provides value
solutions for both high and low volume semiconductor and audio OEM customers.
Specifically, the following are the marketing approaches that the Company will
be adopting for each business area:
Technology Licensing
The Company utilizes internal marketing staff for licensing solutions to
large semiconductor and audio OEMs. The Company signed its first licensing
agreement with ALST. Products under this agreement are expected to be shipped
during the fourth quarter of this year. Following the ALST agreement, the
Company has begun negotiations with other parties relating to additional
licensing arrangements for applications of its DDX technology.
Semiconductors and OEM Amplifier Products
The Company markets its semiconductor and OEM amplifier products utilizing
direct sales and marketing techniques and distributors in the U.S. and foreign
markets.
Competition
Apogee's DDX technology is the first all-digital solution targeted towards
high volume, low cost markets. The audio industry today is characterized by (1)
analog amplifiers known as Class A/B amplifiers and (2) analog high efficiency
designs, known as Class D amplifiers. The industry is moving from analog to
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digital format amplifiers in a manner similar to video's move to digital.
Apogee believes that the design of its DDX technology as a pure digital to
digital amplification solution gives the Company an advantage in the audio
market. The DDX solution enables competitive signal processing efficiencies as
there is no need for extra components to convert the digital input to an analog
signal prior to amplification. This simpler design leads to reduced
manufacturing costs and creates a competitive advantage for the Company.
Item 2.A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999
The following Discussion and Analysis of the Company's Financial Condition
and Results of Operations should be read in conjunction with the Company's
Financial Statements and the related Notes included elsewhere in this
Registration Statement. This discussion contains, in addition to historical
statements, forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from the results discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include the factors discussed in the section titled "Special
Note on Forward-Looking Statements" as well as other factors in this Apogee
Registration Statement on Form 10-SB/A1.
Introduction
Prior to 1995, the Company was in the business of engineering,
manufacturing and marketing high quality, high-end patented ribbon loudspeaker
systems for use in home audio and video entertainment systems. The Company
discontinued this loudspeaker business in 1994. Since 1995, the Company's
business has shifted to the design and marketing of digital amplifier
technology, DDX(R). The Company has completed development of its first DDX
software, semiconductor and amplifier products and has entered into one
licensing agreement but has not yet begun to generate revenues from the sale of
its DDX products. The Company has incurred net losses of approximately $1.1
million for the year ended December 31, 1999 and just under $1 million for each
of the years ended December 31, 1998 and December 31, 1997. At December 31,
1999, the Company had an accumulated deficit of $7,294,899, of which
approximately $4 million was attributable to the Company's now defunct
loudspeaker business. These net losses and accumulated deficit (since 1995)
result primarily from the costs associated with the Company's DDX development
efforts. DDX development costs during 1996 and 1997 were used to develop the
conceptual design and to market the solution to potential customers. With the
design concept validated, efforts during 1998 and 1999 were devoted to
converting the concept into semiconductor solutions. This activity was performed
using internal and external engineering resources. Additional development costs
were incurred during 1999 to fabricate engineering device samples.
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Selected Consolidated Financial Data
The following selected financial data for the three years ended December
31, 1999 has been derived from the Company's financial statements audited by
Yohalem Gillman & Company LLP, independent accountants.
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Statement of Operations Data:
Revenues $ 60,200 $ 61,371 $ 17,375
Costs and expenses 1,094,755 964,258 839,744
Other income (expense) (27,852) (51,214) (114,650)
Net Loss (1,062,407) (954,101) (937,019)
Shares outstanding
-December 31 4,155,022 3,106,156 1,934,000
Balance Sheet Data:
Total assets 225,508 85,031 97,358
Stockholders' deficiency (636,116) (1,241,625) (1,067,398)
Results of Continuing Operations of the Company
Revenues in 1999 were principally derived from fees for the ALST licensing
agreement. Revenues for 1998 and 1997 consisted of miscellaneous consulting
work. In 1997, the Company performed engineering consulting services relating to
the development of a device to detect the angular rate of movement of a moving
object and in the 1998, the Company performed consulting services in connection
with the design of a demonstration unit interfacing its DDX technology with that
of the contracting company.
Costs and expenses reflect primarily research and development costs
incurred as well as selling, general and administrative costs. Increases in
costs and expenses from 1998 to 1999 consisted of additional spending for
research, design and development of the Company's Controller and Power devices,
as well as the costs of hiring additional personnel in both product design and
marketing. A large portion of the increase in costs and expenses from 1997 to
1998 reflects professional fees accumulated from earlier litigation (For a
description of this litigation, see Part II, Item 2 below.) and other general
corporate work.
The Company has reported net losses for the years 1997 through 1999.
During the current year, the Company is expanding its commercialization efforts
and it expects operating losses to continue for the foreseeable future.
Liquidity and Capital Resources
During the past three years, three principal shareholders, Mr. David
Spiegel, Mr. Herbert Stein and Dr. Anton Schrafl, have, in large part, funded
the Company through personal loans. For a description of these loans, See Part
I, Item 7, "Certain Relationships and Related Transactions", below. These loans
were converted into shares of the Company's common stock, $0.01 par value per
share (the Common Stock"), through private placements of the Common Stock. The
Company has also raised operating funds through the private placement of its
securities to its directors and to nonaffiliated investors and from bank lines
of credit. For a detailed description of these cash raising and loan repayment
transactions, see Part II, Item 4, "Recent Sales of Unregistered Securities",
below.
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In 1997, the Company raised $150,000 in a private placement to one of its
directors, Dr. Anton Schrafl, and $50,000 in a private placement to an
unaffiliated investor. In December of 1997, the Company received a $250,000 bank
line of credit that was guaranteed by two of its directors, Messrs. Spiegel and
Stein. This loan was repaid by these directors in March 1999. In May 1999, the
Company received an additional bank financing, guaranteed by one of its
directors, Mr. Stein, in the amount of $200,000.
In 1998, the Company raised $100,000 in a private placement to an
unaffiliated investor. Additionally, the Company raised $129,586 from
unaffiliated investors through the private sale of its Common Stock in
connection with a litigation settlement. (For a discussion of this matter, see
Part II, Item 2, below). From the first quarter of 1999 through January 2000,
the Company raised a total of $816,668 in three private placements including two
offerings of Common Stock, in the first of which, to all of the Directors of the
Company, the Company raised $85,000 and in the second, to all of the Directors
of the Company and to two unaffiliated investors, $236,668, and an offering of
Units (each Unit consisting of one (1) share of Common Stock and one warrant to
purchase one-fifth (1/5) of a share of Common Stock, at $2.00 per Unit) in which
three directors, Messrs. Spiegel and Stein and Dr. Schrafl, contributed an
aggregate of $100,000 and additional unaffiliated investors contributed
$395,000.
Year 2000 Compliance
Certain currently installed computer and communications systems and
software products may be unable to recognize and properly process data fields
containing a two digit calendar year. This situation could result in system
failures or miscalculations causing disruptions in the operations of any
business. As a result, many companies' software and computer and communications
systems have been upgraded or replaced to be able to accurately process Year
2000 date-based information.
Apogee has reviewed its internal systems and based, on this review, the
Company does not currently believe that it has material exposure to the Year
2000 issue.
The Company does not anticipate any future problems in connection with
Year 2000 issues The Company's costs to date of remediating Year 2000 issues
have been inconsequential and it expects that any future expenses for its Year
2000 compliance will not be material. The Company has not developed a
contingency plan to address situations that may result if either the Company or
third parties upon whom the Company relies, is unable to achieve Year 2000
readiness.
Item 2.B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED MARCH 31, 2000
Results of Continuing Operations of the Company
Three Months Ended March 31, 2000 as Compared to the Three Months Ended
March 31, 1999
The Company did not generate any revenues during either the first
quarter of 2000 or the first quarter of 1999. The Company incurred research and
development expenses during the first quarter of 2000 of $126,588, an increase
of approximately $35,000, or 37%, over the same period in 1999. This increase
reflected the Company's increased activity as it moved forward with the
development of its new DDX Controller and Power devices. Selling, general and
administrative costs during the first quarter of 2000 increased to $176,461 from
$62,563 during the same period in 1999. This approximately 200% increase
reflected the Company's expanded efforts in marketing its new DDX products and
increased accounting and legal fees incurred in connection with the Company's
preparation of three year audited financial statements and its Form 10-SB
Exchange Act registration application.
Liquidity and Capital Resources
From January through June 2000, the Company raised $750,000 in a
private placement of its Common Stock at $3.00 per share. All of the directors
of the Company contributed an aggregate of $291,000 of this amount while third
party accredited investors
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contributed the $459,000 balance. The Company is currently engaged in a new
private placement of its Common Stock to raise an additional $1 million for
working capital purposes. In February 2000, the Company refinanced its $200,000
bank loan and in April 2000, this loan was converted into a revolving line of
credit secured by the assets of the Company and guaranteed by one of its
directors, Mr. Stein. The Company repaid the outstanding principal and interest
on this line of credit in May 2000.
The continuance of the Company is dependent upon its ability to
successfully develop and market its digital amplifier technology and raise funds
for such purposes. There can be no assurance, however, that the Company will be
able to raise the funds that it needs to continue its operations in the long
term or that additional funds will be available to the Company on acceptable
terms, if at all.
Item 3. DESCRIPTION OF PROPERTIES
The company maintains its offices at 129 Morgan Drive, Norwood, MA. The
5,000 square foot area is leased on a month-to-month basis.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 2000
concerning the 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, and all directors and executive officers as a group.
SHARES BENEFICIALLY OWNED(1)
Name and Address** Number Percent
------------------ ------ -------
Herbert M. Stein 915,150(2) 19.5%
71 Fairlee Road, Waban, MA 02468
H.M. Stein Associates 915,150(2) 19.5%
71 Fairlee Road, Waban, MA 02468
David Spiegel 825,316(3) 17.6%
600 Mountain Street, Sharon, MA 02067
Leo Spiegel 391,818 8.4%
30 Ashcroft Road, Sharon, MA 02067
Dr. Anton Schrafl 613,000(4) 13.2%
Schlossbergstrasse 23, Zollikon, Switzerland
Alan Tuck 115,200(5) 2.5%
William S. Edwards 5,000(6) *
David Meyers 45,000(7) *
Vincent Patalano 5,000(8) *
All executive officers and directors
As a group (9 persons) 2,910,784(9) 61.1%
----------------------
* Represents beneficial ownership of less than l% 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 June 30,
2000 was 4,669,522. The calculation of percentage ownership of each listed
beneficial owner is based upon the number of shares of Common Stock issued
and outstanding June 30, 2000, plus shares of Common Stock subject to
options and/or warrants held by such person at June 30, 2000 and
exercisable within 60 days thereafter. 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.
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(2) Includes 20,000 shares of Common Stock owned directly by Mr. Stein, 10,000
shares of Common Stock which may be purchased by Mr. Stein within 60 days
of June 30, 2000 upon the exercise of stock options, 50,700 shares of
Common Stock owned by Mr. Stein's wife, 829,450 shares of Common Stock
owned by H.M. Stein Associates ("HMSA") and 5,000 shares of Common Stock
which may be purchased by HMSA upon the exercise of fully vested Warrants.
Mr. Stein has sole voting and investment power with respect to all of the
shares owned by HMSA but denies beneficial ownership of 91% of the shares
owned by HMSA.
(3) Includes 10,000 shares of Common Stock which may be purchased within 60
days of June 30, 2000 upon the exercise of stock options and 5,000 shares
of Common Stock which may be purchased after June 30, 2000 upon the
exercise of fully vested warrants.
(4) Includes 4,000 shares of Common Stock which may be purchased after June 30,
2000 upon the exercise of fully vested warrants.
(5) Includes 2,000 shares of Common Stock which may be purchased within 60 days
of June 30, 2000 upon the exercise of stock options.
(6) Includes 5,000 shares of Common Stock which may be purchased within 60 days
of June 30, 2000 upon the exercise of stock options.
(7) Includes 45,000 shares of Common Stock which may be purchased within 60
days of June 30, 2000 upon the exercise of stock options.
(8) Includes 5,000 shares of Common Stock which may be purchased within 60 days
of June 30, 2000 upon the exercise of stock options.
(9) Includes 65,000 shares of Common Stock which may be purchased within 60
days of June 30, 2000 upon the exercise of stock options, and 24,000 shares
of Common Stock which may be purchased after June 30, 2000 upon the
exercise of fully vested warrants.
Item 5. DIRECTORS AND EXECUTIVE OFFICERS
Directors
The names of the Company's current Directors and certain information
regarding each such Director's business experience during the past five years
are set forth below. The Company's Directors are elected by the stockholders at
each annual meeting and serve for one year or until their successors are duly
elected and qualified.
Name Age Position with the Company
---- --- -------------------------
Herbert M. Stein 71 Chairman of the Board
David Spiegel 43 President and Treasurer
Dr. Anton Schrafl 68 Director
Alan Tuck 51 Director
Mr. Herbert M. Stein has served as a Director of the Company since 1996
and as Chairman of the Board since January 2000. Mr. Stein was Chairman of the
Board of Directors of Organogenesis Inc. from 1991 through 1999 and Chief
Executive Officer of Organogenesis from 1987 through 1999.
Mr. David Spiegel has served on the Company's Board of Directors since
1987, as President and Treasurer of the Company since 1995 and as Chairman of
the Board from 1996 to 1999. He is President, Director and owner of Automotive
Galleries Inc., Norwood, MA. David Spiegel is the son of Leo Spiegel.
Dr. Anton Schrafl has served as a Director of the Company since 1997. He
has been Deputy Chairman of "Holderbank" Financiere Glaris Ltd., since July
1984. He is also a Director of Organogenesis Inc.
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Mr. Alan Tuck 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: 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 & CEO of T Cell Sciences Inc. from February 1992 to May 1996. He is
currently a Director of Genzyme Transgenics Corporation.
Executive Officers
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
---- --- -------------------------
Leo Spiegel 75 Executive Vice President, Research
David Meyers 41 Vice President, Business Development
William S. Edwards 55 Executive Vice President and Chief
Operating Officer
Vincent Patalano 41 Vice President, Engineering and Planning
Mr. Leo Spiegel has served as the Company's Executive Vice President of
Research since 1996. Prior thereto, he was the Chairman of the Board of the
Company from 1987 to 1996. He served as a Director of the Company from its
inception in 1981 until 1996. He is co-founder of the Company. Leo Spiegel is
David Spiegel's father.
Mr. David Meyers was appointed the Company's Vice President, Business
Development in January 2000. Prior to joining the Company in 1996, Mr. Meyers
was a principal engineer with Arinc Research Corporation.
Mr. William Edwards was appointed Executive Vice President and Chief
Operating Officer in June 2000 when he joined the Company. Prior to joining the
Company, Mr. Edwards was most recently Senior Vice President, Operations at
Physician Computer Network, Inc. where he was employed since 1991.
Mr. Vincent Patalano was appointed Vice President of Engineering and
Planning in June 2000. Prior to joining Apogee Mr. Patalano had been Vice
President, Research and Development at VERSYS Inc. and Physician Computer
Network Inc. since 1982.
Involvement in Legal Proceedings
To the best of the Company's knowledge, during the past five years, none
of the present or former directors or executive officers of the Company have
been involved in any legal proceedings, other than those relating to minor
traffic violations.
Item 6. EXECUTIVE COMPENSATION
Compensation of Directors
The Company's policy is to pay no compensation to members of the Board for
attendance at Board meetings or committee meetings.
Directors are eligible to participate in the Company's 1997 Employee,
Director and Consultant Stock Option Plan (the "Plan"). Options to purchase an
aggregate of 10,000 shares of the Company's Common Stock, at an exercise price
of $1.25 per share vesting over five years, were granted under the Plan during
Fiscal 1999 to Mr. Alan Tuck.
Compensation of Executive Officers
David Spiegel, President of the Company, did not receive any compensation
for Fiscal 1999 for services he rendered to the Company. No other executive
officer of the Company received compensation, including salary and bonus, for
fiscal 1999 exceeding $100,000.
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<PAGE>
Option Grants in Last Fiscal Year
The Company did not grant any options during Fiscal 1999 to its executive
officers.
Fiscal Year-End Option Values
The following table provides information regarding the value of both
exercisable and unexercisable stock options held by the Company's President as
of December 31, 1999 and the value of "in-the-money" options, which values
represent the positive spread between the exercise price of any such option and
the fiscal year-end value of the Company's Common Stock. No options were
exercised during Fiscal 1999.
Number of Securities Underlying Value of the Unexercised
Unexercised Options/SARs In-The-Money Options/SARs
at Fiscal Year-End at Fiscal Year-End (1)
-------------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------- ----------- ------------- ----------- -------------
David Spiegel 20,000 30,000 $29,000 $43,500
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $2.00, the closing bid
price per share of the Company's Common Stock as quoted on the National
Quotation Bureau Pink Sheets on December 31, 1999.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, the Company moved to a facility owned by Mr. David Spiegel,
a stockholder of the Company. The Company rents the facility for $3,600 per
month on a month-to-month basis. Rent paid during 1998 and 1999 amounted to
$86,400 in the aggregate. Rentals paid are below market value.
As of May 31, 1997, Mr. Leo Spiegel, Mr. David Spiegel, Mr. Herbert Stein
and Mr. Melvin Ravech (the "Lenders") had loaned the Company a total of
$138,500, $143,500, $165,000 and $22,500, respectively, at an interest rate of
8% per annum (the "1997 Loans"). On June 12, 1997, the Board of Directors of the
Company voted to convert the 1997 Loans into 854,545 shares of Common Stock at a
conversion price of $.55 per share. The 1997 Loans were converted on May
21,1998. Accrued interest on the 1997 Loans totaling $79,188 was waived by the
Lenders.
On December 3, 1997, the Company obtained a $250,000 unsecured bank line
of credit (the "Line of Credit") at an interest rate of prime plus 1.25% (9.75%
at December 31, 1998 and 1997). The Line of Credit was personally guaranteed by
Mr. David Spiegel and Mr. Herbert Stein (the "Guarantors") and was paid off by
the Guarantors on March 31, 1999. On January 12, 1999, the Board of Directors of
the Company voted to issue 100,000 shares of Common Stock to each of the
Guarantors, at a price of $1.25 per share in consideration of repayment of the
Line of Credit by the Guarantors. These shares were issued on August 2, 1999.
Accrued interest on the Line of Credit was paid by the Guarantors.
Between October 1997 and January 1999, Dr. Anton Schrafl, Mr. Alan Tuck,
Mr. Herbert Stein and Mr. David Spiegel loaned the Company a total of $264,750,
$80,000, $100,000 and $100,000, respectively. On January 12, 1999, the Board of
Directors of the Company voted to convert these loans into 457,000 shares of
Common Stock at conversion prices of $.75 to $1.25 per share. These loans were
converted on August 2, 1999.
Between August 1998 and April 1999, Mr. David Spiegel and Mr. Herbert
Stein (the "Director Lenders") loaned the Company an additional total of
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<PAGE>
$107,332 and $100,000, respectively (the "Additional Loans"). On May 13, 1999,
the Board of Directors of the Company voted to convert the Additional Loans into
165,866 shares of Common Stock at a conversion price of $1.25 per share. The
Additional Loans were converted on August 2, 1999.
Item 8. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 9,000,000 shares of
Common Stock, $.01 par value per share, and 10,000 shares of Preferred Stock,
$100 par value per share.
Common Stock
As of June 30, 2000, 4,669,522 shares of Common Stock were issued and
outstanding. An additional 311,000 shares of Common Stock may be issued upon the
exercise of outstanding options of which 144,000 are fully vested and an
additional 54,500 shares of Common Stock may be issued upon the exercise of
outstanding and fully vested warrants. Holders of Common Stock are entitled to
one vote per share held of record on all matters submitted to a vote of the
Shareholders of the Company. Common Shareholders of the Company do not have the
right to cumulate their votes for the election of directors, which means that
the holders of more than 50 percent of the shares of Common Stock have the power
to elect all of the directors, and in such event the holders of the remaining
shares will not be able to elect any director.
Subject to preferences that are applicable to any outstanding shares of
preferred stock, cash dividends may be paid to the holders of the Common Stock
when and if declared by the Board of Directors out of funds legally available
therefor. The Company has never declared a cash dividend.
All common shares are equal to each other with respect to liquidation
rights. In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Common Stock are entitled to share ratably, share
for share, in the net assets of the Company remaining after payment or provision
for payment of all of the Company's debts and obligations, and after liquidation
payments to holders of outstanding shares of preferred stock, if any. All shares
of Common Stock now outstanding are fully paid and nonassessable, and holders of
the Company's Common Stock have no preferences or rights of conversion,
exchange, preemption or redemption.
Preferred Stock
As of June 30, 2000, there were no shares of the Company's Preferred Stock
outstanding. The Company is authorized by its Amended Certificate of
Incorporation to issue up to 10,000 shares of redeemable Preferred Stock, $100
par value per share. Holders of the Preferred Stock, if any, would be entitled
to receive preferential, non-cumulative dividends, when and if declared by the
Board of Directors out of funds legally available therefor, at a rate of 9% per
annum. The Preferred Stock carries no voting rights, except as required by law.
Preferred Shareholders would be entitled to a liquidation preference over the
holders of Common Stock.
Warrants
As of June 30, 2000, the Company has issued warrants (the "Warrants") to
purchase an aggregate of 54,500 shares of Common Stock to certain persons in
connection with a private placement of the Company's Common Stock. The Warrants
are immediately exercisable, have an exercise price of $2.50 per share and
expire five years from the date of issuance. The number of shares for which the
Warrants are exercisable is subject to adjustment upon changes in the Company's
capital structure, including stock splits, combinations or dividends and
reclassifications.
Transfer Agent
The American Stock Transfer and Trust Co., 99 Wall Street, New York, New
York, is the transfer agent for the Company's Common Stock.
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<PAGE>
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock was listed on the Nasdaq Stock Market (formerly
the National Association of Securities Dealer's Automated Quotation System) from
July 15, 1988 to June 8, 1992 under the symbol APGG. The Common Stock was also
listed on the Boston Stock Exchange under the symbol APG from February 14, 1990
until December 18, 1992.
From June 9, 1992 to September 1, 1999, the Company's Common Stock was
quoted on the Over-the-Counter Bulletin Board (the "OTCBB") of the The Nasdaq
Stock Market, Inc. under the symbol APGT. As of September 1, 1999, the Company's
Common Stock was no longer eligible for quotation on the OTCBB due to the
phase-in implementation of NASD Rule 6530 requiring all OTCBB quoted companies
to report their current financial information to the Securities and Exchange
Commission (the "SEC"). Since September 1, 1999, the Company's Common Stock has
been quoted on the National Quotation Bureau's Pink Sheets (the "Pink Sheets").
Once this Form 10-SB application has been approved by the SEC, it is expected
that the Company's Common Stock will resume quotation on the OTCBB.
Set forth below for the periods specified are the ranges of high and low
closing bid prices for the Common Stock as published by the OTCBB and the Pink
Sheets, as indicated. The bid quotations represent inter-dealer prices, without
adjustment for mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.
Closing Bid Price
-----------------
Low High
--- ----
1998:
First Quarter 1.1250 1.7500
Second Quarter 0.6250 1.1250
Third Quarter 0.6250 0.9375
Fourth Quarter 0.7500 1.0000
1999:
First Quarter 0.5000 0.7500
Second Quarter 0.7500 3.0625
Third Quarter (on the OTCBB
through September 1, 1999) 0.7500 4.7500
Third Quarter (on the Pink
Sheets from
September 2, 1999) 1.3750 1.5000
Fourth Quarter (on the
Pink Sheets) 1.0000 2.1250
2000: (on the Pink Sheets)
First Quarter 1.2500 3.2500
Second Quarter 2.0000 7.7500
Third Quarter (through July
21, 2000) 4.0000 8.0000
As of June 30, 2000, there were 66 holders of record of the 4,699,522
outstanding shares of Common Stock and approximately 260 beneficial holders of
the Common Stock.
Dividends
The Company has never paid cash dividends and does not plan to pay any
cash dividends in the foreseeable future.
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<PAGE>
Item 2. LEGAL PROCEEDINGS
The Company is not a party to any litigation in any court and management
is not aware of any contemplated proceedings by any governmental authority
against the Company.
In August 1997, a stockholder initiated an action against the Company and
certain of its directors and officers, alleging, among other things, that
valuations attributed to certain stock transactions were inappropriate. The
Company settled this matter in March 1998. The settlement dismissed all claims
against the Company and its directors and officers. As part of the settlement,
the Company offered to all stockholders, exclusive of the defendants, the right
to purchase two shares of Common Stock for each five shares held at a price of
$.55 per share, up to an aggregate of 400,000 shares. Pursuant to the
settlement, stockholders purchased a total of 235,611 shares of Common Stock
which the Company issued in May 1998. In addition, the Company paid the
plaintiffs' attorneys $15,000, plus expenses and 2,000 shares of Common Stock.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants granted by the Company during the past
three years. Also included is the consideration, if any, received by the Company
for such shares, options and warrants and information relating to the section of
the Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed. All of the following securities were sold directly by the Company and
there were no underwriters or selling agents involved in these transactions.
In May 1997, the Company sold and issued 300,000 shares of Common Stock,
in a private placement under Section 4(2) of the Securities Act, to one director
of the Company, Dr. Anton Schrafl, at a price of $0.50 per share for an
aggregate of $150,000.
In June 1997, the Company sold and issued 100,000 shares of Common Stock,
in a private placement under Section 4(2) of the Securities Act, to one investor
at a price of $0.50 per share for an aggregate of $50,000.
The Company's 1997 Employee, Director and Consultant Stock Option Plan
(the "Plan") was approved and adopted by the Company's Board of Directors in May
1997 and by the Company's stockholders in August 1997. In July 1997, in
substitution and cancellation of options to purchase Common Stock of the Company
under the Company's 1989 Stock Plan, the Company granted options under the Plan
to purchase 150,000 shares of Common Stock at an exercise price of $0.50 per
share to three employees of the Company. Additionally, the Company granted
options to purchase 50,000 shares of Common Stock at an exercise price of $0.55
per share under the Plan to two directors/stockholders of the Company, Mr. David
Spiegel and Mr. Herbert Stein. The issuances of options under the Plan were
exempt from registration under the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions pursuant
to compensatory benefit plans as provided under Rule 701.
In April 1998, the Company sold and issued 80,000 shares of Common Stock
in a private placement under Section 4(2) of the Securities Act to one investor
at a price of $1.25 per share for an aggregate of $100,000.
In May 1998, the Company issued 854,545 shares of Common Stock in a
private placement under Section 4(2) of the Securities Act to four persons,
including two directors/stockholders, Mr. David Spiegel and Mr. Herbert Stein,
and one executive officer/stockholder of the Company, Mr. Leo Spiegel, upon
conversion of an aggregate of $470,000 of loans made by these persons to the
Company, at a conversion price of $0.55 per share.
In May 1998, in accordance with the terms of an Order and Final Judgement
entered on March 31, 1998 by the Court of Chancery of the State of Delaware (the
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<PAGE>
"Court") pursuant to the terms and conditions set forth in a Stipulation and
Settlement dated December 24, 1997 and filed with the Register in Chancery on
December 29, 1997, the Company sold and issued 235,611 shares of Common Stock in
a private placement under Section 4(2) of the Securities Act to certain existing
stockholders of the Company at a price of $0.55 per share for an aggregate of
$129,586, and issued 2,000 shares of Common Stock to plaintiff's counsel, in
partial payment of attorneys fees awarded by the Court in connection with the
Stipulation and Settlement.
In January 1999, the Company granted options to purchase 10,000 shares of
Common Stock under the Plan at an exercise price of $1.25 per share to one
director of the Company Mr. Alan Tuck.
During the first quarter of 1999, the Company sold 723,666 shares of
Common Stock in a private placement under Section 4(2) of the Securities Act to
directors, Messrs. Spiegel, Stein and Tuck and Dr. Schrafl, and one executive
officer of the Company, Mr. Leo Spiegel, at prices of $.75 and $1.25 per share.
The Company received as consideration $85,000 in cash, the conversion of
$529,750 of existing stockholder debt and the repayment by two of the
directors/stockholders, Messrs. Spiegel and Stein, of the Company's $250,000
line of credit.
During the second quarter of 1999, the Company sold 275,200 shares of
Common Stock in a private placement under Section 4(2) of the Securities Act to
the directors of the Company at a price of $1.25 per share. The Company received
as consideration $236,668 in cash and $107,332 as conversion of existing
stockholder debt.
In May 1999, the Company granted options to purchase an aggregate of
40,000 shares of Common Stock under the Plan at an exercise price of $1.25 per
share to four employees and one former director of the Company.
During the fourth quarter of 1999 and through January 2000, the Company
sold, in a private placement under Section 4(2) of the Securities Act, 272,500
units (the "Units"), each unit consisting of one (1) share of Common Stock and
one warrant to purchase one-fifth (1/5) of a share of Common Stock (the
"Warrant" or "Warrants"), for an aggregate purchase price of $545,000 ($2.00 per
Unit), including the conversion of $50,000 in stockholder debt, to certain
investors, including directors/stockholders of the Company, Messrs. Spiegel and
Stein and Dr. Schrafl. The Warrants which expire five years from the date of
issuance are immediately exercisable at an initial exercise price of $2.50 per
share.
During the first half of 2000, the Company sold 250,000 shares of Common
Stock in a private placement under Section 4(2) of the Securities Act at a price
of $3.00 per share.
In April 2000, the Company sold, upon the exercise of options, 20,000
shares of Common Stock to each of two directors, Messrs. Spiegel and Stein, at
$0.55 per share, and 2,000 shares of Common Stock to Mr. Tuck, at $1.25 per
share. In May 2000, the Company sold, upon the exercise of options, 10,000
shares of Common Stock at $1.25 per share to a former director of the Company.
During the second quarter of 2000, the Company granted options to purchase an
aggregate of 81,000 shares of Common Stock under the Plan at exercise prices
ranging from $2.50 to $3.38 per share to nine employees of the Company.
Item 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended Certificate of Incorporation (the "Charter")
provides that the Company shall indemnify to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law ("DGCL"), as amended from
time to time, each person who is or was one of our directors or officers and the
heirs, executors and administrators of such a person. In addition, the Company's
Bylaws provide that any expenses, including attorneys' fees, incurred by a
person who is or was one of our directors or officers, in connection with
defending any such proceeding in advance of its final disposition may be paid by
the Company as authorized by the Board of Directors; provided, however, that an
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<PAGE>
advancement of expenses incurred by an indemnitee in his capacity as a director
or officer shall be made only upon delivery to the Company of an undertaking by
or on behalf of such indemnitee, to repay all amounts so advanced, if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses.
Section 145 of the DGCL provides that a corporation has the power to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that such director or officer or former director or officer
is or was a director, officer, employee or agent of the corporation, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with such
action, suit or proceeding, if such person shall have acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
provided that such person had no reasonable cause to believe his or her conduct
was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State of
Delaware, or any court in which such suit or action was brought, shall determine
upon application that, in view of all of the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper.
Article Nine of the Charter eliminates the liability of the directors of
the Company to the fullest extent authorized by Section 102(b)(7) of the DGCL.
In addition, the Bylaws provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, including an action by the Company or in the Company's right,
by reason of the fact that he is or was one of our directors, officers,
employees or agents, or is or was serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any and all liabilities and expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to our best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
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<PAGE>
PART F/S
I. YEAR ENDED DECEMBER 31, 1999, AUDITED
APOGEE TECHNOLOGY, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
DECEMBER 1999, 1998 AND 1997
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
================================================================================
Page
<S> <C>
Independent Auditor's Report 1
Consolidated Financial Statements
Balance Sheets 2
Statements of Operations and Accumulated Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5
</TABLE>
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<PAGE>
Independent Auditor's Report
Board of Directors
Apogee Technology, Inc.
We have audited the accompanying consolidated balance sheets of Apogee
Technology, Inc. and subsidiary as of December 31, 1999, 1998 and 1997 and the
related consolidated statements of operations and accumulated deficit, and cash
flows for each of the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Apogee Technology,
Inc. and subsidiary as of December 31, 1999, 1998 and 1997 and the results of
its operations and its cash flows for each of the years then ended in conformity
with generally accepted accounting principles.
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 negative working capital, a
stockholders' deficiency, recurring losses, and in recent years had no
operations (other than development) or any significant current income, all of
which raise 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 its ability to successfully develop
and market its digital amplifier technology applications and raise sufficient
funds for such purposes. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Yohalem Gillman & Company LLP
New York, New York
February 19, 2000
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<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 2,629 $ -.- $ -.-
Accounts receivable 50,558 -.- 8,429
Prepaid expenses 13,304 18,660 12,035
Subscriptions receivable 100,000 -.- -.-
----------- ----------- -----------
Total current assets 166,491 18,660 20,464
----------- ----------- -----------
Equipment, at cost, net of accumulated
depreciation of $64,011, $47,043 and $34,663 30,459 33,284 54,496
----------- ----------- -----------
Other assets
Digital Amplifier patent, net of amortization
of $41,764, $31,399 and $24,340 28,558 33,087 22,398
----------- ----------- -----------
$ 225,508 $ 85,031 $ 97,358
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Bank line of credit $ 200,000 $ 250,000 $ 250,000
Bank overdraft -.- 3,560 9,862
Accounts payable and accrued expenses 294,927 242,862 125,781
Loans payable - stockholders 295,168 788,250 663,500
Accrued interest - stockholders 51,529 34,100 79,188
Subscription deposit 20,000 -.- -.-
Current portion of other liabilities -.- 7,884 13,874
----------- ----------- -----------
Total current liabilities 861,624 1,326,656 1,142,205
----------- ----------- -----------
Other liabilities
Capitalized lease obligations -
net of current portion -.- -.- 7,884
Loan payable - financing company -
net of current portion -.- -.- 14,667
----------- ----------- -----------
-.- -.- 22,551
----------- ----------- -----------
Total liabilities 861,624 1,326,656 1,164,756
----------- ----------- -----------
Stockholders' deficiency
Common stock, $.01 par value;
9,000,000 shares authorized, 4,155,022, 3,106,156,
and 1,934,000 issued and outstanding in 1999, 1998 and
1997, respectively 41,550 31,061 19,340
Common stock subscribed (165,000 shares) 330,000 -.- -.-
Additional paid-in capital 6,287,233 4,959,806 4,191,653
Accumulated deficit (7,294,899) (6,232,492) (5,278,391)
----------- ----------- -----------
Total stockholders' deficiency (636,116) (1,241,625) (1,067,398)
----------- ----------- -----------
$ 225,508 $ 85,031 $ 97,358
=========== =========== ===========
</TABLE>
================================================================================
See accompanying notes.
- 2 -
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<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Revenues
Development agreement $ 32,000 $ -- $ --
Consulting income 28,200 61,371 17,375
----------- ----------- -----------
60,200 61,371 17,375
----------- ----------- -----------
Costs and Expenses
Research and development 658,200 580,020 464,565
Selling, general and administrative 436,555 344,523 361,076
Consulting costs -- 39,715 14,103
----------- ----------- -----------
1,094,755 964,258 839,744
----------- ----------- -----------
Loss before other income (expense) (1,034,555) (902,887) (822,369)
----------- ----------- -----------
Other income (expense)
Interest expense - stockholders (17,429) (34,100) (38,651)
Interest expense - other (10,103) (24,600) (8,469)
(Loss) gain on disposal of assets (320) 6,255 --
Miscellaneous income -- 1,231 470
Write-off of officer/stockholder receivable -- -- (68,000)
----------- ----------- -----------
(27,852) (51,214) (114,650)
----------- ----------- -----------
Net loss (1,062,407) (954,101) (937,019)
Accumulated deficit - beginning of year (6,232,492) (5,278,391) (4,341,372)
----------- ----------- -----------
Accumulated deficit - end of year $(7,294,899) $(6,232,492) $(5,278,391)
=========== =========== ===========
Basic and diluted (loss)
per common share $ (0.30) $ (0.35) $ (0.52)
=========== =========== ===========
</TABLE>
================================================================================
See accompanying notes.
-3-
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<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operations
Net loss $(1,062,407) $ (954,101) $ (937,019)
Adjustments to reconcile net loss to net cash
used in operating activities
(Loss) gain on disposal of assets 320 (6,255) --
Write-off of officer/stockholder advances -- -- 68,000
Accrued interest - stockholders 17,429 34,100 38,651
Depreciation and amortization 27,513 29,819 27,352
Change in operating assets and liabilities:
Accounts receivable (50,558) 8,429 (8,429)
Prepaid expenses 5,356 (6,625) (6,447)
Accounts payable and accrued expenses 52,065 117,081 70,632
----------- ----------- -----------
Net cash used in operating activities (1,010,282) (777,552) (747,260)
----------- ----------- -----------
Cash flows from investing activities
Purchases of equipment (14,643) (10,248) (14,745)
Patent costs (5,836) (17,748) (7,543)
----------- ----------- -----------
Net cash used in investing activities (20,479) (27,996) (22,288)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from line of credit 200,000 -- 250,000
Proceeds from issuance of common stock 421,668 230,686 200,000
Net proceeds of loans from stockholders 194,000 594,750 320,500
Stock subscription deposits 200,000 -- --
Other capital contributions 29,166 -- --
(Decrease) increase in bank overdraft (3,560) (6,302) 9,717
Repayments of capital lease obligations (7,884) (13,298) (7,360)
Repayment of loan payable to financing company -- (288) (3,309)
----------- ----------- -----------
Net cash provided by financing activities 1,033,390 805,548 769,548
----------- ----------- -----------
Increase in cash 2,629 -- --
Cash - beginning -- -- --
----------- ----------- -----------
Cash - ending $ 2,629 $ -- $ --
=========== =========== ===========
</TABLE>
================================================================================
See accompanying notes.
-4-
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Page 22
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
1. Nature of Operations and Basis of Presentation
The Company is engaged in the development and design of digital amplifier
technology. The Company is presently focused on computer based audio and
entertainment media applications derived from its all-digital amplifier
circuitry design trademarked as Direct Digital Amplification (DDX).
The financial statements include the accounts of Apogee Technology, Inc.
("Technology"), and its wholly owned subsidiary, DUBLA, Inc. (collectively
the "Company"). All significant intercompany transactions and accounts have
been eliminated.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has negative
working capital, a stockholders' deficiency, recurring losses and in recent
years, had no operations (other than development) or any significant
current income, all of which raise substantial doubt about its ability to
continue as a going concern. The Company plans to raise capital to
commercialize and license its digital amplifier technology. The viability
of the Company is dependent upon its ability to successfully develop and
market the aforementioned applications for its digital amplifier technology
and raise sufficient funds for such purposes. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
2. Summary of Significant Accounting Policies
Property, Equipment and Leasehold Improvements
Major replacements and betterments of equipment are capitalized. Cost of
normal maintenance and repairs is charged to expense as incurred.
Depreciation and amortization of property, equipment and leasehold
improvements is provided under accelerated methods over their estimated
useful lives (5 years).
Patents
Costs incurred to register and obtain patents are capitalized and amortized
on a straight-line basis over their estimated lives.
Research and Development
Costs for research and development are expensed as incurred.
================================================================================
-5-
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Page 23
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
2. Summary of Significant Accounting Policies (continued)
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required 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 financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Bank Line of Credit
In December 1997, the Company obtained a $250,000 unsecured line of credit
with the Boston Private Bank, all of which was outstanding as of December
31, 1998 and 1997. The line was personally guaranteed by two directors of
the Company, and was repaid by the directors in March 1999 (see Notes 5 and
13).
In May 1999, the Company obtained a collateralized loan from Boston Private
Bank in the amount of $200,000. The loan calls for monthly payments of
interest only and bears a variable interest rate of prime plus 1.0% for an
initial rate of 8.75% per annum. The loan is due either on demand, or at
maturity, which was extended to January 20, 2000 from the original maturity
date of November 20, 1999. The revised interest rate in effect at December
31, 1999 was 9.5% per annum. The loan is secured by all business assets and
personally guaranteed by a director of the Company.
On February 7, 2000, the Company refinanced the note on similar terms of
prime plus 1% and monthly payments of interest only with the principal
balance due at maturity. The principal balance, interest rate, and maturity
date are $200,000, 9.75%, and January 1, 2001, respectively.
4. Loans Payable - Stockholders
Loans from officers and directors amounted to $295,168, $788,250 and
$663,500 at December 31, 1999, 1998 and 1997, respectively. These loans
bear interest at 8% per annum. During 1999 and 1998, stockholder debt of
$637,083 and $470,000, respectively, was converted to stock, and in 1999,
$50,000 was converted to a deposit toward a private placement offering
which remained outstanding at December 31, 1999 (see Notes 5 and 13). In
1998, accrued interest totaling $79,188 which related to the $470,000 of
stockholder loans converted to common stock was waived by those
stockholders (see Note 6).
At December 31, 1999, 1998 and 1997, accrued interest payable on
stockholder loans amounted to $51,529, $34,100 and $79,188, respectively
(see Note 6).
================================================================================
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Page 24
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
5. Equity
Below are the changes in the capital stock and additional paid-in capital
accounts:
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Preferred Stock (B) Common Stock Subscribed Capital
--------------------- ---------------------- ----------------------- ----------
Shares Dollars Shares Dollars Shares Dollars Dollars
-------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 1,630 $ 163,000 1,534,000 $ 15,340 -- $ -- $3,832,653
Shares issued in May 1997 (A) -- -- 300,000 3,000 -- -- 147,000
Shares issued in June 1997 (A) -- -- 100,000 1,000 -- -- 49,000
Preferred stock
surrendered on May 1997 (B) (1,630) (163,000) -- -- -- -- 163,000
-------- ---------- --------- ---------- ---------- ---------- ----------
Balance - December 31, 1997 -- -- 1,934,000 19,340 -- -- 4,191,653
Shares issued in
April 1998 (C) -- -- 80,000 800 -- -- 99,200
Shares issued as part of
litigation settlement
plaintiff's legal
costs in May 1998 (D) -- -- 2,000 20 -- -- 1,080
Shares issued pursuant
to litigation settlement
in May 1998 (D) -- -- 235,611 2,356 -- -- 127,230
Conversion of stockholder
debt to common
stock in May 1998 (E) -- -- 854,545 8,545 -- -- 461,455
Waiver of interest
on stockholder
debt in May 1998 (F) -- -- -- -- -- -- 79,188
-------- ---------- --------- ---------- ---------- ---------- ----------
Balance - December 31, 1998 -- -- 3,106,156 31,061 -- -- 4,959,806
-------- ---------- --------- ---------- ---------- ---------- ----------
</TABLE>
================================================================================
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Page 25
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
5. Equity (continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Preferred Stock (B) Common Stock Subscribed Capital
--------------------- ---------------------- ----------------------- ----------
Shares Dollars Shares Dollars Shares Dollars Dollars
-------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued
August 1999 (G) -- $ -- 723,666 $ 7,237 -- $ -- $ 857,513
Shares issued
September 1999 (H) -- -- 275,200 2,752 341,248
Subscriptions received
September through
December 1999 (I) -- -- -- -- 215,000 430,000 --
Shares issued
October 1999 (J) -- -- 50,000 500 (50,000) (100,000) 99,500
Contributions by directors (K) -- -- -- -- -- -- 29,166
-------- ---------- --------- ---------- ---------- ---------- ----------
Balance - December 31, 1999 -- $ -- 4,155,022 $ 41,550 165,000 $ 330,000 $6,287,233
======== ========== ========= ========== ========== ========== ==========
</TABLE>
(A) In May 1997 and June 1997, the Company issued 300,000 and 100,000
shares, respectively, of the Company's common stock at a price of $.50
per share to outside investors.
(B) The $100 par value 9% preferred stock is non-voting, non-cumulative,
non-convertible, and is redeemable at the election of the Board of
Directors of the Company.
In May 1997, the owners of the 1,630 issued and outstanding shares of
preferred stock surrendered and contributed their shares to the
Company. The carrying amount of the preferred stock was credited to
additional paid-in capital.
(C) In April 1998, an outside investor purchased 80,000 shares of the
Company's common stock at a market price of $1.25 per share.
(D) See Note 8.
(E) Pursuant to a resolution of the Board of Directors of June 12, 1997,
and subsequently approved by majority assent of shareholders at the
Annual Meeting of August 15, 1997, shareholder loans totaling $470,000
were converted into 854,545 shares of common stock at a price of $.55
per share in May 1998 (see Note 4).
================================================================================
-8-
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Page 26
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
5. Equity (continued)
(F) See Note 4.
(G) In August 1999, the Company issued a total of 723,666 shares (644,000
shares at $1.25 per share and 79,666 shares at $.75 per share) in
consideration for subscription receipts of $864,750 pursuant to a
private placement authorized January 1999 (see below).
(H) In September 1999, the Company issued 275,200 shares at $1.25 per
share pursuant to a private placement subscription authorized May 1999
(see below).
(I) In the fourth quarter of 1999, the Company received subscriptions
totaling $430,000 to purchase 215,000 units in conjunction with the
$545,000 private placement (see below).
(J) In October 1999, the Company issued 50,000 shares at $2.00 per share
and warrants to purchase 10,000 shares at $2.50 per share for a
subscription received in conjunction with the $545,000 private
placement (see below).
(K) In 1999, two directors of the Company contributed amounts to the
Company to reimburse it for prior years' interest costs incurred to
finance operations.
Private Placements
In January 1999, the Company completed a private placement of stock that
originally commenced in 1998, of 723,666 shares of common stock. The
Company received $85,000 in cash, converted stockholder debt of $529,750
and repayment of $250,000 bank debt by two directors (see Notes 3 and 13).
In May 1999, the Company completed a private placement of 275,000 shares of
common stock. The Company received $236,668 in cash deposits and converted
stockholder debt of $107,332.
In September 1999, the Company authorized a private placement in the amount
of $545,000 for 272,500 units at $2.00 per unit. Each unit represents a
subscription for one share of common stock at $2.00 per share and one
warrant to purchase one-fifth of a share of common stock at $2.50 per
share. The warrants expire 5 years from the date of subscription. Of the
$545,000 private placement, 50,000 units were subscribed for and issued for
$100,000. Additional subscriptions totaling $330,000 to purchase 165,000
units were received. Proceeds received in 1999 were $180,000 together with
conversion of $50,000 in stockholder loans. The remaining $100,000 was
received in January 2000. As of December 31, 1999, there were 57,500
unsubscribed units in the amount of $115,000 (see Note 14).
In 1999, the Company received a $20,000 deposit toward a future stock
placement offer.
================================================================================
-9-
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Page 27
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
6. Related Party Transactions
From January through March 1997, certain administrative costs, such as
office expenses, were provided by a related party at no cost to the
Company.
During 1994 and 1995, the Company advanced $68,000 to a former
officer/stockholder of the Company. The advances were recorded as a
receivable on the books of the Company but in 1997 were authorized for
write-off by the Board of Directors in recognition of additional
compensation to that officer.
In April 1997, the Company moved to a facility owned by a stockholder of
the Company. The Company rents the facility on a month-to-month basis for
$3,600 per month. Rent paid during 1999, 1998 and 1997 amounted to $43,200,
$43,200 and $30,600, respectively.
The Company accrued $17,429, $34,100 and $38,651 of interest expense on
stockholder loan balances for the years 1999, 1998, and 1997, respectively.
In 1998, $79,188 of accrued interest on stockholder loans was waived and
contributed to capital (see Notes 4 and 5).
7. Development and License Agreements
The Company derived substantially all its revenue in 1997 as consulting
fees under a development agreement with a major electronics manufacturer
which provided funding to produce a working prototype of its amplifier
circuitry in exchange for a license agreement to produce devices using the
Company's patented design. These agreements were terminated in March 1997.
In May 1999, the Company entered into a Memorandum of Understanding with
Avio Digital, Inc. ("Avio") to exchange and license certain technical
information in order to evaluate the capability of the Company's patented
digital audio amplifier technology ("DDX") with Avio's home networking
technology.
In August 1999, the Company signed a licensing agreement with ALST
Excellence Center, ("ALST") a strategic partnership between Altec Lansing
Technologies, Inc. ("Altec") and STMicroelectronics. Under this agreement,
the Company will license its patented DDX intellectual property on a non-
exclusive basis to develop integrated semiconductor products for the
computer, consumer electronics, automotive and communications markets. ALST
will be responsible for the overall product development and
STMicroelectronics will manufacture and sell products to Altec Lansing and
other audio manufacturers. The Company will receive a royalty on sales of
all products incorporating the Company's DDX technology.
During 1999, the Company's revenue of $60,200 represents an initial one-
time nonrefundable license fee of $32,000 and consulting fees of $28,200
under the ALST agreement.
================================================================================
-10-
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Page 28
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
7. Development and License Agreements (continued)
In June 1999, the Company entered into an agreement with a semiconductor
manufacturer, which calls for them to design and develop the semiconductor
circuitry for a power amplifier chip using the Company's patented
technology, and to manufacture these chips for sale to the Company. In
accordance with the contract, the Company agrees to pay the manufacturer a
program fee of $196,000, payable in installments at each phase of
completion. The agreement provides for termination fees based on phase of
completion should the contract be canceled. The agreement also specifies
that the Company commits to an annual minimum purchase of $253,500 over the
term of the agreement, which is 3 years from the effective date (above).
8. Stockholder Litigation
In August 1997, a stockholder initiated an action against the Company and
certain directors and officers, alleging, among other matters, that
valuations attributed to certain stock transactions were inappropriate. The
Company proposed a settlement in December 1997 which was accepted and
judged final in March of 1998. The settlement dismissed all claims against
the Company and its directors and officers. In exchange, the Company
offered to all stockholders, exclusive of the defendants, the right to
subscribe to purchase 2 shares of common stock for each 5 shares held at a
price of $.55 per share, up to a maximum of 400,000 shares. Pursuant to the
settlement, stockholders subscribed to a total of 235,611 shares of common
stock which were Company issued in May 1998. In addition, the Company paid
the plaintiffs' attorneys $15,000, plus expenses and 2,000 shares of the
Company's common stock.
9. Stock Options
In May 1997, the Company adopted a new incentive stock option plan ("ISO")
for key employees, directors and consultants. The Company's board of
directors authorized a maximum of 300,000 shares of common stock for
issuance under the plan. Pursuant to the plan, the board may grant options
to key employees, directors, or consultants at its discretion. Options
granted under the plan to less than 10% and greater than 10% stockholders,
are to be for 100% and 110%, respectively, of the fair value of the common
stock on the date of the grant, and expire 10 and 5 years, respectively,
from the date of the grant. There is no vesting provision contained in the
plan.
================================================================================
-11-
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Page 29
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
9. Stock Options (continued)
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans and
does not recognize compensation expense for its stock-based compensation
plans other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed by
FAS 123, the Company's net loss would not have significantly changed.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with an expected life of five or ten years using
risk-free rates ranging from 5.21% to 6.63% (zero-coupon U.S. Government
issues with a five or ten year maturity).
A summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997, and changes during the year ending on that date is
presented below.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 250,000 $0.52 250,000 $0.52 -- $ --
Granted 50,000 $1.25 -- -- 250,000 0.52
Expired -- -- --
------- ------- -------
Outstanding at end of year 300,000 $0.64 250,000 $0.52 250,000 $0.52
======= ======= =======
Weighted average fair value of
options granted during year $ 0.71 $ -- $ 0.32
======= ======= =======
Options exercisable at December 31 139,000 80,000 30,000
======= ======= =======
</TABLE>
In July 1997, the Company issued options under the 1997 plan to certain
employees to purchase a total of 150,000 shares at a price of $.50 per
share. These options vest 20% at issue, and an additional 20% at each
subsequent January until 100% at January 2001. These options were granted
in substitution and cancellation of their rights pursuant to the 1989 plan.
In July 1997, the Company granted to two directors of the Company options
under the 1997 plan to purchase 50,000 shares each, at a price of $.55 per
share. These options vest 20% per year over five years from the grant date.
================================================================================
-12-
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Page 30
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
9. Stock Options (continued)
In January 1999, the Board of Directors of the Company granted 10,000
options at $1.25 per share to a director. These options vest 20% per year
over five years from the grant date.
In May 1999, the board granted 40,000 options, at $1.25 per share to 4
employees and a director. These options vest 20% per year commencing from
the grant date.
In addition to the 1997 plan, in December 1990, the Board granted to an
outside consultant a nonqualified option for 10,000 shares at a price of
$2.50 per share, under the 1989 stock option plan, which expires ten years
from the date of grant. These options remain outstanding as of December 31,
1999, 1998 and 1997. There were no other options outstanding as of December
31, 1999, 1998 and 1997.
10. Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
computed similarly to the way fully diluted earnings per share was computed
pursuant to Accounting Principles Board Opinion No. 15. Earnings (loss) per
share amounts for all years have been presented to conform to SFAS No. 128.
Basic and diluted loss per common share are computed by dividing net loss
by the weighted average number of shares of common stock outstanding during
each year, as well as common shares subscribed for which the cash has been
received by the end of the year, which totaled 3,525,667, 2,722,104 and
1,792,333 shares for 1999, 1998 and 1997, respectively. The assumed
exercise of outstanding warrants and stock options for diluted loss per
common share was not applicable because their effect was antidilutive.
================================================================================
-13-
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Page 31
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
================================================================================
11. Employee Retirement 401(k) Plan
In September 1997, the Company established a 401(k) retirement plan for the
benefit of its employees. The plan imposes no contribution requirement or
liability upon the Company. 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 1999,
1998 and 1997.
12. Tax Loss Carryforwards
The Company has federal net operating loss carryforwards at December 31,
1999, totaling approximately $9,200,000, respectively, expiring through the
year 2019.
The Company's net losses result in no current tax benefit. The deferred tax
assets arising from net operating loss carryforwards amounted to
approximately $1,700,000, $1,500,000 and $1,300,000 at December 31, 1999,
1998 and 1997, respectively, and were fully offset by a valuation allowance
as required by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
13. Supplemental Cash Flow Information
Interest paid during 1999, 1998 and 1997 amounted to $9,876, $24,600 and
$8,469, respectively.
Supplemental Disclosure of Noncash Financing and Investing Activities
The Company financed purchases of equipment costing $28,542 in 1997. In
1998, the Company sold certain financed equipment to a former employee for
$14,667, the balance of the underlying loan which was assumed by the former
employee.
In 1999 and 1998, stockholder loans totaling $637,082 and $470,000,
respectively, were converted to capital and an additional $50,000 of loans
were converted in 1999 to deposits toward private placement subscriptions
(see Notes 4 and 5).
In March 1999, the outstanding bank debt of $250,000 was repaid by two
directors of the Company, in consideration of which the directors received
credit toward subscriptions for 200,000 shares of common stock valued at
$1.25 per share (see Notes 3 and 5).
14. Subsequent Events
In January 2000, the Company received $115,000 of the remaining
subscriptions, completing the September 1999 $545,000 private placement
(see Note 5). In February 2000, the remaining 222,500 shares and warrants
were issued.
In January 2000, the Company approved a new private placement in the amount
of $525,000 for 175,000 shares at $3.00 per share.
================================================================================
-14-
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Page 32
<PAGE>
II. THREE MONTH PERIOD ENDED MARCH 31, 2000, UNAUDITED
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ----------
ASSETS (Audited)
------
<S> <C> <C>
Current assets:
Cash.......................................................................... $ 236,376 $ 2,629
Accounts receivable........................................................... -- 50,558
Prepaid expenses.............................................................. 13,251 13,304
Subscriptions receiveable..................................................... -- 100,000
----------- -----------
Total current assets....................................................... 249,627 166,491
----------- -----------
Equipment, at cost, net of accumulated
depreciation of $67,341 and $64,011................................................... 36,272 30,459
----------- -----------
Other assets:
Digital Amplifier patent, net of amortization
of $44,566 and $41,764........................................................ 26,434 28,558
----------- -----------
$ 312,333 $ 225,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank line of credit........................................................... $ 198,000 $ 200,000
Accounts payable and accrued expenses......................................... 265,735 294,927
Loans payable - stockholders.................................................. 275,167 295,168
Accrued interest - stockholders 57,098 51,529
Subscription deposit -- 20,000
----------- -----------
Total current liabilities.................................................. 796,000 861,624
----------- -----------
Stockholders' deficiency
Common stock, $.01 par value;
9,000,000 shares authorized, 4,377,522 and
4,155,022 shares issued and outstanding in
2000 and 1999, respectively................................................... 43,775 41,550
Common stock subscribed (117,000 and 165,000
shares, respectively) 351,000 330,000
Additional paid-in capital....................................................
6,730,008 6,287,233
Accumulated deficit........................................................... (7,608,450) (7,294,899)
--------------- ---------------
Total stockholder' deficiency.......................................... (483,667) (636,116)
--------------- ---------------
$ 312,333 $ 225,508
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
--------------------------------------------------------------------------------
Page 33
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Costs and expenses:
Research and development ....................................... $ 126,588 $ 91,754
Selling, general and administrative ............................ 176,461 62,563
----------- -----------
(303,049) (154,317)
----------- -----------
Loss before other expenses (303,049) (154,317)
----------- -----------
Other expenses
Interest expense ............................................... 10,502 7,205
Loss on disposal of asset....................................... -- 320
----------- -----------
10,502 7,525
----------- -----------
(303,551) (161,842)
Net Loss
Accumulated deficit - beginning (7,294,899) (6,232,492)
----------- -----------
$(7,608,450) $(6,394,334)
Accumulated deficit - ending =========== ===========
$ (0.07) $ (0.05)
Basic and diluted loss per common share =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
--------------------------------------------------------------------------------
Page 34
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----- ----
<S> <C> <C>
Cash flows from operations
Net loss ........................................................................ $ (313,551) $ (161,842)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on sale of assets........................................................ -- 320
Accrued interest - stockholders 5,569 7,049
Depreciation and amortization................................................. 6,131 5,383
Change in operating assets and liabilities:...................................
Accounts receivable...................................................... 50,558 --
Prepaid expenses......................................................... 53 7,587
Accounts payable and accrued expenses.................................... (29,192) (42,652)
----------- -----------
Net cash used in operating activities............................... (280,432) (184,155)
----------- -----------
Cash flows from investing activities
Purchases of equipment........................................................... (9,142) (5,933)
Patent costs..................................................................... (679) (289)
----------- -----------
Net cash used in investing activities.................................... (9,821) (6,222)
Cash flows from financing activities
Proceeds from common stock subscriptions......................................... 546,000 85,000
Other capital contributions...................................................... -- 29,166
Proceeds of loans from stockholders.............................................. -- 54,000
Repayments of stockholder loans.................................................. (20,000) --
Increase in bank overdraft....................................................... -- 25,975
Repayment of capital lease obligations........................................... -- (3,764)
Repayment of bank loan........................................................... (2,000) --
----------- -----------
Net cash provided by financing activities........................... 524,000 190,377
----------- -----------
Increase in cash...................................................................... 233,747 --
Cash - beginning...................................................................... 2,629 --
----------- -----------
Cash - ending......................................................................... $ 236,376 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
--------------------------------------------------------------------------------
Page 35
<PAGE>
APOGEE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. Basis of Presentation
The condensed consolidated interim financial statements have been prepared
in accordance with the requirements of Regulation SB and with the instructions
to Form 10-QSB. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flows have been included. The results of operations for the three month
period ended March 31, 2000 are not necessarily indicative of the operating
results to be expected for the year ending December 31, 2000. These financial
statements should be read in conjunction with the financial statements and
accompanying notes for the year ended December 31, 1999.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The financial statements include the accounts of Apogee Technology, Inc.
("Technology"), and its wholly owned subsidiary, DUBLA, Inc. (collectively the
"Company"). All significant intercompany transactions and accounts have been
eliminated.
The Company is engaged in the development and design of digital amplifier
technology. The Company is presently focused on computer based audio and
entertainment media applications derived from its all-digital amplifier design
trademarked as Direct Digital Amplification (DDX(R)).
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has negative
working capital, a stockholders' deficiency, recurring losses, and had no
operations other than development or any significant current income, all of
which raise substantial doubt about its ability to continue as a going concern.
The Company plans to raise capital to commercialize and license its digital
amplifier technology. The continued viability of the Company is dependent upon
its ability to successfully develop and market the aforementioned application
for its digital amplifier technology and raise sufficient funds for such
purposes. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
2. Bank Line of Credit
In February 2000, the Company refinanced a collateralized loan from a
financial institution in the amount of $200,000. The loan is due either on
demand, or in ten monthly principal payments of $1,000 plus interest and the
balance of principal and interest at maturity on January 1, 2001. The loan calls
for a variable interest rate of prime plus 1%, for an initial rate of 9.75%. The
loan is secured by the assets of the Company and is personally guaranteed by a
director of the Company (see Note 4).
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3. Stock Transactions
In February 2000, the Company issued 222,500 shares and warrants pursuant
to subscription agreements dated November 1999 through January 2000, of which
70,000 shares were issued to directors and officers of the Company. Each warrant
represents the right to purchase 1/5 of a share of common stock at an exercise
price of $2.50 per share, and expire February 2005.
In January 2000, the Company approved a private placement in the amount of
$525,000 for the sale of 175,000 shares of common stock at $3.00 per share. This
offering was subsequently increased to $750,000 and 250,000 shares respectively.
As of March 31, 2000, pursuant to this offering, the Company received $351,000
representing 117,000 shares subscribed at $3.00 per share.
4. Subsequent Events
In April 2000, the Company issued 42,000 shares of stock for options
exercised by three directors of the Company pursuant to the 1997 stock option
plan.
In the second quarter of 2000, the Company completed the aforementioned
private placement by selling the remaining 133,000 shares for $399,000. In June
2000, the Company issued all of the 250,000 shares under this offering.
In April 2000, the Board of Directors, subject to stockholder approval,
authorized an increase in the shares available under the 1997 incentive stock
option plan from 300,000 to 600,000, and awarded options to purchase 58,500
shares to seven employees.
In April 2000, the Company converted its bank line of credit (Note 2) into
a revolving line of credit with maximum borrowings of up to $200,000. The line
matures in January 2001, and calls for interest at prime plus 1%, with an
initial rate of 10%. The loan is secured by the assets of the Company and is
personally guaranteed by a director of the Company. In May 2000, the Company
repaid the outstanding principal and interest resulting in a current loan
balance of zero.
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PART III
Item 1. Index to Exhibits Page
3.1 Certificate of Incorporation*
3.2 Amendment of Certificate of Incorporation*
3.3 Restated By-Laws*
10.1 Form of 1999 Stock and Warrant Subscription Agreement*
10.2 Form of 1999 Warrant to purchase shares of common stock
of the Registrant*
10.3 Form of 2000 Stock Subscription Agreement*
10.4 Development and licensing Agreement dated August 13, 1999.*,**
Item 2. Description of Exhibits
The following documents are filed as part of this report:
3.1 Certificate of Incorporation*
3.2 Amendment of Certificate of Incorporation*
3.3 Restated By-Laws*
10.1 Form of 1999 Stock and Warrant Subscription Agreement*
10.2 Form of 1999 Warrant to purchase shares of common stock
of the Registrant*
10.3 Form of 2000 Stock Subscription Agreement*
10.4 Development and licensing Agreement dated August 13, 1999.*,**
-------------------
* Previously filed.
** Confidential treatment is being requested for certain portions of this
document.
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-1-
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amended registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
APOGEE TECHNOLOGY, INC.
Date: August 30, 2000
---------------
By: /s/ David Spiegel
-------------------------------
David Spiegel, President
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