U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1995
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _____________ to ____________
Commission file number 1-4324
ANDREA ELECTRONICS CORPORATION
(Exact name of registrant as filed in its charter)
New York 11-0482020
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
11-40 45th Road, Long Island City, New York 11101
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: 1-800-442-7787
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 3,016,360.
Page 1 of 11 Pages
Exhibit Index on Page 9
ANDREA ELECTRONICS CORPORATION -- page 2
Part I
Item 1 - Financial Statements
Balance Sheets
(unaudited)
ASSETS
March 31, 1995 December 31, 1994
CURRENT ASSETS
Cash and cash equivalents $2,890,543 $3,313,043
Investment securities 89,125 89,125
Accounts receivable - trade -
net of allowance for doubtful accounts
of $69,771 and $69,771, respectively 1,013,322 569,505
Inventories 234,731 267,903
Income taxes receivable 16,262 16,262
Prepaid expense 80,612 106,957
TOTAL CURRENT ASSETS 4,324,595 4,362,795
PROPERTY, PLANT AND EQUIPMENT -
net of accumulated depreciation
of $756,818 and $726,750, respectively 622,568 652,635
OTHER ASSETS 1,151 1,151
$4,948,314 $5,016,581
ANDREA ELECTRONICS CORPORATION -- page 3
Balance Sheets --- (Continued)
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 1995 December 31, 1994
CURRENT LIABILITIES
Trade accounts payable $ 150,435 $ 135,459
Salaries and wages 129,888 84,000
Pension and profit-sharing
contribution payable 14,407 --
Other current liabilities 9,847 9,847
Current maturities of capital
lease obligations 40,370 42,366
TOTAL CURRENT LIABILITIES 344,947 271,672
OTHER LIABILITIES - rent security 38,500 38,500
CAPITAL LEASE OBLIGATIONS -
net of current maturities 14,298 17,044
SHAREHOLDERS' EQUITY
Capital stock - common - $.50 par value,
authorized 10,000,000 shares, issued
and outstanding 3,016,360 shares and
2,541,360, respectively 1,508,180 1,508,180
Additional paid-in capital 4,126,012 4,126,012
Retained earnings (Accumulated deficit) (1,083,623) (944,827)
4,550,569 4,689,365
$ 4,948,314 $ 5,016,581
ANDREA ELECTRONICS CORPORATION -- page 4
Statements of Operations
(unaudited)
For the Three Months Ended
March 31,
1995 1994
SALES $1,286,628 $ 647,466
COST OF SALES 671,986 697,233
GROSS PROFIT (LOSS) 614,642 (49,767)
RESEARCH AND DEVELOPMENT 499,401 117,092
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES 366,049 781,366
INCOME (LOSS) FROM OPERATIONS (250,808) (948,225)
OTHER INCOME (EXPENSE)
Interest Income 66,882 8,963
Interest Expense (1,070) (2,500)
Rent & Miscellaneous 46,200 47,919
112,012 54,382
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAX (138,796) (893,843)
PROVISION FOR INCOME TAX - -
NET INCOME (LOSS) $ (138,796) $ (893,843)
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ (.05) $ (.35)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING $3,016,360 $2,541,360
Certain line items have been reclassified for presentation purposes only.
ANDREA ELECTRONICS CORPORATION -- page 5
Statement of Shareholders' Equity
(unaudited)
For the Three Months Ended March 31, 1995
Retained Total
Shares Common Paid-In Earnings Shareholders
Outstanding Stock Capital (Deficit) Equity
Balance at
December 31, 1994 3,016,360 $1,508,180 $4,126,012 $ (944,827) $4,689,365
Net Income (Loss) - - - (138,796) (138,796)
Balance at
March 31, 1995 3,016,360 $1,508,180 $4,126,012 $1,083,623 $4,550,569
ANDREA ELECTRONICS CORPORATION -- page 6
Statements of Cash Flows
(unaudited)
For the Three Months Ended
March 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (138,796) $ (893,843)
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 30,067 30,108
(Increase) decrease in:
Accounts receivable (443,817) 716,006
Inventories 33,172 48,072
Prepaid expense 26,345 12,494
Increase (decrease) in:
Accounts payable 14,976 (246,576)
Other current liabilities 60,295 20,252
(417,758) (313,487)
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisition) of property, - (22,923)
plant and equipment
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) of capital lease obligations (4,742) (11,838)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (422,500) (348,248)
CASH AND CASH EQUIVALENTS - beginning 3,313,043 524,961
CASH AND CASH EQUIVALENTS - end $2,890,543 $ 176,713
SUPPLEMENTAL DISCLOSURES
Cash paid:
Interest $ 1,070 $ 2,500
Income Taxes $ - $ 31,585
ANDREA ELECTRONICS CORPORATION -- page 7
Notes to Financial Statements
March 31, 1995
1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly Andrea
Electronics Corporation's ("Company") financial position as of March 31, 1995
and the results of operations and cash flows for the three months ended March
31, 1995 and 1994. Additionally, it should be noted that the accompanying
financial statements do not purport to be a complete disclosure in conformity
with generally accepted accounting principles. These statements should be read
in conjunction with the Company's audited financial statements for the fiscal
year ended December 31, 1994.
The Company is in a highly competitive industry, and sales and results of
operations for any three months are not necessarily indicative of the sales or
results of operations for the full year. Companies engaged in supplying
equipment to the government and industrial users are subject to special risks,
including dependence on appropriations, the time required for design and
development, the complexity of designs, the rapidity with which they become
obsolete, the intense competition for available business, and the acceptability
of manufacture contracts by government inspectors.
2 - LEGAL PROCEEDINGS
On December 3, 1990, a complaint was filed by Charles Johnson ("Plaintiff")
in the Suffolk County Supreme Court ("Court") alleging wrongful discharge by
the Company in violation of his employment agreement. The complaint seeks
damages relating to loss of salary, past bonuses, lost commissions, unused
sick pay, and a reimbursement of a bank loan. In August, 1992, the Plaintiff
moved for partial summary judgment on three causes of action. On January 28,
1993, his motion was granted with respect to two causes of action pursuant to
which Plaintiff sought damages in the approximate amount of $186,000. The
Court, however, in granting Plaintiff's motion, did not make a determination
as to the amount of damages and directed that a trial be held on the issue of
damages. The Company has commenced appropriate proceedings to appeal the
Court's order and the Company intends to continue to vigorously contest
Plaintiff's claims. Resolution of these claims is not expected to occur
quickly and their ultimate outcome cannot presently be predicted. In any
event, it is the opinion of management that any liability of the Company for
claims or proceedings will not materially affect its financial position.
In December, 1994, a subpoena duces tecum was issued to the Company by
the United States Department of Defense, Office of the Inspector General,
seeking certain documents pertaining to contracts relating to audio frequency
amplifiers. Documents responding to the subpoena were delivered by the Company
in the first quarter of 1995 and to date no claim has been made or threatened
against the Company in connection with this matter. The Company is unable to
determine at this point if any such claim will be made or to what extent, if
any, such claim could have on the financial position of the Company. Sales
of this product to various government agencies totalled approximately
$1,500,000 for the past three years.
ANDREA ELECTRONICS CORPORATION -- page 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales by major categories:
Three Months Ended
March 31,
1995 1994
Amount Percent Amount Percent
Government -
prime and subcontracts $ 240,362 18.7 $ 220,786 34.1
Industrial 1,046,266 81.3 426,680 65.9
$1,286,628 100.0 $ 647,466 100.0
ANALYSIS OF INCOME FROM OPERATIONS BY MAJOR CATEGORIES
Operating profit is the profit before other income and corporate income taxes.
Three Months Ended
March 31,
1995 1994
Government - prime and subcontractors $ (45,145) $(431,206)
Industrial (205,663) (517,019)
$(250,808) $(948,225)
Sales for the three months ended March 31, 1995 increased by $639,162 or 98.7%
compared to the three month period ended March 31, 1994. This increase was
attributable to an unexpected increase in demand for the Company's traditional
business lines. Cost of sales as a percentage of sales for the three months
ended March 31, 1995 decreased substantially to approximately 52% as a
result of cost cutting measures taken by the Company and general economies of
scale. General, administrative and selling expenses decreased for the three
months ended March 31, 1995 as a result of the implementation of cost
cutting measures and the appropriate reclassification of certain expenses.
Research and development expenses increased by $382,309 for the
ANDREA ELECTRONICS CORPORATION -- page 9
three month period ended March 31, 1995 as compared to the three month period
ended March 31, 1994 as a result of increased costs associated with the
development and introduction of the Company's active noise cancellation
products, technologies and applications performed by ANDREA ANTI-NOISE TM,
a division of the Company formerly known as the Active Noise Cancellation
Division. Interest income increased to $66,882 for the three months ended
March 31, 1995 from $8,963 for the three months ended March 31, 1994 as a
result of a significant increase in the Company's cash and a more favorable
interest rate environment in the 1995 period.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company's traditional product sales increased in the first
quarter of 1995, the Company anticipates that sales in such markets will
decline and return to recent historical low levels. In addition, the Company
expects that its research and development and marketing costs for the ANDREA
ANTI-NOISE Products will continue at current levels. The Company anticipates
that it will commence sales of its ANTI-NOISE Products in the second half of
1995 and although it currently has sufficient operating capital to commence
production, the Company will need to obtain additional operating capital in
the near future if significant orders are placed. The Company is actively
investigating different financing opportunities but has not yet entered into
any arrangements or commitments with respect thereto.
Part II
Other Information
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
No. Description Page
11 Computation of Fully Diluted Earnings Per Common Share 11
(B) Reports on Form 8-K
None
SIGNATURES -- page 10
In accordance with the requirements of Section 13 and 15(d) of the
Exchange Act, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANDREA ELECTRONICS CORPORATION
/s/ Frank A.D. Andrea, Jr. Chairman of the Board May 12, 1995
Frank A.D. Andrea, Jr. and Chief Executive Officer
/s/ Patrick D. Pilch Executive Vice President May 12, 1995
Patrick D. Pilch and Chief Financial Officer
EXHIBIT 11
ANDREA ELECTRONICS CORPORATION
Computation of Fully Diluted Earnings Per Common Share
For the Three Months Ended
March 31,
1995 1994
EARNINGS
Pro forma income (loss) applicable
to common stock* $ (138,796) $ (893,843)
SHARES
Weighted average number of common
shares outstanding 3,016,360 2,541,360
Assuming conversion of options
and warrants 978,050 915,118
Pro forma shares 3,994,410 3,456,478
Fully diluted income (loss) per common share $ (.03) $ (.26)
* Entire proceeds of assumed conversion of options were used to purchase
treasury shares; therefore, no adjustments are necessary in computing pro forma
loss applicable to common stock.
This calculation is submitted in accordance with Regulation S-B, Item
601(b)(11) although it is contrary to paragraph 40 of ABP Opinion No. 15 because
it produces anti-dilutive results.
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<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> MAR-31-1995 DEC-31-1994
<CASH> 2,890,543 3,313,043
<SECURITIES> 89,125 89,125
<RECEIVABLES> 1,013,322 569,505
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<INVENTORY> 234,731 267,903
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<PP&E> 622,568 652,635
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0 0
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,070) (2,500)
<INCOME-PRETAX> (138,796) (893,843)
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<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (138,796) (893,843)
<EPS-PRIMARY> (0.05) (0.35)
<EPS-DILUTED> (0.03) (0.26)
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