<PAGE>
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 September 30, 1997
OR
( ) 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 specified 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)
1-800-442-7787
-----------------------------------------------------
(Registrant's telephone number, Including area code)
Indicate by check mark whether the registrant: (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
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. 8,380,804.
Page 1
<PAGE>
PART I---FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, 1997 December 31,1996
------------------ ----------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,960,072 $ 921,065
Marketable securities 100,270 197,697
Accounts receivable, net 5,463,211 2,678,449
Inventories, net 5,638,171 4,774,175
Deferred income taxes 1,306,615 1,222,000
Prepaid expenses and other current assets 561,233 132,691
----------- -----------
Total current assets 16,029,572 9,926,077
PROPERTY, PLANT AND EQUIPMENT, net 789,319 868,173
----------- -----------
Total assets $16,818,891 $10,794,250
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,897,145 $ 822,400
Other current liabilities 320,005 267,603
----------- -----------
Total current liabilities 2,217,150 1,090,003
CONVERTIBLE DEBENTURES, net 1,813,712 2,157,786
OTHER LIABILITIES 28,735 38,500
----------- -----------
Total liabilities 4,059,597 3,286,289
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.50 par value; authorized: 15,000,000
shares; issued and outstanding: 8,380,804 and
7,584,394 shares, respectively 4,190,402 3,792,197
Additional paid-in capital 8,259,035 6,258,723
Retained earnings (deficit) 309,857 (2,542,959)
----------- -----------
Total shareholders' equity 12,759,294 7,507,961
----------- -----------
Total liabilities and shareholders' equity $16,818,891 $10,794,250
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
Page 2
<PAGE>
<TABLE> ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
SALES $ 7,210,911 $ 2,745,095 $ 18,676,055 $ 5,489,504
COST OF SALES 4,247,121 1,585,646 11,022,262 3,767,308
------------ ------------ ------------- -------------
Gross Profit 2,963,790 1,159,449 7,653,793 1,722,196
RESEARCH AND DEVELOPMENT EXPENSES 189,798 177,843 431,431 700,676
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES 1,679,168 713,281 4,478,410 2,112,288
------------ ------------ ------------- -------------
Income (loss) from operations 1,094,824 268,325 2,743,952 (1,090,768)
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 10,889 9,731 52,173 38,432
Interest expense (71,314) (50,553) (198,221) (305,016)
Rent and miscellaneous income 62,940 58,858 178,723 175,658
------------ ----------- ------------ ------------
2,515 18,036 32,675 (90,926)
------------ ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT 1,097,339 286,361 2,776,627 (1,181,694)
INCOME TAX BENEFIT 471,000 -- 76,189 --
------------ ----------- ------------ ------------
NET INCOME (LOSS) $ 1,568,339 $ 286,361 $ 2,852,816 $ (1,181,694)
============ =========== ============ ============
NET INCOME (LOSS) PER SHARE $ .17 $ .04 $ .33 $ (.17)
============ =========== ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,244,113 7,339,052 8,708,335 6,980,476
============ =========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Additional Total
Shares Common Paid-In Accumulated Shareholders'
Outstanding Stock Capital Deficit Equity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 7,584,394 $ 3,792,197 $ 6,258,723 $ (2,542,959) $ 7,507,961
Exercise of Stock Options, net 716,750 358,375 1,605,506 -- 1,963,881
Conversion of Convertible
Debentures 79,660 39,830 394,806 -- 434,636
Net Income -- -- -- 2,852,816 2,852,816
--------- ------------ ------------ ------------ ------------
BALANCE, September 30, 1997
(Unaudited) 8,380,804 $ 4,190,402 $ 8,259,035 $ 309,857 $ 12,759,294
========= ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,852,816 $ (1,181,694)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 261,568 425,154
Deferred income taxes (84,615) --
Non-cash interest on convertible debt 198,221 --
(Increase) decrease in:
Accounts receivable (2,784,762) (554,594)
Inventories (863,996) (3,548,274)
Prepaid expenses and other current assets (508,412) 86,194
Increase (decrease) in:
Trade accounts payable 1,074,745 (137,003)
Other current and long term liabilities (65,022) (137,004)
------------ -----------
Net cash provided by (used in) operating activities 80,543 (5,047,221)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (102,844) (164,273)
(Purchases) maturities of investment securities 97,427 (94,101)
------------ -----------
Net cash provided by (used in) investing activities (5,417) (258,374)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations -- (33,188)
Net proceeds from convertible debentures -- 3,455,000
Exercise of stock options 1,963,881 245,406
------------ -----------
Net cash provided by financing activities 1,963,881 3,667,218
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,039,007 (1,638,377)
CASH AND CASH EQUIVALENTS - beginning of period 921,065 3,400,829
------------ -----------
CASH AND CASH EQUIVALENTS - end of period $ 2,960,072 $ 1,762,452
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Conversion of debt into common stock $ 434,636 $ 959,652
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
Notes to Consolidated Financial Statements
I. Basis of Presentation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries
(collectively, "Andrea Electronics" or the "Company"). All intercompany
balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for any interim
period are not necessarily indicative of the results to be expected for the
fiscal year. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's annual report
on Form 10K for the year ended December 31, 1996.
II. Stock Split. On September 2, 1997, the company's Board of Directors authorized a
two-for-one stock split in the form of a 100% stock dividend that was
distributed on September 17, 1997 to shareholders of record on
September 10, 1997. All share and per share data included in the accompanying
financial statements have been restated to reflect the stock split for all
periods presented.
III. Earnings Per Common Share. Primary earnings/(loss) per common share is
computed by dividing net earnings/(loss) available to common stockholders by the
weighted average number of common shares and, as appropriate, dilutive common
stock equivalents outstanding for the period. For the three and nine month
periods ended September 30, 1996, average common equivalent shares (stock
options) outstanding have not been included, as the computation would not be
dilutive. Weighted average common shares outstanding were 9,244,113 and
8,708,335 for the three and nine month periods ended September 30, 1997,
respectively, and 7,339,052 and 6,980,476 for the three and nine month periods
ended September 30, 1996, respectively.
IV. Recently Issued Accounting Pronouncement. In March 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share. This statement establishes
standards for computing and presenting earnings per share ("EPS"), replacing
the presentation of currently required EPS with a presentation of Basic EPS.
For entities with complex capital structures, the statement requires the dual
presentation of both Basic EPS and Diluted EPS on the face of the statement
of operations. Under this new standard, Basic EPS is computed based on
weighted average number of shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS
data for all prior periods presented. The Company does not expect the impact
of the adoption of this statement to be material to previously reported EPS
amounts.
V. Debt Financing. On September 30, 1997, the Company entered into an
$8 million credit facility with a financial institution consisting of a
revolving loan based on eligible accounts receivable and inventory, as defined.
The facility, together with the Company's availability under commercial
letters of credit, approximates $10 million. The agreement matures on
September 23, 1998 and automatically renews on an annual basis unless
terminated by either party, as provided in the agreement. The facility is
subject to normal banking terms and conditions, including financial covenant
compliance and, at September 30, 1997, there were no outstanding borrowings
under the agreement.
Page 6
<PAGE>
VI. Litigation. 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. On August 12, 1997, the Company
and claimant reached an agreement to settle certain claims relating to the
contracts for an amount that was not material to the Company's results of
operations.
VII. Procurement Agreement. On August 13, 1997, the Company entered into an
agreement with International Business Machines Corporation and its
subsidiaries ("IBM") covering the procurement by IBM from the Company of
certain products. The agreement is effective as of August 1, 1997, replaces
the Company's previous procurement agreement with IBM and will continue in
full force and effect unless terminated earlier for material breach by either
party, as provided in the agreement. During the nine months ended
September 30, 1997, sales of the Company's computer headsets to IBM and
certain of IBM's affiliates, distributors, licensees, and integrators
accounted for approximately 59% of the Company's total sales.
VIII. Subsequent Event. On October 6, 1997, $648,000 of the Company's 15%
Subordinated Convertible Debentures, together with related accrued interest,
was converted into the Company's common stock. Remaining debentures subject
to conversion after the October 6th transaction is $1,250,000.
IX. Reclassification. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Page 7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Andrea Electronics Corporation's mission is to provide state-of-the-art
communications products for the "voice interface" markets that are rapidly
emerging from the convergence of the telecommunications and computer
industries, and for the defense electronics markets that are requiring
increasingly higher quality voice communication products. The Company's
strategy for serving these markets is to leverage its expertise in audio
communications technology, including its patented Active Noise Cancellation
("ANC") and Active Noise Reduction ("ANR") technology (together referred to
as "Andrea Anti-Noise/Registered Trademark/ technology"), and to develop,
manufacture and market either directly or through licensees a line of Andrea
Anti-Noise/Registered Trademark/ headsets, handsets and other communication
devices to cost-effectively enhance voice communications for end users of the
growing number of new, voice-based computer and computer telephony
applications and interfaces.
Examples of these applications and interfaces include: Internet and other
computer-based speech; telephony communications; multi-point conferencing;
multi-player Internet and CD ROM interactive games; speech recognition;
multimedia; military and industrial communications; and other applications
and interfaces that incorporate natural language processing. The Company
believes that end users of these applications and interfaces will require
high quality microphone and earphone products that enhance voice
transmission, particularly to and from noisy environments, for use with
personal computers, business and residential telephones, military headsets,
cellular and other wireless telephones, personal communication systems and
avionics communications systems.
An important element of the Company's strategy for expanding the channels of
distribution and broadening the base of users for its ANC and ANR products is
its set of collaborative arrangements with hardware Original Equipment
Manufacturers ("OEM"s), software publishers, distributors and retailers
actively engaged in the various markets in which the Company's ANC and ANR
products have application. Under some of these arrangements, the Company
supplies its products for sale by the collaborative partners. Under others,
the collaborative partners supply the Company with software that the Company
includes with its ANC and ANR technology. In addition, the Company is also
seeking to increase its own direct marketing efforts.
The Company outsources the manufacture of its ANC and ANR products for its
OEM, consumer and commercial customers. The Company also manufactures and
distributes intercom systems and related components for military applications
and industrial applications ("Traditional Military Products"). In contrast
to the outsourced manufacturing of its ANC and ANR products for the non-military
markets, the Company continues to manufacture its Traditional Products in its
facility located in Long Island City, New York. The Company is engaged in
developing a new line of products for military use that incorporate ANC and ANR
technology. Management anticipates that it will manufacture these new military
products, if successfully developed and marketed, through both outsourcing and
self-manufacturing.
The interim results of operations of the Company presented in this report are
not necessarily indicative of the actual sales or results of operations to be
realized for the full year.
Page 8
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations for the three and nine months
ended September 30, 1997 (the "1997 Third Quarter" and the "1997 First Nine
Months") are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The words "believe", "expect",
"anticipate", and similar expressions identify forward-looking statements.
In order to obtain the benefits of these "safe harbor" provisions for any
such forward-looking statements, the Company wishes to caution investors
and prospective investors about the following significant factors, which,
among others, have in some cases affected the Company's actual results and
are in the future likely to affect the Company's actual results and could
cause them to differ materially from those expressed in any such
forward-looking statements. These factors include:
first, the rate at which the Company's Anti-Noise/Registered
Trademark/ technology is accepted by the diverse range of users and
applications within the global communications and informatics marketplace;
second, the ability of the Company to maintain a competitive
position for its Anti-Noise/Registered Trademark/ products in terms of
technical specifications, quality, price, reliability and service;
third, the ongoing ability of the Company to enter into and maintain
collaborative relationships with larger companies in the fields of
telecommunications, computer manufacturing, software design and publishing,
Internet and online services, defense-related manufacturers and system
providers, and retail and direct marketing distributors; and
fourth, in the event that the Company experiences continued
significant growth in demand for its Anti-Noise/Registered Trademark/
technology, the ability of the Company to raise sufficient external capital
to fund the working capital requirements for meeting such demand.
The failure of the Company to surmount the challenges posed by any one or
more of these factors could have a material adverse effect on the Company's
results of operations and growth.
RESULTS OF OPERATIONS
Sales
Sales for the 1997 Third Quarter were $7,210,911, an increase of 163% over
the three months ended September 30, 1996 (the "1996 Third Quarter"). Sales
for the 1997 First Nine Months were $18,676,055, an increase of 240% over the
nine months ended September 30, 1996 (the "1996 First Nine Months"). These
increases in sales over both the three month and nine month prior year
periods primarily reflect increasing market acceptance of voice interface
computer applications that incorporate the Company's Anti-Noise technology,
coupled with the strength of new product launches. The increase in
sales during the 1997 Third Quarter reflects an approximate 391% increase in
sales of Andrea Anti-Noise/Registered Trademark/ products to $6,161,950 or
86% of total sales, and an approximate 30% decrease in sales of the
Company's Traditional Military Products to $1,048,961 or 14% of total sales.
The increase in sales during the 1997 First Nine Months reflects an
approximate 1,163% increase in sales of Andrea Anti-Noise/Registered
Trademark/ products to $15,310,262 or 82% of total sales, and an approximate
11% increase in sales of the Company's Traditional Military Products to
$3,365,793 or 18% of total sales. During the 1997 First Nine Months, sales of
the Company's computer headsets to IBM and certain of IBM's affiliates,
distributors, licensees, and integrators accounted for approximately 59% of
the Company's total sales.
Page 9
<PAGE>
Cost of Sales
Cost of sales as a percentage of sales for the 1997 Third Quarter increased
to 59% from 58% for the 1996 Third Quarter. Cost of sales as a percentage of
sales for the 1997 First Nine Months decreased to 59% from 69% for the 1996
First Nine Months. The improvement during the 1997 First Nine Months
principally reflects the efficiencies resulting from the Company's
continuing efforts to globalize its sourcing and manufacturing activities,
as well as maximizing the benefits of shifts in product mix. In addition, the
higher cost of sales in 1996 reflected the higher costs incurred during the
initial production runs of new Andrea Anti-Noise/Registered Trademark/
computer products during the 1996 Third Quarter and 1996 First Nine Months.
Research and Development
Research and development expenses decreased 38% to $431,431 for the 1997 First
Nine Months from $700,676 for the 1996 First Nine Months. This decrease in
research and development expenses during the 1997 First Nine Months is
attributable to increased allocations of engineering and technician time to
production costs and decreased allocations of engineering and technician time
to design and development, reflecting the migration of the Company's Andrea
Anti-Noise/Registered Trademark/ products from design and development to
commercial production. However, research and development expenses increased 7%
to $189,798 for the 1997 Third Quarter from $177,843 for the 1996 Third Quarter.
This increase is primarily related to investments in technology that began at
the end of the second quarter of 1997 and continued through the 1997 Third
Quarter. Management believes that such investments will continue throughout the
remainder of fiscal 1997.
General, Administrative and Selling Expenses
General, administrative and selling expenses increased 135% to $1,679,168 for
the 1997 Third Quarter from $713,281 for the 1996 Third Quarter. General,
administrative and selling expenses increased 112% to $4,478,410 for the 1997
First Nine Months from $2,112,288 for the 1996 First Nine Months. These
increases, primarily attributable to the ANC and ANR product lines, reflect
increased business development expenses related to existing and prospective
collaborative arrangements with hardware OEMs, software publishers,
distributors and retailers. In addition, the Company incurred
increased promotional, marketing and sales expenses to promote product
awareness and acceptance of the ANC and ANR product lines. As a percentage
of sales, however, general, administrative and selling expenses decreased to
23% for the 1997 Third Quarter from 26% for the 1996 Third Quarter, and
decreased to 24% for the 1997 First Nine Months from 38% for the 1996 First
Nine Months.
Other Income (Expense)
Other income for the 1997 First Nine Months was $32,675 compared to other
expense of $90,926 for the 1996 First Nine Months. This change is primarily
attributable to decreases in interest expense as a result of conversion rights
exercised in April 1997 and the lower effective interest rate on the
outstanding convertible debentures during the 1997 First Nine Months compared
to the 1996 First Nine Months.
Provision for Income Taxes
The income tax benefit of $471,000 in the 1997 Third Quarter results from the
effect of a provision of income taxes at the Company's 42% effective income
tax rate, offset entirely by a reduction in the Company's reserve on
previously-generated, fully-reserved deferred income tax assets. As part of
the normal assessment of the Company's reserves, management determined that
it has become more likely than not that a portion of the previously-reserved
Page 10
<PAGE>
deferred tax assets will be realized and has, accordingly, reduced the
valuation allowance on those previously reserved deferred tax assets. This
determination is based on the Company's profitability in recent quarters and
the impact of the sales performance of its products. No income tax benefit
was recorded in the 1996 Third Quarter, as the Company was, at that time,
providing a full reserve against deferred income tax assets. The Company
will continue to assess its reserves on deferred income tax assets as the
year progresses.
Net Income (Loss)
Net income for the 1997 Third Quarter was $1,568,339, compared to net income
of $286,361 for the 1996 Third Quarter. Net income for the 1997 First Nine
Months was $2,852,816, compared to a net loss of $1,181,694 for the 1996 First
Nine Months. The levels of net income for the 1997 Third Quarter and 1997
First Nine Months principally reflect the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and borrowings provided
by certain financial institutions. At September 30, 1997, the Company had cash
and cash equivalents of $2,960,072 compared with $921,065 at December 31,
1996.
Working capital at September 30, 1997 was $13,812,422 compared to $8,836,074
at December 31, 1996. The increase in working capital reflects an increase in
total current assets of $6,103,495 offset by an increase in total current
liabilities of $1,127,147. The increase in total current assets reflects an
increase in cash of $2,039,007, an increase in accounts receivable of
$2,784,762, an increase in inventory of $863,996, an increase in deferred
income taxes of $84,615 and an increase of $428,542 in prepaid expenses and
other current assets. The increase in current liabilities reflects a
$1,074,745 increase in trade accounts payable and a $52,402 increase in other
current liabilities.
The increase in cash of $2,039,007 reflects $80,543 of net cash provided by
operating activities, $5,417 of cash used in investing activities and
$1,963,881 of cash provided by financing activities. The cash provided by
operating activities, excluding non-cash charges, is primarily attributable
to the Company's trade payable management policy for the production of its
Anti-Noise/Registered Trademark/ computer headsets. The cash used in
investing activities is a result of the maturity of one of the Company's
marketable securities, offset by capital expenditures, primarily comprised
of the ongoing upgrade of manufacturing dies and molds for Andrea
Anti-Noise/Registered Trademark/ products, as well as investments in the
Company's existing information systems. The cash provided by financing
activities resulted from the exercise of stock options.
The increase in accounts receivable primarily reflects the significant
increase in sales during the 1997 First Nine Months. Generally, the Company
collects receivables from sales within three months.
The increase in prepaid expenses and other current assets primarily includes
the recognition of increased premiums for prepaid property taxes and
insurance, increased fulfillment costs as well as increases in other service
costs related to the remainder of fiscal 1997 and the first half of fiscal
1998.
The increase in the deferred tax asset represents a reduction of the valuation
allowance on previously-reserved deferred tax assets in light of the Company's
profitability over recent quarters and the expectation of realizing those
assets through continued earnings. The Company will be continually
re-assessing its remaining reserves on deferred income tax assets as the year
progresses.
Page 11
<PAGE>
The increase in trade accounts payable primarily reflects differences in the
timing related to both the payments for and the acquisition of raw materials
for the Andrea Anti-Noise/Registered Trademark/ products.
Demand for Andrea Anti-Noise/Registered Trademark/ products has required the
Company to raise additional working capital to support its production
operations. In December 1995, April 1996 and August 1996, the Company
raised additional working capital through the issuance of convertible
subordinated debentures. In addition, the Company entered into a revolving
credit agreement in September 1997 that provides maximum borrowings of up to
$8 million based on eligible accounts receivable and inventory, as defined in
the agreement. Notwithstanding growth in sales of Andrea Anti-Noise
/Registered Trademark/ products during the 1997 First Nine Months, no
assurance can be given that demand will continue to increase for these
products or any of the Company's other products or, that if such demand does
increase, that the Company will be able to obtain the necessary working
capital to increase production and marketing resources to meet such demand
on favorable terms, or at all.
Page 12
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 28, 1997, at a reconvened annual meeting, the shareholders of the
Company authorized an amendment to the Company's 1991 Performance Equity
Plan to increase the number of shares issuable thereunder to 2,000,000
shares from 1,500,000 shares. The results of this vote were as follows:
FOR: 2,027,583; AGAINST: 801,787; ABSTAIN: 43,660.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
The registrant filed a Report on Form 8-K on September 9, 1997 to
report that on September 2, 1997 the registrant issued a press release
containing information regarding a two-for-one stock split to be effected
by a 100% stock dividend, which press release was filed as an exhibit to
the Report on Form 8-K.
Page 13
<PAGE>
SIGNATURES
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/ John N. Andrea Co-President November 14, 1997
- ------------------------
John N. Andrea
/s/ Patrick D. Pilch Executive Vice President, November 14, 1997
- ------------------------ and Chief Financial Officer
Patrick D. Pilch
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,960,072
<SECURITIES> 100,270
<RECEIVABLES> 5,463,211
<ALLOWANCES> 52,521
<INVENTORY> 5,638,171
<CURRENT-ASSETS> 16,029,572
<PP&E> 2,225,236
<DEPRECIATION> 1,435,917
<TOTAL-ASSETS> 16,818,891
<CURRENT-LIABILITIES> 2,217,150
<BONDS> 1,813,712
0
0
<COMMON> 4,190,402
<OTHER-SE> 8,568,892
<TOTAL-LIABILITY-AND-EQUITY> 16,818,891
<SALES> 18,676,055
<TOTAL-REVENUES> 18,676,055
<CGS> 11,022,262
<TOTAL-COSTS> 11,022,262
<OTHER-EXPENSES> 4,909,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,221
<INCOME-PRETAX> 2,776,627
<INCOME-TAX> (76,189)
<INCOME-CONTINUING> 2,852,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,852,816
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
