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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 22, 1998
ANDREA ELECTRONICS CORPORATION
(Exact Name of Registrant as Specified in Charter)
New York 1-4324 11-0482020
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
11-40 45th Road, Long Island City, New York 11101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (718) 729-8500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On July 28, 1998, Andrea Electronics Corporation (the "Registrant")
released financial information with respect to the three and six month periods
ended June 30, 1998. A copy of this press release containing such financial
information is attached as Exhibit 99.1 to this Report. On July 22, 1998, the
Registrant issued a press release relating to the sale of its 6% Convertible
Notes due June 10, 2000. A copy of this press release is attached as Exhibit
99.2 to this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits:
Exhibit
Number Description
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99.1 Press release dated July 28, 1998
99.2 Press release dated July 22, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 3, 1998 ANDREA ELECTRONICS CORPORATION
------------------------------
(Registrant)
/s/ Patrick D. Pilch
--------------------
Patrick D. Pilch
Executive Vice President,
Chief Financial Officer
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EXHIBIT 99.1
Andrea Electronics Corporation Announces Results for Second Quarter 1998
LONG ISLAND CITY, N.Y., July 28 /PRNewswire/ -- Andrea Electronics
Corporation (Amex: AND) today announced revenues for the three months ended
June 30, 1998 of $4.4 million, compared to revenues of $6.1 million in the
same period last year. For the three months ended June 30, 1998, the Company
reported a net loss of $1.9 million, or $0.18 per share, compared to net
income of $678 thousand or $0.08 per share on a fully diluted basis in the
same period last year. For the six months ended June 30, 1998, the Company
reported revenues of $8.8 million, compared to revenues of $11.5 million in
the first six months of 1997. For the six months ended June 30, 1998, the
Company reported a net loss of $1.5 million, or $0.15 per share, compared to
net income of $1.3 million or $0.16 per share on a fully diluted basis.
The primary factors that contributed to the $1.8 million loss for the
second quarter of 1998 include lower than expected sales of the Company's
Active Noise Canceling (ANC) and Noise Canceling (NC) microphone technologies,
increases in research and development activities, increases in
promotional/advertising activities and increases in non-cash charges and
operating expenses related to the acquisition of Lamar Signal Processing, Ltd.
("Lamar").
Commenting on second quarter 1998 results, Patrick D. Pilch, Executive
Vice President and Chief Financial Officer of Andrea Electronics Corporation
said, "Although the results were not in line with the Company's near-term
objectives, we took very decisive steps in positioning our products and
technology to grow our business to achieve our long-term performance and
growth goals. During the second quarter, we acquired and began to integrate
Lamar Signal Processing, Ltd., significantly increased the Company's
investment in research and development and placed $10.75 million of the
Company's 6% convertible notes in a private transaction with a financial
institution."
The decrease in sales for the second quarter of 1998 over the same period
in 1997 is attributable to significant decreases in OEM pricing as a result of
a shift in product mix. In terms of sales on a per unit basis, the Company
did, in fact, realize a 17% increase on a comparable quarter basis, however,
pricing of the Company's products comprising the majority of unit sales
decreased close to 45% for the same period. In-house direct sales efforts
were down from the first quarter of 1998, contributing nominally to the loss
for the period.
Sales to the Company's most significant customer, IBM, decreased 42% from
the second quarter of 1997. Management believes that this decrease is a
continuing effect of IBM's inventory management strategies that were initiated
in the first quarter of 1998 in order to control the supply of its various
voice recognition software programs among retailers. Since the first quarter,
sales to IBM remained flat, which management believes is a positive result of
IBM's renewed focus on streamlining development.
Management believes that the general slowing of PC sales during the second
quarter of 1998 contributed significantly to the weaker demand for the
Company's products. In addition, unexpected increases in investments in both
time and money has been required to not only infiltrate, but also to maintain
a positive sell-through position of the Company's microphone technologies.
Together, these contributing factors resulted in an approximate 77% decline in
sales of the Company's headset and handset microphone products from the first
quarter of 1998. Management expects, however, that the Company will reach its
objective of establishing a presence in ten of the top office/computer
superstores by the end of 1998. Since the fourth quarter of 1997, the Company
has established a product presence nationwide in five office/computer
superstores including CompUSA, Staples, and most recently, Office Max. Retail
sales during the second quarter of 1997 were nominal.
During the second quarter of 1998, research and development expenses
increased approximately 540% and 30% over the second quarter of 1997 and the
first quarter of 1998, respectively. These increases are primarily a result
of the Company's continuing efforts on developing its digital signal
processing technology, coupled with efforts in computer/telephony headset
technologies, which efforts are anticipated to result in nine new products by
the end of 1998. The second quarter of 1998 marked the first full quarter of
research and development activities at the recently established subsidiary,
Andrea Digital Technologies ("ADT"). Research efforts at ADT are primarily
focused on the pursuit of commercializing a natural language-driven,
human/machine interface by developing an optimal far-field microphone solution
for various voice-driven applications, incorporating the DSDA(TM) technology
obtained through the recent acquisition of Lamar in early May of this year.
Correspondingly, the activities of Lamar since the date of acquisition
provided for approximately 10% of the total research and development expenses
for the second quarter of 1998. Based in Yoqneam, Israel, Lamar strengthens
the Company's position in digital signal processing by broadening Andrea's
exposure to other industries including the consumer electronics and
professional audio markets, among others. Considering all of the foregoing,
through the second quarter of 1998, total research and development expenses
approximate 90% of the entire research and development expense for fiscal
1997. Management anticipates additional sequential quarterly increases in
research and development spending as the year progresses.
Excluding the effects of the acquisition of Lamar, selling, general &
administrative (SG&A) expenses increased approximately 60% over the second
quarter of 1997. Significant expenses incurred during the second quarter of
1998 include increased product and corporate branding efforts, increased
expansion efforts in Europe, Latin America and Asia as well as increases in
corporate headcount. In addition, the Company incurred significant expenses
in promotional activities associated with the marketing efforts of Andrea's
DSDA(TM) technology.
In connection with the Company's acquisition of Lamar, approximately
$27.6 million was recorded as excess purchase price over the fair value of the
net assets acquired. Amortization expense related to this excess purchase
price since the date of acquisition resulted in approximately $300 thousand of
additional non-cash charges during the second quarter. Successive quarters
will include amortization expense approximating $460 thousand. In addition to
this significant non-cash charge, the operations of Lamar contributed
approximately $120 thousand of additional operating expense for the second
quarter of 1998. As previously stated, the Company expects the acquisition of
Lamar to be dilutive for the remainder of 1998 and begin to be accretive in
1999.
"Our outlook emphasis is on future growth and opening new channels of
distribution in the third and fourth quarters of 1998. From a product rollout
perspective, the third quarter will be focused on the introduction of several
new headsets and connectivity products targeting PC OEMs, software publishers,
vertical channels and the retail market. We expect the fourth quarter to be
focused on the introduction of new products and integration of the DSDA(TM)
technology, which we anticipate will further strengthen the Company's
competitive position and create new opportunities extending far beyond speech-
driven applications as they exist today," said Patrick Pilch.
KEY SECOND QUARTER 1998 EVENTS
* Andrea Electronics announced the close of its acquisition of Lamar
Signal Processing, Ltd., an Israeli developer of enabling digital
signal processing (DSP) active noise cancellation microphone solutions
for voice-driven interfaces covering a wide range of high performance
audio and acoustic applications. Lamar's expertise in DSP technology
and its patent-pending DSDA(TM) will provide the optimal far-field
microphone performance required for widespread growth of applications
in the areas of automobile PCs, hand-held devices,
audio/videoconferencing, office and home automation systems, cellular
phones, camcorders and hearing aids. Andrea Electronics believes this
technology will strongly enhance its existing product lines and expand
its presence into markets requiring a high performance far-field
microphone solution.
* Andrea Electronics announced agreements with Lotus Development
Corporation to supply PC headsets to be included with the retail
version of its SmartSuite(TM) Millennium Edition productivity software
package, and with ViA, Inc., a leading developer of computerized
messaging products, to exclusively package Andrea Electronics' PC
headsets for use and sale with the ViA Wearable, a high-powered,
multifunctional, mobile computing and communication device using voice
recognition technology.
* The Company announced that it was the only microphone manufacturer
selected by Microsoft Corporation (Nasdaq: MSFT) to participate in its
launch of Windows 98, an event focused on educating retail and press
representatives on how products like Andrea's allow customers to more
easily and effectively interact with Windows(R) 98.
* The Company announced that it issued and sold in a private placement,
$10.75 million aggregate principal amount of 6% Convertible Notes due
June 10, 2000 with a financial institution, the proceeds of
approximately $10 million from which will be used for costs associated
with technology acquisition and development, tooling costs, relocation
costs, a new management information system and general working capital
requirements.
"As the trends driving voice integrated applications continue to take
shape, Andrea is establishing itself as a solutions provider and a key front-
end element in creating the optimum natural language voice interface," said
John N. Andrea, Co-president of Andrea Electronics Corporation. "We firmly
believe in the capabilities of our evolving technologies and in our ability to
offer the strongest, first-to-market products addressing solutions which are
advancing speech technologies today. We are committed to the task of
discovering new markets and creating products which will drive productivity
and enhance the evolution of the voice-driven interface."
Andrea Electronics Corporation designs, develops and manufactures audio
technologies and equipment for applications incorporating natural language
interfaces. The Company's patented Active Noise Reduction (ANR) earphone,
Active Noise Cancellation (ANC) near-field and Digital Super Directional Array
DSDA(TM) far-field microphone technologies are incorporated into a wide range
of audio products to eliminate background noise and ensure the optimum
performance of voice applications. Applications for the Company's
technologies include: speech recognition programs, Internet telephony,
video/audio conferencing, automobile PCs, home automation systems, hand-held
devices and multiplayer online games, among others. Key OEM and software
publisher customers and strategic partners who have endorsed Andrea
Electronics' technologies and products include: Microsoft Corporation, IBM
Corporation, Lernout & Hauspie Speech Products, Lotus Development Corporation,
Dragon Systems, NEC, Mpath, Multitude, IDT, HyperGraphics, ILINC and ViAInc.,
among others.
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties or
other factors that could cause actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed under the heading "Cautionary Statement Regarding Forward-Looking
Statements" included in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form 10-
K and in the Company's Annual Report to Stockholders, and in documents
subsequently filed by the Company with the Securities and Exchange Commission.
"Andrea Anti-Noise" is a registered trademark, and "AndreaVoiceSolutions"
and "Andrea QuietWare" are trademarks of Andrea Electronics Corporation.
"DSDA" is a trademark of Andrea Electronics Corporation.
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
1998 1997
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash
equivalents $9,341,861 $2,059,338
Marketable securities 646,039 102,717
Accounts receivable, net 4,153,282 4,568,433
Inventories, net 8,116,532 5,766,927
Deferred income taxes 473,000 909,569
Prepaid expenses and
other current assets 1,437,287 1,023,661
Total current assets 24,168,001 14,430,645
Property, plant &
equipment, net 1,250,088 1,022,342
Deferred income taxes 1,004,572 897,046
Other assets 2,014,131 1,439,151
Intangible 27,305,563 --
Total assets $55,742,355 $17,789,184
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $1,502,363 $966,783
Other current
liabilities 1,854,466 483,731
Current portion of
long term debt 93,440 --
Convertible notes -- 1,193,472
Total current
liabilities 3,450,269 2,643,986
CONVERTIBLE NOTES 10,018,825 --
LONG TERM DEBT 2,703,188 --
OTHER LIABILITIES -- 38,500
Total liabilities 16,172,282 2,682,486
SHAREHOLDERS' EQUITY:
Common stock, $.50 par value;
authorized: 15,000,000 shares;
issued and outstanding:
11,105,730 and 8,706,692
shares, respectively 5,552,865 4,353,346
Additional paid-in
capital 34,595,924 9,881,915
Retained earnings
(deficit) (578,716) 871,437
Total shareholders'
equity 39,570,073 15,106,698
Total liabilities and
shareholders'
equity $55,742,355 $17,789,184
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
SALES $4,370,358 $6,080,875 $8,845,428 $11,465,144
COST OF SALES 2,753,932 3,579,233 5,574,154 6,775,141
Gross Profit 1,616,426 2,501,642 3,271,274 4,690,003
RESEARCH AND DEVELOPMENT
EXPENSES 582,646 88,809 990,098 241,633
GENERAL, ADMINISTRATIVE
AND SELLING
EXPENSES 2,897,114 1,546,168 5,290,448 2,799,242
Income (loss) from
operations (1,863,334) 866,665 (3,009,272) 1,649,128
OTHER INCOME (EXPENSE)
Interest income 62,671 22,236 73,315 41,284
Interest expense (85,664) (60,380) (110,119) (126,907)
Rent and miscellaneous
income -- 58,033 1,924,966 115,783
(22,993) 19,889 1,888,162 30,160
INCOME (LOSS) BEFORE
INCOME TAXES (1,886,327) 886,554 (1,121,110) 1,679,288
PROVISION FOR INCOME
TAXES -- (208,518) (329,043) (394,811)
NET INCOME (LOSS) $(1,886,327) $678,036 $(1,450,153) $1,284,477
PER SHARE INFORMATION:
Net Income (loss) Per Share:
Basic $(.18) $.08 $ (.15) $.16
Diluted $(.18) $.08 $ (.15) $.16
Shares used in computing net
income (loss) per share:
Basic 10,339,488 8,060,350 9,641,748 7,880,040
Diluted 10,339,488 8,285,350 9,641,748 8,105,040
SOURCE Andrea Electronics Corporation
Web Site: http://www.andreaelectronics.com
CONTACT: Patrick D. Pilch, EVP & CFO, or Molly M. Jahncke and
Carolynne O'Grady, Corporate Communications, all of Andrea
Electronics, 800-442-7787; or General Info, Paula Schwartz,
Analyst Info, Joel Herskovitz, or Media Info, Judith Sylk-Siegel,
all of The Financial Relations Board, 212-661-8030
NOTE TO EDITORS: To receive Andrea Electronics' latest news
release and other corporate documents via FAX -- no cost --
please dial 1-800-PRO-INFO and input the Company's symbol AND.
or visit Andrea Electronics' website at
http://www.andreaelectronics.com.
EXHIBIT 99.2
Andrea Electronics Corporation Completes Private Placement of Convertible Notes
LONG ISLAND CITY, N.Y., July 22 /PRNewswire/ -- Andrea Electronics
Corporation (Amex: AND) announced today that it has issued and sold in a
private placement, $10,753,000 aggregate principal amount of 6% Convertible
Notes ("Notes") due June 10, 2000. The Notes will be convertible into shares
of the Company's common stock at a conversion price equal to the average of
the two lowest closing prices of the Common Stock during the 30 trading days
preceding any date of conversion, subject to a maximum conversion price of
$16.125 per share. The Notes become convertible on the earlier of October 8,
1998 and the effectiveness of a registration statement under the Securities
Act of 1933, as amended, covering the sale of the shares of Common Stock
into which the Notes are convertible, which registration statement the Company
is obligated to file. At the option of the Company, interest will be payable
in the form of cash or shares of Common Stock at the conversion price then in
effect. The maximum number of shares issuable upon conversion is 2,100,000
shares. The Company will use the proceeds from the issuance of the Notes for
costs associated with technology acquisition and development, tooling costs,
relocation costs, a new management information system, and working capital
requirements.
Neither the Notes nor the Common Stock issuable upon the conversion of the
Notes have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold in the United States except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy the Notes or the Common Stock issuable upon
conversion of the Notes. This press release is being issued pursuant to and
in accordance with Rule 135c under the Securities Act.
Andrea Electronics Corporation designs, develops and manufactures
audio technologies and products for applications incorporating natural
language voice interfaces. The Company's patented Active Noise Cancellation
(ANC) microphone and Active Noise Reduction (ANR) earphone technologies have
been incorporated into the Company's product lines. These product lines
include headsets, handsets and microphones, marketed under the Andrea
VoiceSolutions(TM), QuietWare(TM) and Andrea Anti-Noise(TM) trademarks, that
eliminate background noise and ensure voice clarity to enhance the performance
of speech-driven computer applications. Applications for the Company's
technologies include: speech recognition programs, Internet telephony,
video/audio conferencing and interactive gaming. Key OEM and software
publisher customers and strategic partners of Andrea Electronics include:
Microsoft Corporation, IBM Corporation, Lernout & Hauspie Speech Products,
Dragon Systems, NEC, Mpath, Mulitude, IDT Corporation, HyperGraphics and
ILINC.
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties or
other factors that could cause actual results, performance or achievements of
the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed under the heading "Cautionary Statement Regarding Forward-
Looking Statements" included in the Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Annual Report
on Form 10-K and in the Company's Annual Report to Stockholders, and in
documents subsequently filed by the Company with the Securities and Exchange
Commission.
SOURCE Andrea Electronics Corporation
CONTACT: Molly M. Jahncke, [email protected], or
Carolynne O'Grady, [email protected], Corp.
Communications of Andrea Electronics Corporation, 800-442-7787;
or General Info, Michael Lawson or Paula Schwartz, Analyst Info,
Joel Herskovitz, or Media Info, Judith Sylk- Siegel,
212-661-8030, all of The Financial Relations Board
NOTE TO EDITORS: To receive Andrea Electronics' latest news
release and other corporate documents via FAX -- no cost --
please dial 1-800-PRO-INFO and input the Company's symbol AND.
Or visit Andrea Electronics' website at
http://www.andreaelectronics.com.
