1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 5, 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)
2
On May 5, 1998, Andrea Electronics Corporation, a New York Corporation (the
"Registrant" or "Andrea") completed the acquisition of all of the outstanding
ordinary shares of capital stock of Lamar Signal Processing, Ltd. The
undersigned Registrant hereby amends its Current Report on Form 8-K dated May 8,
1998 (the "Report"), to include the financial statements and pro forma financial
information required by Item 7(a) and 7(b), which were omitted from the Report
as initially filed in accordance with Item 7(a)(4) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Report of Independent Public Accountants dated July 12, 1998
Audited Balance Sheets of Lamar Signal Processing, Ltd. as of December 31, 1997
and December 31, 1996.
Audited Statements of Operations of Lamar Signal Processing, Ltd. for the year
ended December 31, 1997 and for the period from commencement of operations
(November 1995) to December 31, 1996.
Audited Statements of Cash Flows of Lamar Signal Processing, Ltd. for the year
ended December 31, 1997 and for the period from commencement of operations
(November 1995) to December 31, 1996.
Notes to Financial Statements of Lamar Signal Processing, Ltd.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 1998.
Unaudited Pro Forma Combined Condensed Income Statement for the three months
ended March 31, 1998 and the year ended December 31, 1997.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
(c) Exhibits:
Exhibit
Number Description
- ------------ --------------------
2.1* Stock Purchase Agreement dated April 6, 1998
2.2* Amendment No. 1 to the Stock Purchase Agreement dated
May 5, 1998
23.1 Consent of Luboshitz, Kasierer & Co.
99.1 Independent Public Accountants' Report and Audited Financial
Statements of Lamar Signal Processing, Ltd. as of December
31, 1997 and December 31, 1996 and for each of the year
ended December 31, 1997 and the period from commencement of
operations (November 1995) to December 31, 1996.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements
of Andrea Electronics Corporation and Lamar Signal
Processing, Ltd. as of March 31, 1998 and for the
three months ended March 31, 1998 and the year ended
December 31, 1997 reflecting the acquisition of Lamar
Signal Processing, Ltd.
* Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated May 8, 1998.
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: July 17, 1998 ANDREA ELECTRONICS CORPORATION
---------------------------------------------
(Registrant)
/s/ Patrick D. Pilch
------------------------------
Patrick D. Pilch
Executive Vice President,
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
- ------------ --------------------
2.1* Stock Purchase Agreement dated April 6, 1998
2.2* Amendment No. 1 to the Stock Purchase Agreement dated
May 5, 1998
23.1 Consent of Luboshitz, Kasierer & Co.
99.1 Independent Public Accountants' Report and Audited Financial
Statements of Lamar Signal Processing, Ltd. as of December
31, 1997 and December 31, 1996 and for each of the year
ended December 31, 1997 and the period from commencement of
operations (November 1995) to December 31, 1996.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements
of Andrea Electronics Corporation and Lamar Signal
Processing, Ltd. as of March 31, 1998 and for the
three months ended March 31, 1998 and the year ended
December 31, 1997 reflecting the acquisition of Lamar
Signal Processing, Ltd.
* Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated May 8, 1998.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report on Lamar Signal Processing Ltd. dated July 12, 1998,
appearing in the Current Report on Form 8-K/A of Andrea Electronics Corporation
(the "Company"), into the Company's previously filed Registration Statements on
Form S-8 (file nos. 33-84092, 333-14385, 333-35687, 333-38609, 333-45421 and
333-52129).
LUBOSHITZ, KASIERER & CO.
Certified Public Accountants (Isr.)
Member Firm of Arthur Andersen
Haifa, Israel
July 17, 1998
LAMAR SIGNAL PROCESSING LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
-----------------------
(In U.S. dollars)
LAMAR SIGNAL PROCESSING LTD.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 2
FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Shareholders' Equity (Deficiency) 5
Statements of Cash Flows 6
Notes to the Financial Statements 7-15
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Lamar Signal Processing Ltd.
We have audited the balance sheets of Lamar Signal Processing Ltd. (an Israeli
Corporation) as of December 31, 1997 and 1996, and the related statements of
operations, changes in shareholders' equity (deficiency) and cash flows for
the year ended December 31, 1997, and for the period from commencement of
operations (November 1995) to December 31, 1996. These 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 in Israel and in the United States, including those prescribed under
the Auditors' Regulations (Auditor's Mode of Performance), 1973. 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 financial position of the Company as of December
31, 1997 and 1996, and the results of its operations, changes in shareholders'
equity (deficiency) and its cash flows for the year ended December 31, 1997
and for the period ended December 31, 1996 in conformity with accounting
principles generally accepted in Israel and in the United States (as
applicable to the financial statements of the Company such principles are
practically identical).
LUBOSHITZ, KASIERER & CO.
MEMBER FIRM OF ARTHUR ANDERSEN
Haifa, Israel
July 12, 1998
2
LAMAR SIGNAL PROCESSING LTD.
BALANCE SHEETS
In U.S. dollars
DECEMBER 31,
NOTE 1996 1997
----- --------- ---------
CURRENT ASSETS
Cash and cash equivalents (3) 119,830 140,647
Receivables 15,124 22,806
Inventory (raw materials) - 19,816
-------- -------
134,954 183,269
-------- -------
FIXED ASSETS (4)
Cost 134,925 175,262
Less - accumulated depreciation 14,719 37,361
------- -------
120,206 137,901
------- -------
Total assets 255,160 321,170
======= =======
CURRENT LIABILITIES
Current portion of long-term
loans (6) 7,811 7,675
Other payables and accrued
expenses (5) 54,873 65,704
------- -------
62,684 73,379
------- -------
LONG-TERM LIABILITIES
Long-term loans (6) 7,803 473,400
Accrued severance pay (7) 11,381 19,231
------- -------
19,184 492,631
------- -------
Total liabilities 81,868 566,010
------- -------
CONTINGENT LIABILITIES AND
COMMITMENTS (8)
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital
Ordinary shares of NIS 1 par value:
Authorized - 22,900 shares; issued and
outstanding - 20,610 shares as of
December 31, 1997 and 1996 (9) 6,775 6,775
Share premium 536,088 536,088
Accumulated deficit (369,571) (787,703)
-------- --------
Total shareholders' equity (deficiency) 173,292 (244,840)
-------- --------
Total liabilities and shareholders' equity
(deficiency) 255,160 321,170
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
LAMAR SIGNAL PROCESSING LTD.
STATEMENTS OF OPERATIONS
In U.S. dollars
FOR THE
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(NOVEMBER 1995) FOR THE YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
NOTE 1996 1997
------ ---------------- -----------------
SALES 7,066 5,833
COST OF SALES 1,380 2,155
-------------- ----------
Gross profit 5,686 3,678
RESEARCH AND DEVELOPMENT
COSTS, NET (11) 98,461 162,309
GENERAL AND ADMINISTRATIVE
EXPENSES 276,662 255,873
FINANCING EXPENSES, NET 134 3,628
-------------- ----------
Net loss (369,571) (418,132)
============== ===========
NET LOSS PER SHARE (22.88) (20.29)
============== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES 16,150 20,610
============== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
LAMAR SIGNAL PROCESSING LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
In U.S. dollars
SHARE SHARE ACCUMULATED TOTAL
CAPITAL PREMIUM DEFICIT
-------- -------- ----------- -----
Issuance of
shares 6,775 536,088 - 542,863
Net loss - - (369,571) (369,571)
------- --------- ---------- --------
Balance as of
December 31,
1996
6,775 536,088 (369,571) 173,292
Net loss - - (418,132) (418,132)
------- -------- --------- ---------
Balance as of
December 31,
1997 6,775 536,088 (787,703) (244,840)
======= ========== ========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
LAMAR SIGNAL PROCESSING LTD.
STATEMENTS OF CASH FLOWS
In U.S. dollars
FOR THE PERIOD
FROM COMMENCEMENT
OF OPERATIONS FOR THE YEAR
(NOVEMBER 1995) ENDED
TO DECEMBER 31, 1996 DECEMBER 31, 1997
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (369,571) (418,132)
Adjustments to reconcile net
loss to net cash used
in operating activities (see below) 65,169 13,277
------------- ------------
Net cash used in operating
activities (304,402) (404,855)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (134,925) (40,337)
------------- ------------
Net cash used in investing
activities (134,925) (40,337)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term loans received 24,291 473,400
Repayment of long-term loans (7,997) (7,391)
Proceeds from issuance of share
capital 542,863 -
------------- ------------
Net cash provided by
financing activities 559,157 466,009
------------- ------------
INCREASE IN CASH AND CASH
EQUIVALENTS 119,830 20,817
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD - 119,830
------------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 119,830 140,647
============= ===========
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Income and expenses not affecting
operating cash flows:
Depreciation 14,719 22,642
Accrued severance pay 11,381 7,850
Changes in operating assets and
liabilities:
Increase in receivables (15,124) (7,682)
Increase in inventory - (19,816)
Increase in payables and
accrued expenses 54,873 10,831
Other (680) (548)
------------ ----------
65,169 13,277
============ ==========
CASH PAID DURING THE PERIOD
IN RESPECT OF:
Interest - 6,751
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
LAMAR SIGNAL PROCESSING LTD.
NOTES TO THE FINANCIAL STATEMENTS
In U.S. dollars
NOTE 1 - GENERAL
A. The Company is an Israeli corporation which commenced
operations in November 1995. The Company is engaged in
developing, manufacturing and marketing electronic
products for digital signal processing.
On May 5, 1998, Andrea Electronics Corporation, a U.S.
corporation, acquired all of the outstanding ordinary
shares of the Company.
B. The financial statements are prepared in U.S. dollars
because the currency of the primary economic environment
of the Company is the U.S. dollar. The majority of the
Company's sales are made in U.S. dollars as are the
majority of purchases of materials and components.
Transactions and balances originally denominated in U.S.
dollars are presented at their original amounts.
Transactions and balances in other currencies are
remeasured into U.S. dollars in accordance with
principles identical to those prescribed in Statement No.
52 of the Financial Accounting Standards Board of the
U.S. Accordingly, items have been remeasured as follows:
Monetary items - at the current exchange rate at
balance sheet date;
Nonmonetary items - at historical exchange rates;
Income and expense
items - at exchange rates current as of
the date of recognition of those
items (excluding depreciation
and other items deriving from
nonmonetary items).
Exchange gains and losses from the aforementioned
remeasurement are reflected in the statement of
operations.
C. The Company has sustained operating losses since
commencement of operations and has a shareholders'
deficiency of approximately $245,000 at December 31,
1997. The Company is not generating sufficient revenues
from its operations to fund its activities and is
therefore dependent on additional financing from external
sources. On May 5, 1998 Andrea Electronics Corporation
("Andrea"), a U.S. company, acquired all of the
outstanding ordinary shares of capital stock and control
in Lamar Signal Processing Ltd. ("Lamar"). Andrea has
agreed to provide Lamar the credit and terms necessary
7
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 1 - GENERAL (CONT.)
to finance operations at least to the period ended
December 31, 1998.
D. The Company faces a number of risks, including the
uncertainties of future product development and market
acceptance of its proposed products. Additionally, other
risk factors, such as the loss of key personnel,
difficulty in establishing, preserving and enforcing
intellectual property rights, and product obsolescence
due to the development of competing technologies, could
influence the future results of the Company.
E. The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - ACCOUNTING POLICIES
The financial statements have been prepared in conformity with
accounting principles generally accepted in Israel ("Israel
GAAP"). Israel GAAP and United States generally accepted
accounting principles ("U.S. GAAP") as applicable to the
financial statements of the Company are practically identical.
The significant accounting policies followed in the preparation
of these financial statements, on a consistent basis, are:
A. CASH EQUIVALENTS
All highly liquid investments are considered cash
equivalents if the investments mature within three months
of their acquisition.
B. INVENTORIES
Inventories are stated at the lower of cost or market,
cost being determined by the "first-in, first-out"
method.
8
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 2 - ACCOUNTING POLICIES (CONT.)
C. FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed
by the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized
over the period of the lease.
D. RESEARCH AND DEVELOPMENT COSTS
Research and development costs, net of participations,
are charged to operations as incurred.
E. REVENUE RECOGNITION OF INCOME
Income from the sale of products is recognized upon
shipment.
F. LOSS PER SHARE
Basic loss per share is computed based on the weighted
average number of ordinary shares outstanding during the
period. Diluted loss per share has not been presented as
there are no common stock equivalents outstanding for any
periods presented.
NOTE 3 - CASH AND CASH EQUIVALENTS
DECEMBER 31
1996 1997
------- -----
In U.S. dollars 110,936 113,644
In shekels 8,894 27,003
-------- -------
119,830 140,647
======== =======
9
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 4 - FIXED ASSETS
COMPUTERS OFFICE MOTOR LEASEHOLD TOTAL
AND EQUIPMENT VEHICLES IMPROVEMENTS
LABORATORY
EQUIPMENT
----------- -------- ---------- ----------- -------
Cost 128,079 11,117 31,344 4,722 175,262
Accumulated
depreciation
24,064 2,045 9,806 1,446 37,361
------------ -------- --------- ----------- --------
Net book
value as
of
December 31,
1997 104,015 9,072 21,538 3,276 137,901
============= ========= ======== =========== ========
Rates of
depreciation 15-33% 7-15% 15% 20%
============ ========= ========== ==========
10
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 5 - OTHER PAYABLES AND ACCRUED EXPENSES
DECEMBER 31
1996 1997
-------- ---------
Accrued salaries and related expenses 37,874 42,871
Shareholders 5,369 -
Other accrued expenses 11,630 22,833
-------- ----------
54,873 65,704
======== ===========
NOTE 6 - LONG-TERM LOANS
A. COMPOSITION
ANNUAL
INTEREST
RATE DECEMBER 31
% 1996 1997
----------- ----- -----
Loans from bank (1) 8.7% - 473,400
Capital lease 21.4% 15,614 7,675
------ -------
15,614 481,075
Less - current maturities 7,811 7,675
------ -------
7,803 473,400
====== =======
(1) The loans are in U.S. dollars.
The Company is eligible for a government-guaranteed
credit facility which, including loans of $473,400
received as of December 31, 1997, amounts to
approximately $1.1 million. The use of the total facility
is subject to the implementation of the Company's
investment program (see Note 12B).
11
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 6 - LONG-TERM LOANS (CONT.)
B. The aggregate maturities of long-term loans subsequent to
balance sheet date are as follows:
Current maturities 7,675
Second year 9,121
Third year 92,247
Fourth year 183,064
Fifth year 151,952
Sixth year 37,016
--------
481,075
========
C. COLLATERAL - See Note 10.
NOTE 7 - ACCRUED SEVERANCE PAY
DECEMBER 31
1996 1997
----- -----
Accrual 11,381 22,005
Less - deposits with severance
pay fund - 2,774
------ ------
11,381 19,231
====== ======
The Company's obligation to make severance payments to its
employees is fully covered by the payment of insurance premiums
in respect thereof and by the accrual in the balance sheet . The
insurance policies, which are in the form of an annuity and/or
life insurance, are owned by the Company. Upon deposit of all
required amounts, the Company is released from all liability for
severance pay and the risks are transferred to the insurance
companies. The amounts funded with insurance companies are not
under the management or control of the Company, and accordingly,
neither those amounts nor the corresponding accrual for
severance pay are reflected in the balance sheet.
12
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 8 - CONTINGENT LIABILITIES AND COMMITMENTS
A. The Company is obligated to pay royalties to the
Israel-United States Binational Industrial Research and
Development Foundation ("BIRD") in respect of products
developed with BIRD's participation, at a rate of 2.5 -
5% of the proceeds from sales of those products, up to
150% of the amount of participation. The total amount
received, as of December 31, 1997, was $45,000. No
royalties were paid in connection with these grants.
B. The Company has leased facilities in Yokneam, Israel for
one year, with renewal options for an aggregate period of
five years. Annual rent is $36,000. A portion of these
facilities is subleased for identical periods for annual
rental income of $16,000. Net rental expense for 1997
amounted to approximately $26,000.
NOTE 9 - SHARE CAPITAL
In March 1998, the Board of Directors of the Company approved
the issuance of 1,145 shares to an employee and 1,145 shares to
an investor for no consideration.
NOTE 10 - LIENS
A. The Company's liability to a leasing company is
guaranteed by a first degree lien recorded on its motor
vehicle.
B. As collateral for bank loans guaranteed by the State of
Israel, the Company has recorded floating liens on the
Company's assets and fixed liens on the Company's
equipment used in connection with its investment in the
Approved Enterprise, including insurance rights. In
addition, the Company recorded fixed liens on share
capital and goodwill.
13
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 11 - RESEARCH AND DEVELOPMENT COSTS, NET
FOR THE
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(NOVEMBER 1995) FOR THE YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ------------------
Salaries and related expenses 66,475 131,859
Materials 23,746 52,576
Subcontractors - 21,195
Other 8,240 18,850
-------------- -----------
98,461 224,480
============== ===========
Less - participation from the BIRD
Foundation and other - 62,171
-------------- ------------
98,461 162,309
============== ============
14
NOTES TO THE FINANCIAL STATEMENTS (CONT.)
In U.S. dollars
NOTE 12 - TAXES ON INCOME
A. The Company is subject to the Income Tax Law (Inflationary
Adjustments), 1985.
B. "Approved Enterprise" - The Company has received
approval for an investment program in accordance with the
Law for the Encouragement of Capital Investments, 1959.
The Company has chosen to receive its benefits through
the "Government Loan Guarantee" program and, as such, is
eligible for various benefits. These benefits include
accelerated depreciation of fixed assets used in the
investment program, as well as a full tax exemption on
undistributed income that is derived from the approved
enterprise for a period of two years and reduced tax
rates for additional period of up to eight years. Due to
tax losses the benefit period has not yet commenced. The
letter of approval contains certain additional conditions
which must be fulfilled, including requirements that at
least one-third of the investments in the program be
financed by paid-up share capital and that there be no
reduction (as defined by the law and in the letter of
approval) in shareholders' equity during the benefit
period. Should the Company fail to meet the conditions,
the Company may be required to repay immediately all
loans received under the program. Management believes the
Company is in compliance with the requirements of the
law.
Dividends paid out of income derived from the approved
enterprise are subject to 15% withholding. Should the
Company pay dividends out of income earned during the ten
year tax holiday, it will be liable for up to 25% tax on
that income.
C. The Company has carryforward losses for tax purposes of
approximately $700,000. There are no deferred tax
balances as of the end of any reporting period. The
company did not record any deferred tax assets due to
uncertainty of realization.
D. The Company has not received final tax assessments
since incorporation.
15
ANDREA ELECTRONICS CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ANDREA ELECTRONICS CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Actual Actual Pro Forma
Andrea Lamar Combined Adjustments(h) As Adjusted
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $ 2,355,962 $ 31,888 $ 2,387,850 $(2,106,281)(a) $ 281,569
Marketable Securities 742,174 - 742,174 - 742,174
Accounts Receivable, net 4,067,698 23,535 4,091,233 - 4,091,233
Inventories, net 7,732,193 29,309 7,761,502 - 7,761,502
Deferred Income Taxes 849,250 - 849,250 - 849,250
Prepaid Expenses and Other Current Assets 1,330,359 - 1,330,359 - 1,330,359
----------- -------- ----------- ----------- -----------
Total Current Assets 17,077,636 84,732 17,162,368 (2,106,281) 15,056,087
Property Plant and Equipment, net 713,494 133,650 847,144 - 847,144
Deferred Income Taxes 628,322 - 628,322 - 628,322
Other Assets 1,938,444 - 1,938,444 27,509,664 (i) 29,448,108
----------- -------- ----------- ----------- -----------
Total Assets $20,357,896 $218,382 $20,576,278 $25,403,383 $45,979,661
=========== ======== =========== =========== ===========
Liabilities & Shareholders' Equity
Trade Accounts Payable $ 2,137,756 $ 57,545 $ 2,195,301 $ - $ 2,195,301
Other Current Liabilities 661,653 79,134 740,787 - 740,787
----------- -------- ----------- ----------- -----------
Total Current Liabilities 2,799,409 136,679 2,936,088 - 2,936,088
Long Term Debt 429,880 492,305 922,185 1,564,000 (b) 2,486,185
----------- -------- ----------- ----------- -----------
Total Liabilities 3,229,289 628,984 3,858,273 1,564,000 5,422,273
----------- -------- ----------- ----------- -----------
Common Stock 4,526,365 6,775 4,533,140 902,225 (c) 5,435,365
Additional Paid-in Capital 11,294,632 536,088 11,830,720 21,983,693 (c) 33,814,413
Retained Earnings (Accumulated Deficit) 1,307,610 (953,465) 354,145 953,465 (c) 1,307,610
----------- -------- ----------- ----------- -----------
Total Equity 17,128,607 (410,602) 16,718,005 23,839,383 40,557,388
----------- -------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $20,357,896 $218,382 $20,576,278 $25,403,383 $45,979,661
=========== ======== =========== =========== ===========
</TABLE>
(See Notes)
ANDREA ELECTRONICS CORPORATION
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Actual Actual Pro Forma
Andrea Lamar Combined Adjustments(h) As Adjusted
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 4,475,070 $ 11,184 $ 4,486,254 $ - $ 4,486,254
Cost of Sales 2,820,222 2,753 2,822,975 - 2,822,975
----------- --------- ----------- ---------- -----------
Gross Profit 1,654,848 8,431 1,663,279 - 1,663,279
Research and Development Expenses 407,453 82,151 489,604 - 489,604
General, Administrative and Selling Expenses 2,393,334 79,746 2,473,080 468,494 (d) 2,941,574
----------- --------- ----------- ---------- -----------
Income (loss) from Operations (1,145,939) (153,466) (1,299,405) (468,494) (1,767,899)
Other Income (expense), net 1,911,155 (12,296) 1,898,859 (41,055)(e) 1,857,804
----------- --------- ----------- ---------- -----------
Income (loss) Before Income Tax
Provision (Benefit) 765,216 (165,762) 599,454 (509,549) 89,905
Income Tax Provision (Benefit) - - - - (f) -
----------- --------- ----------- ---------- -----------
Net Income (loss) $ 765,216 $(165,762) $ 599,454 $ (509,549) $ 89,905
=========== ========= =========== ========== ===========
Net Income Per Share:(g)
- ---------------------
Basic 0.01
Diluted 0.01
Shares Used in Computing Net Income Per Share
- ---------------------------------------------
Basic 10,754,255
Diluted 11,479,189
</TABLE>
(See Notes)
ANDREA ELECTRONICS CORPORATION
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Actual Actual Pro Forma
Andrea Lamar Combined Adjustments(h) As Adjusted
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $26,429,804 $ 5,833 $26,435,637 $ - $26,435,637
Cost of Sales 16,077,801 2,155 16,079,956 - 16,079,956
----------- --------- ----------- ----------- -----------
Gross Profit 10,352,003 3,678 10,355,681 - 10,355,681
Research and Development Expenses 1,106,880 162,309 1,269,189 - 1,269,189
General, Administrative and Selling Expenses 5,753,130 255,873 6,009,003 1,873,978 (d) 7,882,981
----------- --------- ----------- ----------- -----------
Income (loss) from Operations 3,491,993 (414,504) 3,077,489 (1,873,978) 1,203,511
Other Income (expense), net 76,864 (3,628) 73,236 (164,220)(e) (90,984)
----------- --------- ----------- ----------- -----------
Income (loss) Before Income Tax
Provision (Benefit) 3,568,857 (418,132) 3,150,725 (2,038,198) 1,112,527
Income Tax Provision (Benefit) (154,461) - (154,461) - (f) (154,461)
----------- --------- ----------- ----------- -----------
Net Income (loss) $ 3,414,396 $(418,132) $ 2,996,264 $(2,038,198) $ 958,066
=========== ========= =========== =========== ===========
Net Income Per Share:(g)
- ---------------------
Basic 0.10
Diluted 0.09
Shares Used in Computing Net Income Per Share
- ---------------------------------------------
Basic 9,966,153
Diluted 10,680,263
</TABLE>
(See Notes)
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Andrea Electronics Corporation ("Andrea") acquired all of the outstanding shares
of Lamar Signal Processing, Ltd. ("Lamar") in exchange for 1.8 million
restricted shares of Andrea common stock and $3 million in cash. Of the
aggregate cash consideration paid by Andrea for the Lamar shares, $1 million was
paid upon the closing of the acquisition and the remainder is payable in four
equal installments on each of the six, twelve, twenty-four and thirty-six month
anniversaries of the closing. Of the 1.8 milli on shares of Andrea comprising
the share consideration paid for the Lamar shares, one-third of such Andrea
shares shall become freely transferable on each of the first, second and third
anniversaries of the closing.
The unaudited pro forma balance sheet combines the balance sheets of Andrea and
Lamar as of March 31, 1998, assuming that the business combination, accounted
for as a purchase, had been completed as of the respective balance sheet date.
The pro forma statements of operations combine the statement of operations of
Andrea for the year ended December 31, 1997 with the statement of operations of
Lamar for the year ended December 31, 1997 and the statements of operations of
Andrea and Lamar for the three month s ended March 31, 1998, assuming that the
purchase occurred at the beginning of the periods presented.
The historical balance sheets used in the preparation of the pro forma financial
statements have been derived from Andrea's and Lamar's unaudited financial
statements as of March 31, 1998. The historical statements of operations for the
years ended December 31, 1997 have been derived from the audited statements of
operations of those entities. The historical statements of operations for the
three months ended March 31, 1998 have been derived from the companies'
respective unaudited financial statements.
2. UNAUDITED PRO FORMA ADJUSTMENTS
A description of the adjustments included in the unaudited pro forma financial
statements are as follows:
(a) Reflects $1 million in cash consideration paid upon the close of the
acquisition and an estimated $1.1 million in direct costs incurred in
connection with the acquisition.
(b) Reflects the discounted value of the $2 million in notes payable to the
selling shareholders of Lamar, using an interest rate of 10.5%.
(c) Reflects the elimination of Lamar's accumulated deficit, and adjustment
of equity accounts upon the issuance of 1.8 million shares of Andrea
common stock.
(d) Reflects amortization of the excess of the purchase price, including
related costs, over the fair value of the net assets acquired using a
15-year amortization period. This adjustment also reflects the
additional costs of an employment contract entered into between Lamar and
an employee, in connection with the acquisition, over the historical
compensation cost of that individual.
(e) Reflects interest expense on the discounted value ($1,564,000) of the
$2 million in notes payable, using a 10.5% effective interest rate.
(f) No adjustment is required for income taxes considering: (i) Lamar did not
generate taxable income for the periods presented; (ii) for Israeli tax
purposes, the tax status of Lamar in Israel provides for a current tax
holiday with minimal future tax liabilities; and (iii) for U.S. tax
purposes, goodwill amortization for this acquisition is not deductible.
(g) For all periods presented, the outstanding shares reflect the 1.8 million
share consideration paid by Andrea for the Lamar shares.
(h) The adjustments are based on available information and upon certain
assumptions that Andrea believes are reasonable under the circumstances;
however, the actual recording of the acquisition (which management does
not expect to vary materially) will be based on ultimate appraisals,
evaluations and estimates of fair market values.
(i) Represents the excess of the purchase price, including related costs,
over the fair value of the net assets acquired.
