SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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)
45 Melville Park Road, Melville, New York 11747
----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 631-719-1800
---------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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: 13,829,572.
ITEM 1. FINANCIAL STATEMENTS
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------- ----------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,048,927 $ 9,153,148
Accounts receivable, net of allowance for doubtful
accounts of $202,521 2,880,542 2,770,703
Inventories 7,303,320 7,123,747
Prepaid expenses and other current assets 211,847 267,817
--------------- ---------------
Total current assets 14,444,636 19,315,415
PROPERTY, PLANT AND EQUIPMENT, net 1,670,131 1,930,506
DEFERRED INCOME TAXES 1,806,615 1,806,615
OTHER ASSETS 2,216,521 2,254,989
GOODWILL 23,625,982 24,545,877
--------------- ---------------
Total assets $ 43,763,885 $ 49,853,402
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,840,655 $ 2,134,873
Current portion of long-term debt 592,830 597,247
Convertible notes, net - 1,485,077
Other current liabilities 909,567 1,076,733
--------------- ---------------
Total current liabilities 3,343,052 5,293,930
LONG-TERM DEBT 282,447 693,362
OTHER LIABILITIES - 14,477
--------------- ---------------
Total liabilities 3,625,499 6,001,769
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK, net,
$.01 par value; 500 and 750 shares issued and outstanding,
respectively 4,811,603 7,187,077
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized: 5,000,000
shares; none issued and outstanding - -
Common stock, $.50 par value; authorized: 25,000,000
shares; issued and outstanding: 13,829,572 and
13,242,538 shares, respectively 6,914,786 6,621,269
Additional paid-in capital 46,471,772 42,990,641
Accumulated deficit (18,059,775) (12,947,354)
--------------- ---------------
Total shareholders' equity 35,326,783 36,664,556
--------------- ---------------
Total liabilities and shareholders' equity $ 43,763,885 $ 49,853,402
=============== ===============
See Notes to Consolidated Financial Statements
</TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------------- --------------------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $3,181,268 $4,324,079 $6,382,752 $8,988,214
COST OF SALES 2,366,353 2,992,074 4,765,528 6,291,390
------------ ----------- ----------- -----------
Gross profit 814,915 1,332,005 1,617,224 2,696,824
RESEARCH AND DEVELOPMENT EXPENSES 1,089,194 829,899 2,239,672 1,604,737
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES 2,253,357 2,244,036 4,394,655 4,526,480
------------ ----------- ----------- -----------
Loss from operations (2,527,636) (1,741,930) (5,017,103) (3,434,393)
------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 116,554 50,435 223,392 73,750
Interest expense (64,931) (66,537) (152,103) (142,337)
Other - - (14,820) -
------------ ----------- ----------- -----------
51,623 (16,102) 56,469 (68,587)
------------ ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,476,013) (1,758,032) (4,960,634) (3,502,980)
PROVISION FOR INCOME TAXES - - - -
------------ ----------- ----------- -----------
Net loss $(2,476,013) $(1,758,032) $(4,960,634) $(3,502,980)
============ ============ =========== ===========
PREFERRED STOCK DIVIDENDS 60,410 8,525 151,787 8,525
------------ ----------- ----------- -----------
Net loss applicable to common
shareholders $(2,536,423) $(1,766,557) $(5,112,421) $(3,511,505)
============ ============ ============ ============
PER SHARE INFORMATION:
Net Loss Per Share:
Basic $(.18) $(.13) $(.37) $(.27)
============ ============ ============ ============
Diluted $(.18) $(.13) $(.37) $(.27)
============ ============ ============ ============
Shares used in computing net loss per share:
Basic 13,821,885 13,229,324 13,635,237 13,219,734
============ ============ ============ ============
Diluted 13,821,885 13,229,324 13,635,237 13,219,734
============ ============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Shares Common Paid-In Accumulated Shareholders'
Outstanding Stock Capital Deficit Equity
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 13,242,538 $ 6,621,269 $ 42,990,641 $(12,947,354) $36,664,556
Conversion of Series B Redeemable
Convertible Preferred Stock, net
of related costs 371,909 185,955 2,231,447 - 2,417,402
Exercise of stock options, net of
related costs 215,125 107,562 1,249,684 - 1,357,246
Preferred stock dividends - - - (151,787) (151,787)
Net loss - - - (4,960,634) (4,960,634)
------------- ------------ ------------- ------------- -------------
BALANCE, June 30, 2000 13,829,572 $ 6,914,786 $ 46,471,772 $(18,059,775) $35,326,783
============= ============ ============= ============= ============
See Notes to Consolidated Financial Statements
</TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,960,634) $(3,502,980)
Adjustments to reconcile net loss to net cash used in operating
activities:
Non-cash interest expense 39,964 143,535
Depreciation and amortization 1,815,117 1,563,925
(Increase) Decrease in:
Accounts receivable, net (109,839) 885,770
Inventories (179,573) 527,992
Prepaid expenses and other current assets (284,189) 59,218
Other assets 766 (313,450)
Decrease in:
Trade accounts payable (294,218) (557,220)
Other current and long term liabilities (311,379) (282,115)
------------ ------------
Net cash used in operating activities (4,283,985) (1,475,325)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (174,876) (579,792)
------------ ------------
Net cash used in investing activities (174,876) (579,792)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net from proceeds from Series B Redeemable Convertible Preferred
Stock - 7,456,830
Payments of debt obligations (517,529) (535,130)
Payment of convertible notes (1,485,077) -
Proceeds from issuance of common stock upon exercise of stock
options, net of related costs 1,357,246 121,564
------------ ------------
Net cash (used in) provided by financing activities (645,360) 7,043,264
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,104,221) 4,988,147
============ ============
CASH AND CASH EQUIVALENTS, beginning of period 9,153,148 5,437,423
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $4,048,927 $10,425,570
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
Conversion of Series B Redeemable Convertible Preferred Stock
and related accrued dividends into common stock $ 2,417,402 $ -
============ ============
Issuance of warrants in connection with Series B Redeemable
Convertible Preferred Stock $ - $ 348,457
============ ============
See Notes to Consolidated Financial Statements
</TABLE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation - The accompanying consolidated financial
statements include the accounts of Andrea Electronics Corporation and its
subsidiaries (collectively, 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 10-K for the year ended
December 31, 1999.
2. Earnings Per Common Share - Basic net income (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of
common shares outstanding. Diluted net income (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of
common shares and dilutive common share equivalents and convertible
securities then outstanding.
The following chart provides a reconciliation of information used in
calculating the per share amounts:
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ------------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(2,476,013) $(1,758,032) $(4,960,634) $(3,502,980)
Preferred stock dividends 60,410 8,525 151,787 8,525
--------------- --------------- -------------- ---------------
Net loss applicable to
common shareholders $(2,536,423) $(1,766,557) $(5,112,421) $(3,511,505)
=============== =============== ============== ===============
Denominator:
Weighted-average common
shares outstanding -- Basic 13,821,885 13,229,324 13,635,237 13,219,734
Effect of dilutive employee
stock options - - - -
--------------- --------------- -------------- ---------------
Weighted-average common
shares outstanding -- Diluted 13,821,885 13,229,324 13,635,237 13,219,734
=============== =============== ============== ===============
Net loss per share:
Basic $(.18) $(.13) $(.37) $(.27)
=============== =============== ============== ===============
Diluted $(.18) $(.13) $(.37) $(.27)
=============== =============== ============== ===============
</TABLE>
3. Comprehensive Income - The Company follows the provisions of SFAS No.
130, "Reporting Comprehensive Income", which requires companies to report
all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial statement
for the period in which they are recognized. Comprehensive income is the
total of net income (loss) and all other non-owner changes in equity (or
other comprehensive income) such as unrealized gains/losses on securities
available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. Comprehensive and other comprehensive
income must be reported on the face of the annual financial statements
or, in the case of interim reporting, in the footnotes to the financial
statements. For the six months ended June 30, 2000 and 1999, the
Company's operations did not give rise to items includible in
comprehensive income (loss), which were not already included in net
income (loss). Accordingly, the Company's comprehensive income (loss) is
the same as its net income (loss) for all periods presented.
4. Derivative Instruments - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal years beginning after June 15, 1999
(subsequently amended by SFAS No. 137 and SFAS No.138, to be effective
for all fiscal years beginning after June 15, 2000) and will not require
retroactive restatement of prior period financial statements. This
statement requires the recognition of all derivative instruments as
either assets or liabilities in the balance sheet measured at fair value.
Derivative instruments will be recognized as gains or losses in the
period of change. If certain conditions are met where the derivative
instrument has been designated as a fair value hedge, the hedge items may
also be marked to market through earnings, thus creating an offset. If
the derivative is designed and qualifies as a cash flow hedge, the
changes in fair value of the derivative instrument may be recorded in
comprehensive income. While the Company operates in international
markets, it does so presently without the use of derivative instruments.
5. Procurement Agreement - The Company has an agreement with International
Business Machines and its subsidiaries ("IBM") to produce and procure
certain products, as defined. The agreement continues in full force and
effect unless terminated earlier for material breach by either party, as
defined. For the six-month period ending June 30, 2000, sales of the
Company's products to IBM and certain of IBM's affiliates, distributors,
licensees and integrators accounted for approximately 40% of the
Company's total net sales.
6. Convertible Notes - On June 10, 1998, the Company issued and sold in a
private placement, $10,753,000 aggregate principal amount of 6%
Convertible Notes (the "Notes") due June 10, 2000. The remaining
obligation from these notes was paid in cash on June 9, 2000.
7. Series B Redeemable Convertible Preferred Stock - On June 22, 1999, the
Company issued and sold in a private placement $7,500,000 of Series B
Redeemable Convertible Preferred Stock (the "Preferred Stock"), and a
warrant covering 75,000 shares of the Company's common stock. Each of the
750 shares of Preferred Stock has a stated value of $10,000 plus
dividends of 4% per annum, which sum is convertible into common stock at
a conversion price equal to the lower of $8.775 (the "Maximum Conversion
Price") and the average of the two lowest closing bid prices of the
common stock during the 15 consecutive trading days immediately preceding
a conversion date (the "Market Price"), subject to certain adjustments,
including anti-dilution. The 4% dividends may, at the option of the
Company, be paid in cash. The warrant has an exercise price of $8.775 per
share and expires on June 18, 2004.
As of June 30, 2000, the remaining outstanding Preferred Stock is
convertible into the Company's common stock. Any unconverted Preferred
Stock that remains outstanding on June 18, 2004, will automatically
convert into the Company's common stock. The Company has reserved
1,744,235 of common stock for issuance upon conversion of the shares of
the Preferred Stock.
Upon the announcement of a major transaction, as defined, the investor
shall have the right to require the Company to redeem all or a portion of
the investor's Preferred Shares at a redemption price equal to the
greater of 120% of the stated value plus any accrued dividends and the
Market Price on the day of announcement. In addition, upon the occurrence
of certain triggering events, as defined, and depending on the Company's
control over such events, the investor may have the right to require the
Company to a) redeem all or a portion of the Preferred Shares at a
redemption price equal to the greater of 120% of the stated value plus
any accrued dividends and the Market Price on the day of announcement, or
b) pay a penalty equal to 1% of the remaining principal amount
outstanding for a period not to exceed 20 days in any 365 day period, and
adjust the Maximum Conversion Price, as defined.
During the six-month period beginning March 14, 2000, the Company,
subject to certain conditions, may exercise an option to sell to the
investor up to an additional $7.5 million of its Preferred Stock, and
warrants for up to an additional 75,000 shares of common stock.
On February 25, 2000, 250 shares of the Preferred Stock, together with
related accrued dividends, were converted into 371,909 shares of common
stock. As of June 30, 2000, the Preferred Stock is recorded net of the
unaccreted present value of the warrants of $188,397. Due to the
redemption features discussed above, the Preferred Stock is presented
outside of stockholders' equity in the accompanying consolidated balance
sheet.
8. Acquisition Of Business -On May 5, 1998, the Company acquired all of the
outstanding shares of capital stock of Lamar (the "Acquisition"). The
consideration paid by the Company for the Acquisition was approximately
1,800,000 shares of restricted common stock and $3,000,000 in cash and
notes payable. Of the approximately 1,800,000 shares issued to the
sellers, one-third became freely transferable on the first anniversary of
the closing, an additional one-third became transferable on the second
anniversary and the last one-third becomes transferable on the third
anniversary. Of the aggregate cash consideration to be paid by the
Company, $2,000,000 was paid through 1999, $500,000 was paid on May 5,
2000, and the remaining $500,000 is payable on May 5, 2001. The
Acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of Lamar have been included in
the consolidating operating results since the date of acquisition. The
Acquisition was valued using an independent appraisal of the fair value
of the consideration paid and the assets purchased, and resulted in
goodwill of approximately $27.6 million, which is being amortized over 15
years. Goodwill at June 30, 2000 is approximately $23.6 million, which is
net of approximately $4.0 million in accumulated amortization.
9. Segment Information - The Company follows the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Reportable operating segments are determined based on the Company's
management approach. The management approach, as defined by SFAS No. 131,
is based on the way that the chief operating decision-maker organizes the
segments within an enterprise for making operating decisions and
assessing performance. While the Company's results of operations are
primarily reviewed on a consolidated basis, the chief operating
decision-maker also manages the enterprise in three segments: (i) Andrea
Anti-Noise Products, (ii) Aircraft Communications Products, and (iii)
Far-field Digital Audio Technology Products. The following represents
selected consolidated financial information for the Company's segments
for the three months ended June 30, 2000, and 1999:
<TABLE>
<CAPTION>
Far-field
Aircraft Digital Audio
Andrea Anti-Noise Communications Technology
Segment Data Products Products Products June 30, 2000
----------------------------- ----------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 2,424,542 $ 638,453 $ 118,273 $ 3,181,268
Income (loss) from operations 107,696 (169,896) (2,465,436) (2,527,636)
Depreciation 98,242 46,983 82,109 227,334
Far-field
Aircraft Digital Audio
Andrea Anti-Noise Communications Technology
Segment Data Products Products Products June 30, 1999
----------------------------- ----------------- -------------- ------------- -------------
Net sales $ 3,258,125 $1,065,954 $ - $ 4,324,079
Income (loss) from operations (1,930,222) 188,292 - (1,741,930)
Depreciation 172,715 25,048 - 197,763
</TABLE>
For the six months ended June 30, 2000 and 1999, sales and accounts
receivable by geographic area are as follows:
Geographic Data June 30, 2000 June 30, 1999
----------------------- --------------- ---------------
Sales:
United States $ 1,905,804 $ 2,619,361
Europe 350,817 470,282
Other foreign 924,647 1,234,436
--------------- ---------------
$ 3,181,268 $ 4,324,079
=============== ===============
Accounts receivable:
United States $ 2,069,383 $ 3,102,367
Europe 434,375 486,034
Other foreign 376,784 393,611
--------------- ---------------
$ 2,880,542 $ 3,982,012
=============== ===============
10. Legal Proceedings - As previously reported in "Item 3. Legal Proceedings"
in the Company's Annual Report on Form 10-K for the year ended December
31, 1999, on November 17, 1998 a complaint was filed against us in the
U.S. District Court for the Eastern District of New York by NCT Group,
Inc. ("NCT"; formerly Noise Cancellation Technologies, Inc.) and NCT
Hearing Products, Inc., one of NCT's subsidiaries. The complaint involves
two of Andrea's patents, U.S. Patent No. 5,732,143 and U.S. Patent No.
5,825,897. These patents relate to certain active noise reduction
technology that is particularly applicable to aircraft passenger
headphones. Andrea does not currently derive any sales or licensing
revenue from aircraft passenger headphones. The complaint requests a
declaration that these two patents are invalid and unenforceable and that
NCT's products do not infringe upon these two patents. The complaint
alleges that Andrea has engaged in unfair competition by misrepresenting
the scope of the two patents, tortiously interfering with prospective
contractual rights between NCT and its existing and potential customers,
making false and disparaging statements about NCT and its products, and
falsely advertising Andrea's ANR products. The complaint seeks to enjoin
Andrea from engaging in these alleged activities and seeks compensatory
damages of not less than $5 million, punitive damages of not less than
$50 million and plaintiffs' costs and attorneys' fees. On December 30,
1998, we filed and served an answer to the NCT complaint, denying the
allegations and asserting affirmative defenses and counterclaims. Our
counterclaims allege that NCT has infringed U.S. Patents Nos. 5,732,143
and 5,825,897, and that NCT has engaged in trademark infringement, false
designation of origin, and unfair competition. The counterclaims also
allege that NCT's patent infringement has been and is willful. The
counterclaims seek injunctive relief with respect to the allegations of
patent infringement, trademark infringement, false designation of origin
and unfair competition. We are also seeking exemplary and punitive
damages, prejudgment interest on all damages, costs, reasonable
attorneys' fees and expenses. During the second half of 1999, both NCT
and Andrea submitted briefs to the Court on whether to have an early
hearing on the meaning of the claims in the two Andrea patents. This type
of hearing is called a "Markman Hearing." We are unable to anticipate
when the Court will issue a decision on this question. We and NCT are
proceeding with discovery, including document production and depositions.
If this suit is ultimately resolved in favor of NCT, we could be
materially adversely effected. We believe, however, that NCT's
allegations are without merit and we intend to vigorously defend Andrea
and to assert against NCT the claims described above.
On March 11, 1999, we were notified about a claim filed with the New York
State Environmental Protection and Spill Compensation Fund (the "Fund")
by the owners (Mark J. Mergler and Ann Mergler, the "Claimants") of
property adjoining our former Long Island City facility. This claim
alleges property damages arising from petroleum migrating from our former
facility and was purportedly detected in the basement of the Claimants'
property. In their claim to the Fund, the Claimants alleged that their
property has been damaged and that they have incurred remedial costs. In
the event the Fund honors this claim in whole or in part, we may be
liable to reimburse the Fund. The New York State Department of
Environmental Conservation has asserted a demand that we investigate and
remediate the discharge of petroleum from a fuel oil storage tank at our
former Long Island City facility, and determine whether the petroleum
discharge has migrated to the Claimants' adjoining property. We engaged
environmental consultants to investigate the discharge from the fuel oil
storage tank and we are currently funding remediation work. We denied,
however, the allegations that any petroleum discharge has migrated to the
Claimant's property and objected to the claim made by the Claimant to the
Fund. On September 2, 1999, a civil action related to this matter was
commenced in the Nassau County Supreme Court by Mark J. Mergler and Ann
Mergler. The plaintiffs allege that the fuel oil released from the
heating system of our former facility has migrated beneath and onto the
neighboring property causing an excess of $1,000,000 in direct and
consequential damages. The plaintiffs' allegations against us include,
negligence, nuisance and strict liability under the New York State
Navigation Law. We have submitted an answer denying the allegations and
all liability relating to the alleged property damage. This lawsuit is at
an early stage and we are unable to evaluate the likelihood of an
unfavorable outcome or estimate the amount or range of potential loss, if
any.
In addition to the litigation described above, we are from time to time
subject to routine litigation incidental to our business.
11. Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Our mission is to provide the emerging "voice interface" markets with
state-of-the-art communications products that facilitate natural language,
human/machine interfaces.
Examples of the applications and interfaces for which Andrea Anti-Noise
Products and Andrea digital signal processing ("DSP") Microphone and Software
Products provide benefits include: Internet and other computer-based speech;
telephony communications; telematics; multi-point conferencing; speech
recognition; multimedia; multi-player Internet and CD ROM interactive games;
military and commercial aircraft communications; and other applications and
interfaces that incorporate natural language processing. We believe that end
users of these applications and interfaces will require high quality
microphone and earphone products that enhance voice transmission, particularly
in noisy environments, for use with personal computers, mobile personal
computing devices, military and commercial aircraft systems, cellular and
other wireless communication devices and automotive communication systems.
High quality audio communication technologies will also be required for
emerging "far-field" voice applications, ranging from continuous speech
dictation, to multiparty video teleconferencing and collaboration, to natural
language-driven interfaces for automobiles, home and office automation and
other machines and devices into which voice-controlled microprocessors are
expected to be introduced during the next several years.
Our strategy is to maintain and extend our market position with our Andrea
Anti-Noise Products; broaden our Andrea Anti-Noise Product lines and Andrea
DSP Microphone and Software Product lines through internal research and
development and, from time to time, strategic acquisitions; design our
products to satisfy specific end-user requirements identified by our
collaborative partners; and outsource manufacturing of certain products in
order to achieve economies of scale. An important element of our strategy for
expanding the channels of distribution and broadening the base of users for
our products is our collaborative arrangements with OEMs, software publishers,
and distributors and retailers actively engaged in the various markets in
which our products have application. Under some of these arrangements, we
supply our products for sale by our collaborative partners. Under others, the
collaborative partners supply us with software that we include with our
products. In addition, we have been increasing our own direct marketing
efforts.
The success of our strategy will depend on our ability to, among other things,
increase sales of our line of existing Andrea Anti-Noise Products and Andrea
DSP Microphone and Software Products, contain costs, manage growth, introduce
additional Andrea Anti-Noise Products and Andrea DSP Microphone and Software
Products, maintain the competitiveness of our technologies through successful
research and development, and achieve widespread adoption of our products and
technologies.
In order to complement our internal efforts to develop DSP technology, in May
1998, we acquired Lamar Signal Processing, Ltd. ("Lamar"), an Israeli
corporation engaged in the development of DSP noise cancellation microphone
solutions for voice-driven interfaces covering a wide range of audio and
acoustic applications. This acquisition resulted in a substantial amount of
goodwill. The amortization of this goodwill had, and will continue to have, a
negative, non-cash impact on our results of operations.
We outsource the assembly of most of our Andrea Anti-NoiseProducts from
purchased components, and we are currently assembling our Andrea DSP
Microphone and Software Products from purchased components at our New York and
Israeli facilities. We manufacture our Aircraft Communications Products at our
New York facility.
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.
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 months ended June
30, 2000 (the "2000 Second Quarter") compared to the three months ended June
30, 1999 (the "1999 Second Quarter"), and for the six months ended June 30,
2000 (the "2000 First Half") compared to the six months ended June 30, 1999
(the "1999 First Half"), 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 "anticipates,"
"believes," "estimates," "expects," "intends," "plans," "seeks," variations of
such words, and similar expressions are intended to identify forward-looking
statements. We have based these forward-looking statements on our current
expectations, estimates and projections about our business and industry, our
beliefs and certain assumptions made by our management. Investors are
cautioned that matters subject to forward-looking statements involve risks and
uncertainties including economic, competitive, governmental, technological and
other factors that may affect our business and prospects. These statements are
not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict. In order to
obtain the benefits of these "safe harbor" provisions for any such
forward-looking statements, we wish to caution investors and prospective
investors about the following significant factors, which, among others, have
in some cases affected our actual results and are in the future likely to
affect our actual results and could cause them to differ materially from those
expressed in any such forward-looking statements. These factors include:
o Our results of operations have historically been and are subject to
continued substantial annual and quarterly fluctuations. The causes of
these fluctuations include, among other things:
- the volume of sales of our products under our collaborative
marketing arrangements;
- the cost of development of our products under our collaborative
development arrangements;
- the mix of products we sell;
- the mix of distribution channels we use;
- the timing of our new product releases and those of our competitors;
- fluctuations in the computer and communications hardware and
software marketplace; and
- general economic conditions.
o We cannot assure that the level of sales and gross profit, if any, that
we achieve in any particular fiscal period will not be significantly
lower than in other fiscal periods. Our revenues for the 2000 Second
Quarter were approximately $3.2 million compared to approximately $4.3
million in the 1999 Second Quarter. For the 2000 Second Quarter, we had a
net loss applicable to common shareholders of approximately $2.5 million
versus a net loss of $1.8 million for the 1999 Second Quarter. Our
revenues for the 2000 First Half were approximately $6.4 million compared
to approximately $9.0 million in the 1999 First Half. For the 2000 First
Half, we had a net loss applicable to common shareholders of
approximately $5.1 million versus a net loss of $3.5 million for the 1999
First Half.
o While we are examining opportunities for further cost-reduction,
production efficiencies and diversification of our business, we may
continue to accumulate losses and the market price of our common stock
could decline. In order to remain competitive, we intend to continue to
incur substantial research and development, selling and general and
administrative expenses. These expenses may not be necessarily or easily
reduced if sales revenue is below expectations and, therefore, net income
or loss may be disproportionately affected by any reduction in sales
revenue. Accordingly, we believe that period-to-period comparisons of our
results of operations may not necessarily be meaningful and should not be
relied upon as indications of future performance.
o Sales of a substantial number of shares of our common stock in the public
market could have the effect of depressing the prevailing market price of
our common stock. Of the 25,000,000 shares of common stock presently
authorized (subject to increase to 35,000,000 upon the filing of an
amendment to our Restated Certificate of Incorporation approved by our
Board and shareholders), 13,829,572 were outstanding as of August 11,
2000. This does not include (i) 5,311,125 shares of our common stock
reserved for issuance upon exercise of outstanding options granted under
our 1991 Performance Equity Plan and 1998 Stock Plan and shares of our
common stock reserved for further option grants under the 1991 Performance
Equity Plan and 1998 Stock Plan and (ii) 1,744,235 shares of common stock
reserved for issuance upon conversion of the Series B Convertible
Preferred Stock and exercise of the related warrant. To the extent that
Series B Convertible Preferred Stock is converted, the related warrant is
exercised, such options are exercised or we issue additional shares of
capital stock, the ownership interests of holders of common stock would
be diluted.
We have 500 shares of Series B Convertible Preferred Stock and a warrant
for 75,000 shares of common stock outstanding and, subject to certain
conditions and limitations, we have the right during the six month period
beginning March 14, 2000 to sell to the current holder of Series B
Convertible Preferred Stock up to an additional 750 shares of Series B
Convertible Preferred Stock and a warrant for up to an additional 75,000
shares of common stock. The number of shares of common stock issuable
upon the conversion of the Series B Convertible Preferred Stock depends
on the prices of the common stock as quoted on the American Stock
Exchange shortly before the date of conversion. We cannot predict the
price of the common stock in the future. If the price of our common stock
decreases over time, the number of shares of common stock issuable upon
conversion of the Series B Convertible Preferred Stock will increase and
the holders of common stock would experience substantial dilution of
their investment. On February 25, 2000, 250 shares of Series B
Convertible Preferred Stock were converted into 371,909 shares of common
stock.
In addition, in May 1998, we issued 1,800,000 shares of common stock as
part of the consideration for our acquisition of Lamar Signal Processing,
Ltd., of which 1,200,000 shares of common stock are subject to trading
restrictions that expire with respect to 600,000 in May 2001. As the
restrictions expire, the shares are subject to demand and piggyback
registration rights.
o Most of our current and potential competitors have significantly greater
financial, technology development, marketing, technical support and other
resources than we do. Consequently, these competitors may be able to
respond more quickly to new or emerging technologies and changes in
customer requirements, or devote greater resources to the development,
marketing, and sale of their products than we can. We cannot assure that
one or more of these competitors will not independently develop
technologies that are substantially equivalent or superior to our
technology.
o We have entered into several collaborative and distribution arrangements
with software publishers and computer hardware manufacturers relating to
the marketing and sale of Andrea Anti-Noise Products and Andrea DSP
Microphone and Software Products. Under these collaborative arrangements,
our products are or will be sold to end users through inclusion of the
products of our collaborators. The revenue derived by us from these
arrangements will be based in large part upon the sale of our
collaborator's products. Our success will therefore be dependent to a
substantial degree on the efforts of these collaborators in marketing
existing products and new products under development with which to
include our products and technologies. We cannot assure that any product
of any of our collaborators incorporating our products and technologies
will be marketed successfully. Our collaborators generally are not
contractually obligated to any minimum level of sales of our products or
technologies. Furthermore, our collaborators may develop their own
microphone or earphone products or technologies that compete with our
products and technologies. We cannot assure that these collaborators will
not replace our products or technologies with, or give higher priority
to, the sales of these competitive products or technologies. We have also
established direct arrangements with large electronic and computer retail
chains in the United States, as well as with certain distributors in
Europe and the Americas. We cannot assure that any of these channels will
devote sufficient resources to support the sale of our products. We are
also currently discussing additional arrangements with other software
companies, several major automotive companies, several major personal
computer companies, consumer electronic manufacturers, and electronic and
computer retailers. We cannot assure that any of these discussions will
result in any definitive agreements. We are substantially dependent on
our product procurement relationship with IBM. During the 2000 Second
Quarter, IBM and certain of IBM's affiliates, distributors, licensees and
integrators accounted for 40% of our net sales. While we are a party to a
procurement agreement with IBM covering the purchase by IBM of certain of
our Andrea Anti-Noise microphone and earphone products for inclusion with
certain of IBM's personal computer products, IBM is not obligated to
purchase these products and is free to purchase microphone and earphone
products and technologies from our competitors. Our failure to maintain
sales of Andrea Anti-Noise Products and Andrea DSP Microphone and
Software Products to IBM would have a material adverse effect on our
business, results of operations and financial condition.
o We conduct assembly operations at our facilities in New York and Israel
and through subcontractors. During initial production runs of Andrea
Anti-Noise Products, we perform assembly operations at our New York
facility from purchased components. As sales of any particular Andrea
Anti-Noise Product increase, assembly operations are primarily
transferred to a subcontractor in Asia. Any failure on the part of this
subcontractor to meet our production and shipment schedules could have a
material adverse effect on our business, results of operations and
financial condition.
Most of the components for the Andrea Anti-Noise Products and Andrea DSP
Microphone and Software Products are available from several sources and
are not characteristically in short supply. However, certain specialized
components, such as microphones and DSP boards, are available from a
limited number of suppliers and subject to long lead times. To date we
have been able to obtain sufficient supplies of these more specialized
components, but we cannot assure that we will continue to be able to do
so. Shortages of, or interruptions in, the supply of these more
specialized components could have a material adverse effect on our sales
of Andrea Anti-Noise Products and Andrea DSP Microphone and Software
Products.
We assemble our Aircraft Communications Products at our New York facility
from purchased components. Certain highly specialized components for our
Aircraft Communications Products sold for military and industrial use
have limited sources of supply, the availability of which can affect
particular products. We do not believe, however, that our earnings have
been, or will be, materially affected due to unavailability of these
components.
o We rely on a combination of patents, patent applications, trade secrets,
copyrights, trademarks, nondisclosure agreements with our employees,
licensees and potential licensees, limited access to and dissemination of
our proprietary information, and other measures to protect our
intellectual property and proprietary rights. We cannot assure, however,
that the steps we have taken to protect our intellectual property will
prevent its misappropriation or circumvention.
o We have been granted 18 patents in the United States covering our Andrea
Anti-Noise and Andrea DSP Microphone and Software Products, and we have
other U.S. and non-U.S. patent applications currently pending. We cannot
assure that patents will be issued with respect to these applications or
any patent applications filed by us in the future.
o Our performance is substantially dependent on the performance of our
executive officers and key employees. We are dependent on our ability to
retain and motivate high quality personnel, especially management and
product and technology development teams. The loss of the services of any
of our executive officers or other key employees could have a material
adverse effect on our business, results of operations and financial
condition. Our future success also depends on our continuing ability to
attract and retain additional highly qualified technical personnel.
Competition for qualified personnel is intense and we cannot assure that
we will be able to attract, assimilate or retain qualified personnel in
the future. Our inability to attract and retain the necessary technical
and other personnel could have a material adverse effect on our business,
results of operations and financial condition.
Results Of Operations
Quarter Ended June 30, 2000 Compared to the Quarter Ended June 30, 1999
Sales
-----
Sales for the 2000 Second Quarter were $3,181,268, a decrease of 26% from
sales of $4,324,079 for the 1999 Second Quarter. Sales for the 2000 First Half
were $6,382,752, a decrease of 29% from the 1999 First Half sales of
$8,988,214. The decrease in sales for the 2000 Second Quarter reflects an
approximate 26% decrease in sales of Andrea Anti-Noise Products to $2,424,542
or 76% of total sales, an approximate 40% decrease in sales of our Aircraft
Communications Products, to $638,453, or 20% of total sales, offset by initial
sales of Far-field Digital Audio Technology Products of $118,273, or 4% of
total sales. The decreases in sales are due to 1) lower volumes and lower
price/lower margin sales of PC headsets to the Company's original equipment
manufacturer (OEM) customers, and 2) a decrease in unit sales of higher-margin
Aircraft Communications Products. For the 2000 Second Quarter, sales of our
computer headsets to IBM and certain of its affiliates, distributors,
licensees and integrators accounted for approximately 40% of our total sales;
sales of computer headsets to Radio Shack and certain of its affiliates and
distributors accounted for approximately 10% of our total sales.
Cost of Sales
-------------
Cost of sales as a percentage of sales for the 2000 Second Quarter increased
to 74% from 69% for the 1999 Second Quarter. Cost of sales as a percentage of
sales for the 2000 First Half increased to 75% from 70% for the 1999 First
Half. This increase in cost of sales percentage is primarily a result of the
decreases in unit production and sales, as described above, over which to
spread the Company's pool of fixed overhead costs.
Research and Development
------------------------
Research and development expenses for the 2000 Second Quarter increased 31% to
$1,089,194 from $829,899 for the 1999 Second Quarter. Research and development
expenses for the 2000 First Half were $2,239,672, an increase of 40% from the
1999 First Half research and development expenses of $1,604,737. This increase
is due to the Company's continuing efforts to develop its Far-field Digital
Audio Technologies, coupled with, to a lesser extent, efforts in Aircraft
Communication product technologies and Andrea Anti-Noise Product technologies.
Specifically, Far-field Digital Audio Technology efforts were $896,319, or 82%
of total research and development expenses, Aircraft Communications technology
efforts were $144,447, or 13% of total research and development expenses and
Andrea Anti-Noise Product efforts were $48,428, or 5% of total research and
development expenses. With respect to Far-field Digital Audio Technologies,
research efforts are primarily focused on the pursuit of commercializing a
natural language-driven human/machine interface by developing optimal
far-field microphone solutions for various voice-driven interfaces,
incorporating the Company's digital super directional array microphone
technology ("DSDA") and certain other related technologies obtained through
the acquisition of Lamar in May 1998. Correspondingly, the activities of Lamar
accounted for approximately 24% of the total research and development expenses
during the 2000 Second Quarter. The Company believes that the acquisition of
Lamar significantly reinforces its position in digital signal processing by
extending the Company's marketing programs to other industries, including the
consumer electronics and professional audio markets, among others. With
respect to Aircraft Communication technologies, research efforts are primarily
focused on developing intercom systems that are capable of accepting the
Company's digital audio software technologies. The Company anticipates
continued significant increases in research and development expenses as the
year progresses, with particular emphasis on Far-field Digital Audio
Technologies.
General, Administrative and Selling Expenses
--------------------------------------------
General, administrative and selling expenses of $2,253,357 for the 2000 Second
Quarter remained flat over the same period in 1999. General, administrative
and selling expenses for the 2000 First Half were $4,394,655, a decrease of 3%
from the 1999 First Half general, administrative and selling expenses of
$4,526,480. The stabilization of these costs are primarily attributable to the
implementation of the Company's cost reduction plan. The relative high level
of general, administrative and selling expenses, primarily attributable to the
Far-field Digital Audio Technology product line, reflects significant business
development expenses relating to existing and prospective collaborative
arrangements with OEMs, software publishers and developers. The Company also
incurs significant promotional, marketing and sales expenses to promote
product awareness and acceptance of the Far-field Digital Audio Technology
product line. In addition, included in general, administrative and selling
expenses in the 2000 Second Quarter and 2000 First Half is goodwill amortization
expense of $459,995 and $919,895, respectively.
Other Income (Expense)
----------------------
Other income for the 2000 First Half was $56,469 compared to other expense of
$68,587 for the 1999 First Half. This change was due to interest earned on
higher cash balances resulting from the sale of the Company's Series B
Redeemable Convertible Preferred Stock.
Provision for Income Taxes
--------------------------
The Company did not record income tax expense for the 2000 Second Quarter or
the 2000 First Half in light of the net loss recorded for the periods.
Furthermore, the realization of a portion of the Company's reserved deferred
tax assets, if and when realized, will not result in a tax benefit in the
consolidated statement of operations, but will result in an increase in
additional paid in capital as they are related to tax benefits associated
with the exercise of stock options. The Company will be continually
re-assessing its reserves on deferred income tax assets in future periods on
a quarterly basis.
Net Income (Loss)
-----------------
Net loss for the 2000 Second Quarter was $2,476,013 compared to a net loss of
$1,758,032 for the 1999 Second Quarter. Net loss for the 2000 First Half was
$4,960,634 compared to net loss of $3,502,980 for the 1999 First Half.
The levels of net loss for the 2000 Second Quarter and the 2000 First Half
principally reflects the factors described 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 proceeds from the
sale of convertible notes, preferred stock or other securities to certain
financial institutions. At June 30, 2000, we had cash and cash equivalents of
$4,048,927 compared with $9,153,148 at December 31, 1999. The balance of cash
and cash equivalents at June 30, 2000 is primarily a result of the Company's
issuance and sale in a private placement of $7,500,000 of its Series B
Redeemable Convertible Preferred Stock (the "Preferred Stock"). On February
25, 2000, 250 shares of the Preferred Stock were converted into 371,909 shares
of common stock at a conversion price of $6.91 per share. The Company is using
the net proceeds from the issuance of the Preferred Stock for costs associated
with technology development, tooling costs, creating and maintaining strategic
alliances, payment of certain debt obligations and general working capital
requirements.
In connection with the acquisition of Lamar, of the aggregate cash
consideration to be paid by the Company, $1,000,000 was paid on May 5, 1998,
the closing date, and $500,000 was paid on each of the six, twelve and
twenty-four month anniversaries of the closing date, with the remainder
payable on the thirty-six month anniversary of the closing. The $500,000 in
additional cash consideration remaining, due on the thirty-six month
anniversary of the closing, is recorded as a component of current portion of
long-term debt on the accompanying consolidated balance sheet.
Working capital at June 30, 2000, was $11,101,584 compared to $14,021,485 at
December 31, 1999. The decrease in working capital reflects decreases in total
current assets and total current liabilities of $4,870,779, and $1,950,878,
respectively. The decrease in total current assets reflects decreases in cash
and prepaid expenses and other current assets of $5,104,221 and $55,970,
respectively, offset by increases in accounts receivable and inventory of
$109,839, and $179,573, respectively. The decrease in current liabilities
reflects decreases in trade accounts payable of $294,218, current portion of
long-term debt of $4,417, other current liabilities of $167,166, other
liabilities of $14,477 and convertible notes of $1,485,077.
The decrease in cash from December 31, 1999 to the period ending June 30, 2000
of $5,104,221 reflects $4,283,985 of net cash used in operating activities,
$174,876 of net cash used in investing activities and $645,360 of net cash
used in financing activities.
The cash used in operating activities, excluding non-cash charges, is
primarily attributable to the $4,960,634 net loss for the 2000 First Half, a
$109,839 increase in accounts receivable, a $179,573 increase in inventory, a
$284,189 increase in prepaid expenses and other current assets a $294,218
decrease in accounts payable and a $311,379 decrease in other current and long
term liabilities. The increase in prepaid expenses and other current assets
primarily includes the recognition of increased premiums for prepaid property
taxes and insurance, as well as increases in other service costs related to
the remainder of 2000. The decrease in accounts payable and other current and
long term liabilities as well as the increase in inventory primarily reflect
differences in the timing related to both the payments for and the acquisition
of raw materials as well as for other services in connection with ongoing
efforts related to the Company's various product lines. The decrease in other
current and long term liabilities is also partially attributable to a decrease
in accrued interest expense associated with the partial conversion of the
Series B Redeemable Convertible Preferred stock on February 25, 2000.
The cash used in investing activities is primarily attributable to investments
in the Company's existing information systems, as well as, to a lesser extent,
capital expenditures consisting of the ongoing upgrade of manufacturing dies
and molds for Andrea Anti-Noise Products.
The net cash used in financing activities reflects the payment of the
remaining principal amount of the convertible notes and the twenty-four month
anniversary installment payment to the former shareholders of Lamar, partially
offset by exercises of employee stock options.
Demand for the Company's products and technologies has required the Company to
raise additional working capital to support operations. In addition, the
acquisition of Lamar will require the Company to continue to provide working
capital to support Lamar's operations and to repay notes to the sellers of
Lamar. In June 1998, the Company raised $10 million through the issuance and
sale of the Notes. In June 1999, the Company raised $7.5 million through the
issuance and sale of Preferred Stock. 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. At June 30, 2000, there were no outstanding amounts under the
revolving credit agreement. We believe that our current levels of cash and our
access to financing sources, provide sufficient liquidity and capital
resources to fund working capital requirements for at least twelve to eighteen
months. Notwithstanding the significance of sales of Andrea Anti-Noise
Products as a percentage of our total sales during the 2000 First Half, we
cannot assure that demand will continue for these products or any of our other
products, including future products related to our Andrea Microphone Array
Products and Software Technologies, or, that if such demand does exist, that
we 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal source of financing activities includes debt under a revolving
credit facility that provides for interest at a spread above the prime rate,
as well as the issuance of convertible debt with major financial institutions.
We are affected by market risk exposure primarily through the effect of
changes in interest rates on amounts payable in cash by us under the revolving
credit facility, as well as the amount payable in stock by us under
convertible debt. A significant rise in interest rates could materially
adversely affect our financial condition and results of operations. At June
30, 2000, there were no outstanding borrowings under our credit facility, and
$5 million of unconverted redeemable preferred stock. We do not utilize
derivative financial instruments to hedge against changes in interest rates or
for any other purpose. In addition, substantially all transactions by us are
denominated in U.S. dollars. As such, we have shifted foreign currency
exposure onto its foreign customers. As a result, if exchange rates move
against foreign customers, we could experience difficulty collecting unsecured
accounts receivable, the cancellation of existing orders or the loss of future
orders. The foregoing could materially adversely affect our business,
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 22, 2000, at the Annual Meeting of Shareholders of the Company, the
shareholders elected as directors of the Company the following individuals:
Douglas J. Andrea (11,182,596 shares for, 692,222 shares withheld); John N.
Andrea (11,178,269 shares for, 696,549 shares withheld); Gary Jones
(11,236,861 shares for, 637,957 shares withheld); Scott Koondel (11,214,086
shares for, 660,732 shares withheld); Jack Lahav (11,246,861 shares for,
627,957 shares withheld); John R. Larkin (11,207,011 shares for, 667,807 shares
withheld); Paul Morris (11,200,236 shares for, 674,582 shares withheld);
Christopher P. Sauvigne (11,219,181 shares for, 655,637 shares withheld). The
shareholders voted to amend the Certificate of Incorporation of the Company,
which authorized an increased in the number of authorized shares of Common
Stock to 35,000,000 shares from 25,000,000 (9,929,842 shares for, 1,896,856
shares against, 48,120 shares abstained). In addition, the shareholders
authorized an amendment to the 1998 Stock Plan of the Company to increase the
number of shares of common stock issuable thereunder to 3,675,000 shares from
3,000,000 shares (9,729,446 shares for, 2,021,452 shares against, 53,920 shares
abstained). The shareholders also ratified the selection of Arthur Andersen LLP
as the Company's independent accountants for the year ending December 31, 1999
(11,724,208 shares for, 106,565 shares against, and 44,045 shares abstained).
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 did not file any reports on Form 8-K during the six-month
period ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANDREA ELECTRONICS CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Christopher P. Sauvigne President and Chief August 14, 2000
----------------------------------- Operating Officer
Christopher P. Sauvigne
/s/ Richard A. Maue Senior Vice President, Chief August 14, 2000
Richard A. Maue Financial Officer, and Secretary
</TABLE>
