Cost of revenues as a percentage of net revenues for
the three months ended March 31, 2012 increased to 42% from 33% for the three months ended March 31, 2011. The cost of revenues
as a percentage of net revenues for the three months ended March 31, 2012 for Andrea Anti-Noise Products was 61% compared to 59%
for the three months ended March 31, 2011. The cost of revenues as a percentage of net revenues for the three months ended March
31, 2012 for the Andrea DSP Microphone and Audio Software Products was 18% compared to 5% for the three months ended March 31,
2011. The increase in cost of revenues as a percentage of sales for the Andrea Anti-Noise Products for the three months ended March
31, 2012 was a result of a decrease in revenues in this segment and therefore decreased revenue to apply to our fixed cost of revenues.
The increase in cost of revenues as a percentage of sales for Andrea DSP Microphone and Audio Software Products for the three months
ended March 31, 2012 was a result of the decreased licensing revenues offset in part by increased OEM revenues.
Research and development expenses for the three months
ended March 31, 2012 decreased 10% to $188,042 from $208,312 for the three months ended March 31, 2011. For the three months ended
March 31, 2012, the decrease in research and development expenses reflects an 11% decrease in our Andrea DSP Microphone and Audio
Software Technology efforts to $108,631, or 58% of
total research and development expenses, and an 8% decrease
in our Andrea Anti-Noise Headset Product efforts to $79,411, or 42% of total research and development expenses. These decreases
are related to decreased stock based compensation expense and decreased legal and professional fees. With respect to DSP Microphone
and Audio Software 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
Andrea’s digital super directional array microphone technology, and certain other related technologies such as noise suppression
and stereo acoustic echo cancellation. We believe that continued research and development spending should provide Andrea with a
General, Administrative and Selling Expenses
General, administrative and selling expenses increased
approximately 4% to $616,671 for the three months ended March 31, 2012 from $591,522 for the three months ended March 31, 2011.
For the three months ended March 31, 2012, the increase reflects a 3% increase in our Andrea DSP Microphone and Audio Software
Technology efforts to $275,580, or 45% of total general, administrative and selling expenses and a 5% increase in our Andrea Anti-Noise
Headset Product efforts to $341,091, or 55% of total general, administrative and selling expenses.
Interest Income, net
Interest income, net for the three months ended March
31, 2012 was $2,221 compared to $1,701 for the three months ended March 31, 2011.
Provision for Income Taxes
There was no provision for income taxes
for the three months ended March 31, 2012, compared to a provision for income taxes of $5,336 for the three months ended March
Net loss for the three months ended March 31, 2012 was
$358,147 compared to net loss of $137,623 for the three months ended March 31, 2011. The net loss for the three months ended March
31, 2012 and March 31, 2011 principally reflects the factors described above.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material
Liquidity And Capital Resources
Andrea’s principal sources of
funds are and are expected to continue to be cash flows from operations. At March 31, 2012, we had cash of $2,004,463 compared
with $2,193,377 at December 31, 2011. The decrease in our cash balance at March 31, 2012 was primarily a result of our cash used
Our working capital balance at March 31, 2012 was $2,882,571
compared to working capital of $3,080,486 at December 31, 2011. The decrease in working capital reflects a decrease in total current
assets of $393,516 and a decrease in total current liabilities of $195,601. The decrease in total current assets reflects a decrease
in cash of $188,914, a decrease in accounts receivable of $150,806, a decrease in inventory of $124,018, and an increase in prepaid
expenses of $70,222. The decrease in total current liabilities reflects a decrease in trade accounts payable of $155,160, and a
decrease of $40,441 in other current liabilities.
The decrease in cash of $188,914
reflects $187,901 of net cash used in operating activities, and $1,013 of net cash used in investing activities.
The cash used in operating activities
of $187,901, excluding non-cash charges for the three months ended March 31, 2012, was attributable to a $150,806 decrease in accounts
receivable, a $124,071 decrease in inventories, a $70,222 increase in prepaid expenses and other current assets, a $155,160 decrease
in trade accounts payable, and a $40,441 decrease in other current liabilities. The changes in accounts receivable, inventories,
prepaid expenses and other current assets and trade accounts payable primarily reflect differences in the timing related to both
the payments for and the acquisition of inventory as well as for other services in connection with ongoing efforts related to Andrea’s
various product lines.
The cash used in investing activities
of $1,013 reflects an increase in patents and trademarks of $1,013. The increase in patents and trademarks reflects capital expenditures
associated with our intellectual property.
We plan to improve our cash flows in
2012 by aggressively pursuing additional licensing opportunities related to our Andrea DSP Audio Software and increasing the sales
of our Andrea Anti-Noise Headset Products through the introduction of new products as well as the increased efforts we are putting
into our sales and marketing efforts. However, there can be no assurance that we will be able to successfully execute the aforementioned
plans. As of May 10, 2012, Andrea has approximately $2,100,000 of cash deposits. We believe that we have sufficient liquidity available
to continue in operation through at least March 2013. To the extent that we do not generate sufficient cash flows from our operations
in the next twelve months, additional financing might be required. Although we have improved cash flows by reducing overall expenses,
if our revenues decline, these reductions may impede our ability to be cash flow positive and our net income or loss may be disproportionately
affected. We have no commitment for additional financing and may experience difficulty in obtaining additional financing on favorable
terms, if at all. Any financing we obtain may contain covenants that restrict our freedom to operate our business or may have rights,
preferences or privileges senior to our common stock and may dilute our current shareholders’ ownership interest in Andrea.
We cannot assure that demand will continue for any of our products, including future products related to our Andrea DSP Microphone
and Audio Software technologies, or, that if such demand does exist, that we will be able to obtain the necessary working capital
to increase production and provide marketing resources to meet such demand on favorable terms, or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
Andrea’s management, including
its principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure
controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial
officer concluded that, as of the end of the period covered by this report, Andrea’s disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be disclosed in the reports that it files or submits under
the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to Andrea’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that all control issues and instances of fraud, if
any, within a company have been detected. Andrea’s disclosure controls and procedures are designed to provide reasonable
assurance of achieving its objectives.
There have been no changes in the
Company’s internal controls over financial reporting that have materially affected, or are reasonable likely to materially
affect the Company’s internal controls over financial reporting during the period covered by this Quarterly Report.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Andrea is involved in routine litigation
incidental to the normal course of business. While it is not feasible to predict or determine the final outcome of the claims,
Andrea believes any resolution of these matters will not have a material adverse effect on Andrea’s consolidated financial
position, results of operations or liquidity.
In addition, in December 2010, Audrey
Edwards, Executrix of the Estate of Leon Leroy Edwards, filed a law suit in the Superior Court of Providence County, Rhode Island,
against 3M Company and over 90 other defendants, including the Company, alleging that the Company processed, manufactured, designed,
tested, packaged, distributed, marketed or sold asbestos containing products that contributed to the death of Leon Leroy Edwards.
The Company received service of process in April 2011. The Company has retained legal counsel and has filed a response to the compliant.
The Company believes the lawsuit is without merit. Accordingly, the Company does not believe the lawsuit will have a material adverse
effect on the Company’s financial position or results of operations.
1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES
OF EQUITY SECURITY AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit 31.1 – Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer
Exhibit 31.2 – Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer
Exhibit 32 – Section 1350 Certifications
Exhibit 101.0* The following materials from
the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL: (i) the Condensed Consolidated
Balance Sheets; (ii) the Condensed Consolidated Statements of Shareholders’ Equity; (iv) the Condensed Consolidated Statements
of Cash Flows and (v) the Notes to the Condensed Consolidated Financial Statements.
* Furnished, not filed
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 thereunto
|ANDREA ELECTRONICS CORPORATION|
||/s/ DOUGLAS J. ANDREA|
||Name: Douglas J. Andrea|
||Title: Chairman of the Board, President, Chief|
Executive Officer and Corporate Secretary
Date: May 14, 2012
|/s/ DOUGLAS J. ANDREA
||Chairman of the Board, President, Chief
||May 14, 2012|
|Douglas J. Andrea
||Executive Officer and Corporate Secretary
|/s/ CORISA L. GUIFFRE
||Vice President, Chief Financial Officer and
||May 14, 2012|
|Corisa L. Guiffre
||Assistant Corporate Secretary