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EXCEL - IDEA: XBRL DOCUMENT - ANDREA ELECTRONICS CORP | Financial_Report.xls |
EX-32 - EX-32 - ANDREA ELECTRONICS CORP | ex32.htm |
EX-31.2 - EX-31.2 - ANDREA ELECTRONICS CORP | ex31-2.htm |
EX-31.1 - EX-31.1 - ANDREA ELECTRONICS CORP | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 March 31, 2013 |
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ |
Commission file number 1-4324
________
________
ANDREA ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
New York |
11-0482020 |
|||||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
|||||
65 Orville Drive, Bohemia, New York |
11716 |
|||||
(Address of principal executive offices) |
(Zip Code) |
|||||
Registrants 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 o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]
No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer o |
Accelerated Filer o |
|||||
Non-Accelerated Filer o |
Smaller Reporting Company x |
|||||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the
issuers classes of common equity, as of the latest practicable date: As of May 10, 2013, there were 63,721,035 common shares
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2013 |
December 31, 2012 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(unaudited) |
||||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash |
$ | 1,460,491 | $ | 1,746,363 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $17,980 and $18,980, respectively |
353,877 | 229,025 | ||||||||
Inventories, net |
561,850 | 633,069 | ||||||||
Prepaid expenses and other current assets |
62,048 | 89,327 | ||||||||
Total current assets |
2,438,266 | 2,697,784 | ||||||||
Property and equipment, net |
242,854 | 266,137 | ||||||||
Intangible assets, net |
634,652 | 752,973 | ||||||||
Other assets, net |
13,198 | 12,864 | ||||||||
Total assets |
$ | 3,328,970 | $ | 3,729,758 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||
Current liabilities: |
||||||||||
Trade accounts payable |
$ | 205,539 | $ | 197,954 | ||||||
Accrued Series C Preferred Stock Dividends |
73,921 | 73,921 | ||||||||
Other current liabilities |
146,468 | 163,286 | ||||||||
Total current liabilities |
425,928 | 435,161 | ||||||||
Series B Redeemable Convertible Preferred Stock, $.01 par value; authorized: 1,000 shares; issued and outstanding: 0
shares |
| | ||||||||
Commitments and contingencies |
||||||||||
Shareholders equity: |
||||||||||
Preferred stock, $.01 par value; authorized: 2,497,500 shares; none issued and outstanding |
| | ||||||||
Series C Convertible Preferred Stock, net, $.01 par value; authorized: 1,500 shares; issued and outstanding: 44.2 shares; liquidation value:
$442,314 |
1 | 1 | ||||||||
Series D Convertible Preferred Stock, net, $.01 par value; authorized: 2,500,000 shares; issued and outstanding: 907,144 shares; liquidation
value: $907,144 |
9,072 | 9,072 | ||||||||
Common stock, $.01 par value; authorized: 200,000,000 shares; issued and outstanding: |
||||||||||
63,721,035 shares |
637,210 | 637,210 | ||||||||
Additional paid-in capital |
77,527,089 | 77,521,216 | ||||||||
Accumulated deficit |
(75,270,330 | ) | (74,872,902 | ) | ||||||
Total shareholders equity |
2,903,042 | 3,294,597 | ||||||||
Total liabilities and shareholders equity |
$ | 3,328,970 | $ | 3,729,758 |
See Notes to Condensed Consolidated Financial
Statements.
2
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2013 |
March 31, 2012 |
||||||||||
Revenues |
|||||||||||
Net Product revenues |
$ | 526,161 | $ | 547,249 | |||||||
License revenues |
149,419 | 217,832 | |||||||||
Revenues |
675,580 | 765,081 | |||||||||
Cost of revenues |
308,808 | 320,736 | |||||||||
Gross margin |
366,772 | 444,345 | |||||||||
Research and development expenses |
178,867 | 188,042 | |||||||||
General, administrative and selling expenses |
587,462 | 616,671 | |||||||||
Loss from operations |
(399,557 | ) | (360,368 | ) | |||||||
Interest income, net |
2,129 | 2,221 | |||||||||
Loss before provision for income taxes |
(397,428 | ) | (358,147 | ) | |||||||
Provision for income taxes |
| | |||||||||
Net loss |
$ | (397,428 | ) | $ | (358,147 | ) | |||||
Basic and diluted weighted average shares |
63,721,035 | 63,721,035 | |||||||||
Basic and diluted net loss per share |
$ | (0.01 | ) | $ | (0.01 | ) |
See Notes to Condensed Consolidated Financial
Statements.
3
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)
Series C Convertible Preferred Stock Outstanding |
Series C Convertible Preferred Stock |
Series D Convertible Preferred Stock Outstanding |
Series D Convertible Preferred Stock |
Common Stock Shares Outstanding |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Shareholders Equity |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2013 |
44.231432 | $ | 1 | 907,144 | $ | 9,072 | 63,721,035 | $ | 637,210 | $ | 77,521,216 | $ | (74,872,902 | ) | $ | 3,294,597 | ||||||||||||||||||||||
Stock-based Compensation Expense related to Stock Option Grants |
| | | | | | 5,873 | | 5,873 | |||||||||||||||||||||||||||||
Net loss |
| | | | | | | (397,428 | ) | (397,428 | ) | |||||||||||||||||||||||||||
Balance, March 31, 2013 |
44.231432 | $ | 1 | 907,144 | $ | 9,072 | 63,721,035 | $ | 637,210 | $ | 77,527,089 | $ | (75,270,330 | ) | $ | 2,903,042 |
See Notes to Condensed Consolidated Financial
Statements.
4
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2013 |
March 31, 2012 |
||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
$ | (397,428 | ) | $ | (358,147 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||||||
Depreciation and amortization |
141,604 | 140,929 | |||||||||
Stock based compensation expense |
5,873 | 20,316 | |||||||||
Change in: |
|||||||||||
Accounts receivable |
(124,852 | ) | 150,806 | ||||||||
Inventories |
71,219 | 124,018 | |||||||||
Prepaid expenses, other current assets and other assets |
26,945 | (70,222 | ) | ||||||||
Trade accounts payable |
7,585 | (155,160 | ) | ||||||||
Other current liabilities |
(16,818 | ) | (40,441 | ) | |||||||
Net cash used in operating activities |
(285,872 | ) | (187,901 | ) | |||||||
Cash flows used in investing activities: |
|||||||||||
Purchases of patents and trademarks |
| (1,013 | ) | ||||||||
Net cash used in investing activities |
| (1,013 | ) | ||||||||
Net decrease in cash |
(285,872 | ) | (188,914 | ) | |||||||
Cash, beginning of year |
1,746,363 | 2,193,377 | |||||||||
Cash, end of period |
$ | 1,460,491 | $ | 2,004,463 | |||||||
Supplemental disclosures of cash flow information: |
|||||||||||
Cash paid for: |
|||||||||||
Income Taxes |
$ | 365 | $ | 3,430 |
See Notes to Condensed Consolidated Financial
Statements.
5
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. |
Basis of Presentation |
Basis of Presentation - The accompanying unaudited
condensed consolidated interim financial statements include the accounts of Andrea Electronics Corporation and its subsidiaries (Andrea or
the Company). All intercompany balances and transactions have been eliminated in consolidation.
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for
interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by
GAAP for complete financial statements. In addition, the December 31, 2012 balance sheet data was derived from the audited consolidated financial
statements, but does not include all disclosures required by GAAP. 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 of any interim period are not necessarily
indicative of the results of operations to be expected for any other interim period or for the fiscal year.
These unaudited condensed consolidated interim financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31,
2012 included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on March 29, 2013. The accounting
policies used in preparing these unaudited condensed consolidated interim financial statements are consistent with those described in the December 31,
2012 audited consolidated financial statements.
Note
2. |
Summary of Significant Accounting Policies |
(Loss) Earnings Per Share - Basic (loss) earnings per
share is computed by dividing the net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss)
earnings adjusts basic (loss) earnings per share for the effects of convertible securities, stock options and other potentially dilutive financial
instruments, only in the periods in which such effect is dilutive. Securities that could potentially dilute basic earnings per share (EPS)
in the future that were not included in the computation of the diluted EPS because to do so would have been anti-dilutive for the periods presented,
consist of the following:
Total potential common shares as
of: | March 31, 2013 |
March 31, 2012 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Options to purchase common stock (Note 6) |
17,205,821 | 17,382,821 | ||||||||
Series C Convertible Preferred Stock and related accrued dividends (Note 3) |
2,023,658 | 2,023,658 | ||||||||
Series D Convertible Preferred Stock (Note 4) |
3,628,576 | 3,628,576 | ||||||||
Total potential common shares |
22,858,055 | 23,035,055 |
Cash - Cash includes cash and highly liquid investments
with original maturities of three months or less. At various times during the periods ended March 31, 2013 and December 31, 2012, the Company had cash
deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At March 31, 2013, the Companys
cash was held at two financial institutions.
Concentration of Credit Risk - The following customers
accounted for 10% or more of Andreas consolidated net revenues during at least one of the periods presented below:
For the Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2013 |
March 31, 2012 |
||||||||||
Customer A |
16 | % | * | ||||||||
Customer B |
* | 26 | % | ||||||||
Customer C |
* | 10 | % |
* |
Amounts are less than 10% |
As of March 31, 2013, Customer A, Customer B and Customer C
accounted for approximately 30%, 11% and 7% of accounts receivable, respectively. As of December 31, 2012, Customer B and Customer C accounted for
approximately 32% and 11% of accounts receivable, respectively.
6
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
The following suppliers accounted for 10% or more of
Andreas purchases during the periods presented below:
For the Three Months Ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2013 |
March 31, 2012 |
||||||||||
Supplier A |
99 | % | 42 | % | |||||||
Supplier B |
* | 19 | % | ||||||||
Supplier C |
* | 16 | % |
At March 31, 2013 and December 31, 2012, Supplier A accounted for
approximately 66% and 58% of trade accounts payable, respectively.
Allowance for Doubtful Accounts - The Company performs
on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customers current credit worthiness, as
determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company maintains
an allowance for doubtful accounts, which is based upon historical experience as well as specific customer collection issues that have been identified.
While such bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue
to experience the same credit loss rates that it has in the past. If the financial condition of customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.
InventoriesInventories are stated at the lower of
cost (on a first-in, first-out) or market basis. The cost of inventory is based on the respective cost of materials. Andrea reviews its inventory
reserve for obsolescence on a quarterly basis and establishes reserves on inventories based on the specific identification method as well as a general
reserve. Andrea records changes in inventory reserves as part of cost of revenues.
March 31, 2013 |
December 31, 2012 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Raw materials |
$ | 25,462 | $ | 25,484 | ||||||
Finished goods |
1,187,066 | 1,262,535 | ||||||||
1,212,528 | 1,288,019 | |||||||||
Less: reserve for obsolescence |
(650,678 | ) | (654,950 | ) | ||||||
$ | 561,850 | $ | 633,069 |
Intangible and Lived Assets - Andrea accounts for its
long-lived assets in accordance with ASC 360 Property, Plant and Equipment for purposes of determining and measuring impairment of its
long-lived assets (primarily intangible assets) other than goodwill. Andreas policy is to periodically review the value assigned to its
long-lived assets to determine if they have been permanently impaired by adverse conditions which may affect Andrea. If Andrea identifies a permanent
impairment such that the carrying amount of Andreas long lived assets are not recoverable using the sum of an undiscounted cash flow projection
(gross margin dollars from product revenues), a new cost basis for the impaired asset will be established. If required, an impairment charge is
recorded based on an estimate of future discounted cash flows. This new cost basis will be net of any recorded impairment. At March 31, 2012 Andrea
concluded that the Andrea DSP Microphone and Audio Software Products business segment was not required to be tested for recoverability. At March 31,
2013, Andrea compared the sum of undiscounted cash flow projections (gross margin dollars from product sales) of the Andrea DSP Microphone and Audio
Software core technology to the carrying value of that technology and concluded that the Andrea DSP Microphone and Audio Software Products business
segment was not impaired.
Revenue Recognition - Non software-related revenue, which
is generally comprised of microphones and microphone connectivity product revenues, is recognized when title and risk of loss pass to the customer,
which is generally upon shipment. With respect to licensing revenues, Andrea recognizes revenue in accordance with ASC 985, Software and
ASC 605 Revenue Recognition. License revenue is recognized based on the terms and conditions of individual contracts. In addition, fee
based services, which are short-term in nature, are generally performed on a time-and-material basis under separate service arrangements and the
corresponding revenue is generally recognized as the services are performed.
Subsequent to March 31, 2013, one of the Companys customers
determined that certain royalties related to their licensing agreement were not reported for 2012 and for the quarter ended March 31, 2013. The Company
and the customer are in the process of determining the amount of unreported royalty revenue due to the Company. Since the Company is unable to estimate
this amount, the Company has not recorded any revenue related to the unreported royalty revenue. The Company will record the unreported royalty revenue
once the amount can be reasonably estimated.
7
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Income Taxes - Andrea accounts for income taxes in
accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires an asset and liability approach for financial accounting and
reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions,
and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that
are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial
reporting and tax bases of the Companys assets and liabilities at the enacted tax rates in effect for the years in which the differences are
expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than
not that some portion or all of the deferred tax assets will not be realized. Andrea expects it will reduce its valuation allowance in future periods
to the extent that it can demonstrate its ability to utilize the assets. Management makes judgments as to the interpretation of the tax laws that might
be challenged upon an audit and cause changes to previous estimates of tax liability. In managements opinion, adequate provisions for income
taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves
may be necessary. Income tax expense consists of the tax payable for the period and the change during the period in deferred tax assets and
liabilities. The Company has identified its federal tax return and its state tax return in New York as major tax jurisdictions. Based on
the Companys evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Companys
condensed consolidated interim financial statements. The Companys evaluation was performed for tax years ended 2009 through 2012. The Company
believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material
change to its financial position.
Stock-Based Compensation - At March 31, 2013, Andrea had
two stock-based employee compensation plans, which are described more fully in Note 6. Andrea accounts for stock-based compensation in accordance with
ASC 718, Compensation Stock Compensation (ASC 718). ASC 718 establishes accounting for stock-based awards exchanged for
employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award,
and is recognized as expense over the employees requisite service period (generally the vesting period of the equity grant). The fair value of
the Companys common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility,
dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In
accordance with ASC 718, excess tax benefits realized from the exercise of stock-based awards are classified in cash flows from financing activities.
The future realization of the reserved deferred tax assets related to these tax benefits associated with the exercise of stock options will result in a
credit to additional paid in capital if the related tax deduction reduces taxes payable. The Company has elected the with and without
approach regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year.
Under this approach, the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax benefit is realized after
considering all other benefits presently available.
Use of Estimates - The preparation of condensed
consolidated interim financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and
liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the
reporting period.
Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. The most significant estimates, among other things, are used
in accounting for allowances for bad debts, inventory valuation and obsolescence, product warranty, depreciation, deferred income taxes, expected
realizable values for assets (primarily intangible assets), contingencies, revenue recognition as well as the recording and presentation of the
Companys convertible preferred stock. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected
in the condensed consolidated interim financial statements in the period that they are determined to be necessary. Actual results could differ from
those estimates and assumptions.
Reclassifications - Certain prior year amounts have been
reclassified to conform to the current year presentation. The reclassifications did not have any effect on reported consolidated net loss for the
periods presented.
Subsequent Events - The Company evaluates events that
occurred after the balance sheet date but before the condensed consolidated interim financial statements are issued. Based upon the evaluation, the
Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
consolidated interim financial statements.
Note 3. Series C Redeemable Convertible Preferred
Stock
On October 10, 2000, Andrea issued and sold in a private
placement $7,500,000 of Series C Redeemable Convertible Preferred Stock (the Series C Preferred Stock). Each of these shares of Series C
Preferred Stock had a stated value of $10,000 plus a
8
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
$1,671 increase in the stated value, which sum is convertible
into Common Stock at a conversion price of $0.2551. On February 17, 2004, Andrea announced that it had entered into an Exchange and Termination
Agreement and an Acknowledgment and Waiver Agreement, which eliminated the dividend of 5% per annum on the stated value. The additional amount of
$1,671 represents the 5% per annum from October 10, 2000 through February 17, 2004. The shares of Series C Preferred Stock are subject to antidilution
provisions, which are triggered in the event of certain stock splits, recapitalizations, or other dilutive transactions. In addition, issuances of
common stock at a price below the conversion price then in effect (currently $0.2551), or the issuance of warrants, options, rights, or convertible
securities which have an exercise price or conversion price less than that conversion price, other than for certain previously outstanding securities
and certain excluded securities (as defined in the certificate of amendment), require the adjustment of the conversion price to that lower
price at which shares of common stock have been issued or may be acquired. In the event that Andrea issues securities in the future which have a
conversion price or exercise price which varies with the market price and the terms of such variable price are more favorable than the conversion price
in the Series C Preferred Stock, the purchasers may elect to substitute the more favorable variable price when making conversions of the Series C
Preferred Stock.
In accordance with Sub Topic 815-40, Andrea evaluated the Series
C Preferred Stock and concluded that it is not indexed to the Companys stock because of the conversion price adjustment feature described above.
Accordingly, under the provisions of ASC 815, Derivatives and Hedging (ASC 815), Andrea evaluated the Series C Preferred Stock
embedded conversion feature. The Company has concluded that the embedded conversion feature would be classified in shareholders equity if it were
a freestanding instrument as the Series C Preferred Stock is more akin to equity and as such it should not be bifurcated from the Series C instrument
and accounted for separately.
As of March 31, 2013, there were 44.231432 shares of Series C
Preferred Stock outstanding, which were convertible into 2,023,658 shares of Common Stock and remaining accrued dividends of $73,921.
Note 4. Series D Redeemable Convertible Preferred
Stock
On February 17, 2004, Andrea entered into a Securities Purchase
Agreement (including a Registration Rights Agreement) with certain holders of the Series C Preferred Stock and other investors (collectively, the
Buyers) pursuant to which the Buyers agreed to invest a total of $2,500,000. In connection with this agreement, on February 23, 2004, the
Buyers purchased, for a purchase price of $1,250,000, an aggregate of 1,250,000 shares of a new class of preferred stock, the Series D Preferred Stock,
convertible into 5,000,000 shares of Common Stock (an effective conversion price of $0.25 per share) and Common Stock warrants exercisable for an
aggregate of 2,500,000 shares of Common Stock. These warrants were exercisable at any time after August 17, 2004, at an exercise price of $0.38 per
share. On February 23, 2009, these warrants expired without being exercised.
In addition, on June 4, 2004, the Buyers purchased for an
additional $1,250,000, an additional 1,250,000 shares of Series D Preferred Stock convertible into 5,000,000 shares of Common Stock (an effective
conversion price of $0.25 per share) and Common Stock warrants exercisable for an aggregate of 2,500,000 shares of Common Stock. The warrants were
exercisable at any time after December 4, 2004 and before June 4, 2009 at an exercise price of $0.17 per share. On June 4, 2009, these warrants expired
without being exercised.
The shares of Series D Preferred Stock are also subject to
antidilution provisions, which are triggered in the event of certain stock splits, recapitalizations, or other dilutive transactions. In addition,
issuances of common stock at a price below the conversion price then in effect (currently $0.25), or the issuance of warrants, options, rights, or
convertible securities which have an exercise price or conversion price less than that conversion price, other than for certain previously outstanding
securities and certain excluded securities (as defined in the certificate of amendment), require the adjustment of the conversion price to
that lower price at which shares of common stock have been issued or may be acquired. In the event that Andrea issues securities in the future which
have a conversion price or exercise price which varies with the market price and the terms of such variable price are more favorable than the
conversion price in the Series D Preferred Stock, the purchasers may elect to substitute the more favorable variable price when making conversions of
the Series D Preferred Stock. In addition, the Company is required to use its best efforts to secure the inclusion for quotation on the Over the
Counter Bulletin Board for the common stock issuable under the Series D Preferred Stock and to arrange for at least two market makers to register with
the Financial Industry Regulatory Authority. In the event that the holder of the Series D Preferred Stock and related warrants is unable to convert
these securities into Andrea Common Stock, the Company shall pay to each such holder a Registration Delay Payment. This payment is to be paid in cash
and is equal to the product of (i) the stated value of such Preferred Shares multiplied by (ii) the product of (1) .0005 multiplied by (2) the number
of days that sales cannot be made pursuant to the Registration Statement (excluding any days during that may be considered grace periods as defined by
the Registration Rights Agreement).
In accordance with Sub Topic 815-40, Andrea evaluated the Series
D Preferred Stock and concluded that it is not considered to be indexed to the Companys stock because of the conversion price adjustment feature
described above. Accordingly, under the provisions of ASC 815, Andrea evaluated the Series D Preferred Stock embedded conversion feature. The Company
has concluded
9
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
that the embedded conversion feature would be classified in
shareholders equity if it were a freestanding instrument as the Series D Preferred Stock is more akin to equity and as such it should not be
bifurcated from the Series D instrument and accounted for separately.
As of March 31, 2013, there were 907,144 shares of Series D
Preferred Stock outstanding which were convertible into 3,628,576 shares of Common Stock.
Note 5. Commitments And Contingencies
Leases
Andrea leases its corporate headquarters located in Bohemia, New
York. The lease from an unrelated party, which currently expires in April 2015, is for approximately 11,000 square feet and houses Andreas
warehousing, sales and executive offices. Rent expense under this operating lease was approximately $23,729 and $23,038 for the three months ended
March 31, 2013 and 2012, respectively.
As of March 31, 2013, the minimum annual future lease payments,
under this lease and all other noncancellable operating leases, are as follows:
2013 (April 1 December 31) |
$ | 84,896 | ||||
2014 |
112,575 | |||||
2015 |
37,749 | |||||
Total |
$ | 235,220 |
Employment Agreements
In July 2012, the Company entered into an employment agreement
with Mr. Andrea. The effective date of the employment agreement is August 1, 2012 and the agreement expires July 31, 2013 and is subject to renewal as
approved by the Compensation Committee of the Board of Directors. Pursuant to his employment agreement, Mr. Andrea will receive an annual base salary
of $350,000 (which was identical to Mr. Andreas salary for the period from August 1, 2011 to July 31, 2012) through July 31, 2013. In December
2012, Mr. Andrea voluntarily agreed to a $50,000 decrease of his annual salary for the remainder of the term of his employment agreement. The
employment agreement provides for quarterly bonuses equal to 25% of the Companys pre-bonus net after tax quarterly earnings in excess of $25,000
for a total quarterly bonus amount not to exceed $12,500; and annual bonuses equal to 10% of the Companys annual pre-bonus net after tax earnings
in excess of $300,000. Adjustments to net after tax earnings shall be made to remove the impact of change in recognition of accumulated deferred tax
asset value. All bonuses shall be payable as soon as the Companys cash flow permits. All bonus determinations or any additional bonus in excess
of the above will be made in the sole discretion of the Compensation Committee. Mr. Andrea is also entitled to a change in control payment equal to two
times his base salary with continuation of health and medical benefits for two years in the event of a change in control. In the event of his
termination without cause or resignation with the Companys consent, Mr. Andrea is also entitled to a severance payment equal to six months of his
base salary and a continuation for 12 months of health insurance coverage for Mr. Andrea, his spouse and his dependents. At March 31, 2013, the future
minimum cash commitments under this agreement aggregate $100,000.
In November 1999, as amended August 2008, the Company entered
into a change in control agreement with the Chief Financial Officer, Corisa L. Guiffre. This agreement provides for a change in control payment equal
to three times her average annual compensation for the five preceding taxable years, with continuation of health and medical benefits for three years
in the event of a change in control of the Company, as defined in the agreement, and subsequent termination of employment other than for
cause.
Legal Proceedings
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. We cannot predict the outcome of this litigation although the Company believes the lawsuit is without
merit.
Note 6. Stock Plans and Stock Based
Compensation
In 1998, the Board adopted the 1998 Stock Option Plan (1998
Plan), which was subsequently approved by the shareholders. The 1998 Plan, as amended, authorized the granting of awards, the exercise of which
would allow up to an aggregate of 6,375,000 shares of Andreas Common Stock to be acquired by the holders of those awards. The awards could take
the form of stock options, stock
10
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
appreciation rights, restricted stock, deferred stock, stock
reload options or other stock-based awards. Awards could be granted to key employees, officers, directors and consultants. No further awards will be
granted under the 1998 Plan.
In October 2006, the Board adopted the Andrea Electronics
Corporation 2006 Equity Compensation Plan (2006 Plan), which was subsequently approved by the shareholders. The 2006 Plan, as amended,
authorizes the granting of awards, the exercise of which would allow up to an aggregate of 18,000,000 shares of Andreas Common Stock to be
acquired by the holders of those awards. The awards can take the form of stock options, stock appreciation rights, restricted stock or other
stock-based awards. Awards may be granted to key employees, officers, directors and consultants. At March 31, 2013, there were 4,386,436 shares
available for further issuance under the 2006 Plan.
The stock option awards granted under these plans have been
granted with an exercise price equal to the market price of the Companys stock at the date of grant; with vesting periods of up to four years and
10-year contractual terms.
The fair values of each stock option grant is estimated on the
date of grant using the Black-Scholes option-pricing model that uses weighted-average assumptions. Expected volatilities are based on implied
volatilities from historical volatility of the Companys stock. The expected term of options granted represents the period of time that options
granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
There were no options granted during the three months ended March
31, 2013 and 2012.
Option activity during 2013 is summarized as
follows:
Options Outstanding |
Options Exercisable |
||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options Outstanding |
Weighted Average Exercise Price |
Weighted Average Fair Value |
Weighted Average Remaining Contractual Life |
Options Exercisable |
Weighted Average Exercise Price |
Weighted Average Fair Value |
Weighted Average Remaining Contractual Life |
||||||||||||||||||||||||||||
At January 1, 2013 |
17,270,321 | $ | 0.08 | $ | 0.08 | 4.95 years |
16,635,237 | $ | 0.08 | $ | 0.08 | 4.85 years |
|||||||||||||||||||||||
Expired |
(64,500 | ) | $ | 0.09 | $ | 0.07 | |||||||||||||||||||||||||||||
At March 31, 2013 |
17,205,821 | $ | 0.08 | $ | 0.08 | 4.71 years |
16,570,737 | $ | 0.08 | $ | 0.08 | 4.60 years |
Based on the March 31, 2013 fair market value of the
Companys common stock of $0.06, the aggregate intrinsic value for the 17,205,821 options outstanding and 16,570,737 shares exercisable is
$122,800.
Total compensation expense recognized related to stock option
awards was $5,873 and $20,316 for the three months ended March 31, 2013 and 2012, respectively. In the accompanying condensed consolidated statement of
operations for the three months ended March 31, 2013, $5,094 of expense is included in general, administrative and selling expenses, $675 is included
in research and development expenses and $104 is included in cost of revenues. In the accompanying condensed consolidated statement of operations for
the three months ended March 31, 2012, $16,554 of expense is included in general, administrative and selling expenses, $2,607 is included in research
and development expenses and $1,155 is included in cost of revenues.
As of March 31, 2013, there was $8,673 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under the 1998 and 2006 Plans. This unrecognized compensation cost
is expected to be recognized during 2013.
Note 7. Segment Information
Andrea follows the provisions of ASC 280 Segment
Reporting (ASC 280). Reportable operating segments are determined based on Andreas management approach. The management
approach, as defined by ASC 280, 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 Andreas results of operations are primarily reviewed on a consolidated basis, the chief
operating decision-maker also manages the enterprise in two segments: (i) Andrea DSP Microphone and Audio Software Products and (ii) Andrea Anti-Noise
Products. Andrea DSP Microphone and Audio Software Products primarily include products based on the use of some, or all, of the following technologies:
Andrea Digital Super Directional Array microphone technology (DSDA), Andrea Direction Finding and Tracking Array microphone technology
(DFTA), Andrea PureAudio noise filtering technology, and Andrea EchoStop, an advanced acoustic echo cancellation technology. Andrea
Anti-Noise Products include noise cancellation and active noise cancellation computer headset products and related computer peripheral
products.
11
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
The following represents selected condensed consolidated
financial information for Andreas segments for the three-month periods ended March 31, 2013 and 2012.
2013 Three Month Segment Data |
Andrea DSP Microphone and Audio Software Products |
Andrea Anti- Noise Products |
2013 Three Month Segment Data |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net revenues from external customers |
$ | 43,395 | $ | 482,766 | $ | 526,161 | ||||||||
License Revenues |
149,419 | | 149,419 | |||||||||||
Loss from operations |
152,354 | 247,203 | 399,557 | |||||||||||
Depreciation and amortization |
124,064 | 17,540 | 141,604 | |||||||||||
Assets |
1,714,713 | 1,614,257 | 3,328,970 | |||||||||||
Property and equipment and intangibles |
633,280 | 244,226 | 877,506 |
2012 Three Month Segment Data |
Andrea DSP Microphone and Audio Software Products |
Andrea Anti- Noise Products |
2012 Three Month Segment Data |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net revenues from external customers |
$ | 120,167 | $ | 427,082 | $ | 547,249 | ||||||||
License Revenues |
217,832 | | 217,832 | |||||||||||
Loss from operations |
(106,514 | ) | (253,854 | ) | (360,368 | ) | ||||||||
Depreciation and amortization |
119,997 | 20,932 | 140,929 | |||||||||||
Purchases of patents and trademarks |
766 | 247 | 1,013 |
December 31, 2012 Year End Segment Data |
Andrea DSP Microphone and Audio Software Products |
Andrea Anti- Noise Products |
2012 Year End Segment Data |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
$ | 1,946,597 | $ | 1,783,161 | $ | 3,729,758 | ||||||||
Property and equipment and intangibles |
759,273 | 259,837 | 1,019,110 |
Management assesses non-operating income statement data on a consolidated basis only. International revenues are based on the country in which
the end-user is located. For the three-month periods ended March 31, 2013 and 2012, and as of each respective period-end, net revenues and accounts
receivable by geographic area were as follows:
Geographic Data |
March 31, 2013 |
March 31, 2012 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Net revenues: |
||||||||||
United States |
$ | 470,730 | $ | 621,490 | ||||||
Foreign(1) |
204,850 | 143,591 | ||||||||
$ | 675,580 | $ | 765,081 |
(1) |
Net revenue from the Peoples Republic of China and Singapore represented 16% of total net revenues for the three months ended March 31, 2013. Net revenues to any one foreign country did not exceed 10% of total net revenues for the three months ended March 31, 2012. |
As of March 31, 2013 and December 31, 2012, accounts receivable by geographic area were as follows:
Geographic Data |
March 31, 2013 |
December 31, 2012 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accounts receivable: |
||||||||||
United States |
$ | 218,151 | $ | 206,575 | ||||||
Foreign |
135,726 | 22,450 | ||||||||
$ | 353,877 | $ | 229,025 |
12
ITEM 2. MANAGEMENTS 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 DSP
Microphone and Audio Software Products and Andrea Anti-Noise Products provide benefits include: Internet and other computer-based speech; telephony
communications; multi-point conferencing; speech recognition; multimedia; multi-player Internet and CD ROM interactive games; 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, cellular and other wireless communication devices and automotive communication systems. Our Andrea DSP Microphone and Audio Software
Products use far-field digital signal processing technology to provide high quality transmission of voice where the user is at a distance
from the microphone. High quality audio communication technologies will be required for emerging far-field voice applications, ranging from continuous
speech dictation, to Internet telephony and 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 Critical Accounting Policies
Our unaudited condensed consolidated interim financial statements
and the notes to our unaudited condensed consolidated interim financial statements contain information that is pertinent to managements
discussion and analysis. The preparation of unaudited condensed consolidated interim financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing
currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if
deemed appropriate, those estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or
future circumstances. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2012. A discussion of our critical accounting policies and estimates are included in
Managements Discussion and Analysis or Plan of Operation in our Annual Report on Form 10-K for the year ended December 31, 2012. Management has
discussed the development and selection of these policies with the Audit Committee of the Companys Board of Directors, and the Audit Committee of
the Board of Directors has reviewed the Companys disclosures of these policies. There have been no material changes to the critical accounting
policies or estimates reported in the Managements Discussion and Analysis section of the Annual Report on Form 10-K for the year ended December
31, 2012.
Cautionary Statement Regarding Forward-Looking
Statements
This report contains forward-looking statements that are based on
assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use
of the words believe, expect, intend, anticipate, estimate, project or similar
expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in economic,
competitive, governmental, technological and other factors that may affect our business and prospects. Additional factors are discussed below under
Risk Factors and in Part I, Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year
ended December 31, 2012. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be
placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any
obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after
the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
13
Risk Factors
Our operating results are subject to significant fluctuation,
period-to-period comparisons of our operating results may not necessarily be meaningful and you should not rely on them as indications of our future
performance.
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; |
|
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. |
We cannot assure that the level of revenues and gross profit, if
any, that we achieve in any particular fiscal period will not be significantly lower than in other fiscal periods. Our net revenues for the three
months ended March 31, 2013 were $675,580 compared to $765,081 for the three months ended March 31, 2012. Net loss for the three months ended March 31,
2013 was $397,428, or $0.01 per share on a basic and diluted basis, and $358,147, or $0.01 per share on a basic and diluted basis for the three months
ended March 31, 2012. We continue to explore opportunities to grow sales in other business areas; we are also examining additional opportunities for
cost reduction, production efficiencies and further diversification of our business.
Shares Eligible For Future Sale May Have An Adverse Effect On
Market Price and Andrea Shareholders May Experience Substantial Dilution.
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 200,000,000 shares of common stock
presently authorized, 63,721,035 were outstanding as of May 10, 2013. The number of shares outstanding does not include an aggregate of 27,244,491
shares of common stock that are issuable. This number of issuable common shares is equal to approximately 43% of the 63,721,035 outstanding shares.
These issuable common shares are comprised of: a) 17,205,821 shares of our common stock reserved for issuance upon exercise of outstanding awards
granted under our 1998 Stock Plan and 2006 Stock Plan; b) 4,386,436 shares reserved for future grants under our 2006 Stock Plan; c) 2,023,658 shares of
common stock that are issuable upon conversion of the Series C Preferred Stock; and d) 3,628,576 shares of common stock issuable upon conversion of the
Series D Preferred Stock.
In addition to the risk factors set forth above and the other
information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in
the Companys Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or
future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition and/or operating results.
14
Results Of Operations
Three Months ended March 31, 2013 compared to Three Months
ended March 31, 2012
Net Revenues
For the Three Months Ended March 31, |
% | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 |
2012 |
Change |
||||||||||||||||
Andrea Anti-Noise Products net Product revenues |
||||||||||||||||||
Sales of products to OEM customers for use with educational software |
$ | 21,293 | $ | 7,979 | 167 | (a) | ||||||||||||
All other Andrea Anti-Noise net product revenues |
461,473 | 419,103 | 10 | (b) | ||||||||||||||
Total Andrea Anti-Noise Products net Product revenues |
$ | 482,766 | $ | 427,082 | 13 | |||||||||||||
Andrea DSP Microphone and Audio Software Products revenues |
||||||||||||||||||
Sales of automotive array microphone products |
| 39,140 | (100 | ) | (c) | |||||||||||||
All other Andrea DSP Microphone and Audio product revenues |
43,395 | 81,027 | (46 | ) | (d) | |||||||||||||
License revenues |
149,419 | 217,832 | (31 | ) | (e) | |||||||||||||
Total Andrea DSP Microphone and Audio Software Products revenues |
192,814 | 337,999 | (43 | ) | ||||||||||||||
Total Revenues |
$ | 675,580 | $ | 765,081 | (12 | ) |
(a) |
The increase of approximately $13,000 represents increased product sales to our educational customers for use with their distance learning products as compared to the three months ended March 31, 2012. |
(b) |
The increase of approximately $42,000 in all other Andrea Anti-noise product revenues is related to increased demand from our distributor and reseller customers when compared to the same period in 2012. |
(c) |
The approximate $39,000 decrease in sales of automotive array microphone products is the result of no product sales to integrators of public safety vehicle solutions during the quarter ended March 31, 2013. |
(d) |
The approximate $38,000 decrease in all other Andrea DSP Microphone and Audio product revenues is related to timing of shipments to some of our OEM customers. |
(e) |
The $68,000 decrease in license revenues is a result of decreased royalties reported for the three months ended March 31, 2013 as compared to the same period last year. We believe this decrease is related to timing of revenues reported for PC models which feature our technology and unreported revenues from one of our customers for certain royalties for which we are unable to estimate the amount at March 31, 2013. |
Cost of Revenues
Cost of revenues as a percentage of net revenues for the three
months ended March 31, 2013 increased to 46% from 42% for the three months ended March 31, 2012. This increase is the result of decreased licensing
revenue. The cost of revenues as a percentage of net revenues for the three months ended March 31, 2013 for Andrea Anti-Noise Products was 59% compared
to 61% for the three months ended March 31, 2012. The cost of revenues as a percentage of net revenues for the three months ended March 31, 2013 for
the Andrea DSP Microphone and Audio Software Products was 14% compared to 18% for the three months ended March 31, 2012. The decrease in cost of
revenues as a percentage of revenues for the Andrea Anti-Noise Products for the three months ended March 31, 2013 was a result of an increase in
revenues in this segment. The decrease in cost of revenues as a percentage of revenues for Andrea DSP Microphone and Audio Software Products for the
three months ended March 31, 2013 was a result of the of decreased OEM revenues and decreased revenues of automotive array microphone
products.
Research and Development
Research and development expenses for the three months ended
March 31, 2013 decreased 5% to $178,867 from $188,042 for the three months ended March 31, 2012. For the three months ended March 31, 2013, the
decrease in research and development
15
expenses reflects a 12% decrease in our Andrea Anti-Noise Headset
Product efforts to $70,094, or 39% of total research and development expenses. Our Andrea DSP Microphone and Audio Software Technology efforts remained
relatively flat at $108,773, or 61% of total research and development expenses. 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 Andreas 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 may provide Andrea with a competitive advantage.
General, Administrative and Selling
Expenses
General, administrative and selling expenses decreased
approximately 5% to $587,462 for the three months ended March 31, 2013 from $616,671 for the three months ended March 31, 2012. This decrease of
approximately $29,000 is related to a decrease in compensation and promotion and marketing expenses. For the three months ended March 31, 2013, the
Andrea DSP Microphone and Audio Software Technology general, administrative and selling expenses are $210,206, or 36% of total general, administrative
and selling expenses and our Andrea Anti-Noise Headset Product general, administrative and selling expenses are $377,256, or 64% of total general,
administrative and selling expenses.
Interest Income, net
Interest income, net for the three months ended March 31, 2013
was $2,129 compared to $2,221 for the three months ended March 31, 2012.
Provision for Income Taxes
There was no provision for income taxes for the three months
ended March 31, 2013 or March 31, 2012.
Net loss
Net loss for the three months ended March 31, 2013 was $397,428
compared to a net loss of $358,147 for the three months ended March 31, 2012. The net loss for the three months ended March 31, 2013 and March 31, 2012
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 to investors.
Liquidity And Capital Resources
Andreas principal sources of funds are cash on hand. At
March 31, 2013, we had cash of $1,460,491 compared with $1,746,363 at December 31, 2012. The decrease in our cash balance at March 31, 2013 was
primarily a result of our cash used in operations.
Our working capital balance at March 31, 2013 was $2,012,338
compared to working capital of $2,262,623 at December 31, 2012. The decrease in working capital reflects a decrease in total current assets of $259,518
and a decrease in total current liabilities of $9,233. The decrease in total current assets reflects a decrease in cash of $285,872, an increase in
accounts receivable of $124,852, a decrease in inventories of $71,219, and a decrease in prepaid expenses and other current assets of $27,279. The
decrease in total current liabilities reflects an increase in trade accounts payable of $7,585, and a decrease of $16,818 in other current
liabilities.
The decrease in cash of $285,872 reflects net cash used in
operating activities.
The cash used in operating activities of $285,872, excluding
non-cash charges for the three months ended March 31, 2013, was attributable to a $124,852 increase in accounts receivable, a $71,219 decrease in
inventories, a $26,945 decrease in prepaid expenses, other current assets and other assets, a $7,585 increase in trade accounts payable, and a $16,818
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 Andreas various product lines.
We plan to improve our cash flows in 2013 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
16
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, 2013, Andrea
has approximately $1,400,000 of cash deposits. We believe that we have sufficient liquidity available to continue in operation through at least March
2014. To the extent that we do not generate sufficient cash flows from our operations in the next twelve months, additional financing might be
required. 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 |
Not applicable.
ITEM 4. |
CONTROLS AND PROCEDURES |
Andreas management, including its principal executive
officer and principal financial officer, have evaluated the effectiveness of the Companys 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,
Andreas 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 SECs rules and forms, and (2) is accumulated and communicated to Andreas
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure.
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.
Andreas disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.
There have been no changes in the Companys internal
controls over financial reporting that have materially affected, or are reasonable likely to materially affect the Companys internal controls
over financial reporting during the period covered by this Quarterly Report.
PART II OTHER INFORMATION
ITEM
1. |
LEGAL PROCEEDINGS |
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. We cannot predict the outcome of this litigation although the Company believes the lawsuit is without
merit.
ITEM 1A. |
RISK FACTORS |
Not applicable.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITY AND USE OF PROCEEDS |
None.
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. |
OTHER INFORMATION |
None.
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ITEM 6. |
EXHIBITS |
(a) |
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 Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) 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 |
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 thereunto duly
authorized.
ANDREA ELECTRONICS CORPORATION |
||||||||||
By: |
/s/ DOUGLAS J. ANDREA |
|||||||||
Name: Douglas J. Andrea |
||||||||||
Title: Chairman of the Board, President, Chief Executive Officer and Corporate Secretary |
Date: May 15, 2013
/s/ DOUGLAS J. ANDREA Douglas J. Andrea |
Chairman of the Board, President, Chief Executive Officer and Corporate Secretary |
May 15, 2013 |
||||||||
/s/ CORISA L. GUIFFRE Corisa L. Guiffre |
Vice President, Chief Financial Officer and Assistant Corporate Secretary |
May 15, 2013 |
18