Overview



We design, develop and manufacture state-of-the-art digital microphone products
and noise reduction software that facilitate natural language, human/machine
interfaces. Our technologies eliminate unwanted background noise to enable the
optimum performance of various speech-based and audio applications. We are
incorporated under the laws of the State of New York and have been engaged in
the electronic communications industry since 1934. Our patented and
patent-pending digital noise canceling technologies enable a speaker to be at a
distance from the microphone (we refer to this capability as "far-field"
microphone use), and free the speaker from having to use a close talking
microphone. We believe that the strength of our intellectual property rights are
important to the success of our business. We utilize patent and trade secret
protection, confidentiality agreements with customers and partners, disclosure
and invention assignment agreements with employees and consultants and other
contractual provisions to protect our intellectual property and other
proprietary information. As part of our Patent Monetization efforts, we license
specific, custom designs to our customers, charging royalties at a fixed amount
per product or a percentage of sales, and we intend to vigorously defend and
monetize our intellectual property through licensing arrangements and, where
necessary, enforcement actions against those entities using our patented
solutions in their products.

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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 management's 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 the audited financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2019. A discussion of our critical
accounting policies and estimates are also included in Note 2. Summary of
Significant Accounting Policies in notes to consolidated interim financial
statements included elsewhere in this report. Management has discussed the
development and selection of these policies with the Audit Committee of the
Company's Board of Directors, and the Audit Committee of the Board of Directors
has reviewed the Company's disclosures of these policies. There have been no
material changes to the critical accounting policies or estimates to be
disclosed in this Quarterly Report since being reported in the Management's
Discussion and Analysis section of the Annual Report on Form 10-K for the year
ended December 31, 2019.

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 Company's 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:

? our assumptions, estimates and beliefs regarding the possible effects of the

COVID-19 pandemic on general economic conditions, public health and consumer

demand, and the Company's results of operations, liquidity, capital resources

and general performance in the future;

? our ability to obtain financing, including the possible impact of COVID-19 and

the limitations in the Revenue Sharing Agreement;

? our expectations regarding the use of funds from the Company's PPP Loan and SBA

Loan and the potential for forgiveness of the PPP Loan under the terms of the

PPP;

? changes in economic, competitive, governmental, technological and other factors

that may affect our business and prospects;

? our limited cash and our history of losses;

? our ability to achieve profitability;

? our ability to continue as a going concern;

? whether we obtain market acceptance and effectively commercialize our products;

? the adequacy of protections afforded to us by the patents that we own and the

cost of maintaining, enforcing and deeding our patents;

? receiving an unfavorable ruling in our current litigation proceedings, which

may adversely affect our business, results of operations and financial

condition;

? our success at managing the risks involved in the foregoing items; and

? other factors discussed in this report and our other filings with the SEC.




Additional factors are discussed under "Risk Factors" and in Part I, "Item 1A -
Risk Factors" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2019 and under Part II, "Item 1A - Risk Factors" in the Company's
quarterly reports on Form 10-Q. 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.

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Results Of Operations

Three and Nine Months ended September 30, 2020 compared to the Three and Nine Months ended September 30, 2019



Total Revenues

                                                                           For the Three Months Ended                     For the Nine Months Ended
                                                                                 September 30,                 %                September 30,                 %
                                                                             2020               2019        Change          2020             2019           Change
Patent Monetization revenues
License revenues                                                         $         150       $      202       (26 )     $         452     $       739        (39 )
Total Patent Monetization revenues                                                 150              202       (26 )               452             739

(39 )

Andrea DSP Microphone and Audio Software Products revenues Revenue from automotive array microphone products

                              108,424           30,858       251             268,089         541,556        (51 )   (a)
Revenue from OEM array microphone products                                     214,220          252,584       (15 )           589,169         610,456         (4 )   (b)
Revenue from customized digital products                                        32,595           42,864       (24 )            64,318         118,762        (46 )   (c)
All other Andrea DSP Microphone and Audio Software Products revenues            28,983           47,718       (39 )            48,728          78,379        (38 )   (d)
License and service related revenues                                             1,928            8,443       (77 )            53,510          35,750         50     (e)
Total Andrea DSP Microphone and Audio Software Products revenues               386,150          382,467         1           1,023,814       1,384,903        (26 )

Total revenues                                                           $     386,300       $  382,669         1       $   1,024,266     $ 1,385,642        (26 )


In general, the decrease in revenues detailed above are primarily a result of
customers delaying shipments of products into future months due to COVID-19.
Such product orders have not yet been canceled, but the delay in the shipments
of products has caused the Company's product revenues through September 30, 2020
to be approximately $300,000 less than the same period in 2019.

(a) The approximate $78,000 increase in revenues from automotive array microphone

products for the three months ended September 30, 2020 as compared to the same

period in 2019, is the result of timing of sales to integrators of public

safety and mass transit vehicle solutions. The approximate $274,000 decrease in

revenues from automotive array microphone products for the nine months ended

September 30, 2020, as compared to the same period in 2019, is the result of

timing because of COVID-19.

(b) The decreases of approximately $38,000 and $21,000 in revenues from OEM array

microphone products for the three and nine months, respectively, ended

September 30, 2020, as compared to the same periods in 2019, is related to the

timing of purchases from an OEM customer for a customized digital product is

the result of timing because of COVID-19.

(c) The decreases of approximately $10,000 and $54,000 in customized digital

products revenue for the three and nine months, respectively, ended September

30, 2020, as compared to the same periods in 2019, is related to the timing of

purchases from an OEM customer for a customized digital product.

(d) The decreases of approximately $19,000 and $30,000 in revenues of all other

Andrea DSP Microphone and Audio Software Products for the three and nine months

ended September 30, 2020, as compared to the same periods in 2019, is primarily

the result of timing in revenues from sales to the China market for audio

solutions.

(e) The approximate $7,000 decrease in license and service related revenues for the

three months ended September 30, 2020, as compared to the same period in 2019

is the result of decreases of royalties. The approximate $18,000 increase in

license and service related revenues for the nine months ended September 30,


    2020 as compared to the same period in 2019, is a result of increases in
    service related revenue.


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Cost of Product Revenues



Cost of product revenues as a percentage of total revenues for the three months
ended September 30, 2020 and 2019 was 24% and 26%, respectively. Cost of product
revenues as a percentage of total revenues for the nine months ended September
30, 2020 and 2019 was 22% and 28%, respectively. There was no cost of product
revenues associated with the Patent Monetization revenues of $150 and $452 for
the three and nine months ended September 30, 2020, respectively, nor cost of
product revenues associated with the Patent Monetization revenues of $202 and
$739, for the three and nine months ended September 30, 2019, respectively. The
cost of product revenues as a percentage of total revenues for the three months
ended September 30, 2020 for Andrea DSP Microphone and Audio Software Products
was 24% compared to 28% for the three months ended September 30, 2019. The cost
of product revenues as a percentage of total revenues for the nine months ended
September 30, 2020 for Andrea DSP Microphone and Audio Software Products was 22%
compared to 26% for the nine months ended September 30, 2019. These changes are
primarily the result of the product mix described in "Total Revenues" above.

Patent Monetization Expenses



Patent monetization expenses for the three months ended September 30, 2020
decreased 7% to $39,039 from $41,897 for the three months ended September 30,
2019. Patent monetization expenses for the nine months ended September 30, 2020
decreased 18% to $127,967 from $155,170 for the nine months ended September 30,
2019. These expenses are a result of our continuing efforts to pursue patent
monetization including the filing of the complaints disclosed under Part II,
Item 1 Legal Proceedings. The decreases in Patent Monetization expenses for the
three and nine months ended September 30, 2020 is mainly attributable to the
timing of legal services incurred to pursue patent monetization.

Research and Development Expenses



Research and development expenses for the three months ended September 30, 2020
decreased 5% to $132,786 from $139,137 for the three months ended September 30,
2019. Research and development expenses for the nine months ended September 30,
2020 increased 2% to $432,652 from $425,497 for the nine months ended September
30, 2019. The expenses primarily relate to costs associated with the development
of new products. For the three months ended September 30, 2020, the decrease in
research and development expenses reflects a 36% decrease in our Patent
Monetization efforts to $3,593, or 3% of total research and development
expenses, and a 3% decrease in our Andrea DSP Microphone and Audio Software
Technology efforts to $129,193, or 97% of total research and development
expenses. For the nine months ended September 30, 2020, the decrease in research
and development expenses reflects a 21% decrease in our Patent Monetization
efforts to $15,393, or 4% of total research and development expenses, and a 3%
increase in our Andrea DSP Microphone and Audio Software Technology efforts to
$417,259, or 96% of total research and development expenses. The changes in our
Patent Monetization efforts represent intangible asset amortization expense
while the changes in our Andrea DSP Microphone and Audio Software Technology
efforts reflect expenses related to our research efforts 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 benefit Andrea in the future.

General, Administrative and Selling Expenses



General, administrative and selling expenses decreased approximately 4% to
$255,313 for the three months ended September 30, 2020 from $266,326 for the
three months ended September 30, 2019. For the three months ended September 30,
2020, general, administrative and selling expenses related to our Patent
Monetization efforts were $49,801, or 20% of the total general, administrative
and selling expenses, and general, administrative and selling expenses related
to our Andrea DSP Microphone and Audio Software Technology were $205,512, or 80%
of total general, administrative and selling expenses. General, administrative
and selling expenses decreased approximately 5% to $776,402 for the nine months
ended September 30, 2020 from $814,262 for the nine months ended September 30,
2019. For the nine months ended September 30, 2020, general, administrative and
selling expenses related to our Patent Monetization efforts were $133,919, or
17% of the total general, administrative and selling expenses, and general,
administrative and selling expenses related to our Andrea DSP Microphone and
Audio Software Technology were $642,483, or 83% of total general, administrative
and selling expenses. These small decreases relate to changes in regular
operating expenses.

Interest expense, net



Interest expense, net for the three months ended September 30, 2020 was $16,559
compared to $18,397 for the three months ended September 30, 2019. Interest
expense, net for the nine months ended September 30, 2020 was $50,455 compared
to $52,347 for the nine months ended September 30, 2019. These small decreases
in this line item was attributable to a decrease in interest expense because of
a lower interest rate.

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Provision for Income Taxes



There was no income tax provision for the three months ended September 30, 2020
compared to a $351 tax provision for the three months ended September 30, 2019.
The income tax provision for the nine months ended September 30, 2020 was $565
compared to $1,673 for the nine months ended September 30, 2019. The provision
for the three months ended September 30, 2019 and nine months ended September
30, 2020 and 2019 is a result of certain licensing revenues that are subject to
withholding of income tax as mandated by the foreign jurisdiction in which the
revenues are earned.

Net loss

Net loss for the three months ended September 30, 2020 was $150,191 compared to
a net loss of $184,248 for the three months ended September 30, 2019. Net loss
for the nine months ended September 30, 2020 was $588,909 compared to a net loss
of $455,971 for the nine months ended September 30, 2019. The net loss for the
three and nine months ended September 30, 2020 and 2019 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



At September 30, 2020, we had cash of $415,253 compared with $335,790 at
December 31, 2019. The increase in our cash balance at September 30, 2020 was
primarily the result of proceeds of the Additional Notes received in connection
with the Revenue Sharing Agreement, the SBA Loan and the PPP Loan partially
offset by cash used in operating activities.

Our working capital balance at September 30, 2020 was $523,965 compared to
working capital of $556,850 at December 31, 2019. The decrease in working
capital reflects a decrease in total current assets of $52,677 and a decrease in
total current liabilities of $19,792. The decrease in total current assets
reflects an increase in cash of $79,463, a decrease in accounts receivable of
$77,514, a decrease in inventories of $85,174 and an increase in prepaid
expenses and other current assets of $30,548. The decrease in total current
liabilities reflects a decrease in trade accounts payable and other current
liabilities of $64,407 partially offset by an increase in the current portion of
long-term debt of $44,615.

The increase in cash of $79,463 reflects $398,150 of net cash used in operating
activities, $23,162 of net cash used in investing activities and $500,775 of net
cash provided by financing activities.

The cash used in operating activities of $398,150, excluding non-cash charges
for the nine months ended September 30, 2020, was attributable to a $76,949
decrease in accounts receivable, a $89,515 decrease in inventories, a $30,548
increase in prepaid expenses and other current assets and a $76,199 decrease in
trade accounts payable and other current liabilities and lease liabilities
payable. The changes in accounts receivable, inventories, prepaid expenses and
other current assets and trade accounts payable and other current liabilities
and lease liabilities 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 including continuing efforts to pursue patent monetization.

The cash used in investing activities of $23,162 reflects an increase in patents
and trademarks of $17,173 and purchases of property and equipment of $5,989. The
increase in patents and trademarks reflects capital expenditures associated with
our intellectual property. The increase in property and equipment is associated
with the purchases of computer equipment. The increase in patents and trademarks
reflects capital expenditures associated with our intellectual property.

The cash provided by financing activities of $500,775, reflects $200,000 of proceeds from long-term debt, $158,000 from the SBA Loan and $142,775 from the PPP Loan.



We plan to improve our cash flows by aggressively pursuing monetization of our
patents related to our Andrea DSP Microphone Audio Software, increasing the
sales of our Andrea DSP Microphone Audio Software Products through the
introduction of new products as well as the increased efforts we are putting
into our sales and marketing efforts. As of November 9, 2020, Andrea had
approximately $400,000 of cash deposits. For discussion regarding management's
evaluation of our ability to meet our obligations as they come due in coming
months, see the section titled "Liquidity" in Note 1, Basis of Presentation, of
the notes to unaudited condensed consolidated interim financial statements. We
cannot provide assurances 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.

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