Overview




We design, develop and manufacture state-of-the-art digital microphone products
and noise reduction software that facilitate natural language and 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.



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

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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, 2020. A discussion of
our critical accounting policies and estimates are also included in Note 2.
Summary of Significant Accounting Policies in notes to condensed 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, 2020.



Warning statement for future 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:

Regarding the consequences of our assumptions, assumptions and beliefs

The CVD-19 epidemic is affecting the general economic situation, public health and consumers

Interest, and the company’s performance, liquidity, capital resources

And overall performance ahead;

• Our ability to receive financial support, including the impact of Covidy-19 and

Restrictions in income sharing agreement;

• Our limited financial and loss history;

• Our ability to make a profit;

• Our ability to continue as a concern;

• If we gain market acceptance and market our products efficiently;

• Adequacy of protections granted to us by our proprietary rights

The cost of protecting, enforcing and enforcing our property rights;

• Accept a bad decision in our current litigation process

It can negatively affect our business, operations, and finances.

Condition;

• Changes in economy, competition, government, technology and other factors

It can affect our business and our prospects.

• Our success in managing the risks involved in the above items; And

Other reasons discussed in this report and others from 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, 2020 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 are over September 30, 2021 Compared to the three and nine months September 30, 2020




Total Revenues



                                      For the Three Months Ended                        For the Nine Months Ended
                                             September 30,                                    September 30,                 %
                                        2021               2020         % Change         2021               2020          Change

Patent Monetization revenues
License revenues                   $        93         $       150          (38 )   $        250       $        452       (45)
Total Patent Monetization
revenues                                    93                 150          (38 )            250                452       (45)

Andrea DSP Microphone and Audio
Software Products revenues
Revenue from automotive array
microphone products                    106,904             108,424           (1 )        253,897            268,089        (5) (a)
Revenue from OEM array
microphone products                    250,965             214,220           17          788,573            589,169        34  (b)
Revenue from customized digital
products                                42,006              32,595           29          146,789             64,318       128  (c)
All other Andrea DSP Microphone
and Audio Software Products
revenues                                37,412              28,983           29           55,131             48,728        13  (d)
License and service related
revenues                                11,050               1,928          473           20,869             53,510       (61) (e)
Total Andrea DSP Microphone and
Audio Software Products revenues       448,337             386,150         
 16        1,265,259          1,023,814        24

Total revenues                     $   448,430         $   386,300           16     $  1,265,509       $  1,024,266        24



(A) approximate $ 2,000 And $ 14,000 Revenue from automotive will be reduced

The three- and nine-month bargain microphone production is over. September 30,

A.D. 2021, respectively, compared to the same seasons in 2020, the

Public safety and wholesale vehicle for integrated sales period

Solutions.

(B) approximate $ 37,000 And $ 199,000 Increases revenue from OEM negotiation

Three and nine months of microphone production is over. September 30, 2021,

According to the order, compared to the same seasons in 2020, mainly in the year

Sales results for new customers who are merging our business

Sound solutions.

(C) Approximate increases $ 9,000 And $ 82,000 In Custom Digital

Three- and nine-month production is depleted September 30, 2021,

According to their order, compared to the same seasons in 2020, from

Purchase time from an OEM customer for a custom digital product.

(D) Approximate increases $ 8,000 And $ 6,000 Of all other income

Andrea DSP microphone and audio software products for three and nine

Months are over September 30, 2021, Respectively, compared to the same

A.D. In 2020, it will be a major factor in the speaker’s revenue increase.

Loudspeaker Kit, a new addition to our overall audio solutions.

(E) approximate $ 9,000 Increase in licensing and service-related revenues

The three months are over September 30, 2021 Compared to the same period

2020 was the result of a temporary license and service agreement. Of

Approximate $ 33,000 Decrease in licensing and service-related revenues

Nine months are up September 30, 2021 Compared to the same period in 2020,

The project is expected to result in higher service revenue by 2020.

     completed in 2020.



Price of Product Revenues




Cost of product revenues as a percentage of total revenues for the three months
ended September 30, 2021 and 2020 was 27% and 24%, respectively. Cost of product
revenues as a percentage of total revenues for the nine months ended September
30, 2021 and 2020 was 26% and 22%, respectively. There was no cost of product
revenues associated with the Patent Monetization revenues of

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$93 and $250 for the three and nine months ended September 30, 2021,
respectively, nor 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. The cost of product revenues as a percentage
of total revenues for the three months ended September 30, 2021 for Andrea DSP
Microphone and Audio Software Products was 27% compared to 18% for the three
months ended September 30, 2020. The cost of product revenues as a percentage of
total revenues for the nine months ended September 30, 2021 for Andrea DSP
Microphone and Audio Software Products was 25% compared to 21% for the nine
months ended September 30, 2020. These increases in cost of product revenues as
a percentage of total revenues are primarily the result of the increased
component costs because of supply chain issues as well as the product mix
described in "Total Revenues" above.



Cost of Patent Income

Patent monetization expenses for the three months ended September 30, 2021
decreased 2% to $38,400 from $39,039 for the three months ended September 30,
2020. Patent monetization expenses for the nine months ended September 30, 2021
decreased 9% to $115,924 from $127,967 for the nine months ended September 30,
2020. 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, 2021 is mainly attributable to the
timing of legal services incurred to pursue patent monetization.



Research and development costs

Research and development expenses for the three months ended September 30, 2021
increased 8% to $143,715 from $132,786 for the three months ended September 30,
2020. Research and development expenses for the nine months ended September 30,
2021 decreased 1% to $428,095 from $432,652 for the nine months ended September
30, 2020. These expenses primarily relate to costs associated with the
development of new products. For the three months ended September 30, 2021, the
increase in research and development expenses reflects a 7% increase in our
Patent Monetization efforts to $3,834, or 3% of total research and development
expenses, and an 8% increase in our Andrea DSP Microphone and Audio Software
Technology efforts to $139,881, or 97% of total research and development
expenses. For the nine months ended September 30, 2021, the decrease in research
and development expenses reflects a 26% decrease in our Patent Monetization
efforts to $11,392, or 3% of total research and development expenses, and a less
than 1% decrease in our Andrea DSP Microphone and Audio Software Technology
efforts to $416,703, or 97% 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 sales expenses

General, administrative and selling expenses increased approximately 2% to
$260,062 for the three months ended September 30, 2021 from $255,313 for the
three months ended September 30, 2020. For the three months ended September 30,
2021, general, administrative and selling expenses related to our Patent
Monetization efforts were $41,364, or 16% 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 $218,698, or 84%
of total general, administrative and selling expenses. General, administrative
and selling expenses increased approximately 1% to $784,895 for the nine months
ended September 30, 2021 from $776,402 for the nine months ended September 30,
2020. For the nine months ended September 30, 2021, general, administrative and
selling expenses related to our Patent Monetization efforts were $122,882, or
16% 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 $662,013, or 84% of total general, administrative
and selling expenses. These small increases relate to changes in regular
operating expenses.



Interest expense, net



Interest expense, net for the three months ended September 30, 2021 was $18,541
compared to $16,559 for the three months ended September 30, 2020. Interest
expense, net for the nine months ended September 30, 2021 was $54,682 compared
to $50,455 for the nine months ended September 30, 2020. The change in this line
item was attributable to an increase in interest expense because of a higher
amount of debt outstanding combined with a decrease of interest income related
to lower cash balances.



Provision for Income Taxes

The income tax provision for the nine months ended September 30, 2021 was $585
compared to $565 for the nine months ended September 30, 2020. The provision for
the nine months ended September 30, 2021 and 2020 is a result of certain
licensing revenues

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Deductible income tax in accordance with the provisions of the foreign jurisdiction where the income is located. For the past three months, there has been no income tax return September 30, 2021 And 2020.



Net income (loss)



Net income for the three months ended September 30, 2021 was $12,329 compared to
a net loss of $150,191 for the three months ended September 30, 2020. Net loss
for the nine months ended September 30, 2021 was $150,105 compared to a net loss
of $588,909 for the nine months ended September 30, 2020. The net loss for the
three and nine months ended September 30, 2021 and 2020 principally reflects the
factors described above.


Out of 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.



Fluid and Capital Resources




At September 30, 2021, we had cash of $255,754 compared with $362,730 at
December 31, 2020. The decrease in our cash balance at September 30, 2021 was
primarily the result of cash used in operating activities partially offset by
proceeds of the PPP Loan Second Draw.



Our working capital balance at September 30, 2021 was $235,855 compared to
working capital of $321,491 at December 31, 2020. The decrease in working
capital reflects an increase in total current liabilities of $152,804 offset by
an increase in total current assets of $67,168. The increase in total current
assets reflects a decrease in cash of $106,976, an increase in accounts
receivable of $102,154, an increase in inventories of $116,011 and a decrease in
prepaid expenses and other current assets of $44,021. The increase in total
current liabilities reflects an increase in trade accounts payable and other
current liabilities of $160,590 partially offset by a decrease in the current
portion of long term debt of $7,786.



The decrease in cash of $106,976 reflects $373,138 of net cash used in operating
activities, $16,615 of net cash used in investing activities and $282,777 of net
cash provided by financing activities.



The cash used in operating activities of $373,138, excluding non-cash charges
for the nine months ended September 30, 2021, was attributable to a $102,739
increase in accounts receivable, a $137,853 increase in inventories, a $44,021
decrease in prepaid expenses and other current assets and a $129,888 increase 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 $16,615 reflects an increase in patents
and trademarks of $2,609 and purchases of property and equipment of $14,006. 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 and test equipment for the production
of products. The increase in patents and trademarks reflects capital
expenditures associated with our intellectual property.



Funds provided by financial activities $ 282,777 It reflects $ 140,000 Income from long notes and $ 142,777 Figure 2: 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 our increased sales and marketing
efforts. As of November 8, 2021, Andrea had approximately $270,000 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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