ANDREA ELECTRONICS CORPORATION Overview
Our primary mission is to provide the emerging "voice interface" markets with state-of-the-art digital microphone products and noise reduction software that facilitate AI natural language processing of the human voice/machine interfaces.
Examples of the applications and interfaces for which Andrea DSP Microphone and Audio Software Products provide benefits include: internet and other computer-based speech; telephony communications; multi-point conferencing; speech recognition; 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 consolidated financial statements and the notes to our consolidated
financial statements contain information that is pertinent to management's
discussion and analysis. The preparation of financial statements in conformity
with accounting principles generally accepted in
The following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements have been identified. In addition to the recording and presentation of our convertible preferred stock, we believe that the following are some of the more critical judgment areas in the application of our accounting policies that affect our consolidated financial condition and results of operations. We have discussed the application of these critical accounting policies with our Audit Committee. The following critical accounting policies are not intended to be a comprehensive list of all of the Company's accounting policies or estimates.
Revenue Recognition - In accordance with Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" (Topic 606) ("ASU No. 2014-09"), the Company recognizes revenue using the following five-step approach:
1. Identify the contract with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price of the contract.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when the performance obligations are met or delivered.
This approach includes the evaluation of sales terms, performance obligations, variable consideration, and costs to obtain and fulfill contracts.
The Company disaggregates its revenues into three contract types: (1) product revenues, (2) service related revenues and (3) license revenues and then further disaggregates its revenues by operating segment. Generally, product revenue is comprised of microphones and microphone connectivity product revenues. Product revenue is recognized when the Company satisfies its performance obligation by transferring promised goods to a customer. Product revenue is measured at the transaction price, which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods to the customer. Contracts with customers are comprised of customer purchase orders, invoices and written contracts. Customer product orders are fulfilled at a point in time and not over a period of time. The Company does not have arrangements for returns from customers and does not have any future obligations directly or indirectly related to product resale by customers. The Company has no sales incentive programs. Service related and licensing revenues are recognized based on the terms and conditions of individual contracts using the five step approach listed above, which identifies performance obligations and transaction price. Typically, Andrea receives licensing reports from its licensees approximately one quarter in arrears due to the fact that its agreements require customers to report revenues between 30-60 days after the end of the quarter. Under this accounting policy, the licensing revenues reported are not based upon estimates. In addition, service related revenues, 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.
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Accounts Receivable - We are required to estimate the collectability of our
trade receivables. Judgment is required in assessing the realization of these
receivables, including the current creditworthiness of each customer and related
aging of the past due balances. We evaluate specific accounts when we become
aware of a situation where a customer may not be able to meet its financial
obligations due to deterioration of its financial viability, credit ratings or
bankruptcy. The reserve requirements are based on the best facts available to us
and are reevaluated and adjusted as additional information is received. Our
reserves are also determined by using percentages applied to certain aged
receivable categories. At
Inventories- We are required to state our inventories at net realizable value.
In assessing the ultimate realization of inventories, we are required to make
considerable judgments as to future demand requirements and compare that with
our current inventory levels. Our reserve requirements generally increase as our
projected demand requirements decrease due to market conditions, technological
and product life cycle changes occur, as well as longer than previously expected
usage periods. We have evaluated the current levels of inventories, considering
historical total revenues and other factors and, based on this evaluation,
recorded adjustments to cost of revenues to adjust inventories to net realizable
value. We had inventories of
Long Lived Assets - ASC 360 "Property, Plant and Equipment" ("ASC 360") requires
management judgments regarding the future operating and disposition plans for
marginally performing assets, and estimates of expected realizable values for
assets to be sold. Andrea accounts for its long-lived assets in accordance with
ASC 360 for purposes of determining and measuring impairment of its other
intangible assets. Andrea's 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 required, an impairment charge
would be recorded based on an estimate of future discounted cash flows.
Considerable management judgment is necessary to estimate undiscounted future
operating cash flows and fair values and, accordingly, actual results could vary
significantly from such estimates. No impairment charges were recognized during
the years ended
Deferred Tax Assets - We currently have significant deferred tax assets. ASC 740, "Income Taxes" ("ASC 740"), requires a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Furthermore, ASC 740 provides that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. Accordingly, and after considering changes in previously existing positive and negative evidence, the Company determined that a full valuation allowance against the deferred tax assets was required. Andrea will reduce its valuation allowance in future periods to the extent that we can demonstrate our ability to utilize the assets. The future realization of a portion of our reserved deferred tax assets related to tax benefits associated with the exercise of stock options, if and when realized, will not result in a tax benefit in the consolidated statement of operations, but rather will result in an increase in additional paid in capital. We will continue to re-assess our reserves on deferred income tax assets in future periods on a quarterly basis.
Contingencies- We are subject to proceedings, lawsuits and other claims, including proceedings under laws and government regulations related to securities, environmental, labor, products and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is based on an analysis of each individual issue with the assistance of legal counsel. The amount of any reserves may change in the future due to new developments in each matter.
The impact of changes in the estimates and judgments pertaining to revenue recognition, receivables and inventories is directly reflected in our segments' loss from operations. Although any charges related to our deferred tax provision are not reflected in our segment results, the long-term forecasts supporting the realization of those assets and changes in them are significantly affected by the actual and expected results of each segment.
Liquidity
ASC 205-40, "Presentation of Financial statements-Going Concern," requires management to evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Based upon the evaluation, management believes the Company has the ability to meet its obligations as they become due within the next twelve months from the date of the financial statement issuance.
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Cautionary Statement Regarding Forward-Looking Statements
Certain information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended
Results Of Operations
Year Ended
Total Revenues
For the Year Ended December 31, %
2021 2020 Change
Patent Monetization revenues
License revenues $ 329 $ 554 (41)
Total Patent Monetization revenues 329 554
Andrea DSP Microphone and Audio Software
Products revenues
Revenue from automotive array microphone 307,949 334,904 (8) (a)
products
Revenue from OEM array microphone products 1,055,152 777,487 36 (b) Revenue from customized digital product 157,159 100,670 56 (c) All other Andrea DSP Microphone and Audio 101,067 79,572 27 (d) Software Product revenues License revenues and service related revenues 41,841 62,176 (33) (e) Total Andrea DSP Microphone and Audio Software 1,663,168 1,354,809 23 Products revenues Total revenues$ 1,663,497 $ 1,355,363 23
(a) The decrease of approximately
as compared to the same period in 2020, in revenues from automotive array
microphone products is primarily the result of timing of sales to integrators
of public safety and mass transit vehicle solutions.
(b) The increase of approximately
as compared to the same period in 2020, in revenues of OEM array microphone
products is primarily the result of an increase in revenues to new customers
that are integrating our commercial product audio solutions.
(c) The increase of approximately
as compared to the same period in 2020, from customized digital product
revenues is related to the timing of purchases from an OEM.
(d) The increase of approximately
as compared to the same period in 2020, in all other Andrea DSP Microphone
and Audio Software Product revenues, is primarily the result of increased
revenues of speaker and amplifier kits, a new addition to our overall audio
solutions.
(e) The decrease of approximately
as compared to the same period in 2020, is primarily the result of decreased
service revenue of approximately $45,000 related to engineer services
partially offset by increased license revenue reported as a result of a
specific one time license of $30,000 .
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Cost of Revenues
Cost of revenues as a percentage of total revenues for the year ended
Patent Monetization Expenses
Patent monetization expenses for the year ended
Research and Development Expenses
Research and development expenses for the year ended
General, Administrative and Selling Expenses
General, administrative and selling expenses increased by approximately 1% to
Interest expense, net
Interest expense, net for the year ended
Provision for Income Taxes
The income tax provision for the year ended
Net loss
Net loss for the year ended
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Inflation
We do not believe that inflation has had a material impact on our business and operating results during the periods presented, and we do not expect it to have a material impact in the near future, although there can be no assurances that our business will not be affected by inflation in the future.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its consolidated financial condition, changes in consolidated financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Liquidity And Capital Resources
At
Our working capital balance at
The decrease in cash of
The cash used in operating activities of
The cash used in investing activities of
The cash provided by financing activities of
We plan to improve our cash flows by aggressively pursuing monetization of our
patents related to our
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Market Risk
Historically, our principal source of financing activities had been the issuance
of convertible preferred stock with financial institutions. We are affected by
market risk exposure primarily through any amounts payable in stock, or cash by
us under convertible securities. We do not utilize derivative financial
instruments to hedge against changes in interest rates or for any other purpose.
In addition, substantially all transactions entered into by us are denominated
in
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
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