10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2015

or

☐ 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	(I.R.S. employer
of incorporation or organization)	identification no.)
620 Johnson Avenue Suite 1b, Bohemia, New York	11716
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 631-719-1800
___________________

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, par value $.01 per share
___________________

Title of class
___________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No  X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes    No  X

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    

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   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

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 ☐	Accelerated Filer ☐
Non-Accelerated Filer ☐	Smaller Reporting Company ☒

(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    No  X

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $3,493,570 based upon the closing price of $0.07 per share as quoted on the OTC Bulletin Board on June 30, 2015.

The number of shares outstanding of the registrant’s Common Stock as of March 24, 2016, was 64,416,035.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

TITLE		PAGE
	PART I
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	6
ITEM 1B.	Unresolved Staff Comments	10
ITEM 2.	Properties	10
ITEM 3.	Legal Proceedings	10
ITEM 4.	Mine Safety Disclosures	11
	PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
ITEM 6.	Selected Financial Data	11
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	16
ITEM 8.	Financial Statements and Supplementary Data	16
ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	16
ITEM 9A.	Controls and Procedures	16
ITEM 9B.	Other Information	17
	PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	17
ITEM 11.	Executive Compensation	19
ITEM 12.	Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters	20
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	22
ITEM 14.	Principal Accountant Fees And Services	22
	PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	22
SIGNATURES

PART I

ITEM 1. BUSINESS

Overview

Andrea Electronics Corporation (“Andrea,” “us,” “we,” “our”) designs, develops and manufactures 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.

Andrea’s products and technologies optimize the performance of speech-based applications and audio applications primarily in the following markets:

● computer speech recognition applications;
 

● computer voice over the internet protocol (“VoIP”) applications; and
 

● OEM microphone components and assemblies.

Andrea Digital Signal Processing (“DSP”) Microphone and Audio Software Business – 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. Our Digital Super Directional Array (“DSDA”) and PureAudio microphone products convert sound received by an array of microphones into digital signals that are then processed to cancel background noise from the signal to be transmitted. These two adaptive technologies represent the core technologies within our portfolio of far-field technologies. In addition to DSDA and PureAudio, Andrea has developed and commercialized several other digital, far-field noise canceling technologies, including, among others, Andrea EchoStop, a high-quality acoustic echo canceller which enables speaker phone functionality with technology for canceling speaker feedback.

All of our digital, far-field microphone technologies are software-based and operate using either a dedicated DSP or a general purpose processor (for example, the Intel Pentium). The software, which may encompass one or all of our far-field noise canceling technologies, can be applied to improve the performance of a single microphone or multiple microphones. In addition, our digital, far-field, noise canceling technologies can be tailored and implemented into various form factors, including for example, into the monitor of a PC, a cloud-based digital assistant or a rear view mirror, and can be used individually or combined depending on particular customer requirements.

We are currently targeting our far-field technologies at: 1) the desktop and laptop computing market; 2) the video and audio conferencing market; and 3) the market for personal hands free communication designed for use in automobiles, trucks and buses to control PCs and cellular communication and OEM voice input applications. Our far-field, digital noise canceling technologies and related products, together with implementations of other high-end audio technologies (for example, our software noise cancellation technology) comprise our Andrea DSP Microphone and Audio Software line of business. Net revenues from such technologies and products during the years ended December 31, 2015 and 2014 was approximately 10% and 100%, respectively, of our total revenues. We dedicate a significant amount of our marketing and research and development resources to this business segment, as we believe that communication products will increasingly require high performance, untethered (hands-free and headset-free) microphone technology.

Patent Monetization, Intellectual Property and Licensing – Our products and technologies are developed in part using our proprietary intellectual property, and we believe that the strength of our intellectual property rights will be 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. We plan to license specific, custom designs to our customers, charging royalties at a fixed amount per product or a percentage of sales. More generally, 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. Royalties resulting from these patent monetization efforts can be structured in a variety of ways, including but not limited to one-time paid up licenses or on-going royalty arrangements. We expect to generate a portion of our revenues with these types of licensing arrangements. As part of our plan to aggressively pursue patent monetization, we entered into a Revenue Sharing and Note Purchase Agreement with AND34 Funding LLC (“AND34”), and on December 24, 2014, the Company entered into an Amended and Restated Revenue Sharing and Note Purchase Agreement (the “Revenue Sharing Agreement”) with AND34, which was retroactively effective as of February 14, 2014. Under the Revenue Sharing and Note Purchase Agreement, the Company granted AND34 a perpetual predetermined share in the rights of the Company’s specified future revenues from currently owned patents by the Company in exchange for $3,500,000. Under the Revenue Sharing Agreement, the Company agreed to issue and sell to AND34 an additional $6,500,000 in notes for an aggregate of $10,700,000 in notes. The proceeds of the notes will be used to pay preclose expenses and our patent monetization expenses. Total revenues from this segment during the years ended December 31, 2015 and 2014 was approximately 91% and 0%, respectively, of our total revenues.

1

For more financial information regarding our operating segments, see Note 13 of the accompanying consolidated financial statements.

Industry Background

Our primary mission is to provide the emerging “voice interface” markets with state-of-the-art microphone and communication products. The idea underlying these markets is that natural language spoken by the human voice will become an important means by which to communicate and control many types of computing devices and other appliances and equipment that contain microprocessors. We are designing and marketing our products and technologies to be used for these “natural language, human/machine” interfaces with:

● desktop, laptop and hand-held computers, mobile personal computing devices and cellular phones;
 

● video and audio conferencing systems; and
 

● automotive communication systems.

We believe that end users of these applications and interfaces will require high quality microphone and speakerphone products that enhance voice transmission, particularly in noisy office and mobile environments. We also believe that these applications will increasingly require microphones that are located at a distance from the person speaking, or far-field microphone technology. Applications in this area include:

● continuous speech dictation to personal computers;
 

● multiparty video teleconferencing and software that allow participants to see and jointly communicate; and
 

● cellular hands free interfaces for automobiles, home and office automation. 

We believe that an increasing number of these devices will be introduced into the marketplace during the next several years.

Our Strategy

Our strategy is to:

● maintain and extend our market position with our Andrea DSP Microphone and Audio Software technologies and products;
 

● develop relationships with companies that have significant distribution capabilities for our Andrea DSP Microphone and Audio Software technologies and products;
 

● broaden our Andrea DSP Microphone and Audio Software product lines through a healthy level of internal research and development;
 

● design our products to satisfy specific end-user requirements identified by our collaborative partners;
 

● outsource manufacturing of our products in order to reduce fixed overhead and achieve economies of scale; and
 

● 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.

An important element of our strategy for expanding the channels of distribution and broadening the base of users for our products is our collaborative arrangements with manufacturers of computing and communications equipment and software publishers that are actively engaged in the various markets in which our products have application. In addition, we have been increasing our own direct marketing efforts to original equipment manufacturers for incorporation into, or for use with their products.

The success of our strategy will depend on our ability to, among other things:

● increase total revenues of Andrea DSP Microphone and Audio Software products;
 

● continue to contain costs;
 

● introduce additional Andrea DSP Microphone and Audio Software products;
 

● maintain the competitiveness of our technologies through focused and targeted research and development;
 

● achieve widespread adoption of our products and technologies through ongoing marketing efforts; and
 

● defend and monetize our intellectual property.

2

Our Technologies

We design our Andrea DSP Microphone and Audio Software to transmit voice signals with the high level of quality, intelligibility and reliability required by the broad range of voice-based applications in computing and telecommunications. We achieve this through the use of several audio technologies that employ software processes that are proprietary to us. Software processes of this type are commonly referred to as algorithms.

Andrea DSP Microphone and Audio Software Technology

This set of technologies is generally based on the use of an array of microphones from which the analog signals are converted to digital form and then processed using digital electronic circuitry to eliminate unwanted noise in the speaker’s environment. Our Andrea DSP Microphone and Audio Software Products provide clear acoustic and audio input performance where the desired audio signal is at a distance from the microphone. An example of this is a person using a notebook computer with embedded web cam and array microphone who wants to video conference using VoIP with a friend in another country. We have also engineered our Andrea DSP Microphone and Audio Software Products to be compatible with Universal Serial Bus, or USB, computer architecture. USB is an industry standard for connecting peripherals, such as microphones, earphones, headsets, keyboards, mice, joysticks, scanners and printers, to personal computers. We believe that our Andrea DSP Microphone and Audio Software technology achieve far-field microphone performance previously unattainable through microphones based on mechanical acoustic designs and microphones based on analog signal processing.

Our Andrea DSP Microphone and Audio Software Products include the use of the following technologies, among other technologies and techniques:

Digital Super Directional Array (“DSDA”^®). Andrea’s patented DSDA adaptive beam forming system powers Andrea’s SuperBeam microphone which enables more intelligible audio by forming a beam toward the speaker and eliminating background noises that are outside of the beam. DSDA microphone technology enables high quality far-field communications by centering microphone sensitivity on a user’s voice and canceling noise outside of that signal. DSDA continuously samples the ever changing acoustic properties within an environment and adaptively identifies interfering noises that are extraneous to the voice signal, resulting in increased intelligibility of communications.

PureAudio^®. Andrea’s patented PureAudio and award winning noise reduction speech enhancement algorithm significantly improves intelligibility of voice audio and accuracy in speech driven applications, particularly in high noise environments. PureAudio is especially effective for use with speech recognition and mobile devices. PureAudio is a noise canceling algorithm that enhances applications that are controlled by speech by sampling the ambient noise in an environment and attenuating the noise from sources near or around the desired speech signals, thus delivering a clear audio signal. Designed specifically to improve the signal-to-noise ratio, PureAudio is effective in canceling stationary noises such as computer and ventilation fans, tires and engines.

EchoStop^®. Andrea’s patented EchoStopprovides a full duplex acoustic echo cancellation algorithm enabling both loudspeakers to broadcast and microphone to transmit simultaneously turning your PC into a high quality speakerphone. EchoStop is an advanced acoustic echo canceller (stereo version available) developed for use with conferencing systems such as group audio and videoconferencing systems and cellular car phone kits. EchoStop allows true two-way communication (often referred to as full duplex) over a conferencing system, even when the system is used in large spatial environments that may be vulnerable to extensive reverberation. EchoStop incorporates noise reduction algorithms to reduce the background noise of both the microphone input and the loudspeaker output, thus preventing the accumulation of interfering noise over conferencing systems that facilitate communication among multiple sites.

SuperBeam^®. SuperBeam is a highly accurate digital algorithm that forms an acoustic beam that extends from the microphone to the speech source in an environment. We believe SuperBeam provides a fixed noise reduction microphone solution for the typical acoustic environment found in room environments in which speech is used, such as in offices and homes. The microphone beam is generated by processing multiple microphone samples through pre-established digital filters and adding the outputs. The result is an optimum speech enhancement and noise reduction solution to a predefined setting. Because the beam is able to adapt to changes in the acoustic environment, this technology is called adaptive beamforming.

3

Our Products and their Markets and Applications

Our Andrea DSP Microphone and Audio Software Products have been designed for applications that are controlled by or depend on speech across a broad range of hardware and software platforms. These products incorporate our DSP microphone technologies, and are designed to cancel background noise in a range of noisy environments, such as homes, offices, factories and automobiles. We also manufacture a line of accessories for these products. For commercial markets, we have designed our Andrea DSP Microphone and Audio Software Products for the following applications:

● Speech recognition for word processing, database, and similar applications;
 

● Audio/videoconferencing;
 

● Internet telephony and Voice Chat;
 

● Cellular and other wireless telecommunications; and
 

● Telematics, or in-vehicle computing (the use of computer-controlled systems in automobiles and trucks).

We market and sell our products directly to end users through our website, computer product distributors, through value-added resellers, to original equipment manufacturers and to software publishers. For more information about these collaborative arrangements, please refer to the information under the caption “Our Collaborative Arrangements.”

Andrea DSP Microphone and Audio Software Products

We develop our Andrea DSP Microphone and Audio Software Products primarily through customer-specific integration efforts, and we either license our related algorithms, sell a product incorporating our related algorithms, or both. For example, we have developed technologies that can be, or are, embedded into a PC, PC monitors, high-end videoconferencing units, IP telephony applications, automotive interiors and hand-held devices, among others. In addition, we have developed stand-alone products for specific customers who then sell such products to end users. As a result, such products are not available from us directly. However, as part of our strategy to increase sales to prospective customers desiring high-quality microphone performance for certain customer-specific environments, we have developed the following products that may be purchased directly from Andrea:

Andrea SuperBeam Array Microphone. Andrea’s patented DSDA adaptive beam forming system powers Andrea’s SuperBeam Array Microphone which enables more intelligible audio by forming a beam toward the speaker and eliminating background noises that are outside of the beam. DSDA is particularly effective for small office/home office use, providing an untethered noise cancelling microphone experience.

Andrea USB-SA External Digital Sound Card. Andrea’s PureAudio USB-SA with patented noise reduction technology eliminates noise problems by utilizing high quality digital circuitry and state of the art noise reduction algorithm software. This format bypasses the desktop or laptop computer’s sound system, providing increased intelligibility and performance of stereo microphone input and stereo speaker output for all of a user’s digital audio applications including VoIP and speech recognition programs.

Andrea AudioCommander™. Andrea’s PC Audio Control Panel, AudioCommander, includes a speaker volume adjustment with received PureAudio noise reduction control and a 10-band graphic equalizer with 18 built-in presets to customize sound for a user’s listening preference. It also includes a microphone volume adjustment with noise reduction, beam forming, and acoustic echo cancellation controls. The software also includes an audio wizard that sets microphone levels to optimize PC audio for speech-enabled applications including speech recognition, internet telephony and command and speech control functions.

Andrea AutoArray™ Microphone (“AutoArray”). The AutoArray is a digital, high performance microphone system designed for computing applications in vehicles such as automobiles and trucks. It is the first super-directional audio input device designed specifically for in-vehicle computing. The AutoArray incorporates several technologies, including DSDA and PureAudio.

Andrea Pureaudio Live Recorder. PureAudio™ Live Recorder is a full function digital voice and audio recording application for use with Apple™ iOS devices. The PureAudio™ Live Recorder is enhanced with Andrea's patented digital noise reduction microphone technology. PureAudio™ digitally reduces background noise, while enhancing the recorded sound quality and intelligibility when making recordings in real-world noisy mobile environments.

Andrea Pureaudio Pro Recorder. In addition to the features offered in PureAudio Live Recorder, PureAudio Pro Recorder offers unlimited bookmarks for easy navigation of large recordings, 10-band graphic equalizer to customize your listening experience, aggressive PureAudio for recording in noisy environments, stereo recording for capturing surround sound recordings and beam forming noise cancellation to reduce sounds coming from the sides. PureAudio Pro Recorder is an easy to use, intuitive stereo recorder for capturing music, recitals, church services or precious family events and offers back ground noise reduction for crystal clear recordings of voice notes, lectures and interviews. With its almost unlimited recording time, you never have to worry about cutting off the end of a lecture or recital.

Our Collaborative Arrangements

An important element of our strategy is to promote widespread adoption of our products and technologies by collaborating with large enterprises and market and technology leaders in security systems and services, industrial system integrators, voice activated services, communications, computer manufacturing, and software publishing. In addition to the arrangements we are involved in, we are currently discussing additional arrangements with other companies, but we cannot assure that any of these discussions will result in any definitive agreements.

4

Patents, Trademarks, and Other Intellectual Property Rights

Our products and technologies are developed in part using our proprietary intellectual property, and we believe that the strength of our intellectual property rights will be 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. We plan to license specific, custom designs to our customers, charging royalties at a fixed amount per product or a percentage of sales. More generally, 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. Royalties resulting from these patent monetization efforts can be structured in a variety of ways, including but not limited to one-time paid up licenses or on-going royalty arrangements. We expect to generate a portion of our revenues with these types of licensing arrangements.

Andrea maintains a number of patents in the United States covering claims to certain of its products and technology, which expire at various dates ranging from 2016 to 2030. We also have other patent applications currently pending; however, we cannot assure that patents will be issued with respect to these currently pending or future applications which we may file, nor can we assure that the strength or scope of our existing patents, or any new patents, will be of sufficient scope or strength or provide meaningful protection or commercial advantage to us.

Research and Development

We consider our technology to be of substantial importance to our competitiveness. To maintain this competitiveness, we have organized our research and development efforts using a “market and applications” approach for meeting the requirements of new and existing customers. Consistent with this approach, our engineering staff interacts closely with our sales and marketing personnel and directly with customers. The engineering staff is responsible for the research and development of new products and the improvement and support of existing products. For the years ended December 31, 2015 and 2014, total research and development expenses for continuing operations were $767,680 and $487,858, respectively. During 2016, we expect research and development expenses to remain at the same level when compared to 2015. No assurance can be given that our research and development efforts will succeed. See “Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Sales and Marketing

We employ a sales staff as well as outside sales representatives and sales organizations to market our Andrea DSP Microphone and Audio Software Products. Andrea DSP Microphone and Audio Software Products are marketed to computer Original Equipment Manufacturers (“OEMs”), distributors of personal computers and communications equipment, software publishers, and industrial system integrators. Under our existing collaborative agreements, our collaborators have various marketing and sales rights to our Andrea DSP Microphone and Audio Software. We are seeking to enter into additional collaborative arrangements for the marketing and sale of our Andrea DSP Microphone and Audio Software Products but we cannot assure that we will be successful in these efforts. Market acceptance of the Andrea DSP Microphone and Audio Software Products and achievement of patent monetization is critical to our success.

Production Operations

In 2015 and 2014, all of our assembly operations were performed with subcontractors in Asia or in the United States. Most of the components for the Andrea DSP Microphone and Audio Software Products are available from several sources and are not characteristically in short supply. However, certain specialized components, such as microphones and DSP boards, are available from a limited number of suppliers and subject to long lead times. To date, we have been able to obtain sufficient supplies of these more specialized components, but we cannot assure that we will continue to be able to do so. Shortages of, or interruptions in, the supply of these more specialized components could have a material adverse effect on our sales of Andrea DSP Microphone Products.

Competition

The markets for our Andrea DSP Microphone and Audio Software Products are highly competitive. Competition in these markets is based on varying combinations of product features, quality and reliability of performance, price, sales, marketing and technical support, ease of use, compatibility with evolving industry standards and other systems and equipment, name recognition, and development of new products and enhancements. Most of our current and potential competitors in these markets have significantly greater financial, marketing, technical, and other resources than us. Consequently, these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, marketing, and sale of their products than we can.

5

We believe that our ability to compete successfully will depend upon our ability to develop and maintain advanced technology, develop proprietary products, attract and retain qualified personnel, obtain patent or other proprietary protection for our products and technologies and manufacture, assemble and market products, either alone or through third parties, in a profitable manner.

Employees

At December 31, 2015, we had 11 employees, of whom one was engaged in production and related operations, five were engaged in research and development, and four were engaged in management, administration, sales and customer support duties. None of our employees are unionized or covered by a collective bargaining agreement. We believe that we generally enjoy good relations with our employees. In addition to our regular employees, we utilize five independent consultants (two are sales representatives, one is engaged for administration purposes and two are engaged in research and development activities).

ITEM 1A. RISK FACTORS

Andrea is a party to the Revenue Sharing Agreement under which a perpetual predetermined share of its Monetization Revenues will be allocated to AND34 and under which a default could cause a material adverse effect on its financial position.

Under the Revenue Sharing Agreement that we entered into with AND34, Monetization Revenues will first be applied 100% to the payment of accrued and unpaid interest on, and then to repay outstanding principal of notes payable to AND34. After the notes are paid off in full, Monetization Revenues received will be allocated to AND34 and the Company in accordance with certain predetermined percentages ranging from 100% until AND34 has received $3,500,000 to ultimately 20%. At December 31, 2015, there is $1,900,775 of accrued and unpaid interest and related outstanding principal notes and AND34 has received $3,187,933 of the $3,500,000 advance from the Revenue Sharing Agreement. The Revenue Sharing Agreement contains many stipulations between the parties regarding the handling of various matters related to the monetization of our patents. Following an Event of Default, under the Revenue Sharing Agreement, AND34 may proceed to protect and enforce their rights by suit or other appropriate proceeding, either for specific performance or in aid of the exercise of any power granted under the Revenue Sharing Agreement or ancillary documents including the notes.

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 total revenues from continuing operations for the years ended December 31, 2015 and 2014 were approximately $13.2 million and $1.2 million, respectively. Net income from continuing operations for the year ended December 31, 2015 was approximately $2.5 million, or $0.04 per share on a basic and diluted basis, versus a net loss from continuing operations of approximately $2.5 million, or $0.04 net loss per share on a basic and diluted basis for the year ended December 31, 2014. On April 2, 2015, we sold our Andrea Anti-Noise Products Division. For the year ended December 31, 2015, the Anti-Noise Products business segment generated approximately $662,000 in revenue and a total operating loss of approximately $300,000 and we recorded a gain on the sale of the segment of approximately $880,000. For the year ended December 31, 2014, the Anti-Noise Products business segment generated approximately $1.6 million in revenue and a total operating loss of approximately $365,000. We continue to explore opportunities to grow sales in other business areas and vigorously defend and monetize our intellectual property.

6

Shares Eligible For Future Sale May Have An Adverse Effect On Market Price; 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, 64,416,035 were outstanding as of March 24, 2016. The number of shares outstanding does not include an aggregate of 24,229,491 shares of common stock that are issuable. This number of issuable common shares is equal to approximately 38% of the 64,416,035 outstanding shares. These issuable common shares are comprised of: a) 16,899,821 shares of our common stock reserved for issuance upon exercise of outstanding awards granted under our 1998 Stock Plan and 2006 Stock Plan; b) 1,677,436 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.

Conversions of our Series C Preferred Stock and Series D Preferred Stock may result in substantial dilution to other holders of our common stock.

As of March 24, 2016, we had 44.231432 shares of Series C Preferred Stock and 907,144 shares of Series D Preferred Stock outstanding. The issuance of shares of common stock upon conversion of the Series C Preferred Stock is limited to that amount which, after giving effect to the conversion, would cause the holder not to beneficially own in excess of 4.99% or, together with other shares beneficially owned during the 60 day period prior to such conversion, not to beneficially own in excess of 9.99% of the outstanding shares of common stock. The issuance of common stock upon conversion of the Series D Preferred Stock also is limited to that amount which, after giving effect to the conversion, would cause the holder not to beneficially own in excess of 4.99% of the outstanding shares of our common stock, except that each holder has a right to terminate such limitation upon 61 days notice to us. Beneficial ownership for purposes of calculation of such percentage limitations does not include shares whose acquisition is subject to similar limitations. If all shares of the Series C and Series D Preferred Stock, which are outstanding to be issued, are assumed to be converted into or exercised for shares of common stock, the number of new shares of common stock required to be issued as a result would aggregate 5,652,234 shares, which is equal to approximately 9% of the 64,416,035 outstanding shares.

Short sales of our common stock may be attracted by or accompany conversions of Series C Preferred Stock and Series D Preferred Stock, which sales may cause downward pressure upon the price of our common stock.

Short sales of our common stock may be attracted by or accompany the sale of converted common stock, which in the aggregate could cause downward pressure upon the price of the common stock, regardless of our operating results, thereby attracting additional short sales of the common stock.

If we fail to commercialize and fully market our Andrea DSP Microphone and Audio Software products our total revenues may not increase at a high enough rate to improve our results of operations or may not increase at all.

Our business, results of operations and financial condition depend on the successful commercialization of our Andrea DSP Microphone and Audio Software products and technologies. We introduced our first Andrea DSP Microphone products in 1998 and we continued to introduce complementary products and technologies over the last several years. We primarily target the computer market, the audio and video conferencing markets and the market for in-vehicle computing, among others. The success of these products is subject to the risks frequently encountered by companies in an early stage of product commercialization, particularly companies in the computing and communications industries.

If we are unable to obtain market acceptance of Andrea DSP Microphone and Audio Software products and technologies, or if market acceptance of these products and technologies occurs at a slow rate, then our business, results of operations and financial condition will be materially and adversely affected.

We, and our competitors, are focused on developing and commercializing products and technologies that enhance the use of voice, particularly in noisy environments, for a broad range of computer and communications applications. These products and technologies have been rapidly evolving and the number of our competitors has grown, but the markets for these products and technologies are subject to a high level of uncertainty and have been developing slowly. We, alone or together with our industry, may be unsuccessful in obtaining market acceptance of these products and technologies.

If we fail to develop and successfully introduce new products and technologies in response to competition and evolving technology, we may not be able to attract new customers or retain current customers.

The markets in which we sell our Andrea DSP Microphone and Audio Software products are highly competitive. We may not compete successfully with any of our competitors. Most of our current and potential competitors have significantly greater financial, research and development, marketing, technical support and other resources than we do. Consequently, these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or devote greater resources to the development, marketing, and sale of their products than we can. The introduction of products incorporating new technologies could render our products obsolete and unmarketable and could exert price pressures on existing products.

7

We are currently engaged in the development of digital signal processing products and technologies for the voice, speech and natural language interface markets. We may not succeed in developing these new digital signal processing products and technologies, and any of these new digital signal processing products or technologies may not gain market acceptance.

Further, the markets for our products and technologies are characterized by evolving industry and government standards and specifications that may require us to devote substantial time and expense to adapt our products and technologies. For example, certain of our Andrea DSP Microphone and Audio Software products are subject to the Federal Communications Commission requirements. We may not successfully anticipate and adapt our products and technologies in a cost effective and timely manner to changes in technology and industry standards or to introductions of new products and technologies by others that render our then existing products and technologies obsolete.

If our marketing collaborators do not effectively market their products that include or incorporate our products, our sales growth will be adversely affected.

We have entered into collaborative and distribution arrangements with software publishers and computer hardware manufacturers relating to the marketing and sale of Andrea DSP Microphone and Audio Software products through inclusion or incorporation with the products of our collaborators. Our success is dependent to a substantial degree on the efforts of these collaborators to market their products that include or incorporate our products. Our collaborators may not successfully market these products. In addition, our collaborators generally are not contractually obligated to any minimum level of sales of our products or technologies, and we have no control over their marketing efforts. Furthermore, our collaborators may develop their own microphone products and technologies that may replace our products or technologies or to which they may give higher priority.

Shortages of, or interruptions in, the supply of more specialized components for our products could have a material adverse effect on our sales of these products.

The majority of our assembly operations are fulfilled by subcontractors (primarily in the Far East) using purchased components. Some specialized components for the Andrea DSP Microphone products, such as microphones and digital signal processing boards, are available from a limited number of suppliers (and in some cases foreign) and subject to long lead times. We may not be able to continue to obtain sufficient supplies of these more specialized components, particularly if the sales of our products increase substantially or market demand for these components otherwise increases. If our subcontractors fail to meet our production and shipment schedules, our business, results of operations and financial condition would be materially and adversely affected.

The Company depends on component and product manufacturing and logistical services provided by third parties, many of whom are located outside of the United States.

Substantially all of the Company’s components and products are manufactured in whole or in part by a few third-party manufacturers. Many of these manufacturers are located outside of the United States. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity of products or the Company’s flexibility to respond to changing conditions. If manufacturing or logistics in these locations is disrupted for any reason, including but not limited to, natural disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues, the Company’s consolidated financial condition and operating results could be materially adversely affected.

Our ability to compete may be limited by our failure to adequately protect our intellectual property or by patents granted to third parties.

We rely on a combination of patents, patent applications, trade secrets, copyrights, trademarks, and nondisclosure agreements with our employees, independent contractors, licensees and potential licensees, limited access to and dissemination of our proprietary information, and other measures to protect our intellectual property and proprietary rights. However, the steps that we have taken to protect our intellectual property may not prevent its misappropriation or circumvention. In addition, numerous patents have been granted to other parties in the fields of noise cancellation, noise reduction, computer voice recognition, digital signal processing and related subject matter. We expect that products in these fields will increasingly be subject to claims under these patents as the numbers of products and competitors in these fields grow and the functionality of products overlap. Claims of this type could have an adverse effect on our ability to manufacture and market our products or to develop new products and technologies, because the parties holding these patents may refuse to grant licenses or only grant licenses with onerous royalty requirements. Moreover, the laws of other countries do not protect our proprietary rights to our technologies to the same extent as the laws of the United States.

8

An unfavorable ruling in any current litigation proceeding or future proceeding may adversely affect our business, results of operations and financial condition.

From time to time we are subject to litigation incidental to our business. For example, we are subject to the risk of adverse claims, interference proceedings before the U.S. Patent and Trademark Office, oppositions to patent applications outside the United States, and litigation alleging infringement of the proprietary rights of others. Litigation to establish the validity of patents, to assert infringement claims against others, and to defend against patent infringement claims can be expensive and time-consuming, even if the outcome is in our favor.

Changes in economic and political conditions outside the United States could adversely affect our business, results of operations and financial condition.

We generate revenues from regions outside the United States. For the years ended December 31, 2015 and 2014, total revenues from sales to customers outside the United States accounted for approximately 81% and 84%, respectively, of our total revenues.
International sales and operations are subject to a number of risks, including:

● trade restrictions in the form of license requirements;
 

● restrictions on exports and imports and other government controls;
 

● changes in tariffs and taxes;
 

● difficulties in staffing and managing international operations;
 

● problems in establishing and managing distributor relationships;
 

● general economic conditions; and
 

● political and economic instability or conflict.

To date, we have invoiced our international revenues in U.S. dollars, and have not engaged in any foreign exchange or hedging transactions. We may not be able to continue to invoice all of our revenues in U.S. dollars in order to avoid engaging in foreign exchange or hedging transactions. If we are required to invoice any material amount of international revenues in non-U.S. currencies, fluctuations in the value of non-U.S. currencies relative to the U.S. dollar may adversely affect our business, results of operations and financial condition or require us to incur hedging costs to counter such fluctuations.

If we are unable to attract and retain the necessary managerial, technical and other personnel necessary for our business, then our business, results of operations and financial condition will be harmed.

Our performance is substantially dependent on the performance of our executive officers and key employees. The loss of the services of any of these executive officers or key employees could have a material adverse effect on our business, results of operations and financial condition. Our future success depends on our continuing ability to attract and retain highly qualified managers and technical personnel. Competition for qualified personnel is intense and we may not be able to attract, assimilate or retain qualified personnel in the future.

We have significantly less financial resources than most of our competitors which limits our ability to implement new products or enhancements to our current products and may require us to implement future restructuring plans, which could adversely affect our future sales and financial condition.

Financial resource constraints could limit our ability to execute our product strategy or require us to implement restructuring plans, particularly if we are unable to generate cash from operations or obtain additional sources of financing. Any future restructuring actions may slow our development of new or enhanced products by limiting our research and development and engineering activities. Our cash balances are also lower than those of our competitors, which may limit our ability to develop competitive new products on a timely basis. If we are unable to successfully introduce new or enhanced products, our sales and financial condition will be adversely affected.

A significant amount of our business involves licensing our proprietary software, a strategy that increases business risk and volatility.

We have licensed certain of our proprietary software to third parties and may seek to enter into additional license arrangements in the future. We cannot assure you, however, that others will be interested in licensing our software on commercially favorable terms or at all. We also cannot ensure that licensees will honor agreed-upon market restrictions, not infringe upon or misappropriate our intellectual property or maintain the confidentiality of our proprietary information.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Andrea has a lease for its corporate headquarters, which is located in Bohemia, New York. The lease, which currently expires in October 2020, is for approximately 3,000 square feet of leased space is for research and development, sales and executive offices. We believe that we maintain our machinery, equipment and tooling in good operating condition and that these assets are adequate for our current business and are adequately insured. See Notes 5 and 11 to the accompanying Consolidated Financial Statements for further information concerning our property and equipment and leased facilities.

ITEM 3. 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. The Company believes the lawsuit is without merit and intends to file a Motion for Summary Judgment to that affect. Accordingly, the Company does not believe the lawsuit will have a material adverse effect on the Company’s financial position or results of operations.

In July 2014, Andrea filed three complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer Inc. and related entities ("Acer"), Lenovo Group Ltd. and related entities ("Lenovo"), and Toshiba Corp. and related entities ("Toshiba"), and requesting monetary and injunctive relief. Acer, Lenovo, and Toshiba answered Andrea's complaints on October 20, 2014. Lenovo also asserted counterclaims which Andrea answered on November 10, 2014. Andrea also filed First Amended Complaints in these actions on November 10, 2014 which Acer, Lenovo, and Toshiba answered on November 24, 2014. Lenovo also asserted counterclaims which Andrea answered on December 15, 2014. All of these cases were stayed on March 23, 2015 due to Andrea’s complaint with the International Trade Commission (“ITC”) against these parties. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 19, 2016.

In January 2015, Andrea filed seven complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer, ASUSTeK Computer Inc. and related entities ("Asus"), Dell Inc. ("Dell"), Hewlett-Packard Co. ("HP"), Lenovo, Realtek Semiconductor Corp. ("Realtek"), and Toshiba, and requesting monetary and injunctive relief. Lenovo answered Andrea's complaint on February 10, 2015. Lenovo also asserted counterclaims which Andrea answered on March 3, 2015. The other defendants have not yet answered Andrea's complaint. All of these cases except for the case against Realtek were also stayed on March 23, 2015 due to Andrea’s complaint with the ITC against these parties. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for dismissal of Andrea’s action against Realtek in the Eastern District of New York. Andrea and Realtek’s stipulation of dismissal was granted on December 22, 2015. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 27, 2016. Andrea and HP settled their disputes and filed a stipulation of dismissal which was granted on February 5, 2016. Andrea and Asus settled their disputes and filed a stipulation of dismissal which was granted on February 23, 2016.

In February 2015, Andrea filed a complaint with the ITC, alleging patent infringement and unfair competition against Acer, Asus, Dell, HP, Lenovo, Realtek, and Toshiba (the “ITC Respondents”), and requesting injunctive relief. The ITC instituted an investigation on March 12, 2015. The ITC Respondents answered Andrea's complaint on April 6, 2015. On July 2, 2015, Conexant Systems, Inc. (“Conexant”) filed a motion to intervene in the Investigation. On July 14, 2015, Waves Audio, Ltd. (“Waves”) filed a motion to intervene in the investigation. The Administrative Law Judge (“ALJ”) granted Conexant and Waves’ motions to intervene on August 7, 2015. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek moved to partially terminate the ITC Investigation with respect to certain of Andrea’s claims pertaining to Realtek and its products. That motion was granted by the ALJ on November 6, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Acer settled their disputes and filed a motion to terminate Acer from the investigation, which was granted by the ALJ on November 25, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and HP settled their disputes and filed a motion to terminate HP from the investigation, which was granted by the ALJ on January 12, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Asus settled their disputes and filed a motion to terminate Asus from the investigation, which was granted by the ALJ on February 4, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Lenovo settled their disputes and filed a motion to terminate Lenovo from the investigation, which was granted by the ALJ on February 23, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Conexant settled their disputes and filed a motion to terminate Conexant from the investigation, which was granted by the ALJ on March 7, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Waves settled their disputes and filed a motion to terminate Waves and Dell from the investigation, which was granted by the ALJ as to Waves only on March 18, 2016. The ITC has not yet decided where to review the ALG’s initial determination partially granted that motion. Andrea and Toshiba settled their disputes and filed a motion to terminate Toshiba from the investigation, which was granted by the ALJ on March 18, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea filed a motion to terminate Dell from the investigation on March 25, 2016, which has not yet been ruled upon by the ALJ.

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In July 2015, Realtek filed six (6) petitions for inter partes review of the Andrea patents asserted in the District Court and ITC litigation proceedings with the United States Patent and Trademark Office (“PTO”). Also in July 2015, Realtek filed a Complaint with the United States District Court for the Northern District of California, alleging breach of contract and seeking declaratory judgment against Andrea. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for termination of those proceedings. Andrea and Realtek have since filed motions to terminate all six (6) inter partes review proceedings, and on November 3, 2015, the PTO granted all six (6) of those motions and terminated all six (6) of the inter partes reviews of Andrea’s patents.

In January 2016, Waves filed three (3) petitions for inter partes review of certain Andrea patents asserted in the District Court and ITC litigation proceedings with the PTO. Andrea and Waves have since filed motions to terminate all three (3) inter partes review proceedings. The PTO has not yet ruled on those motions.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The table below sets forth the high and low sales prices for Andrea’s Common Stock as reported by the Over the Counter Bulletin Board for the eight fiscal quarters ended December 31, 2015. Andrea’s common stock is currently quoted on the OTCQB tier of the OTC Market Group’s quotation platform. On March 24, 2016, there were approximately 363 holders of record of Andrea’s Common Stock.

Quarter Ended	High		Low
March 31, 2014	$	0.15	$	0.04
June 30, 2014	$	0.15	$	0.07
September 30, 2014	$	0.14	$	0.07
December 31, 2014	$	0.10	$	0.06
March 31, 2015	$	0.09	$	0.07
June 30, 2015	$	0.09	$	0.05
September 30, 2015	$	0.08	$	0.04
December 31, 2015	$	0.08	$	0.04

No cash dividends were paid on Andrea’s Common Stock in 2015 or 2014.

During the three months ended December 31, 2015, the Company did not repurchase any of its common stock.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable as Andrea is a smaller reporting company.

ITEM 7. MANAGEMENT’S 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 digital microphone products and noise reduction software that facilitate natural language, human/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.

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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 United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and determination of revenues and expenses in the reporting period. 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. Management considers an accounting estimate to be critical if: 1) it requires assumptions to be made that were uncertain at the time the estimate was made; and 2) changes in the estimate, or the use of different estimating methods that could have been selected and could have a material impact on the Company’s consolidated results of operations or financial condition.

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 – 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 Financial Accounting Standards Board Accounting Standards Codification” (the “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.

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 December 31, 2015 and 2014, our allowance for doubtful accounts was $5,415.

Inventory – We are required to state our inventories at the lower of cost or market. 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 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. Inventories of $58,028 and $216,336 at December 31, 2015 and 2014, respectively, are net of reserves of $115,275 and $129,756, respectively. It is possible that additional charges to inventory may occur in the future if there are further declines in market conditions, or if additional restructuring actions are taken.

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 December 31, 2015 and 2014.

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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 asset 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, product 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.

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 December 31, 2015 and other items set forth in this Annual Report on Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “seeks,” variations of such words, and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations, estimates and projections about our business and industry, our beliefs and certain assumptions made by our management. Investors are cautioned that matters subject to forward-looking statements involve risks and uncertainties including economic, competitive, governmental, technological and other factors that may affect our business and prospects. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. These statements are based on current expectations and speak as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. In order to obtain the benefits of these “safe harbor” provisions for any such forward-looking statements, we wish to caution investors and prospective investors about the following significant factors, which, among others, have in some cases affected our actual results and are in the future likely to affect our actual results and could cause them to differ materially from those expressed in any such forward-looking statements. These factors include the risks noted in Item 1A.

Results Of Continuing Operations

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Total Revenues

	For the Year Ended December 31				%
	2015		2014		Change
Patent Monetization revenues
License revenues	$	12,104,958	$	4,557	265,534		(a)
Total Patent Monetization revenues		12,104,958		4,557
Andrea DSP Microphone and Audio Software Products revenues
Revenue from automotive array microphone products		28,469		38,110	(25	)	(b)
Revenue from customized digital product		237,896		97,476	144		(c)
All other Andrea DSP Microphone and Audio Software
Product revenues		121,933		191,061	(36	)	(d)
License revenues		741,626		892,358	(17	)	(e)
Total Andrea DSP Microphone and Audio Software Products
revenues		1,129,924		1,219,005	(7	)
Total revenues	$	13,234,882	$	1,223,562	982

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____________________

(a)	The increase of approximately $12,100,000 in license revenues, is the result of revenue recognized for patent licensing agreements entered into during 2015.
(b)	The decrease of approximately $10,000 for the year ended December 31, 2015 as compared to the same period in 2014 in revenues of automotive array microphone products is primarily the result of decreased product revenues from integrators of public safety vehicle solutions.
(c)	The increase of approximately $140,000 for year ended December 31, 2015 as compared to same period in 2014 in customized digital product revenues is related to increased product revenues to an OEM customer for a customized digital product.
(d)	The decrease of approximately $69,000 for year ended December 31, 2015 as compared to same period in 2014 in all other Andrea DSP Microphone and Audio Software product revenues is related to decreased product revenues to OEM customers for digital products.
(e)	The decrease of approximately $151,000 for the year ended December 31, 2015, as compared to the same period in 2014, is the primarily the result of decreased royalties reported as a result of a decrease in sales of PC models which feature our technology.

Cost of Revenues

Cost of revenues as a percentage of total revenues, from continuing operations, for the year ended December 31, 2015 decreased to 1% from 16% for the year ended December 31, 2014. There was no cost of revenues associated with the Patent Monetization revenues of $12,104,958 and $4,557, for the year ended December 31, 2015 and 2014, respectively. The cost of revenues as a percentage of total revenues for the year ended December 31, 2015 for Andrea DSP Microphone and Audio Software Products was 10% compared to 16% for the year ended December 31, 2014. These changes are primarily the result of the changes in revenue as described under “Total Revenues” above.

Patent Monetization Expenses

Patent monetization expenses for the year ended December 31, 2015 increased by 387% to $8,216,749 from $1,687,802. 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 in this Form 10-Q.

Research and Development

Research and development expenses, from continuing operations, for the year ended December 31, 2015 increased by 57% to $767,680 from $487,858 for the year ended December 31, 2014. These expenses primarily relate to costs associated with the development of new products. For the year ended December 31, 2015, research and development expenses reflected a 67% decrease in our Patent Monetization efforts to $28,881 or 4% of total research and development expenses and an 84% increase in our Andrea DSP Microphone and Audio Software Technology efforts to $738,799, or 96% 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 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 increased by approximately 24% to $1,446,205 for the year ended December 31, 2015 from $1,162,782 for the year ended December 31, 2014. For the year ended December 31, 2015, there was a 62% decrease in our Patent Monetization efforts to $263,683, or 18% of total general, administrative and selling expenses and a 152% increase in general, administrative and selling expenses in our Andrea DSP Microphone and Audio Software Technology to $1,182,522, or 82% of total general, administrative and selling expenses. The overall 24% increase of approximately $283,000 is related to an increase of expenses now being allocated to continuing operations in 2015 offset in part by the decrease in the costs associated with consummating the Revenue Sharing Agreement in 2014.

Interest Expense, net

Interest expense, net for the year ended December 31, 2015 was $65,006, compared to interest expense, net of $274 for the year ended December 31, 2014. The changes in this line item are attributable to an increase of interest expense related to long-term debt in conjunction with the Revenue Sharing Agreement partially offset from the interest income on the note receivable related to the sale of the Andrea Anti-Noise Products Division.

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Provision for Income Taxes

The income tax provision for the year ended December 31, 2015 was $154,513, compared to $214,136 for the year ended December 31, 2014. The provision for income taxes for the year ended December 31, 2015 is comprised of approximately $146,000 as 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 and approximately $8,000, net of certain alternative minimum taxes. Although the provisions could be offset by future tax benefits, the Company does not record the benefit as it is unlikely that the Company will be able to use these types of foreign tax credits or alternative minimum tax credits. The Company records a full valuation against deferred tax assets until such benefits will be utilized. The $8,000 of alternative minimum taxes is a result of the Company’s expectation to have taxable income as a result of the net income for the year ended December 31, 2015. The Company will offset the taxable income by utilization of their net operating loss carry forwards and reduce its valuation allowance by approximately $187,000. This reduction will be offset by the same reduction of the deferred tax asset resulting in no additional benefit or provision for the year ended December 31, 2015. The provision for income taxes for the year ended December 31, 2014 was comprised of approximately $176,000 as 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 and approximately $38,000 of certain alternative minimum taxes. Although the provisions could be offset by future tax benefits, the Company does not record the benefit as it is unlikely that the Company will be able to use these types of foreign tax credits or alternative minimum tax credits. The Company records a full valuation against deferred tax assets until such benefits will be utilized. The $38,000 of alternative minimum taxes is a result of the Company’s expectation to have taxable income as a result of the $3,500,000 advance from the Revenue Sharing Agreement. The Company will offset the taxable income by utilization of their net operating loss carry forwards and reduce its valuation allowance by approximately $300,000. This reduction will be offset by the same reduction of the deferred tax asset resulting in no additional benefit or provision for the year ended December 31, 2014.

Net income (loss)

Net income for the year ended December 31, 2015 was $3,044,170 compared to a net loss $2,892,593 for the year ended December 31, 2014. The net income for the year ended December 31, 2015 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 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 December 31, 2015, we had cash of $5,592,554 compared to $3,574,530 at December 31, 2014. The cash balance at December 31, 2015 was primarily a result of the $3,500,000 received in connection with the Revenue Sharing Agreement offset in part by our cash used in operations.

Our working capital balance at December 31, 2015 was $2,116,111 compared to working capital of $3,255,298 at December 31, 2014. The decrease in working capital reflects an increase in total current assets of $3,683,423 and an increase in total current liabilities of $4,822,610. The increase in total current assets reflects an increase in cash of $2,018,024, an increase in accounts receivable of $1,663,574, a decrease in inventories of $158,308, a decrease in prepaid expenses and other current assets of $492 and an increase in current portion of note receivable of $406,522 and a decrease in current assets from discontinued operations of $245,897. The increase in total current liabilities reflects an increase in trade accounts payable of $1,655,932, an increase in taxes payable of $7,000, a decrease of $2,712 in short-term deferred revenue, an increase in other current liabilities of $1,176,357, a decrease of $111,219 in liabilities from discontinued operations, an increase of $196,477 in short-term advance from revenue sharing agreement and an increase of $1,900,775 in current portion of long term debt.

The increase in cash of $2,018,024 reflects $731,382 of net cash provided by operating activities, $356,960 of net cash provided by investing activities and $929,682 of net cash provided by financing activities.

The cash provided by operating activities of $731,382, excluding non-cash charges, is primarily attributable to the $3,044,170 net income for the year ended December 31, 2015, a $1,749,979 increase in accounts receivable, a $470,022 decrease in inventories, a $8,475 decrease in prepaid expenses and other current assets and other assets, an increase of $7,000 in taxes payable, a $1,548,704 increase in trade accounts payable, a $3,187,933 decrease in Advance from Revenue Sharing Agreement, a $2,712 decrease in short-term deferred revenue and an increase of $1,172,366 in other current liabilities. The changes in receivables, inventories and trade accounts payable primarily reflect differences in the timing related to both the payments for and the acquisition of inventory as well as for other services in connection with ongoing efforts related to Andrea’s operations.

15

The cash provided by investing activities of $356,960 reflects purchases of property and equipment of $18,443, an increase in patents and trademarks of $28,868, proceeds from the sale of the Anti-Noise Products Division of $300,000, and interest and principal repayments of notes receivable of $104,271. The increase in patents and trademarks reflects capital expenditures associated with our intellectual property.

The cash provided by financing activities of $929,682, reflects proceeds from the exercise of stock options of $34,750 and net proceeds from long-term debt.

We plan to improve our cash flows in 2016 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 March 24, 2016, Andrea had approximately $7,900,000 of cash deposits. 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.

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 U.S. dollars. As such, we have shifted foreign currency exposure onto our foreign customers. As a result, if exchange rates move against foreign customers, we could experience difficulty collecting unsecured accounts receivable, the cancellation of existing orders or the loss of future orders. The foregoing could materially adversely affect our business, financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements are included in this Report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)	Disclosure Controls and Procedures
		The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b)	Internal Controls Over Financial Reporting
		Management’s annual report on internal control over financial reporting is included herein by reference to the section titled “Management’s Annual Report on Internal Control Over Financial Reporting” immediately preceding the Company’s audited Consolidated Financial Statements in this Report.
(c)	Changes to Internal Control Over Financial Reporting
		There were no changes in the Company’s internal control over financial reporting during the three months ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information on the Directors of the Company is provided below. All Directors serve one-year terms and ages are as of December 31, 2015. Based on their respective experiences, qualifications, attributes and skills set forth below, the board of directors determined that each current director should serve as a director.

Douglas J. Andrea, age 53, has been Chairman of the Board of Directors since November 2001, a Director of the Company since 1991, Corporate Secretary since 2003 and Chief Executive Officer since January 2005. He was Co-Chairman and Co-Chief Executive Officer of the Company from November 1998 until August 2001. He served as Co-President of the Company from November 1992 to November 1998, as Vice President - Engineering of the Company from December 1991 to November 1992, and as Secretary of the Company from 1989 to January 1993.

Mr. Andrea’s extensive experience in the software and communications industry affords the Board valuable insight regarding the business and operation of the Company. In addition, Mr. Andrea’s extensive background in corporate management provides him a unique and broad-based decision-making capability for the Company. Mr. Andrea has held various positions within the Company, which has given him knowledge of all aspects of the Company’s business and history, which position him well to continue to serve as a member of the Board.

Gary A. Jones, age 70, has been a Director of the Company since April 1996. He has served as President of Digital Technologies, Inc., since 1994 and was Chief Engineer at Allied Signal Ocean Systems from 1987 to 1994. From March 1998 to December 2000, Mr. Jones was the Managing Director of Andrea Digital Technologies, Inc., a wholly-owned subsidiary of Andrea Electronics Corporation.

Mr. Jones’s extensive experience in the software and communications industry affords the Board valuable insight regarding the business and operation of the Company. In addition, Mr. Jones was the Managing Director of a wholly-owned subsidiary of Andrea Electronics, which has given him knowledge of all aspects of the Company’s business and history, which position him well to continue to serve as a member of the Board.

Louis Libin, age 57, has been a Director of the Company since February 2002. He is President of Broad Comm, Inc., a consulting group specializing in advanced television broadcast, interactive TV, Internet Protocol and wireless communications. Mr. Libin is also the executive director of the Advanced Television Broadcasting Alliance (the “ATBA”). The ATBA is an organization comprised of hundreds of low-power television (“LPTV”) broadcasters, owners and operators of translators, and allied industry organizations and companies. Prior to his tenure at Broad Comm, Mr. Libin was Chief Technology Officer for NBC, and was responsible for all business and technical matters for satellite, wireless and communication issues for General Electric and NBC. Since 1989, Mr. Libin has represented the United States on satellite and transmission issues at the International Telecommunications Union in Geneva, Switzerland. Mr. Libin is a Senior Member of the Institute of Electrical and Electronic Engineers, and is a member of the National Society of Professional Engineers. Mr. Libin also serves on the boards of directors of several private and not-for profit companies.

Mr. Libin’s extensive experience in the communications industry affords the Board valuable insight regarding the business and operation of the Company. Mr. Libin’s technical background, as well as his experiences from his other board memberships makes him a valuable asset to continue to serve as a member of the Board.

Joseph J. Migliozzi, age 65, has been a Director of the Company since September 2003. He is the Executive Vice President of Ionian Management Inc., a Petroleum Shipping, Trading and Distribution company. Prior to that he was the Engagement Partner at Tatum LLC, an Interim CFO practice. He has operated his own management consulting firm since 2001. From 1997 to 2001, Mr. Migliozzi was the Chief Operating and Financial Officer of Voyetra Turtle Beach. Prior to that, he served in various executive management positions in the electronics manufacturing industries, with both financial and operational responsibilities. Mr. Migliozzi is a Certified Public Accountant.

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Mr. Migliozzi’s accounting, finance and corporate management experience affords the Board valuable insight regarding the business, finances and operation of the Company. Mr. Migliozzi’s extensive background provides him the distinctive skill set required to continue to serve as a member of the Board.

Jonathan D. Spaet, age 59, has been a Director of the Company since 2003. He currently is Vice President of Networks Sales for Sinclair Broadcasting, the largest owner of television stations in the country. Previously, he was the Senior Director of Advanced Advertising, heading the group for Viamedia, a Cable Television Advertising Representation company that represents many cable providers including Verizon FiOS and RCN. Prior to Viamedia, he was Executive Vice President of Vault.com, an internet site in the career and recruitment space. Before Vault, he was Vice-President/General Manager of Advertising Sales for Time Warner Cable in New York City, where he had been since 2008. Prior to that appointment, he was at Time Warner Cable National Advertising Sales since September 2004, overseeing advertising sales for Time Warner Cable markets around the country. Previously, he was Vice-President of Sales for Westwood One Radio Networks, managing ad sales for one of the largest radio groups in the country. From 2002 to 2003, he was the Chief Operating Officer of MEP Media, a company that started a digital cable channel devoted to the music enthusiast. Prior to MEP, he was President of Ad Sales for USA Networks, supervising ad sales, marketing, research and operations for both USA and Sci-fi, two top-tier cable channels. Previously, he was President of Ad Sales for About.com. This followed 15 years at NBC, where Mr. Spaet’s career included a six-year position in NBC Cable and nine years in the NBC Television Stations Group. Mr. Spaet holds a Bachelor and Masters of Business Administration degrees from New York University and is a member of the National Sales Advisory Board of the Cable Advertising Bureau, and is a member of the Internet Advertising Bureau.

Mr. Spaet’s extensive experience in media sales, marketing, promotion and finance brings the Board valuable insight regarding the business and operation of the Company. Mr. Spaet’s background in producing, packaging, positioning and experience in the communication industry make him a valuable asset to continue to serve as a member of the Board.

Information about Executive Officers Who Are Not Directors

The following information is provided for the Company’s executive officer who is not also a director:

Corisa L. Guiffre, age 43, has been the Company's Vice President and Chief Financial Officer since June 2003 and Assistant Corporate Secretary since October 2003. Ms. Guiffre joined the Company in November 1999 and served as Vice President and Controller until June 2003. Prior to joining the Company, she was a member of the Audit, Tax and Business Advisory divisions at Arthur Andersen LLP. She is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and a member of the New York State Society of Certified Public Accountants.

Ms. Guiffre is elected annually as the Chief Financial Officer and holds office until her successor has been elected and qualified or until she is removed or replaced.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and officers and persons who beneficially own more than ten percent of the Company's common stock to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of common stock in the Company. Officers, directors and greater-than-ten percent shareholders are also required to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Section 16(a) of the Securities Exchange Act of 1934, as amended, during the year ended December 31, 2015 and Forms 5 and amendments thereto furnished to the Company with respect to the year ended December 31, 2015, and written representations provided to the Company from the individuals required to filed reports, the Company believes that each of the individuals required to file reports complied with applicable reporting requirements for transactions in the Company’s common stock during the year ended December 31, 2015.

Code of Business Ethics and Conduct

Andrea has adopted a Code of Business Ethics and Conduct. See “Item 15 – Exhibits” to this Annual Report on Form 10-K.

Audit Committee and Audit Committee Financial Expert.

The Company has a separately designated standing Audit Committee, which currently consists of Messrs. Jones, Libin, Migliozzi and Spaet. The Board of Directors has designated Mr. Migliozzi as an audit committee financial expert under the rules of the Securities and Exchange Commission.

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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information for the last two fiscal years relating to compensation earned by each person who served as chief executive officer and the other two most highly compensated executive officers whose total compensation was over $100,000 during the years ended December 31, 2015, and 2014.

Name and Principal Position	Year	Salary		Bonus		Option Awards		Total
Douglas J. Andrea, Chairman of the	2015	$	300,000	$	239,418	$	30,000	$	569,418
Board, Chief Executive Officer,	2014		300,000		-		50,000		350,000
and Corporate Secretary
Corisa L. Guiffre, Vice President,	2015	$	170,000	$	115,584	$	-	$	285,584
Chief Financial Officer and	2014		156,104		-		28,000		184,104
Assistant Corporate Secretary

Outstanding Equity Awards at December 31, 2015

The following table provides information concerning outstanding unexercised options as of December 31, 2015 for each named executive officer. None of the named executive officers had stock awards that have not vested or unearned equity incentive plan awards at December 31, 2015.

	Option Awards
		Number of
	Number of securities	securities
	underlying	underlying
	unexercised options	unexercised options	Option exercise		Option
Name	(#) exercisable	(#) unexercisable	price ($/share)		expiration date
Douglas J. Andrea	1,000,000	-	$	0.12	11-02-2016
	1,000,000	-	$	0.12	11-16-2016
	1,000,000	-	$	0.11	9-12-2017
	2,000,000	-	$	0.04	8-8-2018
	1,000,000	-	$	0.04	8-8-2018
	1,000,000	-	$	0.11	7-24-2019
	1,000,000	-	$	0.13	8-01-2020
	166,500	333,500	$	0.10	9-02-2024
	-	500,000	$	0.06	8-07-2025
Corisa L. Guiffre	400,000	-	$	0.12	11-16-2016
	350,000	-	$	0.11	9-12-2017
	500,000	-	$	0.04	8-8-2018
	200,000	-	$	0.11	7-24-2019
	250,000	-	$	0.08	9-22-2020
	116,500	233,500	$	0.08	10-21-2024

Employment Agreements

In August 2014, the Company entered into an employment agreement with Mr. Andrea. The effective date of the employment agreement is August 1, 2014 and expires July 31, 2016 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 $300,000. The employment agreement provides for quarterly bonuses equal to 5% of the Company’s pre-bonus net after tax quarterly earnings for a total quarterly bonus amount not to exceed $12,500; and annual bonuses equal to 9% of the Company’s annual pre-bonus net after tax earnings in excess of $300,000 up to $3,000,000, and 3% of the Company’s annual pre-bonus adjusted net after tax earnings in excess of $3,000,000. 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 Company’s 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 three times the three year average of the cash incentive compensation paid or accrued as of the date of termination, continuation of health and medical benefits for three years and immediate vesting of all stock options in the event of a change in control during the term of his agreement and subsequent termination of his employment within two years following the change of control. In the event of his termination without cause or resignation with the Company’s consent, Mr. Andrea is entitled to a severance payment equal to six months of his base salary, plus the six months prorated portion of his most recent annual and quarterly bonuses, and a continuation of health insurance coverage for Mr. Andrea, his spouse and his dependents for 12 months. At December 31, 2015, the future minimum cash commitments under this agreement aggregate $398,863.

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On November 11, 2008, the Company entered into an amended and restated change in control agreement with Corisa Guiffre, Vice President, Chief Financial Officer and Assistant Corporate Secretary of the Company. The change in control agreement provides Ms. Guiffre with a severance benefit upon termination in connection with a change in control (as defined in the agreement). If Ms. Guiffre is terminated following a change in control, the Company will pay Ms. Guiffre a sum equal to three times Ms. Guiffre’s average annual compensation for the five preceding taxable years. All restrictions on any restricted stock will lapse immediately and incentive stock options and stock appreciation rights, if any, will become immediately exercisable in the event of a change in control. Upon the occurrence of a change in control followed by Ms. Guiffre’s termination of employment, the Company will cause to be continued life, medical, dental and disability coverage. Such coverage and payments shall cease upon the expiration of 36 full calendar months following the date of termination.

Director Compensation

The following table provides the compensation received by individuals who served as non-employee directors of the Company during the 2015 fiscal year.

	Fees Earned
	or Paid in		Stock Option
Director	Cash		Awards		Total
Gary A Jones	$	7,000	$	-	$	7,000
Louis Libin		7,000		-		7,000
Joseph J. Migliozzi		8,750		-		8,750
Jonathan D. Spaet		7,250		-		7,250

Annual Retainer and Meeting Fees for Non-Employee Directors

The following sets forth the applicable retainers and fees that were paid to non-employee directors for their service on the Board of Directors of the Company during 2015. Employee directors do not receive any retainers or fees for their services on the Boards of Directors.

Annual Retainer	$	3,500
Fee per Board Meeting (Regular or Special)	$	250
Fee per Committee Meeting	$	250
Additional Annual Retainer for the Chairperson of
the Audit Committee	$	1,500

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership

The following table sets forth certain information as of March 24, 2016, with respect to the common stock ownership of (i) each director of the Company, (ii) each executive officer named in the Summary Compensation Table and (iii) all directors and executive officers of the Company as a group.

			Number of
	Number of		Shares That May be
	Shares Owned		Acquired Within	Percent of
	(excluding		60 days by	Common Stock
Name of Beneficial Owner	options)		Exercising Options	Outstanding(1)
Douglas J. Andrea	361,014	(2)	8,166,500	11.7	%
Corisa L. Guiffre	102,750		1,816,550	2.9	%
Gary A. Jones	437,472		308,031	1.2	%
Louis Libin	352,149		223,132	*
Joseph J. Migliozzi	926,261		466,027	2.2	%
Jonathan D. Spaet	29,261		207,981	*
Current directors and executive officers as
a group (6 persons)	2,205,031		11,188,221	17.7	%

____________________

*        Less than 1%

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(1)

Percentages with respect to each person or group of persons have been calculated on the basis of 64,416,035 shares of Company common stock outstanding, plus the number of shares of Company common stock which such person or group of persons has the right to acquire within 60 days from March 24, 2016, by the exercise of options. The information concerning the shareholders is based upon information furnished to the Company by such shareholders. Except as otherwise indicated none of the shares listed are pledged as security and all of the shares next to each identified person or group are owned of record and beneficially by such person or each person within such group and such persons have sole voting and investment power with respect thereto.

(2)

Includes 12,438 and 3,876 shares owned by Mr. Andrea’s spouse and Mr. Andrea’s daughter, respectively.

The following table sets forth certain information as of March 24, 2016, with respect to the stock ownership of beneficial owners of more than 5% of the Company’s outstanding common stock other than Mr. Andrea whose stock ownership is set forth above:

			Percent of
			Common Stock
			and Common
	Shares of		Stock
	Common Stock	Common Stock	Equivalents
Name and Address	Owned	Equivalents (1)	Outstanding (2)
Alpha Capital Anstalt	-	5,722,159 (3)	8.2%
Pradafant 7,
Furstentums 9490
Vaduz, Liechtenstein
Nickolas W. Edwards	5,390,000 (4)	-	8.4%
937 Pine Ave, Long Beach, CA 90813

____________________

(1)	The issuance of shares of common stock upon conversion of the Series C Preferred Stock is limited to that amount which, after given effect to the conversion, would cause the holder not to beneficially own in excess of 4.99% or, together with other shares beneficially owned during the 60 day period prior to such conversion, not to beneficially own in excess of 9.99% of the outstanding shares of common stock. The issuance of common stock upon conversion of the Series D Preferred Stock also are limited to that amount which, after given effect to the conversion, would cause the holder not to beneficially own an excess of 4.99% of the outstanding shares of our common stock, except that each holder has a right to terminate such limitation upon 61 days notice to us.
(2)	Percentages with respect to each person or group of persons have been calculated on the basis of 64,416,035 shares of Company common stock outstanding, plus the number of shares of Company common stock which such person or groups of persons has the right to acquire within 60 days of the conversion of Series C Preferred Stock and Series D Preferred Stock.
(3)	Based on information filed with the Securities and Exchange Commission in a Schedule 13G (Amendment No. 1) on February 15, 2007. Common stock ownership of Alpha Capital Anstalt (“Alpha Capital’) is not known as of March 24, 2016. As of March 24, 2016, Alpha Capital has 3,585,731 of common stock equivalents from Series C Preferred Stock and Series D Preferred Stock. See footnote (1) above, for limitations on the conversion of such commons stock equivalents.
(4)	Based on information filed with the Securities and Exchange Commission in a Schedule 13G (Amendment No. 1) on October 20, 2006 by Nickolas W. Edwards.

The following table sets forth certain information as of December 31, 2015, for all compensation plans, including individual compensation arrangements under which equity securities of the Company are authorized for issuance.

				Number of securities remaining
	Number of securities to be			available for future issuance
	issued upon exercise of	Weighted-average exercise		under equity compensation plans
	outstanding options, warrants	price of outstanding options,		(excluding securities reflected in
	and rights	warrants and rights		column (a))
Plan Category	(a)	(b)		(c)
Equity compensation plans approved by security holders	16,929,821	$	0.09	1,677,436
Equity compensation plans not approved by security holders	-		-	-
Total	16,929,821	$	0.09	1,677,436

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Each member of the Company’s Board of Directors is independent under the listing standards of the Nasdaq Stock Market, except for Mr. Andrea, Chairman of the Board, President and Chief Executive Officer of the Company.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The following table sets forth the fees billed or expected to be billed to the Company for the fiscal years ended December 31, 2015 and 2014 by Marcum LLP:

	2015		2014
Audit Fees	$	109,500	$	114,500
Audit-related fees		1,500		5,175
Tax fees		-		-
All other fees		-		-

Pre-Approval of Services by the Independent Auditor

The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by the Company’s independent auditor. The Audit Committee will consider annually and, if appropriate, approve the provision of audit services by its external auditor and consider and, if appropriate, pre-approve the provision of certain defined audit and non-audit services. The Audit Committee also will consider on a case-by-case basis and, if appropriate, approve specific engagements that are not otherwise pre-approved.

Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members. The member or members to whom such authority is delegated shall report any specific approval of services at its next regular meeting. The Audit Committee will regularly review summary reports detailing all services being provided to the Company by its external auditor.

During the year ended December 31, 2015, all services were approved, in advance, by the Audit Committee in compliance with these procedures.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following documents are included in this Annual Report on Form 10-K beginning on page F-1.
	●	Report of Independent Registered Public Accounting Firm
	●	Consolidated Balance Sheets—at December 31, 2015 and 2014
	●	Consolidated Statements of Operations—Years Ended December 31, 2015 and 2014
	●	Consolidated Statements of Shareholders’ Equity Deficit —Years Ended December 31, 2015 and 2014
	●	Consolidated Statements of Cash Flows—Years ended December 31, 2015 and 2014
	●	Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All schedules are omitted as required information is either not applicable, or is presented in the consolidated financial statements.

(a)(3) Exhibits

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Exhibit
Number		Description
	2.1	Asset Purchase Agreement, dated as of March 27, 2015, by and between Andrea Communications LLC and Andrea Electronics Corporation (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed April 2, 2015)
	3.1	Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-K for the year ended December 31, 1992)
	3.2	Certificate of Amendment of the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-K for the year ended December 31, 1997)
	3.3	Certificate of Amendment of the Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed November 30, 1998)
	3.4	Certificate of Amendment to the Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 22, 1999)
	3.5	Certificate of Amendment to the Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed October 12, 2000)
	3.6	Certificate of Amendment to the Certificate of Incorporation of the Registrant dated August 22, 2001 (incorporated by reference to Exhibit 3.6 of the Registrant’s Annual Report on Form 10-K filed April 1, 2002)
	3.7	Certificate of Amendment to the Certificate of Incorporation of the Registrant dated February 5, 2003 (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form 8-A/A filed February 6, 2003)
	3.8	Certificate of Amendment to the Certificate of Incorporation of the Registrant dated February 23, 2004 (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form 8-K filed February 26, 2004)
	3.9	Amended By-Laws of Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed November 30, 1998)
	4.1	Rights Agreement dated as of April 23, 1999 between Andrea and Continental Stock Transfer and Trust Company, as Rights Agent, including the form of Certificate of Amendment to Certificate of Incorporation as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Shares of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed May 7, 1999)
	10.1	*1998 Stock Plan of the Registrant, as amended (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-8, No. 333-82375, filed July 7, 1999)
	10.2	*Change in Control Agreement, dated as of November 22, 1999, by and between Corisa L. Guiffre and the Registrant (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-KSB for the year ended December 31, 2006)
	10.3	Exchange and Termination Agreement, dated as of February 11, 2004, by and among the Company and HFTP Investment L.L.C (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form 8-K filed February 17, 2004)
	10.4	Acknowledgement and Waiver Agreement, dated as of February 11, 2004, by the Company and the investors listed in such agreement (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form 8-K filed February 17, 2004)
	10.5	Securities Purchase Agreement, dated February 20, 2004, by and among the Company and the investors listed in such agreement (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 8-K filed February 26, 2004)
	10.6	Registration Rights Agreement, dated February 23, 2004, by and among the Company and the investors listed in such agreement (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form 8-K filed February 26, 2004)
	10.7	*2006 Equity Compensation Plan of the Registrant (incorporated by reference to Appendix A of the Registrant’s Schedule 14A filed on October 17, 2006)
	10.8	*Change in Control Agreement, dated as of November 11, 2008, by and between Andrea Electronics Corporation and Corisa L. Guiffre (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q filed on November 14, 2008)
	10.9	* Amendment to the 2006 Equity Compensation Plan (incorporated by reference to Exhibit 10.12 of the Registrant’s From 10-K filed on March 16, 2010)
	10.10	*Employment Agreement, dated as of August 1, 2014 by and between Andrea Electronics Corporation and Douglas J. Andrea (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on September 8, 2014)
	10.11	Revenue Sharing and Note Purchase Agreement by and among Andrea Electronics Corporation and AND34 Funding LLC dated as of February 14, 2014 (incorporated by reference to Exhibit 1.1 of the Registrant’s Form 10-Q/A filed on December 31, 2014)**
	10.12	Amended and Restated Revenue Sharing and Note Purchase Agreement by and among Andrea Electronics Corporation and AND34 Funding LLC dated as of December 24, 2014, retroactively effective as of February 14, 2014 (incorporated by reference to Exhibit 1.1 of the Registrant’s Form 8-K/A filed on January 22, 2015)**
	10.13	Settlement Agreement between Andrea Electronics Corporation and Realtek Semiconductor Corporation dated October 15, 2015
	10.14	Settlement Agreement between Andrea Electronics Corporation and Acer American Corporation dated November 17, 2015
	10.15	Settlement Agreement between Andrea Electronics Corporation and HP Inc. dated December 22, 2015

23

Exhibit
Number		Description
	14.0	Code of Business Ethics and Conduct (incorporated by reference to Exhibit 14.0 of the Registrant’s Form 10-KSB filed April 15, 2005)
	21.0	Subsidiaries of Registrant
	23.1	Consent of Independent Registered Public Accounting Firm
	31.0	Rule 13a-14(a)/15d – 14(a) Certifications
	32.0	Section 1350 Certifications
	101.0	The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL:
			(i)	the Consolidated Balance Sheets;
			(ii)	the Consolidated Statements of Operations;
			(iii)	the Consolidated Statements of Shareholders’ Deficit Equity;
			(iv)	the Consolidated Statements of Cash Flows; and
			(v)	the Notes to the Consolidated Financial Statements.

______________________

*	Management contract or compensatory plan or arrangement
**	Confidential treatment has been requested with respect to portions of this exhibit pursuant to Rule 24b-2 of the Exchange Act and these confidential portions have been redacted from the document filed as an exhibit to this report. A complete copy of this agreement, including the redacted terms, has been separately filed with the SEC.

24

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, utilizing the 1992 framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2015 is effective.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the
Board of Directors and Shareholders
of Andrea Electronics Corporation

We have audited the accompanying consolidated balance sheets of Andrea Electronics Corporation and Subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Andrea Electronics Corporation and Subsidiaries, as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum LLP

Marcum LLP
Melville, NY
March 29, 2016

F-2

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2015			2014
ASSETS
Current assets:
Cash	$	5,592,554		$	3,574,530
Accounts receivable, net of allowance for doubtful accounts of $5,415		1,902,388			238,814
Inventories, net		58,028			216,336
Prepaid expenses and other current assets		60,086			60,578
Current portion of note receivable		406,522			-
Current assets from discontinued operations		149,746			395,643
Total current assets		8,169,324			4,485,901
Property and equipment, net		86,960			93,972
Intangible assets, net		345,359			374,157
Assets from discontinued operations		-			22,927
Long term note receivable		103,709			-
Other assets, net		5,250			13,233
Total assets	$	8,710,602		$	4,990,190
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	2,149,532		$	493,600
Taxes Payable		45,000			38,000
Accrued Series C Preferred Stock Dividends		73,921			73,921
Short-term deferred revenue		6,600			9,312
Other current liabilities		1,640,833			464,476
Liabilities from discontinued operations		40,075			151,294
Short-term advance from Revenue Sharing Agreement		196,477			-
Current portion of long-term debt		1,900,775			-
Total current liabilities		6,053,213			1,230,603
Advance from Revenue Sharing Agreement		115,590			3,500,000
Long-term debt		-			909,875
Total liabilities		6,168,803			5,640,478
Series B Redeemable Convertible Preferred Stock, $.01 par value; authorized: 1,000 shares; issued
and outstanding: 0 shares		-			-
Commitments and contingencies
Shareholders’ equity (deficit):
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:
64,416,035 and 63,721,035 shares, respectively		644,160			637,210
Additional paid-in capital		77,727,552		77,586,585
Accumulated deficit		(75,838,986	)		(78,883,156	)
Total shareholders’ equity (deficit)		2,541,799			(650,288	)
Total liabilities and shareholders’ equity (deficit)	$	8,710,602		$	4,990,190

The accompanying notes are an integral part of these consolidated financial statements

F-3

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2015			2014
Revenues
Net product revenues	$	388,298		$	326,647
License revenues		12,846,584			896,915
Total Revenues		13,234,882			1,223,562
Cost of revenues		117,035			198,750
Gross margin		13,117,847			1,024,812
Patent Monetization Expenses		8,216,749			1,687,802
Research and development expenses		767,680			487,858
General, administrative and selling expenses		1,446,205			1,162,782
Continuing operating income (loss)		2,687,213			(2,313,630	)
Interest expense, net		(65,006	)		(274	)
Income (loss) from continuing operations before provision for income taxes		2,622,207			(2,313,904	)
Provision for income taxes		154,513			214,136
Income (loss) from continuing operations		2,467,694			(2,528,040	)
Income (loss) from discontinued operations		576,476			(364,553	)
Net income (loss)	$	3,044,170		$	(2,892,593	)
Basic weighted average shares		64,000,309			63,721,035
Basic net income (loss) per share from continuing operations	$	0.04		$	(0.04	)
Basic net income (loss) per share from discontinuing operations	$	0.01		$	(0.01	)
Basic net income (loss) per share	$	0.05		$	(0.05	)
Diluted weighted average shares		71,929,978			63,721,035
Diluted net income (loss) per share from continuing operations	$	0.03		$	(0.04	)
Diluted net income (loss) per share from discontinuing operations	$	0.01		$	(0.01	)
Diluted net income (loss) per share	$	0.04		$	(0.05	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

ANDREAELECTRONICSCORPORATION AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’EQUITY(DEFICIT)
FOR THE YEARSENDEDDECEMBER 31, 2015 AND 2014

				Series D
	Series C	Series C		Convertible	Series D		Common								Total
	Convertible	Convertible		Preferred	Convertible		Stock			Additional					Shareholders’
	Preferred Stock	Preferred		Stock	Preferred		Shares	Common		Paid-In		Accumulated			Equity
	Outstanding	Stock		Outstanding	Stock		Outstanding	Stock		Capital		Deficit			(Deficit)
Balance, January 1, 2014	44.231432	$	1	907,144	$	9,072	63,721,035	$	637,210	$	77,544,011	$	(75,990,563	)	$	2,199,731
Stock-based Compensation Expense related
to Stock Option Grants	-		-	-		-	-		-		42,574		-			42,574
Net loss	-		-	-		-	-		-		-		(2,892,593	)		(2,892,593	)
Balance, December 31, 2014	44.231432	$	1	907,144	$	9,072	63,721,035	$	637,210	$	77,586,585	$	(78,883,156	)	$	(650,288	)
Stock-based Compensation Expense related
to Stock Option Grants	-		-	-		-	-		-		113,167		-			113,167
Stock option exercises	-		-	-		-	695,000		6,950		27,800		-			34,750
Net income	-		-	-		-	-		-		-		3,044,170			3,044,170
Balance, December 31, 2015	44.231432	$	1	907,144	$	9,072	64,416,035	$	644,160	$	77,727,552	$	(75,838.986	)	$	2,541,799

The accompanying notes are an integral part of these consolidatedfinancialstatements.

F-5

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	3,044,170		$	(2,892,593	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		85,660			115,824
Stock based compensation		113,167			42,574
Credit for inventory obsolescence		(94,925	)		(158,274	)
Provision for income tax withholding		115,513			176,136
PIK interest, net		95,968			9,875
Gain on sale of Anti-Noise Products Division		(879,612	)		-
Accrued interest on note receivable		(14,502	)		-
Change in:
Accounts receivable		(1,749,979	)		(102,370	)
Inventories		470,022			423,292
Prepaid expenses, other current assets and other assets		8,475			15,265
Taxes payable		7,000			38,000
Trade accounts payable		1,548,704			259,392
(Repayments of) Advance from Revenue Sharing Agreement		(3,187,933	)		3,500,000
Short-term deferred revenue		(2,712	)		(2,829	)
Other current liabilities		1,172,366			346,861
Net cash provided by operating activities		731,382			1,771,153
Cash flows from investing activities:
Purchases of property and equipment		(18,443	)		(4,952	)
Proceeds from the sale of the Anti-Noise Products Division		300,000			-
Repayments of note receivable		104,271			-
Purchases of patents and trademarks		(28,868	)		(92,093	)
Net cash provided by (used) in investing activities		356,960			(97,045	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		34,750			-
Proceeds from long-term debt		7,700,000			900,000
Payments of long-term notes and PIK interest		(6,805,068	)		-
Net cash provided by financing activities		929,682			900,000
Net increase in cash		2,018,024			2,574,108
Cash, beginning of year		3,574,530			1,000,422
Cash, end of year	$	5,592,554		$	3,574,530
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	105,368		$	2,557
Income Taxes	$	171,191		$	186,355
Non Cash Investing and Financing Activity:
Note Receivable received in connection with the sale of the Anti-Noise Products Division	$	600,000		$	-

The accompanying notes are an integral part of these consolidated financial statements.

F-6

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

1. ORGANIZATION AND BUSINESS

Andrea Electronics Corporation, incorporated in the State of New York in 1934, (together with its subsidiaries, “Andrea” or the “Company”) has been engaged in the electronic communications industry since its inception. Since the early 1990s, Andrea has been primarily focused on developing and manufacturing state-of-the-art microphone technologies and products for enhancing speech-based applications software and communications, primarily in the computer and business enterprise markets that require high quality, clear voice signals. Andrea’s technologies eliminate unwanted background noise to enable the optimum performance of various speech-based and audio applications. Andrea DSP Microphone and Audio Software Products and Andrea Anti-Noise Products have been designed for applications that are controlled by or depend on speech across a broad range of hardware and software platforms. These products incorporate Digital Signal Processing, Noise Cancellation, Active Noise Cancellation and Active Noise Reduction microphone technologies, and are designed to cancel background noise in a wide range of noisy environments, such as homes, offices, factories and automobiles. Andrea also manufactures a line of accessories for these products for the consumer and commercial markets in the United States as well as in Europe and Asia. The Company sold its Anti-Noise Products Division and certain related assets in April 2015.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Andrea and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Loss Per Share

Basic income (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. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). 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:

	December 31,
	2015		2014
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 12)		11,399,821		18,534,821
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		-		2,023,658
Series D Convertible Preferred Stock (Note 9)		-		3,628,576
Total potentially dilutive common shares		11,399,821		24,187,055
	December 31,
	2015		2014
Numerator:
Net income (loss)	$	3,044,170	$	(2,892,593	)
Denominator:
Basic Weighted average shares		64,000,309		63,721,035
Effect of dilutive securities:
Stock options		2,277,435		-
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		2,023,658		-
Series D Convertible Preferred Stock (Note 9)		3,628,576		-
Denominator for diluted income (loss) per share-adjusted weighted average
shares after assumed conversions		71,929,978		63,721,035

F-7

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

Cash

Cash includes cash and highly liquid investments with original maturities of three months or less. At times during the years ended December 31, 2015 and 2014, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At December 31, 2015, the Company’s cash was held at four financial institutions.

Concentration of Risk

The following customer accounted for 10% or more of Andrea’s consolidated total revenues during at least one of the periods presented below:

	December 31,
	2015		2014
Customer A	81	%	72	%
Customer B	13	%	*

____________________

* Amounts are less than 10%

Customer A accounted for approximately 6% and 67% of accounts receivable at December 31, 2015 and 2014, respectively. Customer B accounted for approximately 92% of accounts receivable at December 31, 2015.

Allowance for Doubtful Accounts

The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s 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.

Inventories

Inventories 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 charges in inventory reserves as part of cost of revenues.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets ranging from 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.

Expenditures for maintenance and repairs that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Improvements that substantially extend the useful lives of the assets are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in the statement of operations.

Other Intangible Assets

Andrea amortizes its core technology and patents and trademarks on a straight-line basis over their estimated useful lives that range from 10 to 20 years.

F-8

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

Long-Lived Assets

Andrea accounts for its long-lived assets in accordance with Statement of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 360 “Plant, Property and Equipment, ” for purposes of determining and measuring impairment of its long-lived assets (primarily intangible assets) other than goodwill. Andrea’s policy is to review the value assigned to its long lived assets to determine if they have been permanently impaired by adverse conditions which may affect Andrea whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If Andrea identifies a permanent impairment such that the carrying amount of Andrea’s long lived assets is not recoverable using the sum of an undiscounted cash flow projection (gross margin dollars from product sales), the impaired asset is adjusted to its estimated fair value, based on an estimate of future discounted cash flows which becomes the new cost basis for the impaired asset. 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 December 31, 2015 and 2014.

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.

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 Company’s 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. As of December 31, 2015 the Company has recorded a full valuation allowance. 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 management’s 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 taxes payable for the period, withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned 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 Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated interim financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. 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 December 31, 2015, Andrea had two stock-based employee compensation plans, which are described more fully in Note 11. 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, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s 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.

Research and Development

Andrea expenses all research and development costs as incurred.

F-9

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

Advertising Expenses

In accordance with ASC 720 all media costs of newspaper and magazine advertisements as well as trade show costs are expensed as incurred. Total advertising and marketing expenses for the years ended December 31, 2015 and 2014 were approximately $11,000 and $2,000, respectively and are included in general, administrative and selling expenses.

Fair Value of Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about payments to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 applies to all assets and liabilities that are measured and reported on a fair value basis.

The Company will apply the provisions of ASC 820 to nonfinancial assets and liabilities. Andrea calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the book value of those financial instruments. When the book value approximates fair value, no additional disclosure is made. Andrea uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, Andrea uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. As of December 31, 2015 and 2014, the carrying value of all financial instruments approximated fair value.

Use of Estimates

The preparation of the consolidated 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 consolidated 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 Company’s convertible preferred stock. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods beginning after December 15, 2016. On July 9, 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before the annual periods beginning after December 15, 2016. A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for fiscal years and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. ASU 2015-17 may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. The Company is currently evaluating the impact this standard will have on its financial statements.

In January 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

F-10

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss.

Subsequent Events

The Company evaluates events that occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, other than Note 11, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

3. INTANGIBLE ASSETS

Intangible assets, net, consists of the following:

	December 31,
	2015			2014
Core Technology	$	8,567,448		$	8,567,448
Patents and trademarks		861,241			832,373
		9,428,689			9,399,821
Less: accumulated amortization		(9,083,330	)		(9,025,664	)
	$	345,359		$	374,157

The changes in the carrying amount of intangible assets during the years ended December 31, 2015 and 2014 were as follows:

	Patents and
	Trademarks
Balance as of January 1, 2014	$	326,109
Additions during the period		92,093
Amortization		(44,045	)
Balance as of December 31, 2014	$	374,157
Additions during the period		28,868
Amortization		(57,666	)
Balance as of December 31, 2015	$	345,359

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. 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 Andrea identifies a permanent impairment such that the carrying amount of Andrea’s 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 December 31, 2015 and 2014, Andrea concluded that there were no long-lived assets that required to be tested for recoverability.

Amortization expense was $57,666 and $44,045 for the years ended December 31, 2015 and 2014, respectively. Patents and trademarks, once issued are amortized on a straight-line basis over periods ranging from 10 to 20 years. Assuming no changes in the Company's intangible assets, estimated amortization expense for each of the five succeeding fiscal years ending December 31 is expected to be approximately $48,000, $44,000, $41,000, $34,000 and $22,000, respectively.

F-11

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

4. INVENTORIES, net

Inventories, net, consist of the following:

	December 31,
	2015			2014
Raw materials	$	21,253		$	15,852
Finished goods		152,050			330,240
		173,303			346,092
Less: reserve for obsolescence		(115,275	)		(129,756	)
	$	58,028		$	216,336

5. PROPERTY AND EQUIPMENT, net

Property and equipment, net, consists of the following:

	December 31,
	2015			2014
Information Technology Equipment	$	258,715		$	240,272
Furniture and fixtures		87,958			87,958
Tools, molds and testing equipment		189,333			189,333
		536,006			517,563
Less: accumulated depreciation and amortization		(449,046	)		(423,591	)
	$	86,960		$	93,972

Depreciation and amortization of property and equipment from continuing operations was $25,455 and $54,286 for the years ended December 31, 2015 and 2014, respectively.

6. REVENUE SHARING, NOTE PURCHASE AGREEMENT, AND LONG-TERM DEBT

Revenue Sharing and Note Purchase Agreement

On December 24, 2014, the Company entered into an Amended and Restated Revenue Sharing and Note Purchase Agreement (the “Revenue Sharing Agreement”), with AND34 Funding LLC (“AND34”) (acting as the “Revenue Participants,” the “Note Purchasers,” and the “Collateral Agent”), which was retroactively effective as of February 14, 2014. Under the Revenue Sharing Agreement, the Company granted AND34 a perpetual predetermined share in the rights of the Company’s specified future revenues from patents currently owned by the Company (the “Patents”) in exchange for $3,500,000, which was recorded as an “Advance from Revenue Sharing Agreement.” on the accompanying consolidated balance sheet. The advance will be repaid over the period in which the Company generates any future monetization revenues in excess of any of the outstanding long-term debt and accrued interest to AND34. Under the terms of the Revenue Sharing Agreement with AND34, Andrea has agreed to issue and sell to AND34 Notes up to an aggregate outstanding amount of $10,700,000 during the four years after the closing date or such greater amount as AND34 may agree in its sole discretion. The proceeds of the Notes will be used to pay certain initial expenses related to the agreement, and going forward will be used for expenses of the Company incurred in pursuing patent monetization. AND34’s rights to the Company’s monetization revenues from the Patents and the Notes are secured by the Patents.

Any Monetization Revenues (as defined in the Revenue Sharing Agreement) will first be applied 100% to the payment of accrued and unpaid interest on, and then to repay outstanding principal of, the Notes. After the Notes are paid in full, the Monetization Revenues will be allocated amongst the Revenue Participants and the Company in accordance with certain predetermined percentages (based on aggregate amounts received by the Revenue Participants) ranging from 100% to the Revenue Participants (such percentage to be allocated to the Revenue Participants until they have received Monetization Revenues of $3,500,000 to repay the Advance from Revenue Sharing Agreement) to ultimately 20% to the Revenue Participants. Monetization Revenues is defined in the Revenue Sharing Agreement to include, but is not limited to, amounts that the Company receives from third parties with respect to the Patents, which may include new license revenues, certain product revenue, payments and judgments. Monetization Revenues and associated expenses are included in the Company’s Patent Monetization Segment (Note 13).

F-12

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

The Revenue Sharing Agreement contains many stipulations between the parties regarding the handling of various matters related to the monetization of the Patents. The Revenue Participants and the Company will account for the tax treatment as set forth in the Revenue Sharing Agreement. Following an Event of Default under the Revenue Sharing Agreement, the Note Purchasers and Revenue Participants may proceed to protect and enforce their rights by suit or other appropriate proceeding, either for specific performance or the exercise of any power granted under the Revenue Sharing Agreement or ancillary documents including the Notes.

Advance from Revenue Sharing Agreement

	December 31,
	2015			2014
Advance from Revenue Sharing Agreement	$	312,067		$	3,500,000
Less: short-term Advance from Revenue Sharing Agreement		(196,477	)		-
Long-term Advance from Revenue Sharing Agreement, net of short-term
Advance from Revenue Sharing Agreement	$	115,590		$	3,500,000

Amounts reported as short-term Advance from the Revenue Sharing Agreement reflect amount expected to be paid in the next twelve months.

Long-term debt

	December 31,
	2015			2014
Note Payable	$	1,900,000		$	900,000
PIK interest		775			9,875
Total long-term debt		1,900,775			909,875
Less: current maturities of long-term debt		(1,900,775	)		-
Long-term debt, net of current maturities	$	-		$	909,875

The unpaid principal amount of the Notes (including any PIK Interest) will have an interest rate equal to LIBOR (as defined in the Revenue Sharing Agreement) plus 2% per annum, (3% at December 31, 2015 and 2014); provided that upon and during the continuance of an Event of Default (as set forth in the Revenue Sharing Agreement), the interest rate will increase an additional 2% per annum. Interest may be paid in cash at the option of the Company and otherwise shall be paid by increasing the principal amount of the Notes by the amount of such interest (“PIK Interest”). The principal balance of the Notes and all unpaid interest thereon will be due the earlier of receipt of Monetization Revenues or on June 30, 2020. The Company may prepay the Notes from time to time in whole or in part, without penalty or premium. During the years ended December 31, 2015 and December 31, 2014, $7,700,000 and $900,000, respectively, of notes payable were issued to AND34. Amounts reported as current maturities of long-term debt reflect amount expected to be paid in the next twelve months.

7. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	December 31,
	2015		2014
Accrued payroll and related expenses	$	347,798	$	19,161
Accrued patent monetization expenses		1,230,314		415,000
Accrued professional and other service fees		62,721		30,315
	$	1,640,833	$	464,476

F-13

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

8. SERIES C 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 $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 Company’s 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 December 31, 2015, 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.

9. SERIES D 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 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 Company’s 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 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 December 31, 2015, there were 907,144 shares of Series D Preferred Stock outstanding which were convertible into 3,628,576 shares of Common Stock.

F-14

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

10. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of January 1, 2014 and during the years ended December 31, 2015 and 2014.

The Company has identified its federal tax return and its state tax return in New York as "major" tax jurisdictions, as defined in ASC 740. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. 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 consolidated financial position.

The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the year ended December 31, 2015. For the year ended December 31, 2015, the Company determined that, more likely than not, its deferred tax assets would be not be realized and, accordingly, increased the valuation allowance. The increase in the valuation allowance is included in the income tax provision in the accompanying consolidated statement of operations for the year ended December 31, 2015. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The provision for income tax consists of the following:

	For the Years Ended December 31,
	2015			2014
Current:
Federal	$	8,141		$	38,000
Foreign		146,372			176,136
State and Local		-			-
Total Current		154,513			214,136
Deferred
Federal		(1,269,000	)		(1,003,000	)
Foreign		-			-
State and Local		(187,000	)		(147,000	)
Adjustment to valuation allowance related to net deferred tax assets		1,456,000			1,150,000
Total Deferred		-			-
Provision for income taxes	$	154,513		$	214,136

The provision for income taxes for the year ended December 31, 2015 of approximately $154,000. Approximately $146,000 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 while approximately $8,000 is the result of certain alternative minimum taxes. The provision related to foreign taxes is deductible, while the provision relating to alternative minimum taxes is able to be offset by future tax benefits. Since the Company records a full valuation against deferred tax assets, the provision relating to alternative minimum taxes of approximately $8,000 will not be reduced by such future tax benefits. The provision for income taxes for the year ended December 31, 2014 of approximately $214,000. Approximately $176,000 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 while approximately $38,000 is the result of certain alternative minimum taxes.

Income (loss) before income taxes is comprised of the following:

	For the Years Ended December 31,
	2015		2014
Foreign	$	2,466,823	$	(3,568,897	)
Domestic		731,860		890,440
Net income (loss) before income taxes	$	3,198,683	$	(2,678,457	)

F-15

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

A reconciliation between the effective rate for income taxes and the amount computed by applying the statutory Federal income tax rate to income (loss) before provision for income taxes is as follows:

	For the Years Ended December 31,
	2015		2014
Tax provision at statutory rate	34	%	(34	)%
State and local taxes	5	%	(5	)%
Foreign taxes	5	%	7	%
Foreign tax deduction	1	%	-	%
Incentive Stock Option Expense	(1	)%	-	%
Change in valuation allowance for net deferred tax assets	(39	)%	40	%
	5	%	8	%

The components of temporary differences that give rise to significant portions of the deferred tax asset, net, are as follows:

	For the Years Ended December 31,
	2015			2014
Deferred tax assets:
Accrued expenses	$	361,000		$	35,000
Allowance for doubtful accounts		6,000			7,000
Deferred Revenue		2,000			3,000
Reserve for obsolescence		72,000			109,000
Expense associated with non-qualified stock options		115,000			100,000
Revenue Sharing Agreement		681,000			1,781,000
General business credit		1,258,000			1,156,000
NOL carryforward		15,139,000			12,987,000
		17,634,000			16,178,000
Less: valuation allowance		(17,634,000	)		(16,178,000	)
Deferred tax asset, net	$	-		$	-

The change in the valuation allowance for deferred tax assets are summarized as follows:

	For the Years Ended December 31,
	2015		2014
Beginning Balance	$	16,178,000	$	15,028,000
Change in Allowance		1,456,000		1,150,000
Ending Balance	$	17,634,000	$	16,178,000

As of December 31, 2015, Andrea had net operating loss and credit carryforwards of approximately $38.8 million expiring in varying amounts beginning in 2018 through 2033. Andrea has General Business Credits of approximately $1.3 million expiring in varying amounts beginning in 2016 through 2030. 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.

11. COMMITMENTS AND CONTINGENCIES

Leases

In May 2015, Andrea entered into a new lease for its new corporate headquarters located in Bohemia, New York, where Andrea leases space for research and development, sales and executive offices from an unrelated party. The lease is for approximately 3,000 square feet and expires in October 2020. The rent expense under this operating lease was $13,125 for the year ended December 31, 2015. The monthly rent under this lease is $2,625 with annual escalations of 3.5%.

Andrea’s previous corporate headquarters were located in Bohemia, New York. The lease from an unrelated party, which expired in May 2015, was for approximately 11,000 square feet and housed Andrea’s warehousing, sales and executive offices. Rent expense under Andrea’s previous operating lease was $37,676 and $99,718 for the years ended December 31, 2015 and 2014, respectively.

F-16

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

As of December 31, 2015, the minimum annual future lease payments, under this lease and all other noncancellable operating leases, are as follows:

2016		54,365
2017		44,124
2018		38,700
2019		39,912
2020		30,856
Total	$	207,957

Employment Agreements

In August 2014, the Company entered into an employment agreement with Mr. Andrea. The effective date of the employment agreement is August 1, 2014 and expires July 31, 2016 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 $300,000. The employment agreement provides for quarterly bonuses equal to 5% of the Company’s pre-bonus net after tax quarterly earnings for a total quarterly bonus amount not to exceed $12,500; and annual bonuses equal to 9% of the Company’s annual pre-bonus net after tax earnings in excess of $300,000 up to $3,000,000, and 3% of the Company’s annual pre-bonus adjusted net after tax earnings in excess of $3,000,000. 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 Company’s 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 three times the three year average of the cash incentive compensation paid or accrued as of the date of termination, continuation of health and medical benefits for three years and immediate vesting of all stock options in the event of a change in control during the term of his agreement and subsequent termination of his employment within two years following the change of control. In the event of his termination without cause or resignation with the Company’s consent, Mr. Andrea is entitled to a severance payment equal to six months of his base salary, plus the six months prorated portion of his most recent annual and quarterly bonuses, and a continuation of health insurance coverage for Mr. Andrea, his spouse and his dependents for 12 months. At December 31, 2015, the future minimum cash commitments under this agreement aggregate $398,863.

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. The Company believes the lawsuit is without merit and intends to file a Motion for Summary Judgment to that affect. Accordingly, the Company does not believe the lawsuit will have a material adverse effect on the Company’s financial position or results of operations.

In July 2014, Andrea filed three complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer Inc. and related entities ("Acer"), Lenovo Group Ltd. and related entities ("Lenovo"), and Toshiba Corp. and related entities ("Toshiba"), and requesting monetary and injunctive relief. Acer, Lenovo, and Toshiba answered Andrea's complaints on October 20, 2014. Lenovo also asserted counterclaims which Andrea answered on November 10, 2014. Andrea also filed First Amended Complaints in these actions on November 10, 2014 which Acer, Lenovo, and Toshiba answered on November 24, 2014. Lenovo also asserted counterclaims which Andrea answered on December 15, 2014. All of these cases were stayed on March 23, 2015 due to Andrea’s complaint with the International Trade Commission (“ITC”) against these parties. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 19, 2016.

In January 2015, Andrea filed seven complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer, ASUSTeK Computer Inc. and related entities ("Asus"), Dell Inc. ("Dell"), Hewlett-Packard Co. ("HP"), Lenovo, Realtek Semiconductor Corp. ("Realtek"), and Toshiba, and requesting monetary and injunctive relief. Lenovo answered Andrea's complaint on February 10, 2015. Lenovo also asserted counterclaims which Andrea answered on March 3, 2015. The other defendants have not yet answered Andrea's complaint. All of these cases except for the case against Realtek were also stayed on March 23, 2015 due to Andrea’s complaint with the ITC against these parties. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for dismissal of Andrea’s action against Realtek in the Eastern District of New York. Andrea and Realtek’s stipulation of dismissal was granted on December 22, 2015. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 27, 2016. Andrea and HP settled their disputes and filed a stipulation of dismissal which was granted on February 5, 2016. Andrea and Asus settled their disputes and filed a stipulation of dismissal which was granted on February 23, 2016. 

F-17

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

In February 2015, Andrea filed a complaint with the ITC, alleging patent infringement and unfair competition against Acer, Asus, Dell, HP, Lenovo, Realtek, and Toshiba (the “ITC Respondents”), and requesting injunctive relief. The ITC instituted an investigation on March 12, 2015. The ITC Respondents answered Andrea's complaint on April 6, 2015. On July 2, 2015, Conexant Systems, Inc. (“Conexant”) filed a motion to intervene in the Investigation. On July 14, 2015, Waves Audio, Ltd. (“Waves”) filed a motion to intervene in the investigation. The Administrative Law Judge (“ALJ”) granted Conexant and Waves’ motions to intervene on August 7, 2015. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek moved to partially terminate the ITC Investigation with respect to certain of Andrea’s claims pertaining to Realtek and its products. That motion was granted by the ALJ on November 6, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Acer settled their disputes and filed a motion to terminate Acer from the investigation, which was granted by the ALJ on November 25, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and HP settled their disputes and filed a motion to terminate HP from the investigation, which was granted by the ALJ on January 12, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Asus settled their disputes and filed a motion to terminate Asus from the investigation, which was granted by the ALJ on February 4, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Lenovo settled their disputes and filed a motion to terminate Lenovo from the investigation, which was granted by the ALJ on February 23, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Conexant settled their disputes and filed a motion to terminate Conexant from the investigation, which was granted by the ALJ on March 7, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Waves settled their disputes and filed a motion to terminate Waves and Dell from the investigation, which was granted by the ALJ as to Waves only on March 18, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination partially granting that motion. Andrea and Toshiba settled their disputes and filed a motion to terminate Toshiba from the investigation, which was granted by the ALJ on March 18, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea filed a motion to terminate Dell from the investigation on March 25, 2016, which has not yet been ruled upon by the ALJ.

In July 2015, Realtek filed six (6) petitions for inter partes review of the Andrea patents asserted in the District Court and ITC litigation proceedings with the United States Patent and Trademark Office (“PTO”). Also in July 2015, Realtek filed a Complaint with the United States District Court for the Northern District of California, alleging breach of contract and seeking declaratory judgment against Andrea. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for termination of those proceedings. Andrea and Realtek have since filed motions to terminate all six (6) inter partes review proceedings, and on November 3, 2015, the PTO granted all six (6) of those motions and terminated all six (6) of the inter partes reviews of Andrea’s patents.

In January 2016, Waves filed three (3) petitions for inter partes review of certain Andrea patents asserted in the District Court and ITC litigation proceedings with the PTO. Andrea and Waves have since filed motions to terminate all three (3) inter partes review proceedings. The PTO has not yet ruled on those motions.

12. 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, authorizes the granting of awards, the exercise of which would allow up to an aggregate of 6,375,000 shares of Andrea’s 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, deferred stock, stock reload options or other stock-based awards. Awards may 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 Andrea’s 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 December 31, 2015, there were 1,677,436 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 Company’s 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 the weighted-average assumptions noted in the following table. Expected volatilities are based on implied volatilities from historical volatility of the Company’s 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. 

F-18

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

During the year ended December 31, 2015, Andrea granted 600,000 shares of common stock options with a weighted average fair market fair of $0.06 per share. The grants provide for up to a three-year vesting period, a weighted average exercise price of $0.06 per share, which was the fair market value of the Company’s common stock at the date of grant and a weighted average expected life of 8 years. The fair values of the 600,000 stock options granted was $38,000 which was estimated on the date of grant using the Black-Scholes option-pricing model that uses the following weighted-average assumptions for the year ended December 31, 2015:

During the year ended December 31, 2014, Andrea granted 2,200,000 shares of common stock options with a weighted average fair market fair of $0.08 per share. The grants provide for up to a three-year vesting period, a weighted average exercise price of $0.08 per share, which was the fair market value of the Company’s common stock at the date of grant and a weighted average expected life of 8 years. The fair values of the 2,200,000 stock options granted was $185,000 which was estimated on the date of grant using the Black-Scholes option-pricing model that uses the following weighted-average assumptions for the year ended December 31, 2014:

	December 31,		December 31,
	2015		2014
Expected life in years (based on simplified method)	8 years		8 years
Risk-free interest rates	2.04	%	2.10	%
Volatility (based on historical volatility)	205.3	%	203.0	%
Dividend yield	0	%	0	%

Option activity during 2015 is summarized as follows:

	Options Outstanding							Options Exercisable
							Weighted						Weighted
			Weighted		Weighted		Average		Weighted		Weighted		Average
			Average		Average		Remaining		Average		Average		Remaining
	Options		Exercise		Fair		Contractual	Options	Exercise		Fair		Contractual
	Outstanding		Price		Value		Life	Exercisable	Price		Value		Life
At January 1, 2015	18,534,821		$	0.08	$	0.08	3.92 years	16,317,821	$	0.08	$	0.08	3.13 years
Cancelled/Expired	(1,510,000	)	$	0.05	$	0.05
Exercised	(695,000	)	$	0.05	$	0.05
Granted	600,000		$	0.06	$	0.06
At December 31, 2015	16,929,821		$	0.09	$	0.08	3.56 years	14,895,122	$	0.09	$	0.08	2.85 years

During the year ended December 31, 2015, 782,301 options vested with a weighted average exercise price of $0.09 and a weighted average fair value of $0.09 per option. Based on the December 31, 2015, fair market value of the Company’s common stock of $0.07 per share, the aggregate intrinsic value of the 16,929,821 options outstanding and 14,895,122 shares exercisable is $151,900 and $146,900, respectively. The aggregate intrinsic value of options exercised was $16,250 for the year ended December 31, 2015.

Total compensation expense recognized related to stock option awards was $113,167 and $42,574 for the year ended December 31, 2015 and 2014, respectively. In the accompanying consolidated statement of operations for the year ended December 31, 2014, $91,774 of expense is included in general, administrative and selling expenses and $21,393 is included in research and development expenses. In the accompanying consolidated statement of operations for the year ended December 31, 2014, $36,382 of expense is included in general, administrative and selling expenses and $6,192 is included in research and development expenses.

As of December 31, 2015, there was $79,010 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2006 Plan. This unrecognized compensation cost is expected to be recognized over the next 3 years ($56,404 in 2016, $20,660 in 2017 and $1,946 in 2018).

F-19

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

13. SEGMENT INFORMATION

Andrea follows the provisions of ASC 280 “Segment Reporting” (“ASC 280”). Reportable operating segments are determined based on Andrea’s 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 Andrea’s results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker manages the enterprise in two segments: (i) Patent Monetization; and (ii) Andrea DSP Microphone and Audio Software Products. Patent Monetization includes Monetization Revenues (as defined in our Revenue Sharing Agreement). 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. The following represents selected consolidated financial information for Andrea’s segments for the years ended December 31, 2015 and 2014:

			Andrea DSP
			Microphone and
	Patent		Audio Software
2015 Twelve Month Segment Data	Monetization		Products			Total 2015
Net product revenues	$	-	$	388,298		$	388,298
License revenues		12,104,958		741,626			12,846,584
Income (loss) from operations		3,595,645		(908,432	)		2,687,213
Depreciation and amortization		28,835		54,286			83,121
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		14,434		14,434			28,868
Assets		2,278,587		6,282,269			8,560,856
Total long lived assets		172,677		259,642			432,319

			Andrea DSP
			Microphone and
	Patent		Audio Software
2014 Twelve Month Segment Data	Monetization		Products			Total 2014
Net product revenues	$	-	$	326,647		$	326,647
License revenues		4,557		892,358			896,915
Loss (income) from operations		2,463,461		(149,831	)		2,313,630
Depreciation and amortization		22,023		40,597			62,620
Purchases of patents and trademarks		46,047		46,046			92,093
Assets		187,078		4,384,542			4,571,620
Total long lived assets		187,078		281,051			468,129

Management of Andrea assesses assets and 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 years ended December 31, 2015 and 2014, and as of each respective year-end, total revenues and accounts receivable by geographic area are as follows:

Geographic Data	2015		2014
Total Revenues:
United States	$	2,498,721	$	191,103
Foreign(1)		10,736,161		1,032,459
	$	13,234,882	$	1,223,562
Accounts receivable:
United States	$	1,788,500	$	40,546
Foreign		113,888		198,268
	$	1,902,388	$	238,814

____________________

(1) Total revenue from the People’s Republic of China and Singapore represented 81% and 84% of total revenues for the year ended December 31, 2015 and 2014, respectively.

F-20

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015

14. SALE OF ANDREA ANTI-NOISE PRODUCTS DIVISION

On April 2, 2015, Andrea Electronics Corporation consummated the transactions contemplated by the Asset Purchase Agreement, by and between Andrea Electronics Corporation and Andrea Communications LLC dated March 27, 2015. Under the Asset Purchase Agreement, the Company sold its Anti-Noise Products Division (the “Division”) and certain related assets for a selling price of $900,000 which included a cash payment of $300,000 and a note receivable of $600,000 payable in 18 equal monthly installments of $34,757 including interest at a rate of 3.25% per annum beginning in October 2015. In addition, under the Asset Purchase Agreement the Company is entitled to receive an additional $100,000 in the event that the revenues derived from Andrea Communications LLC’s operation of the Division exceed certain thresholds over a specified time period, as defined in the Asset Purchase Agreement. Accordingly, the results of operations, the assets and liabilities of the Division are presented as discontinued operations for both current and prior periods.

The following table reflects the results of the discontinued operations of the Division’s business segment for the years ended December 31, 2015 and 2014 and as of December 31, 2015 and December 31, 2014, respectively:

	December 31, 2015			December 31, 2014
Operations
Net Revenues	$	662,135			1,563,014
Cost of Sales		596,565			951,530
Gross margin		65,570			611,484
Research and Development Expenses		18,746			240,382
General, administrative and selling expenses		349,960			735,655
Gain on sale of Anti-Noise Products Division		(879,612	)		-
Income (loss) from discontinued operations	$	576,476		$	(364,553	)
	December 31, 2015			December 31, 2014
Assets
Accounts Receivable, net	$	27,303		$	56,411
Inventories, net		122,443			339,232
Property and equipment, net		-			22,927
Assets from discontinued operations	$	149,746		$	418,570
Liabilities
Trade accounts payable	$	-		$	107,228
Other current liabilities		40,075			44,066
Liabilities from discontinued operations	$	40,075		$	151,294

The assets that were sold consisted of property and equipment, resulting in a gain on sale of approximately $880,000.

F-21

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) 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: March 29, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.

/s/    DOUGLAS J. ANDREA	Chairman of the Board, President, Chief Executive	March 29, 2016
Douglas J. Andrea	Officer and Corporate Secretary
/s/    CORISA L. GUIFFRE	Vice President, Chief Financial Officer and	March 29, 2016
Corisa L. Guiffre	Assistant Corporate Secretary
/s/    GARY A. JONES	Director	March 29, 2016
Gary A. Jones
/s/    LOUIS LIBIN	Director	March 29, 2016
Louis Libin
/s/    JOSEPH J. MIGLIOZZI	Director	March 29, 2016
Joseph J. Migliozzi
/s/    JONATHAN D. SPAET	Director	March 29, 2016
Jonathan D. Spaet

EX-10.13

Exhibit 10.13

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is effective as of the latest date set out on the signature page hereof (the “Effective Date”), among Andrea Electronics Corporation, a New York corporation having a place of business at 620 Johnson Ave., Suite 1B, Bohemia, New York 11716 (“Andrea”); and Realtek Semiconductor Corporation, a Taiwan corporation having a place of business at No. 2, Innovation Road II, Hsinchu Science Park, Hsinchu 300, Taiwan and its Affiliates (collectively, “Realtek”) (Andrea and Realtek are hereinafter each referred to as a “Party” and collectively the “Parties”).

RECITALS

WHEREAS, the Parties wish to resolve the litigations titled Andrea Electronics Corporation v. Realtek Semiconductor Corp., Civ. Action No. 2:15-cv-215, pending in the Eastern District of New York (the “New York Case”), Realtek Semiconductor Corporation v. Andrea Electronics Corporation, Civ. Action No. 5:15-cv-03184, pending in the Northern District of California (the “California Case”), and Certain Audio Processing Hardware and Software and Products Containing the Same, Inv. No. 337-TA-949, pending at the International Trade Commission (the “ITC Investigation”) (collectively, the “Litigations”);

WHEREAS, the Parties wish to resolve the inter partes reviews with case numbers IPR2015-01391, IPR2015-01392, IPR2015-01393, IPR2015-01394, IPR2015-01395, IPR2015-01396, pending at the United States Patent and Trademark Office (collectively, the “IPRs”);

WHEREAS, Andrea has accused Realtek audio hardware and associated audio processing software and drivers provided and/or distributed by Realtek in the New York Case and the ITC Investigation;

WHEREAS, Realtek has accused Andrea, in the California Case, of breaching the terms of the Realtek License Agreement by filing the New York Case and the ITC Investigation;

WHEREAS, Realtek petitioned the United States Patent and Trademark Office to initiate Inter Partes Reviews of the Asserted Patents based upon prior art that invalidates and/or renders obvious the claims of the Asserted Patents;

In consideration of the mutual promises and covenants herein contained, Andrea and Realtek agree as follows:

Confidential - Settlement Agreement Page 1 of 10

AGREEMENT

SECTION 1: DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings which shall include both singular and plural forms in context. Additional terms may be defined elsewhere in this Agreement.

1.1. “Affiliate” means any other Entity, company or other legal entity that: (a) is a Subsidiary of such Party, or (b) controls or is under common control of such Party. For avoidance of doubt, Affiliates shall include any company or legal entity that is spun-off from a Party (that remains in control or owned and controlled by such Party) after the Effective Date or created solely as a change in corporate structure so long as such company or legal entity (a) is a Subsidiary of such Party, or (b) controls or is under common control of such Party.

1.2. “Andrea Patents” means all patents and patent applications which Andrea, as of the Effective Date, has the right to enforce in any country of the world and/or the right to grant any licenses of any type, including but not limited to all existing and any future U.S. patents, foreign counterparts, continuations, continuations-in-part, divisionals, reexaminations, reissues, and any other patents issued from or claiming the benefit of priority to (directly or through a family of applications) any of the foregoing patents or patent applications. Exhibit 1 is a list of such patents and applications as of the Effective Date. Licensor represents and warrants that it fully owns all of the Andrea Patents listed in Exhibit 1 and has the full right to grant the licenses and releases set forth herein, notwithstanding any rights held by AND34 Funding LLC and/or Fortress Investment Group.

1.3. “Asserted Patents” means all patents asserted by Andrea in the Litigations, namely, the following U.S. Patents: 5,825,898; 6,049,607; 6,363,345; 6,483,923; and 6,377,637.

1.4. “Control” (including its correlative meanings, “Controlled” and “Controlling”) means the power directly or indirectly to direct or cause the direction of the management and policies of an Entity whether through ownership of voting securities, by contract or otherwise.

1.5. “Entity” means a natural person, corporation, association, joint venture, partnership, company, limited liability company or other legal entity recognized in any jurisdiction in the world.

1.6. “Realtek License Agreement” shall mean the February 1, 2008, Licensing Agreement between Andrea and Realtek, and any amendments thereto, including but not limited to the April 30, 2009 Addendum. Nothing in this Agreement shall be construed as an admission regarding the proper scope of the Realtek License Agreement or the interpretation of any term therein.

Confidential - Settlement Agreement Page 2 of 10

1.7. “Subsidiary” shall mean any Entity directly or indirectly Controlled by a Party.

SECTION 2: DISMISSALS

2.1. Dismissals. Subject to the terms and conditions herein the Parties shall file the following:

a.	Andrea and Realtek shall file a dismissal in the New York Case in the form set forth in Exhibit A within sixty-five (65) days of the Effective Date, and shall file a joint motion to stay proceedings within ten (10) days of the Effective Date.
b.	Realtek and Andrea shall file a dismissal in the California Case in the form set forth in Exhibit B within sixty-five (65) days of the Effective Date, and shall file a joint motion to stay proceedings within ten (10) days of the Effective Date.
c.	Andrea and Realtek shall file a motion to terminate the ITC Investigation in the form set forth in Exhibit C within ten (10) days of the Effective Date.
d.	Andrea and Realtek shall jointly file necessary submissions to terminate the IPRs, including in the form set forth in Exhibit D and agree to cooperate to effectuate such terminations as promptly as possible. The parties expressly recognize that the Patent Trials and Appeals Board may nonetheless exercise its discretion under 35 U.S.C. § 317 (a) to proceed to a final written decision.

2.2. Dismissals with Prejudice. All claims of patent infringement in the ITC Investigation and the New York Case are dismissed with prejudice. In addition, all claims, counterclaims and/or defenses that were brought or could have been brought in the California Case as of the Effective Date are dismissed with prejudice, including without limitation any and all claims by either Party regarding the breach or failure to perform under the Realtek License Agreement prior to the Effective Date of this Agreement. Nothing in this Agreement affects any rights of either Party under the Realtek License Agreement for any breach that may occur after the Effective Date of this Agreement.

Confidential - Settlement Agreement Page 3 of 10

2.3. Releases. Subject to and contingent upon performance of the obligations set forth herein, and satisfaction of the conditions set forth in this Agreement, both Parties and their Affiliates hereby irrevocably release any and all claims that have been brought or could have been brought by the Parties in the Litigations or relating to the Andrea Patents or the Realtek License Agreement, as of the Effective Date.

a.	With respect to any and all claims released herein, each Party stipulates and agrees that they shall be deemed to have expressly waived any and all provisions, rights and benefits conferred by any law of any country, state or territory, or principle of common law, which is similar, comparable, or equivalent to Cal. Civ. Code § 1542, which provides:
	A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
	Each Party acknowledges that the inclusion of such unknown claims in the releases above was separately bargained for and was a key element of this Agreement. Each Party acknowledges that they may hereafter discover facts which are different from or in addition to those that they may now know or believe to be true with respect to any and all claims herein released and agree that all such unknown claims are nonetheless released and that the releases above shall be and remain effective in all respects even if such different or additional facts are subsequently discovered.
b.	Each Party expressly agrees to waive any and all rights to any past damages incurred up to and including the Effective Date of this Agreement.

2.4. No Costs. The Parties agree that this Agreement is intended solely as a compromise between the Parties and without any acknowledgment of liability, fault, or damages. The Parties acknowledge and agree that each Party shall bear its own attorneys’ fees, court costs, expenses, and any other related costs and expenses that they have incurred in connection with any and all claims previously filed against each other. The Parties also agree that they shall bear their own costs and attorneys’ fees relating to or arising from the negotiation and performance of this Agreement.

SECTION 3
MISCELLANEOUS

3.1 Term. The rights granted under this Agreement shall commence upon the Effective Date.

3.2 No Other Obligations. Neither Party shall have any other responsibilities or obligations in connection with actions to enforce or defend the Andrea Patents.

3.3 Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Parties, successors and assignees. Notwithstanding the preceding, it is understood that no assignment will release either Party or their Affiliates from any of their obligations hereunder.

Confidential - Settlement Agreement Page 4 of 10

SECTION 4
NOTICE

4.1. Written Notices. Any notices under this Agreement shall be in writing and delivered by facsimile transmission, electronic mail, overnight express mail or express courier service to such Party at the address given below, or such other address as provided by a Party by written notice in accordance with this Section, and shall be effective on receipt. Notwithstanding the foregoing, notices and other communications sent by facsimile transmission or electronic mail shall be effective upon the sender’s receipt of an acknowledgement from the intended recipient. This paragraph in no way constitutes waiver of service of process in any litigation between the parties.

For Andrea:	Andrea Electronics Corporation
	620 Johnson Ave., Suite 1B
	Bohemia, New York 11716
For Realtek:	Realtek Semiconductor Corporation
	No. 2 Innovation Road II
	Hsinchu Science Park
	Hsinchu 300, Taiwan

SECTION 5
GOVERNING LAW AND JURISDICTION

5.1 Governing Law. The Parties agree that this Agreement shall be considered to have been made in, and construed and interpreted in accordance with the substantive laws of the State of California, without regard to its conflict of laws principles.

5.2 Jurisdiction. The Parties hereby submit to, and waive any venue objections against, the sole and exclusive jurisdiction of the state and federal courts located in Santa Clara county in the State of California.

SECTION 6
WARRANTIES; COVENANTS; LIMITATION OF LIABILITY

6.1 Limited Warranty. Each Party represents and warrants that it has the full authority to enter into and fully perform this Agreement; and that this Agreement is valid and binding and enforceable in accordance with its terms. Andrea further represents and warrants that it owns the Andrea Patents and has the right to grant the releases and covenants herein regardless of any rights in the Andrea Patents and Andrea Technology held by AND34 Funding LLC and/or Fortress Investment Group.

Confidential - Settlement Agreement Page 5 of 10

SECTION 7
CONFIDENTIALITY

7.1 Duty to Maintain Confidentiality. Either Party may publicly disclose the existence of this Agreement, provided, however, that the terms and conditions of this Agreement shall be confidential and shall not be disclosed to any person or entity not a Party to this Agreement, except for Affiliates, attorneys, accountants, and investors who are bound by confidentiality provisions, unless prior written consent is obtained from the other Party. Notwithstanding the foregoing, either Party may disclose this Agreement, including its terms and conditions, pursuant to any competent court, regulatory authority, governmental agency, or semi-governmental agency orders, regulations, and/or requirements, provided however, that in the event of such disclosure, the applicable Party who needs to disclose will use good faith efforts to maintain the confidentiality of any terms and/or conditions of this Agreement which are not so required to be disclosed. Realtek may disclose the relevant portions of this Agreement to its customers, suppliers, and/or distributors to the extent necessary to demonstrate the scope of this Agreement. Furthermore, either Party may, subject to the terms of a non-disclosure agreement, disclose this Agreement to third parties in connection with business discussions or in connection with any merger or acquisition proposed or discussions that may lead to such proposal, in each case, for which such Party reasonably deems such disclosure to be necessary.

7.2 Disclosure Related to Legal Process. Notwithstanding Section 7.1, a Party may produce this Agreement in response to a subpoena, discovery request or court order, or in conjunction with an assertion or claim against Licensee, Realtek related products, or Realtek related activities; provided such Party produces this Agreement under a “Highly Confidential-Outside Counsel’s Eyes Only” designation or similar designation or otherwise makes provisions to protect the confidentiality of this Agreement.

SECTION 8
MISCELLANEOUS

8.1 Counterparts. This Agreement may be executed in counterparts in the English language and each executed document shall be deemed an original thereof.

8.2 Entire Agreement; Construction. This Agreement constitute the entire agreement between the Parties concerning the subject matter hereof and supersedes all written and oral prior agreements and understandings with respect thereto.

8.3 Modification. No variation or modification of the terms of this Agreement or any waiver of any of the terms or provisions hereof shall be valid unless in writing and signed by an authorized representative of each of the Parties.

Confidential - Settlement Agreement Page 6 of 10

8.4 Severability; Interpretation. This Agreement is subject to the restrictions, limitations, terms and conditions of all applicable governmental regulations, approvals and clearances. If any term or provision of this Agreement is held invalid, illegal or unenforceable in any respect for any reason, that invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein, and instead had been included in such manner as to lawfully effectuate the intent of such term or provision. The Parties acknowledge that each Party was represented by legal counsel in connection with this Agreement and that each of them and its counsel have reviewed this Agreement, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any applicable amendments or any exhibits.

8.5 Waiver. Failure by either Party to enforce any rights under this Agreement for any length of time shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

8.6 Agency. Nothing in this Agreement shall be construed to constitute the Parties as partners or participating in a joint venture or constitute either Party as agent of the other.

8.7 No Admission. The Parties agree that this Agreement or anything contained herein shall not constitute an admission by Realtek of infringement, validity or enforceability of any of the Andrea Patents.

*          *          *          *          *

Confidential - Settlement Agreement Page 7 of 10

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by duly authorized officers effective on the Effective Date.

Andrea Electronics Corporation

By:	/s/ Douglas J. Andrea
Name:	Douglas Andrea
Title:	Chairman, President and CEO
Date:	October 15, 2015

Realtek Semiconductor Corporation

By:	/s/ Alex Chin
Name:	Alex Chin
Title:	President
Date:	October 15, 2015

Confidential - Settlement Agreement Page 8 of 10

Exhibit 1

Pat. No.	App. No.	Title	Filing Date	Issue Date
5,825,898	08/672,899	System and method	27-Jun-1996	20-Oct-1998
		for adaptive
		interference
		cancelling
6,049,607	09/157,035	Interference canceling	18-Sep-1998	11-Apr-2000
		method and apparatus
6,108,415	08/953,021	Noise cancelling	17-Oct-1997	22-Aug-2000
		improvement to a
		communications
		device
6,178,248	08/840,159	Dual-processing	14-Apr-1997	23-Jan-2001
		interference
		cancelling system and
		method
6,198,693	09/059,503	System and method	13-Apr-1998	06-Mar-2001
		for finding the
		direction of a wave
		source using an array
		of sensors
6,332,028	09/055,709	Dual-processing	07-Apr-1998	18-Dec-2001
		interference
		cancelling system and
		method
6,363,345	09/252,874	System, method and	18-Feb-1999	26-Mar-2002
		apparatus for
		cancelling noise
6,377,637	09/614,875	Sub-band exponential	12-Jul-2000	23-Apr-2002
		smoothing noise
		canceling system
6,483,923	09/130,923	System and method	06-Aug-1998	19-Nov-2002
		for adaptive
		interference
		cancelling
6,594,367	09/427,410	Super directional	25-Oct-1999	15-Jul-2003
		beamforming design
		and implementation

Confidential - Settlement AgreementPage 9 of 10

Pat. No.	App. No.	Title	Filing Date	Issue Date
7,319,762	11/482,351	Headset with flashing	05-Jul-2006	15-Jan-2008
		light emitting diodes
8,150,054	12/332,959	Adaptive filter in a	11-Dec-2008	03-Apr-2012
		sensor array system
8,542,843	12/429,623	Headset with	24-Apr-2009	24-Sep-2013
		integrated stereo array
		microphone
8,767,973	13/291,565	Adaptive filter in a	8-Nov-2011	1-Jul-2014
		sensory array system
8,818,000	12/916,470	System, device, and	29-Oct-2010	26-Aug-2014
		method utilizing an
		integrated stereo array
		microphone
	14/319,707	Steerable sensor array	30-Jun-2014
		system with video
		input
	14/463,018	System, device, and	19-Aug-2014
		method utilizing an
		integrated stereo array
		microphone

Confidential - Settlement AgreementPage 10 of 10

EX-10.14

Exhibit 10.14

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is effective as of the latest date set out on the signature page hereof (the “Effective Date”), among Andrea Electronics Corporation, a New York corporation having a place of business at 620 Johnson Ave., Suite 1B, Bohemia, New York 11716 (“Andrea”); and Acer Inc., a Taiwan corporation having a place of business at 8F, 88, Sec. 1, Xintai 5^th Rd., Xizhi, New Taipei City 221, Taiwan R.O.C. and Acer America Corporation, a California corporation having a place of business at 333 West San Carlos Street, Suite 1500, San Jose, CA 95110 (together “Acer”) (Andrea and Acer may each be referred to as a “Party” or collectively be referred to as the “Parties”).

RECITALS

WHEREAS, the Parties wish to resolve the litigations titled Andrea Electronics Corporation v. Acer Inc. and Acer America Corporation, Civ. Action No. 2:15-cv-04488 and Andrea Electronics Corporation v. Acer Inc. and Acer America Corporation, Civ. Action No. 2:15-cv-00210, both pending in the Eastern District of New York (the “New York Cases”), as well as International Trade Commission Investigation No. 337-TA-949 titled Certain Audio Processing Hardware and Software and Products Containing the Same, Inv. No. 337-TA-949 (the “ITC Investigation”) (collectively, the “Litigations”); and

WHEREAS, Andrea has granted Acer Inc. and its Subsidiaries a license to the Asserted Patents, the License Agreement being attached hereto as Confidential Exhibit A.

In consideration of the mutual promises and covenants herein contained, Andrea and Acer agree as follows:

AGREEMENT

SECTION 1: DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings which shall include both singular and plural forms in context. Additional terms may be defined elsewhere in this Agreement.

1.1.“Asserted Patents” means all patents asserted by Andrea in the Litigations, namely, the following U.S. Patents: 5,825,898; 6,049,607; 6,363,345; 6,483,923; and 6,377,637.

1.2.“Control” (including its correlative meanings, “Controlled” and “Controlling”) means the power to direct or cause the direction of the management and policies of an Entity whether through ownership of voting securities, by contract or otherwise; it being understood and agreed that with respect to a corporation, limited liability company, partnership, and similar structures, “Control” shall also require (a) ownership of more than fifty percent (50%) of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest), in any such corporation, limited liability company, or partnership, or (b) in any country where it is not permitted by law to own more than fifty percent (50%) of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest) in a local corporation, limited liability company, or partnership, ownership of the maximum legally allowed ownership interest of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest) of the local corporation, limited liability company, or partnership.

1.3.“Entity” means a natural person, corporation, association, joint venture, partnership, company, limited liability company or other legal entity recognized in any jurisdiction in the world.

1.4.“License Agreement” shall mean the License Agreement between Andrea and Acer, attached as Exhibit A.

1.5.“Subsidiary” shall mean any Entity directly or indirectly Controlled by a Party, as of the Effective Date.

SECTION 2: DISMISSALS

2.1.Dismissals. Subject to the terms and conditions herein the Parties shall file the following:

a.	Andrea and Acer shall file a motion to terminate the ITC Investigation substantially in the form set forth in Exhibit B within ten (10) days of the Effective Date.
b.	Within five (5) court days of the receipt of payment by Andrea as set forth in Section 3.1 of the License Agreement, the Parties shall file stipulations of dismissal with prejudice regarding all claims and counterclaims asserted against each other in the New York Cases substantially in the form set forth in Exhibit C.

2.2.Releases. Andrea and its Subsidiaries and Acer and its Subsidiaries hereby release all claims, counterclaims and/or defenses relating to the Asserted Patents that were brought or could have been brought in the New York Cases as of the Effective Date.

2.3.No Costs. The Parties agree that this Agreement is intended solely as a compromise between the Parties and without any acknowledgment of liability, fault, or damages. The Parties acknowledge and agree that each Party shall bear its own attorneys’ fees, court costs, expenses, and any other related costs and expenses that they have incurred in connection with any and all claims previously filed against each other. The Parties also agree that they shall bear their own costs and attorneys’ fees relating to or arising from the negotiation and performance of this Agreement.

SECTION 3
MISCELLANEOUS

3.1.Term. The rights granted under this Agreement, if any, shall commence upon the Effective Date.

3.2.No Other Obligations. Neither Party shall have any other responsibilities or obligations in connection with actions to enforce or defend the Asserted Patents.

3.3.Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Parties, successors and assignees. Notwithstanding the preceding, it is understood that no assignment will release either Party or their Subsidiaries from any of their obligations hereunder.

SECTION 4
NOTICE

4.1. Written Notices. Any notices under this Agreement shall be in writing and delivered by facsimile transmission, electronic mail, overnight express mail or express courier service to such Party at the address given below, or such other address as provided by a Party by written notice in accordance with this Section, and shall be effective on receipt. Notwithstanding the foregoing, notices and other communications sent by facsimile transmission or electronic mail shall be effective upon the sender’s receipt of an acknowledgement from the intended recipient. This paragraph in no way constitutes waiver of service of process in any litigation between the parties.

For Andrea:	Andrea Electronics Corporation
	620 Johnson Ave., Suite 1B
	Bohemia, New York 11716
For Acer:	Acer America Corporation
	333 West San Carlos Street, Suite 1500
	San Jose, CA 95110
	Attention: Legal Department
	and
	Acer Incorporated
	8F, 88, Sec. 1, Xintai 5th Rd.
	Xizhi, New Taipei City 221, Taiwan R.O.C.
	Attention: Legal Division, General Counsel

SECTION 5
GOVERNING LAW AND JURISDICTION

5.1.Governing Law. The Parties agree that this Agreement shall be considered to have been made in, and construed and interpreted in accordance with the substantive laws of the State of New York, without regard to its conflict of laws principles.

5.2. Jurisdiction. The Parties hereby submit to, and waive any venue objections against, the sole and exclusive jurisdiction of the state and federal courts located in the State of New York.

SECTION 6
WARRANTIES; COVENANTS; LIMITATION OF LIABILITY

6.1. Limited Warranty. Each Party represents and warrants that it has the full authority to enter into and fully perform this Agreement; and that this Agreement is valid and binding and enforceable in accordance with its terms.

SECTION 7
CONFIDENTIALITY

7.1. Duty to Maintain Confidentiality. Either Party may publicly disclose this Agreement, except that the License Agreement, Exhibit A, may only be disclosed in accordance with the Confidentiality obligations contained therein.

SECTION 8
MISCELLANEOUS

8.1. Counterparts. This Agreement may be executed in counterparts in the English language and each executed document shall be deemed an original thereof.

8.2. Entire Agreement; Construction. This Agreement constitutes the entire agreement between the Parties concerning the subject matter hereof and supersedes all written and oral prior agreements and understandings with respect thereto.

8.3. Modification. No variation or modification of the terms of this Agreement or any waiver of any of the terms or provisions hereof shall be valid unless in writing and signed by an authorized representative of each of the Parties.

8.4. Severability; Interpretation. This Agreement is subject to the restrictions, limitations, terms and conditions of all applicable governmental regulations, approvals and clearances. If any term or provision of this Agreement is held invalid, illegal or unenforceable in any respect for any reason, that invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein, and instead had been included in such manner as to lawfully effectuate the intent of such term or provision. The Parties acknowledge that each Party was represented by legal counsel in connection with this Agreement and that each of them and its counsel have reviewed this Agreement, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any applicable amendments or any exhibits.

8.5. Waiver. Failure by either Party to enforce any rights under this Agreement for any length of time shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

8.6. Remedies. In the event of a breach of this Agreement, in addition to the right to enforce its rights under this Agreement, each Party shall retain any and all rights and/or remedies, at law or in equity.

8.7. No Admission. The Parties agree that this Agreement or anything contained herein shall not constitute an admission by Acer of infringement, validity or enforceability of any of the Asserted Patents.

*          *          *          *          *

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by duly authorized officers effective on the Effective Date.

Andrea Electronics Corporation

By:   Douglas J. Andrea

Name:   Douglas J. Andrea

Title:   CEO

Date:   November 17, 2015

Acer Inc.

By:   George Huang

Name:   George Huang

Title:   Chairman

Date:   November 16, 2015

Acer America Corporation

By:   George Huang

Name:   George Huang

Title:   Chairman

Date:   November 16, 2015

EX-10.15

Exhibit 10.15

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is effective as of the latest date set out on the signature page hereof (the “Effective Date”), among Andrea Electronics Corporation, a New York corporation having a place of business at 620 Johnson Ave., Suite 1B, Bohemia, New York 11716 (“Andrea”); and HP Inc., a Delaware corporation having a place of business at 1501 Page Mill Road, Palo Alto, California 94304 (“HP”) (Andrea and HP may each be referred to as a “Party” or collectively be referred to as the “Parties”).

RECITALS

WHEREAS, the Parties wish to resolve the litigations titled Andrea Electronics Corporation v. Hewlett-Packard Co., Civ. Action No. 2:15-cv-208 pending in the Eastern District of New York (the “New York Case”), as well as International Trade Commission Investigation No. 337-TA-949 titled Certain Audio Processing Hardware and Software and Products Containing the Same, Inv. No. 337-TA-949 (the “ITC Investigation”) (collectively, the “Litigations”);

WHEREAS On November 1, 2015 Hewlett-Packard Company split into Hewlett Packard INC and Hewlett Packard Enterprise;and

WHEREAS, Andrea has granted HP and its Subsidiaries a license to the Asserted Patents, the License Agreement being attached hereto as Confidential Exhibit A.

In consideration of the mutual promises and covenants herein contained, Andrea and HP agree as follows:

AGREEMENT

SECTION 1: DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings which shall include both singular and plural forms in context. Additional terms may be defined elsewhere in this Agreement.

1.1. “Asserted Patents” means all patents asserted by Andrea in the Litigations, namely, the following U.S. Patents: 5,825,898; 6,049,607; 6,363,345; 6,483,923; and 6,377,637.

1.2. “Control” (including its correlative meanings, “Controlled” and “Controlling”) means the power to direct or cause the direction of the management and policies of an Entity whether through ownership of voting securities, by contract or otherwise; it being understood and agreed that with respect to a corporation, limited liability company, partnership, and similar structures, “Control” shall also require (a) ownership of more than fifty percent (50%) of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest), in any such corporation, limited liability company, or partnership, or (b) in any country where it is not permitted by law to own more than fifty percent (50%) of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest) in a local corporation, limited liability company, or partnership, ownership of the maximum legally allowed ownership interest of the voting stock, limited liability interest, partnership interest, or other voting interest (or equivalent interest) of the local corporation, limited liability company, or partnership.

Page 1 of 6

1.3. “Entity” means a natural person, corporation, association, joint venture, partnership, company, limited liability company or other legal entity recognized in any jurisdiction in the world.

1.4. “License Agreement” shall mean the License Agreement between Andrea and HP, attached as Exhibit A.

1.5. “Subsidiary” shall mean any Entity directly or indirectly Controlled by a Party, as of the Effective Date.

SECTION 2: DISMISSALS

2.1. Dismissals. Subject to the terms and conditions herein the Parties shall file the following:

a.	Andrea and HP shall jointly file a motion to terminate the ITC Investigation substantially in the form set forth in Exhibit B within five (5) days of the Effective Date.
b.	Within five (5) court days of the receipt of payment by Andrea as set forth in Section 3.1 of the License Agreement, the Parties shall file stipulations of dismissal with prejudice regarding all claims and counterclaims asserted against each other in the New York Case substantially in the form set forth in Exhibit C.

2.2. Releases. Upon receipt of payment by Andrea as set forth in Section 3.1 of the License Agreement, Andrea and its Subsidiaries and HP and its Subsidiaries shall release all claims, counterclaims and/or defenses relating to the Asserted Patents that were brought or could have been brought in the New York Case as of the Effective Date.

2.3. No Costs. The Parties agree that this Agreement is intended solely as a compromise between the Parties and without any acknowledgment of liability, fault, or damages. The Parties acknowledge and agree that each Party shall bear its own attorneys’ fees, court costs, expenses, and any other related costs and expenses that they have incurred in connection with any and all claims previously filed against each other. The Parties also agree that they shall bear their own costs and attorneys’ fees relating to or arising from the negotiation and performance of this Agreement.

Page 2 of 6

SECTION 3
MISCELLANEOUS

3.1. Term. The rights granted under this Agreement, if any, shall commence upon the Effective Date.

3.2. No Other Obligations. Neither Party shall have any other responsibilities or obligations in connection with actions to enforce or defend the Asserted Patents.

3.3. Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Parties, successors and assignees. Notwithstanding the preceding, it is understood that no assignment will release either Party or their Subsidiaries from any of their obligations hereunder.

SECTION 4
NOTICE

4.1. Written Notices. Any notices under this Agreement shall be in writing and shall be delivered by facsimile transmission, electronic mail, overnight express mail or express courier service to such Party at the address given below, or such other address as provided by a Party by written notice in accordance with this Section, and shall be effective on receipt. Notwithstanding the foregoing, notices and other communications sent by facsimile transmission or electronic mail shall be effective upon the sender’s receipt of an acknowledgement from the intended recipient. This paragraph in no way constitutes waiver of service of process in any litigation between the parties.

For Andrea:	Andrea Electronics Corporation
	620 Johnson Ave., Suite 1B
	Bohemia, New York 11716

Page 3 of 6

For HP:	General Counsel
	Office of the General Counsel
	Hewlett Packard INC
	1501 Page Mill Road
	Palo Alto, CA 94304
	GeneralCounsel@hp.com

SECTION 5
GOVERNING LAW AND JURISDICTION

5.1. Governing Law. The Parties agree that this Agreement shall be considered to have been made in, and construed and interpreted in accordance with the substantive laws of the State of New York, without regard to its conflict of laws principles.

5.2. Jurisdiction. The Parties hereby submit to, and waive any venue objections against, the sole and exclusive jurisdiction of the state and federal courts located in the State of New York.

SECTION 6
WARRANTIES; COVENANTS; LIMITATION OF LIABILITY

6.1. Limited Warranty. Each Party represents and warrants that it has the full authority to enter into and fully perform this Agreement; and that this Agreement is valid and binding and enforceable in accordance with its terms.

SECTION 7
CONFIDENTIALITY

7.1. Duty to Maintain Confidentiality. Either Party may publicly disclose this Agreement, except that the License Agreement, Exhibit A, may only be disclosed in accordance with the Confidentiality obligations contained therein.

SECTION 8
MISCELLANEOUS

8.1. Counterparts. This Agreement may be executed in counterparts in the English language and each executed document shall be deemed an original thereof.

8.2. Entire Agreement; Construction. This Agreement constitutes the entire agreement between the Parties concerning the subject matter hereof and supersedes all written and oral prior agreements and understandings with respect thereto.

8.3. Modification. No variation or modification of the terms of this Agreement or any waiver of any of the terms or provisions hereof shall be valid unless in writing and signed by an authorized representative of each of the Parties.

Page 4 of 6

8.4. Severability; Interpretation. This Agreement is subject to the restrictions, limitations, terms and conditions of all applicable governmental regulations, approvals and clearances. If any term or provision of this Agreement is held invalid, illegal or unenforceable in any respect for any reason, that invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein, and instead had been included in such manner as to lawfully effectuate the intent of such term or provision. The Parties acknowledge that each Party was represented by legal counsel in connection with this Agreement and that each of them and its counsel have reviewed this Agreement, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any applicable amendments or any exhibits.

8.5. Waiver. Failure by either Party to enforce any rights under this Agreement for any length of time shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

8.6. Remedies. In the event of a breach of this Agreement, in addition to the right to enforce its rights under this Agreement, each Party shall retain any and all rights and/or remedies, at law or in equity.

8.7. No Admission. The Parties agree that this Agreement or anything contained herein shall not constitute an admission by HP of infringement, validity or enforceability of any of the Asserted Patents.

*          *          *          *          *

Page 5 of 6

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by duly authorized officers effective on the Effective Date.

Andrea Electronics Corporation

By:	/s/ Douglas J. Andrea
Name:	Douglas J. Andrea
Title:	CEO
Date:	December 22, 2015

HP Inc.

By:	/s/ David Deitchman
Name:	David Deitchman
Title:	DGC & Assistant Secretary
Date:	December 22, 2015

Page 6 of 6

EX-21.0

Exhibit 21

Subsidiaries of the Registrant

	Jurisdiction of
Name of Subsidiary	Incorporation
Andrea ANC Manufacturing Inc.	Delaware
Andrea Digital Technologies, Inc.	Delaware
Andrea Direct Marketing Inc.	Delaware
Andrea Electronics Europe Inc.	Delaware
Andrea Marketing Inc.	Delaware
Lamar Signal Processing, Ltd.	Israel

EX-23.1

Exhibit 23.1

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the incorporation by reference in the Registration Statement of Andrea Electronics Corporation on Form S-8 (Files Nos. 333-133090, 333-82738, 333-82375, 333-142548, 333-173131) of our report dated March 29, 2016, with respect to our audits of the consolidated financial statements of Andrea Electronics Corporation and Subsidiaries as of December 31, 2015 and 2014 and for the years then ended, which report is included in this Annual Report on Form 10-K of Andrea Electronics Corporation for the year ended December 31, 2015.

/s/ Marcum LLP

Marcum LLP
Melville, New York
March 29, 2016

EX-31.0

EXHIBIT 31.0

RULE 13a-14(a)/15d-14(a)CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Douglas J. Andrea, certify that:

1.	I have reviewed this annual report on Form 10-K of Andrea Electronics Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2016	/s/ DOUGLAS J. ANDREA
	Douglas J. Andrea
	Chairman of the Board, President, Chief
	Executive Officer and Corporate Secretary

RULE 13a-14(a)/15d-14(a)
CHIEF FINANCIAL OFFICER CERTIFICATION

I, Corisa L. Guiffre, certify that:

1.	I have reviewed this annual report on Form 10-K of Andrea Electronics Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2016	/s/ CORISA L. GUIFFRE
	Corisa L. Guiffre
	Vice President, Chief Financial Officer and
	Assistant Corporate Secretary

EX-32.0

EXHIBIT 32.0

SECTION 1350 CERTIFICATIONS

In connection with the Annual Report of Andrea Electronics Corporation (the “Company”) on Form 10-K for the period ending December 31, 2015 as filed with the Securities and Exchange Commission (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date: March 29, 2016	/s/ DOUGLAS J. ANDREA
	Douglas J. Andrea
	Chairman of the Board, President, Chief
	Executive Officer and Corporate Secretary
	/s/ CORISA L. GUIFFRE
	Corisa L. Guiffre
	Vice President, Chief Financial Officer and
	Assistant Corporate Secretary

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 24, 2016	Jun. 30, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	ANDREA ELECTRONICS CORP
Entity Central Index Key	0000006494
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2015
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Common Stock, Shares Outstanding		64,416,035
Entity Public Float			$ 3,493,570

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Current assets:
Cash	$ 5,592,554	$ 3,574,530
Accounts receivable, net of allowance for doubtful accounts of $5,415	1,902,388	238,814
Inventories, net	58,028	216,336
Prepaid expenses and other current assets	60,086	$ 60,578
Current portion of note receivable	406,522
Current assets from discontinued operations	149,746	$ 395,643
Total current assets	8,169,324	4,485,901
Property and equipment, net	86,960	93,972
Intangible assets, net	$ 345,359	374,157
Assets from discontinued operations		$ 22,927
Long term note receivable	$ 103,709
Other assets, net	5,250	$ 13,233
Total assets	8,710,602	4,990,190
Current liabilities:
Trade accounts payable	2,149,532	493,600
Taxes Payable	45,000	38,000
Accrued Series C Preferred Stock Dividends	73,921	73,921
Short-term deferred revenue	6,600	9,312
Other current liabilities	1,640,833	464,476
Liabilities from discontinued operations	40,075	$ 151,294
Short-term advance from Revenue Sharing Agreement	196,477
Current portion of long-term debt	1,900,775
Total current liabilities	6,053,213	$ 1,230,603
Advance from Revenue Sharing Agreement	$ 115,590	3,500,000
Long-term debt		909,875
Total liabilities	$ 6,168,803	$ 5,640,478
Series B Redeemable Convertible Preferred Stock, $.01 par value; authorized: 1,000 shares; issued and outstanding: 0 shares
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock value
Common stock, $.01 par value; authorized: 200,000,000 shares; issued and outstanding: 64,416,035 and 63,721,035 shares, respectively	$ 644,160	$ 637,210
Additional paid-in capital	77,727,552	77,586,585
Accumulated deficit	(75,838,986)	(78,883,156)
Total shareholders' equity (deficit)	2,541,799	(650,288)
Total liabilities and shareholders' equity (deficit)	8,710,602	4,990,190
Series C Convertible Preferred Stock
Shareholders' equity (deficit):
Preferred stock value	1	1
Series D Convertible Preferred Stock
Shareholders' equity (deficit):
Preferred stock value	$ 9,072	$ 9,072

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Allowance for doubtful accounts	$ 5,415
Series B Redeemable Convertible Preferred Stock, par value	$ 0.01	$ 0.01
Series B Redeemable Convertible Preferred Stock, shares authorized	1,000	1,000
Series B Redeemable Convertible Preferred Stock, shares issued	0	0
Series B Redeemable Convertible Preferred Stock, shares outstanding	0	0
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,497,500	2,497,500
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	64,416,035	63,721,035
Common stock, shares outstanding	64,416,035	63,721,035
Series C Convertible Preferred Stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,500	1,500
Preferred stock, shares issued	44.2	44.2
Preferred stock, shares outstanding	44.2	44.2
Preferred stock, liquidation value	$ 442,314	$ 442,314
Series D Convertible Preferred Stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued	907,144	907,144
Preferred stock, shares outstanding	907,144	907,144
Preferred stock, liquidation value	$ 907,144	$ 907,144

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Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Revenues
Net product revenues	$ 388,298	$ 326,647
License revenues	12,846,584	896,915
Total Revenues	13,234,882	1,223,562
Cost of revenues	117,035	198,750
Gross margin	13,117,847	1,024,812
Patent Monetization Expenses	8,216,749	1,687,802
Research and development expenses	767,680	487,858
General, administrative and selling expenses	1,446,205	1,162,782
Continuing operating income (loss)	2,687,213	(2,313,630)
Interest expense, net	(65,006)	(274)
Income (loss) from continuing operations before provision for income taxes	2,622,207	(2,313,904)
Provision for income taxes	154,513	214,136
Income (loss) from continuing operations	2,467,694	(2,528,040)
Income (loss) from discontinued operations	576,476	(364,553)
Net income (loss)	$ 3,044,170	$ (2,892,593)
Basic weighted average shares	64,000,309	63,721,035
Basic net income (loss) per share from continuing operations	$ 0.04	$ (0.04)
Basic net income (loss) per share from discontinuing operations	0.01	(0.01)
Basic net income (loss) per share	$ 0.05	$ (0.05)
Diluted weighted average shares	71,929,978	63,721,035
Diluted net income (loss) per share from continuing operations	$ 0.03	$ (0.04)
Diluted net income (loss) per share from discontinuing operations	0.01	(0.01)
Diluted net income (loss) per share	$ 0.04	$ (0.05)

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Consolidated Statements of Shareholders' Equity (Deficit) - USD ($)	Total	Series C Convertible Preferred Stock [Member]	Series D Convertible Preferred Stock [Member]	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Balance at Dec. 31, 2013	$ 2,199,731	$ 1	$ 9,072	$ 637,210	$ 77,544,011	$ (75,990,563)
Balance (in shares) at Dec. 31, 2013		44,231,432	907,144	63,721,035
Stock-based Compensation Expense related to Stock Option Grants	42,574				$ 42,574
Net income (loss)	(2,892,593)					$ (2,892,593)
Balance at Dec. 31, 2014	(650,288)	$ 1	$ 9,072	$ 637,210	$ 77,586,585	$ (78,883,156)
Balance (in shares) at Dec. 31, 2014		44,231,432	907,144	63,721,035
Stock-based Compensation Expense related to Stock Option Grants	113,167				113,167
Stock option exercises	34,750			$ 6,950	$ 27,800
Stock option exercises, shares				695,000
Net income (loss)	3,044,170					$ 3,044,170
Balance at Dec. 31, 2015	$ 2,541,799	$ 1	$ 9,072	$ 644,160	$ 77,727,552	$ (75,838.986)
Balance (in shares) at Dec. 31, 2015		44,231,432	907,144	64,416,035

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income (loss)	$ 3,044,170	$ (2,892,593)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	85,660	115,824
Stock based compensation	113,167	42,574
Credit for inventory obsolescence	(94,925)	(158,274)
Provision for income tax withholding	115,513	176,136
PIK interest, net	95,968	$ 9,875
Gain on sale of Anti-Noise Products Division	(879,612)
Accrued interest on note receivable	(14,502)
Change in:
Accounts receivable	(1,749,979)	$ (102,370)
Inventories	470,022	423,292
Prepaid expenses, other current assets and other assets	8,475	15,265
Taxes payable	7,000	38,000
Trade accounts payable	1,548,704	259,392
(Repayments of) Advance from Revenue Sharing Agreement	(3,187,933)	3,500,000
Short-term deferred revenue	(2,712)	(2,829)
Other current liabilities	1,172,366	346,861
Net cash provided by operating activities	731,382	1,771,153
Cash flows from investing activities:
Purchases of property and equipment	(18,443)	$ (4,952)
Proceeds from the sale of the Anti-Noise Products Division	300,000
Repayments of note receivable	104,271
Purchases of patents and trademarks	(28,868)	$ (92,093)
Net cash provided by (used) in investing activities	356,960	$ (97,045)
Cash flows from financing activities:
Proceeds from the exercise of stock options	34,750
Proceeds from long-term debt	7,700,000	$ 900,000
Payments of long-term notes and PIK interest	(6,805,068)
Net cash provided by financing activities	929,682	$ 900,000
Net increase in cash	2,018,024	2,574,108
Cash, beginning of year	3,574,530	1,000,422
Cash, end of year	5,592,554	3,574,530
Cash paid for:
Interest	105,368	2,557
Income Taxes	171,191	$ 186,355
Non Cash Investing and Financing Activity:
Note Receivable received in connection with the sale of the Anti-Noise Products Division	$ 600,000

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Organization and Business

12 Months Ended

Dec. 31, 2015

Organization and Business [Abstract]

ORGANIZATION AND BUSINESS

1. ORGANIZATION AND BUSINESS

Andrea Electronics Corporation, incorporated in the State of New York in 1934, (together with its subsidiaries, “Andrea” or the “Company”) has been engaged in the electronic communications industry since its inception. Since the early 1990s, Andrea has been primarily focused on developing and manufacturing state-of-the-art microphone technologies and products for enhancing speech-based applications software and communications, primarily in the computer and business enterprise markets that require high quality, clear voice signals. Andrea’s technologies eliminate unwanted background noise to enable the optimum performance of various speech-based and audio applications. Andrea DSP Microphone and Audio Software Products and Andrea Anti-Noise Products have been designed for applications that are controlled by or depend on speech across a broad range of hardware and software platforms. These products incorporate Digital Signal Processing, Noise Cancellation, Active Noise Cancellation and Active Noise Reduction microphone technologies, and are designed to cancel background noise in a wide range of noisy environments, such as homes, offices, factories and automobiles. Andrea also manufactures a line of accessories for these products for the consumer and commercial markets in the United States as well as in Europe and Asia. The Company sold its Anti-Noise Products Division and certain related assets in April 2015.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Andrea and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Loss Per Share

Basic income (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. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). 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:

	December 31,
	2015		2014
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 12)		11,399,821		18,534,821
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		-		2,023,658
Series D Convertible Preferred Stock (Note 9)		-		3,628,576
Total potentially dilutive common shares		11,399,821		24,187,055
	December 31,
	2015		2014
Numerator:
Net income (loss)	$	3,044,170	$	(2,892,593	)
Denominator:
Basic Weighted average shares		64,000,309		63,721,035
Effect of dilutive securities:
Stock options		2,277,435		-
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		2,023,658		-
Series D Convertible Preferred Stock (Note 9)		3,628,576		-
Denominator for diluted income (loss) per share-adjusted weighted average
shares after assumed conversions		71,929,978		63,721,035

Cash

Cash includes cash and highly liquid investments with original maturities of three months or less. At times during the years ended December 31, 2015 and 2014, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At December 31, 2015, the Company’s cash was held at four financial institutions.

Concentration of Risk

The following customer accounted for 10% or more of Andrea’s consolidated total revenues during at least one of the periods presented below:

	December 31,
	2015		2014
Customer A	81	%	72	%
Customer B	13	%	*

____________________

* Amounts are less than 10%

Customer A accounted for approximately 6% and 67% of accounts receivable at December 31, 2015 and 2014, respectively. Customer B accounted for approximately 92% of accounts receivable at December 31, 2015.

Allowance for Doubtful Accounts

The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s 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.

Inventories

Inventories 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 charges in inventory reserves as part of cost of revenues.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets ranging from 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.

Expenditures for maintenance and repairs that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Improvements that substantially extend the useful lives of the assets are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in the statement of operations.

Other Intangible Assets

Andrea amortizes its core technology and patents and trademarks on a straight-line basis over their estimated useful lives that range from 10 to 20 years.

Long-Lived Assets

Andrea accounts for its long-lived assets in accordance with Statement of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 360 “Plant, Property and Equipment, ” for purposes of determining and measuring impairment of its long-lived assets (primarily intangible assets) other than goodwill. Andrea’s policy is to review the value assigned to its long lived assets to determine if they have been permanently impaired by adverse conditions which may affect Andrea whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If Andrea identifies a permanent impairment such that the carrying amount of Andrea’s long lived assets is not recoverable using the sum of an undiscounted cash flow projection (gross margin dollars from product sales), the impaired asset is adjusted to its estimated fair value, based on an estimate of future discounted cash flows which becomes the new cost basis for the impaired asset. 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 December 31, 2015 and 2014.

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.

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 Company’s 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. As of December 31, 2015 the Company has recorded a full valuation allowance. 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 management’s 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 taxes payable for the period, withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned 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 Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated interim financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. 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 December 31, 2015, Andrea had two stock-based employee compensation plans, which are described more fully in Note 11. 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, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s 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.

Research and Development

Andrea expenses all research and development costs as incurred.

Advertising Expenses

In accordance with ASC 720 all media costs of newspaper and magazine advertisements as well as trade show costs are expensed as incurred. Total advertising and marketing expenses for the years ended December 31, 2015 and 2014 were approximately $11,000 and $2,000, respectively and are included in general, administrative and selling expenses.

Fair Value of Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about payments to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 applies to all assets and liabilities that are measured and reported on a fair value basis.

The Company will apply the provisions of ASC 820 to nonfinancial assets and liabilities. Andrea calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the book value of those financial instruments. When the book value approximates fair value, no additional disclosure is made. Andrea uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, Andrea uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. As of December 31, 2015 and 2014, the carrying value of all financial instruments approximated fair value.

Use of Estimates

The preparation of the consolidated 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 consolidated 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 Company’s convertible preferred stock. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods beginning after December 15, 2016. On July 9, 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before the annual periods beginning after December 15, 2016. A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for fiscal years and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. ASU 2015-17 may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. The Company is currently evaluating the impact this standard will have on its financial statements.

In January 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss.

Subsequent Events

The Company evaluates events that occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, other than Note 11, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

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Intangible Assets

12 Months Ended

Dec. 31, 2015

Intangible Assets [Abstract]

INTANGIBLE ASSETS

3. INTANGIBLE ASSETS

Intangible assets, net, consists of the following:

	December 31,
	2015			2014
Core Technology	$	8,567,448		$	8,567,448
Patents and trademarks		861,241			832,373
		9,428,689			9,399,821
Less: accumulated amortization		(9,083,330	)		(9,025,664	)
	$	345,359		$	374,157

The changes in the carrying amount of intangible assets during the years ended December 31, 2015 and 2014 were as follows:

	Patents and
	Trademarks
Balance as of January 1, 2014	$	326,109
Additions during the period		92,093
Amortization		(44,045	)
Balance as of December 31, 2014	$	374,157
Additions during the period		28,868
Amortization		(57,666	)
Balance as of December 31, 2015	$	345,359

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. 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 Andrea identifies a permanent impairment such that the carrying amount of Andrea’s 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 December 31, 2015 and 2014, Andrea concluded that there were no long-lived assets that required to be tested for recoverability.

Amortization expense was $57,666 and $44,045 for the years ended December 31, 2015 and 2014, respectively. Patents and trademarks, once issued are amortized on a straight-line basis over periods ranging from 10 to 20 years. Assuming no changes in the Company's intangible assets, estimated amortization expense for each of the five succeeding fiscal years ending December 31 is expected to be approximately $48,000, $44,000, $41,000, $34,000 and $22,000, respectively.

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Inventories, Net

12 Months Ended

Dec. 31, 2015

Inventories, net [Abstract]

INVENTORIES, net

4. INVENTORIES, net

Inventories, net, consist of the following:

	December 31,
	2015			2014
Raw materials	$	21,253		$	15,852
Finished goods		152,050			330,240
		173,303			346,092
Less: reserve for obsolescence		(115,275	)		(129,756	)
	$	58,028		$	216,336

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Property and Equipment, Net

12 Months Ended

Dec. 31, 2015

Property and Equipment, Net [Abstract]

PROPERTY AND EQUIPMENT, net

5. PROPERTY AND EQUIPMENT, net

Property and equipment, net, consists of the following:

	December 31,
	2015			2014
Information Technology Equipment	$	258,715		$	240,272
Furniture and fixtures		87,958			87,958
Tools, molds and testing equipment		189,333			189,333
		536,006			517,563
Less: accumulated depreciation and amortization		(449,046	)		(423,591	)
	$	86,960		$	93,972

Depreciation and amortization of property and equipment from continuing operations was $25,455 and $54,286 for the years ended December 31, 2015 and 2014, respectively.

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Revenue Sharing, Note Purchase Agreement, and Long-Term Debt

12 Months Ended

Dec. 31, 2015

Revenue Sharing Note Purchase Agreement and Long-Term Debt [Abstract]

REVENUE SHARING, NOTE PURCHASE AGREEMENT, AND LONG-TERM DEBT

6. REVENUE SHARING, NOTE PURCHASE AGREEMENT, AND LONG-TERM DEBT

Revenue Sharing and Note Purchase Agreement

On December 24, 2014, the Company entered into an Amended and Restated Revenue Sharing and Note Purchase Agreement (the “Revenue Sharing Agreement”), with AND34 Funding LLC (“AND34”) (acting as the “Revenue Participants,” the “Note Purchasers,” and the “Collateral Agent”), which was retroactively effective as of February 14, 2014. Under the Revenue Sharing Agreement, the Company granted AND34 a perpetual predetermined share in the rights of the Company’s specified future revenues from patents currently owned by the Company (the “Patents”) in exchange for $3,500,000, which was recorded as an “Advance from Revenue Sharing Agreement.” on the accompanying consolidated balance sheet. The advance will be repaid over the period in which the Company generates any future monetization revenues in excess of any of the outstanding long-term debt and accrued interest to AND34. Under the terms of the Revenue Sharing Agreement with AND34, Andrea has agreed to issue and sell to AND34 Notes up to an aggregate outstanding amount of $10,700,000 during the four years after the closing date or such greater amount as AND34 may agree in its sole discretion. The proceeds of the Notes will be used to pay certain initial expenses related to the agreement, and going forward will be used for expenses of the Company incurred in pursuing patent monetization. AND34’s rights to the Company’s monetization revenues from the Patents and the Notes are secured by the Patents.

Any Monetization Revenues (as defined in the Revenue Sharing Agreement) will first be applied 100% to the payment of accrued and unpaid interest on, and then to repay outstanding principal of, the Notes. After the Notes are paid in full, the Monetization Revenues will be allocated amongst the Revenue Participants and the Company in accordance with certain predetermined percentages (based on aggregate amounts received by the Revenue Participants) ranging from 100% to the Revenue Participants (such percentage to be allocated to the Revenue Participants until they have received Monetization Revenues of $3,500,000 to repay the Advance from Revenue Sharing Agreement) to ultimately 20% to the Revenue Participants. Monetization Revenues is defined in the Revenue Sharing Agreement to include, but is not limited to, amounts that the Company receives from third parties with respect to the Patents, which may include new license revenues, certain product revenue, payments and judgments. Monetization Revenues and associated expenses are included in the Company’s Patent Monetization Segment (Note 13).

The Revenue Sharing Agreement contains many stipulations between the parties regarding the handling of various matters related to the monetization of the Patents. The Revenue Participants and the Company will account for the tax treatment as set forth in the Revenue Sharing Agreement. Following an Event of Default under the Revenue Sharing Agreement, the Note Purchasers and Revenue Participants may proceed to protect and enforce their rights by suit or other appropriate proceeding, either for specific performance or the exercise of any power granted under the Revenue Sharing Agreement or ancillary documents including the Notes.

Advance from Revenue Sharing Agreement

	December 31,
	2015			2014
Advance from Revenue Sharing Agreement	$	312,067		$	3,500,000
Less: short-term Advance from Revenue Sharing Agreement		(196,477	)		-
Long-term Advance from Revenue Sharing Agreement, net of short-term
Advance from Revenue Sharing Agreement	$	115,590		$	3,500,000

Amounts reported as short-term Advance from the Revenue Sharing Agreement reflect amount expected to be paid in the next twelve months.

Long-term debt

	December 31,
	2015			2014
Note Payable	$	1,900,000		$	900,000
PIK interest		775			9,875
Total long-term debt		1,900,775			909,875
Less: current maturities of long-term debt		(1,900,775	)		-
Long-term debt, net of current maturities	$	-		$	909,875

The unpaid principal amount of the Notes (including any PIK Interest) will have an interest rate equal to LIBOR (as defined in the Revenue Sharing Agreement) plus 2% per annum, (3% at December 31, 2015 and 2014); provided that upon and during the continuance of an Event of Default (as set forth in the Revenue Sharing Agreement), the interest rate will increase an additional 2% per annum. Interest may be paid in cash at the option of the Company and otherwise shall be paid by increasing the principal amount of the Notes by the amount of such interest (“PIK Interest”). The principal balance of the Notes and all unpaid interest thereon will be due the earlier of receipt of Monetization Revenues or on June 30, 2020. The Company may prepay the Notes from time to time in whole or in part, without penalty or premium. During the years ended December 31, 2015 and December 31, 2014, $7,700,000 and $900,000, respectively, of notes payable were issued to AND34. Amounts reported as current maturities of long-term debt reflect amount expected to be paid in the next twelve months.

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Other Current Liabilities

12 Months Ended

Dec. 31, 2015

Other Current Liabilities [Abstract]

OTHER CURRENT LIABILITIES

7. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	December 31,
	2015		2014
Accrued payroll and related expenses	$	347,798	$	19,161
Accrued patent monetization expenses		1,230,314		415,000
Accrued professional and other service fees		62,721		30,315
	$	1,640,833	$	464,476

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Series C Convertible Preferred Stock

12 Months Ended

Dec. 31, 2015

Series C Convertible Preferred Stock [Abstract]

SERIES C CONVERTIBLE PREFERRED STOCK

8. SERIES C 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 $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 Company’s 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 December 31, 2015, 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.

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Series D Convertible Preferred Stock

12 Months Ended

Dec. 31, 2015

Series D Convertible Preferred Stock [Abstract]

SERIES D CONVERTIBLE PREFERRED STOCK

9. SERIES D 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 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 Company’s 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 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 December 31, 2015, there were 907,144 shares of Series D Preferred Stock outstanding which were convertible into 3,628,576 shares of Common Stock.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

INCOME TAXES

10. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of January 1, 2014 and during the years ended December 31, 2015 and 2014.

The Company has identified its federal tax return and its state tax return in New York as "major" tax jurisdictions, as defined in ASC 740. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. 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 consolidated financial position.

The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the year ended December 31, 2015. For the year ended December 31, 2015, the Company determined that, more likely than not, its deferred tax assets would be not be realized and, accordingly, increased the valuation allowance. The increase in the valuation allowance is included in the income tax provision in the accompanying consolidated statement of operations for the year ended December 31, 2015. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The provision for income tax consists of the following:

	For the Years Ended December 31,
	2015			2014
Current:
Federal	$	8,141		$	38,000
Foreign		146,372			176,136
State and Local		-			-
Total Current		154,513			214,136
Deferred
Federal		(1,269,000	)		(1,003,000	)
Foreign		-			-
State and Local		(187,000	)		(147,000	)
Adjustment to valuation allowance related to net deferred tax assets		1,456,000			1,150,000
Total Deferred		-			-
Provision for income taxes	$	154,513		$	214,136

The provision for income taxes for the year ended December 31, 2015 of approximately $154,000. Approximately $146,000 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 while approximately $8,000 is the result of certain alternative minimum taxes. The provision related to foreign taxes is deductible, while the provision relating to alternative minimum taxes is able to be offset by future tax benefits. Since the Company records a full valuation against deferred tax assets, the provision relating to alternative minimum taxes of approximately $8,000 will not be reduced by such future tax benefits. The provision for income taxes for the year ended December 31, 2014 of approximately $214,000. Approximately $176,000 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 while approximately $38,000 is the result of certain alternative minimum taxes.

Income (loss) before income taxes is comprised of the following:

	For the Years Ended December 31,
	2015		2014
Foreign	$	2,466,823	$	(3,568,897	)
Domestic		731,860		890,440
Net income (loss) before income taxes	$	3,198,683	$	(2,678,457	)

A reconciliation between the effective rate for income taxes and the amount computed by applying the statutory Federal income tax rate to income (loss) before provision for income taxes is as follows:

	For the Years Ended December 31,
	2015		2014
Tax provision at statutory rate	34	%	(34	)%
State and local taxes	5	%	(5	)%
Foreign taxes	5	%	7	%
Foreign tax deduction	1	%	-	%
Incentive Stock Option Expense	(1	)%	-	%
Change in valuation allowance for net deferred tax assets	(39	)%	40	%
	5	%	8	%

The components of temporary differences that give rise to significant portions of the deferred tax asset, net, are as follows:

	For the Years Ended December 31,
	2015			2014
Deferred tax assets:
Accrued expenses	$	361,000		$	35,000
Allowance for doubtful accounts		6,000			7,000
Deferred Revenue		2,000			3,000
Reserve for obsolescence		72,000			109,000
Expense associated with non-qualified stock options		115,000			100,000
Revenue Sharing Agreement		681,000			1,781,000
General business credit		1,258,000			1,156,000
NOL carryforward		15,139,000			12,987,000
		17,634,000			16,178,000
Less: valuation allowance		(17,634,000	)		(16,178,000	)
Deferred tax asset, net	$	-		$	-

The change in the valuation allowance for deferred tax assets are summarized as follows:

	For the Years Ended December 31,
	2015		2014
Beginning Balance	$	16,178,000	$	15,028,000
Change in Allowance		1,456,000		1,150,000
Ending Balance	$	17,634,000	$	16,178,000

As of December 31, 2015, Andrea had net operating loss and credit carryforwards of approximately $38.8 million expiring in varying amounts beginning in 2018 through 2033. Andrea has General Business Credits of approximately $1.3 million expiring in varying amounts beginning in 2016 through 2030. 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.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Leases

In May 2015, Andrea entered into a new lease for its new corporate headquarters located in Bohemia, New York, where Andrea leases space for research and development, sales and executive offices from an unrelated party. The lease is for approximately 3,000 square feet and expires in October 2020. The rent expense under this operating lease was $13,125 for the year ended December 31, 2015. The monthly rent under this lease is $2,625 with annual escalations of 3.5%.

Andrea’s previous corporate headquarters were located in Bohemia, New York. The lease from an unrelated party, which expired in May 2015, was for approximately 11,000 square feet and housed Andrea’s warehousing, sales and executive offices. Rent expense under Andrea’s previous operating lease was $37,676 and $99,718 for the years ended December 31, 2015 and 2014, respectively.As of December 31, 2015, the minimum annual future lease payments, under this lease and all other noncancellable operating leases, are as follows:

2016		54,365
2017		44,124
2018		38,700
2019		39,912
2020		30,856
Total	$	207,95

Employment Agreements

In August 2014, the Company entered into an employment agreement with Mr. Andrea. The effective date of the employment agreement is August 1, 2014 and expires July 31, 2016 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 $300,000. The employment agreement provides for quarterly bonuses equal to 5% of the Company’s pre-bonus net after tax quarterly earnings for a total quarterly bonus amount not to exceed $12,500; and annual bonuses equal to 9% of the Company’s annual pre-bonus net after tax earnings in excess of $300,000 up to $3,000,000, and 3% of the Company’s annual pre-bonus adjusted net after tax earnings in excess of $3,000,000. 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 Company’s 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 three times the three year average of the cash incentive compensation paid or accrued as of the date of termination, continuation of health and medical benefits for three years and immediate vesting of all stock options in the event of a change in control during the term of his agreement and subsequent termination of his employment within two years following the change of control. In the event of his termination without cause or resignation with the Company’s consent, Mr. Andrea is entitled to a severance payment equal to six months of his base salary, plus the six months prorated portion of his most recent annual and quarterly bonuses, and a continuation of health insurance coverage for Mr. Andrea, his spouse and his dependents for 12 months. At December 31, 2015, the future minimum cash commitments under this agreement aggregate $398,863.

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. The Company believes the lawsuit is without merit and intends to file a Motion for Summary Judgment to that affect. Accordingly, the Company does not believe the lawsuit will have a material adverse effect on the Company’s financial position or results of operations.

In July 2014, Andrea filed three complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer Inc. and related entities ("Acer"), Lenovo Group Ltd. and related entities ("Lenovo"), and Toshiba Corp. and related entities ("Toshiba"), and requesting monetary and injunctive relief. Acer, Lenovo, and Toshiba answered Andrea's complaints on October 20, 2014. Lenovo also asserted counterclaims which Andrea answered on November 10, 2014. Andrea also filed First Amended Complaints in these actions on November 10, 2014 which Acer, Lenovo, and Toshiba answered on November 24, 2014. Lenovo also asserted counterclaims which Andrea answered on December 15, 2014. All of these cases were stayed on March 23, 2015 due to Andrea’s complaint with the International Trade Commission (“ITC”) against these parties. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 19, 2016.

In January 2015, Andrea filed seven complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Acer, ASUSTeK Computer Inc. and related entities ("Asus"), Dell Inc. ("Dell"), Hewlett-Packard Co. ("HP"), Lenovo, Realtek Semiconductor Corp. ("Realtek"), and Toshiba, and requesting monetary and injunctive relief. Lenovo answered Andrea's complaint on February 10, 2015. Lenovo also asserted counterclaims which Andrea answered on March 3, 2015. The other defendants have not yet answered Andrea's complaint. All of these cases except for the case against Realtek were also stayed on March 23, 2015 due to Andrea’s complaint with the ITC against these parties. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for dismissal of Andrea’s action against Realtek in the Eastern District of New York. Andrea and Realtek’s stipulation of dismissal was granted on December 22, 2015. Andrea and Acer settled their disputes and filed a stipulation of dismissal which was granted on January 27, 2016. Andrea and HP settled their disputes and filed a stipulation of dismissal which was granted on February 5, 2016. Andrea and Asus settled their disputes and filed a stipulation of dismissal which was granted on February 23, 2016.

In February 2015, Andrea filed a complaint with the ITC, alleging patent infringement and unfair competition against Acer, Asus, Dell, HP, Lenovo, Realtek, and Toshiba (the “ITC Respondents”), and requesting injunctive relief. The ITC instituted an investigation on March 12, 2015. The ITC Respondents answered Andrea's complaint on April 6, 2015. On July 2, 2015, Conexant Systems, Inc. (“Conexant”) filed a motion to intervene in the Investigation. On July 14, 2015, Waves Audio, Ltd. (“Waves”) filed a motion to intervene in the investigation. The Administrative Law Judge (“ALJ”) granted Conexant and Waves’ motions to intervene on August 7, 2015. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek moved to partially terminate the ITC Investigation with respect to certain of Andrea’s claims pertaining to Realtek and its products. That motion was granted by the ALJ on November 6, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Acer settled their disputes and filed a motion to terminate Acer from the investigation, which was granted by the ALJ on November 25, 2015. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and HP settled their disputes and filed a motion to terminate HP from the investigation, which was granted by the ALJ on January 12, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Asus settled their disputes and filed a motion to terminate Asus from the investigation, which was granted by the ALJ on February 4, 2016. The ITC chose not to review the ALJ’s initial determination granting that motion. Andrea and Lenovo settled their disputes and filed a motion to terminate Lenovo from the investigation, which was granted by the ALJ on February 23, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Conexant settled their disputes and filed a motion to terminate Conexant from the investigation, which was granted by the ALJ on March 7, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea and Waves settled their disputes and filed a motion to terminate Waves and Dell from the investigation, which was granted by the ALJ as to Waves only on March 18, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination partially granting that motion. Andrea and Toshiba settled their disputes and filed a motion to terminate Toshiba from the investigation, which was granted by the ALJ on March 18, 2016. The ITC has not yet decided whether to review the ALJ’s initial determination granting that motion. Andrea filed a motion to terminate Dell from the investigation on March 25, 2016, which has not yet been ruled upon by the ALJ.

In July 2015, Realtek filed six (6) petitions for inter partes review of the Andrea patents asserted in the District Court and ITC litigation proceedings with the United States Patent and Trademark Office (“PTO”). Also in July 2015, Realtek filed a Complaint with the United States District Court for the Northern District of California, alleging breach of contract and seeking declaratory judgment against Andrea. In October 2015, Andrea and Realtek reached a settlement agreement, resolving all disputes between the parties, and as a part of that agreement, Andrea and Realtek agreed to move for termination of those proceedings. Andrea and Realtek have since filed motions to terminate all six (6) inter partes review proceedings, and on November 3, 2015, the PTO granted all six (6) of those motions and terminated all six (6) of the inter partes reviews of Andrea’s patents.

In January 2016, Waves filed three (3) petitions for inter partes review of certain Andrea patents asserted in the District Court and ITC litigation proceedings with the PTO. Andrea and Waves have since filed motions to terminate all three (3) inter partes review proceedings. The PTO has not yet ruled on those motions.

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Stock Plans and Stock-Based Compensation

12 Months Ended

Dec. 31, 2015

Stock Plans and Stock-Based Compensation [Abstract]

STOCK PLANS AND STOCK-BASED COMPENSATION

12. 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, authorizes the granting of awards, the exercise of which would allow up to an aggregate of 6,375,000 shares of Andrea’s 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, deferred stock, stock reload options or other stock-based awards. Awards may 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 Andrea’s 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 December 31, 2015, there were 1,677,436 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 Company’s 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 the weighted-average assumptions noted in the following table. Expected volatilities are based on implied volatilities from historical volatility of the Company’s 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.During the year ended December 31, 2015, Andrea granted 600,000 shares of common stock options with a weighted average fair market fair of $0.06 per share. The grants provide for up to a three-year vesting period, a weighted average exercise price of $0.06 per share, which was the fair market value of the Company’s common stock at the date of grant and a weighted average expected life of 8 years. The fair values of the 600,000 stock options granted was $38,000 which was estimated on the date of grant using the Black-Scholes option-pricing model that uses the following weighted-average assumptions for the year ended December 31, 2015:

During the year ended December 31, 2014, Andrea granted 2,200,000 shares of common stock options with a weighted average fair market fair of $0.08 per share. The grants provide for up to a three-year vesting period, a weighted average exercise price of $0.08 per share, which was the fair market value of the Company’s common stock at the date of grant and a weighted average expected life of 8 years. The fair values of the 2,200,000 stock options granted was $185,000 which was estimated on the date of grant using the Black-Scholes option-pricing model that uses the following weighted-average assumptions for the year ended December 31, 2014:

	December 31,		December 31,
	2015		2014
Expected life in years (based on simplified method)	8 years		8 years
Risk-free interest rates	2.04	%	2.10	%
Volatility (based on historical volatility)	205.3	%	203.0	%
Dividend yield	0	%	0	%

Option activity during 2015 is summarized as follows:

	Options Outstanding							Options Exercisable
							Weighted						Weighted
			Weighted		Weighted		Average		Weighted		Weighted		Average
			Average		Average		Remaining		Average		Average		Remaining
	Options		Exercise		Fair		Contractual	Options	Exercise		Fair		Contractual
	Outstanding		Price		Value		Life	Exercisable	Price		Value		Life
At January 1, 2015	18,534,821		$	0.08	$	0.08	3.92 years	16,317,821	$	0.08	$	0.08	3.13 years
Cancelled/Expired	(1,510,000	)	$	0.05	$	0.05
Exercised	(695,000	)	$	0.05	$	0.05
Granted	600,000		$	0.06	$	0.06
At December 31, 2015	16,929,821		$	0.09	$	0.08	3.56 years	14,895,122	$	0.09	$	0.08	2.85 years

During the year ended December 31, 2015, 782,301 options vested with a weighted average exercise price of $0.09 and a weighted average fair value of $0.09 per option. Based on the December 31, 2015, fair market value of the Company’s common stock of $0.07 per share, the aggregate intrinsic value of the 16,929,821 options outstanding and 14,895,122 shares exercisable is $151,900 and $146,900, respectively. The aggregate intrinsic value of options exercised was $14,250 for the years ended December 31, 2015.

Total compensation expense recognized related to stock option awards was $113,167 and $42,574 for the year ended December 31, 2015 and 2014, respectively. In the accompanying consolidated statement of operations for the year ended December 31, 2014, $91,774 of expense is included in general, administrative and selling expenses and $21,393 is included in research and development expenses. In the accompanying consolidated statement of operations for the year ended December 31, 2014, $36,382 of expense is included in general, administrative and selling expenses and $6,192 is included in research and development expenses.

As of December 31, 2015, there was $79,010 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2006 Plan. This unrecognized compensation cost is expected to be recognized over the next 3 years ($56,404 in 2016, $20,660 in 2017 and $1,946 in 2018).

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Segment Information

12 Months Ended

Dec. 31, 2015

Segment Information [Abstract]

SEGMENT INFORMATION

13. SEGMENT INFORMATION

Andrea follows the provisions of ASC 280 “Segment Reporting” (“ASC 280”). Reportable operating segments are determined based on Andrea’s 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 Andrea’s results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker manages the enterprise in two segments: (i) Patent Monetization; and (ii) Andrea DSP Microphone and Audio Software Products. Patent Monetization includes Monetization Revenues (as defined in our Revenue Sharing Agreement). 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. The following represents selected consolidated financial information for Andrea’s segments for the years ended December 31, 2015 and 2014:

			Andrea DSP
			Microphone and
	Patent		Audio Software
2015 Twelve Month Segment Data	Monetization		Products			Total 2015
Net product revenues	$	-	$	388,298		$	388,298
License revenues		12,104,958		741,626			12,846,584
Income (loss) from operations		3,595,645		(908,432	)		2,687,213
Depreciation and amortization		28,835		54,286			83,121
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		14,434		14,434			28,868
Assets		2,278,587		6,282,269			8,560,856
Total long lived assets		172,677		259,642			432,319

			Andrea DSP
			Microphone and
	Patent		Audio Software
2014 Twelve Month Segment Data	Monetization		Products			Total 2014
Net product revenues	$	-	$	326,647		$	326,647
License revenues		4,557		892,358			896,915
Loss (income) from operations		2,463,461		(149,831	)		2,313,630
Depreciation and amortization		22,023		40,597			62,620
Purchases of patents and trademarks		46,047		46,046			92,093
Assets		187,078		4,384,542			4,571,620
Total long lived assets		187,078		281,051			468,129

Management of Andrea assesses assets and 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 years ended December 31, 2015 and 2014, and as of each respective year-end, total revenues and accounts receivable by geographic area are as follows:

Geographic Data	2015		2014
Total Revenues:
United States	$	2,498,721	$	191,103
Foreign(1)		10,736,161		1,032,459
	$	13,234,882	$	1,223,562
Accounts receivable:
United States	$	1,788,500	$	40,546
Foreign		113,888		198,268
	$	1,902,388	$	238,814

(1) Total revenue from the People’s Republic of China and Singapore represented 81% and 84% of total revenues for the year ended December 31, 2015 and 2014, respectively.

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Sale of Andrea Anti-Noise Products Division

12 Months Ended

Dec. 31, 2015

Sale of Andrea Anti-Noise Products Division [Abstract]

Sale of Andrea Anti-Noise Products Division

14. SALE OF ANDREA ANTI-NOISE PRODUCTS DIVISION

On April 2, 2015, Andrea Electronics Corporation consummated the transactions contemplated by the Asset Purchase Agreement, by and between Andrea Electronics Corporation and Andrea Communications LLC dated March 27, 2015. Under the Asset Purchase Agreement, the Company sold its Anti-Noise Products Division (the “Division”) and certain related assets for a selling price of $900,000 which included a cash payment of $300,000 and a note receivable of $600,000 payable in 18 equal monthly installments of $34,757 including interest at a rate of 3.25% per annum beginning in October 2015. In addition, under the Asset Purchase Agreement the Company is entitled to receive an additional $100,000 in the event that the revenues derived from Andrea Communications LLC’s operation of the Division exceed certain thresholds over a specified time period, as defined in the Asset Purchase Agreement. Accordingly, the results of operations, the assets and liabilities of the Division are presented as discontinued operations for both current and prior periods.

The following table reflects the results of the discontinued operations of the Division’s business segment for the years ended December 31, 2015 and 2014 and as of December 31, 2015 and December 31, 2014, respectively:

	December 31, 2015			December 31, 2014
Operations
Net Revenues	$	662,135			1,563,014
Cost of Sales		596,565			951,530
Gross margin		65,570			611,484
Research and Development Expenses		18,746			240,382
General, administrative and selling expenses		349,960			735,655
Gain on sale of Anti-Noise Products Division		(879,612	)		-
Income (loss) from discontinued operations	$	576,476		$	(364,553	)
	December 31, 2015			December 31, 2014
Assets
Accounts Receivable, net	$	27,303		$	56,411
Inventories, net		122,443			339,232
Property and equipment, net		-			22,927
Assets from discontinued operations	$	149,746		$	418,570
Liabilities
Trade accounts payable	$	-		$	107,228
Other current liabilities		40,075			44,066
Liabilities from discontinued operations	$	40,075		$	151,294

The assets that were sold consisted of property and equipment, resulting in a gain on sale of approximately $880,000.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Andrea and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Loss Per Share

Loss Per Share

Basic income (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. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). 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:

	December 31,
	2015		2014
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 12)		11,399,821		18,534,821
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		-		2,023,658
Series D Convertible Preferred Stock (Note 9)		-		3,628,576
Total potentially dilutive common shares		11,399,821		24,187,055
	December 31,
	2015		2014
Numerator:
Net income (loss)	$	3,044,170	$	(2,892,593	)
Denominator:
Basic Weighted average shares		64,000,309		63,721,035
Effect of dilutive securities:
Stock options		2,277,435		-
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		2,023,658		-
Series D Convertible Preferred Stock (Note 9)		3,628,576		-
Denominator for diluted income (loss) per share-adjusted weighted average
shares after assumed conversions		71,929,978		63,721,035

Cash

Cash

Cash includes cash and highly liquid investments with original maturities of three months or less. At times during the years ended December 31, 2015 and 2014, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At December 31, 2015, the Company’s cash was held at four financial institutions.

Concentration of Risk

Concentration of Risk

The following customer accounted for 10% or more of Andrea’s consolidated total revenues during at least one of the periods presented below:

	December 31,
	2015		2014
Customer A	81	%	72	%
Customer B	13	%	*

____________________

* Amounts are less than 10%

Customer A accounted for approximately 6% and 67% of accounts receivable at December 31, 2015 and 2014, respectively. Customer B accounted for approximately 92% of accounts receivable at December 31, 2015.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s 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.

Inventories

Inventories

Inventories 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 charges in inventory reserves as part of cost of revenues.

Property and Equipment

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets ranging from 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.

Expenditures for maintenance and repairs that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Improvements that substantially extend the useful lives of the assets are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in the statement of operations.

Other Intangible Assets

Other Intangible Assets

Andrea amortizes its core technology and patents and trademarks on a straight-line basis over their estimated useful lives that range from 10 to 20 years.

Long-Lived Assets

Long-Lived Assets

Andrea accounts for its long-lived assets in accordance with Statement of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 360 “Plant, Property and Equipment, ” for purposes of determining and measuring impairment of its long-lived assets (primarily intangible assets) other than goodwill. Andrea’s policy is to review the value assigned to its long lived assets to determine if they have been permanently impaired by adverse conditions which may affect Andrea whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If Andrea identifies a permanent impairment such that the carrying amount of Andrea’s long lived assets is not recoverable using the sum of an undiscounted cash flow projection (gross margin dollars from product sales), the impaired asset is adjusted to its estimated fair value, based on an estimate of future discounted cash flows which becomes the new cost basis for the impaired asset. 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 December 31, 2015 and 2014.

Revenue Recognition

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.

Income Taxes

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 Company’s 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. As of December 31, 2015 the Company has recorded a full valuation allowance. 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 management’s 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 taxes payable for the period, withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned 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 Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated interim financial statements. The Company's evaluation was performed for tax years ended 2012 through 2015. 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

Stock-Based Compensation

At December 31, 2015, Andrea had two stock-based employee compensation plans, which are described more fully in Note 11. 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, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s 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.

Research and Development

Research and Development

Andrea expenses all research and development costs as incurred.

Advertising Expenses

Advertising Expenses

In accordance with ASC 720 all media costs of newspaper and magazine advertisements as well as trade show costs are expensed as incurred. Total advertising and marketing expenses for the years ended December 31, 2015 and 2014 were approximately $11,000 and $2,000, respectively and are included in general, administrative and selling expenses.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about payments to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 applies to all assets and liabilities that are measured and reported on a fair value basis.

The Company will apply the provisions of ASC 820 to nonfinancial assets and liabilities. Andrea calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the book value of those financial instruments. When the book value approximates fair value, no additional disclosure is made. Andrea uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, Andrea uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. As of December 31, 2015 and 2014, the carrying value of all financial instruments approximated fair value.

Use of Estimates

Use of Estimates

The preparation of the consolidated 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 consolidated 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 Company’s convertible preferred stock. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods beginning after December 15, 2016. On July 9, 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before the annual periods beginning after December 15, 2016. A public organization would apply the new revenue standard to all interim reporting periods within the year of adoption. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for fiscal years and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. ASU 2015-17 may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. The Company is currently evaluating the impact this standard will have on its financial statements.

In January 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss.

Subsequent Events

Subsequent Events

The Company evaluates events that occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, other than Note 11, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Summary of Antidilutive securities excluded from computation of earnings per share

	December 31,
	2015		2014
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 12)		11,399,821		18,534,821
Series C Convertible Preferred Stock and related accrued dividends (Note 8)		-		2,023,658
Series D Convertible Preferred Stock (Note 9)		-		3,628,576
Total potentially dilutive common shares		11,399,821		24,187,055

Schedule of computation of computation of the diluted earnings per share

	December 31,
		2015		2014
Numerator:
Net income (loss)		$	3,044,170	$	(2,892,593	)
Denominator:
Basic Weighted average shares			64,000,309		63,721,035
Effect of dilutive securities:
Stock options			2,277,435		-
Series C Convertible Preferred Stock and related accrued dividends (Note 8)			2,023,658		-
Series D Convertible Preferred Stock (Note 9)			3,628,576		-
Denominator for diluted income (loss) per share-adjusted weighted average
shares after assumed conversions			71,929,978		63,721,035

Summary of Concentration of credit risk, Customer as a percentage of revenues

	December 31,
	2015		2014
Customer A	81	%	72	%
Customer B	13	%	*

____________________

* Amounts are less than 10%

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2015

Intangible Assets [Abstract]

Summary of Intangible assets

	December 31,
	2015			2014
Core Technology	$	8,567,448		$	8,567,448
Patents and trademarks		861,241			832,373
		9,428,689			9,399,821
Less: accumulated amortization		(9,083,330	)		(9,025,664	)
	$	345,359		$	374,157

Schedule of changes in the carrying amount of intangible assets

	Patents and
	Trademarks
Balance as of January 1, 2014	$	326,109
Additions during the period		92,093
Amortization		(44,045	)
Balance as of December 31, 2014	$	374,157
Additions during the period		28,868
Amortization		(57,666	)
Balance as of December 31, 2015	$	345,359

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Inventories, Net (Tables)

12 Months Ended

Dec. 31, 2015

Inventories, net [Abstract]

Summary of Inventories, net

	December 31,
	2015			2014
Raw materials	$	21,253		$	15,852
Finished goods		152,050			330,240
		173,303			346,092
Less: reserve for obsolescence		(115,275	)		(129,756	)
	$	58,028		$	216,336

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Property and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2015

Property and Equipment, Net [Abstract]

PROPERTY AND EQUIPMENT, net

	December 31,
	2015			2014
Information Technology Equipment	$	258,715		$	240,272
Furniture and fixtures		87,958			87,958
Tools, molds and testing equipment		189,333			189,333
		536,006			517,563
Less: accumulated depreciation and amortization		(449,046	)		(423,591	)
	$	86,960		$	93,972

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Revenue Sharing, Note Purchase Agreement, and Long-Term Debt (Tables)

12 Months Ended

Dec. 31, 2015

Revenue Sharing Note Purchase Agreement and Long-Term Debt [Abstract]

Schedule of advance from revenue sharing agreement

	December 31,
	2015			2014
Advance from Revenue Sharing Agreement	$	312,067		$	3,500,000
Less: short-term Advance from Revenue Sharing Agreement		(196,477	)		-
Long-term Advance from Revenue Sharing Agreement, net of short-term
Advance from Revenue Sharing Agreement	$	115,590		$	3,500,000

Schedule of long-term debt

	December 31,
	2015			2014
Note Payable	$	1,900,000		$	900,000
PIK interest		775			9,875
Total long-term debt		1,900,775			909,875
Less: current maturities of long-term debt		(1,900,775	)		-
Long-term debt, net of current maturities	$	-		$	909,875

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Other Current Liabilities (Tables)

12 Months Ended

Dec. 31, 2015

Other Current Liabilities [Abstract]

Summary of other current liabilities

	December 31,
	2015		2014
Accrued payroll and related expenses	$	347,798	$	19,161
Accrued patent monetization expenses		1,230,314		415,000
Accrued professional and other service fees		62,721		30,315
	$	1,640,833	$	464,476

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

Schedule of provision for income tax

	For the Years Ended December 31,
	2015			2014
Current:
Federal	$	8,141		$	38,000
Foreign		146,372			176,136
State and Local		-			-
Total Current		154,513			214,136
Deferred
Federal		(1,269,000	)		(1,003,000	)
Foreign		-			-
State and Local		(187,000	)		(147,000	)
Adjustment to valuation allowance related to net deferred tax assets		1,456,000			1,150,000
Total Deferred		-			-
Provision for income taxes	$	154,513		$	214,136

Schedule of income (loss) before income taxes

	For the Years Ended December 31,
	2015		2014
Foreign	$	2,466,823	$	(3,568,897	)
Domestic		731,860		890,440
Net income (loss) before income taxes	$	3,198,683	$	(2,678,457	)

Schedule of effective income tax rate reconciliation

	For the Years Ended December 31,
	2015		2014
Tax provision at statutory rate	34	%	(34	)%
State and local taxes	5	%	(5	)%
Foreign taxes	5	%	7	%
Foreign tax deduction	1	%	-	%
Incentive Stock Option Expense	(1	)%	-	%
Change in valuation allowance for net deferred tax assets	(39	)%	40	%
	5	%	8	%

Schedule of components of temporary differences of deferred tax asset, net

	For the Years Ended December 31,
	2015			2014
Deferred tax assets:
Accrued expenses	$	361,000		$	35,000
Allowance for doubtful accounts		6,000			7,000
Deferred Revenue		2,000			3,000
Reserve for obsolescence		72,000			109,000
Expense associated with non-qualified stock options		115,000			100,000
Revenue Sharing Agreement		681,000			1,781,000
General business credit		1,258,000			1,156,000
NOL carryforward		15,139,000			12,987,000
		17,634,000			16,178,000
Less: valuation allowance		(17,634,000	)		(16,178,000	)
Deferred tax asset, net	$	-		$	-

Schedule of change in valuation allowance for deferred tax assets

	2015		2014
Beginning Balance	$	16,178,000	$	15,028,000
Change in Allowance		1,456,000		1,150,000
Ending Balance	$	17,634,000	$	16,178,000

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies [Abstract]

Summary of minimum annual future lease payments under operating leases

2016		54,365
2017		44,124
2018		38,700
2019		39,912
2020		30,856
Total	$	207,957

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Stock Plans and Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2015

Stock Plans and Stock-Based Compensation [Abstract]

Schedule of estimated on the date of grant using the Black-Scholes option-pricing model

	December 31,		December 31,
	2015		2014
Expected life in years (based on simplified method)	8 years		8 years
Risk-free interest rates	2.04	%	2.10	%
Volatility (based on historical volatility)	205.3	%	203.0	%
Dividend yield	0	%	0	%

Summary of stock option activity

	Options Outstanding							Options Exercisable
							Weighted						Weighted
			Weighted		Weighted		Average		Weighted		Weighted		Average
			Average		Average		Remaining		Average		Average		Remaining
	Options		Exercise		Fair		Contractual	Options	Exercise		Fair		Contractual
	Outstanding		Price		Value		Life	Exercisable	Price		Value		Life
At January 1, 2015	18,534,821		$	0.08	$	0.08	3.92 years	16,317,821	$	0.08	$	0.08	3.13 years
Cancelled/Expired	(1,510,000	)	$	0.05	$	0.05
Exercised	(695,000	)	$	0.05	$	0.05
Granted	600,000		$	0.06	$	0.06
At December 31, 2015	16,929,821		$	0.09	$	0.08	3.56 years	14,895,122	$	0.09	$	0.08	2.85 years

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Segment Information (Tables)

12 Months Ended

Dec. 31, 2015

Segment Information [Abstract]

Summary of consolidated financial information for Andrea's segments

			Andrea DSP
			Microphone and
	Patent		Audio Software
2015 Twelve Month Segment Data	Monetization		Products			Total 2015
Net product revenues	$	-	$	388,298		$	388,298
License revenues		12,104,958		741,626			12,846,584
Income (loss) from operations		3,595,645		(908,432	)		2,687,213
Depreciation and amortization		28,835		54,286			83,121
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		14,434		14,434			28,868
Assets		2,278,587		6,282,269			8,560,856
Total long lived assets		172,677		259,642			432,319

			Andrea DSP
			Microphone and
	Patent		Audio Software
2014 Twelve Month Segment Data	Monetization		Products			Total 2014
Net product revenues	$	-	$	326,647		$	326,647
License revenues		4,557		892,358			896,915
Loss (income) from operations		2,463,461		(149,831	)		2,313,630
Depreciation and amortization		22,023		40,597			62,620
Purchases of patents and trademarks		46,047		46,046			92,093
Assets		187,078		4,384,542			4,571,620
Total long lived assets		187,078		281,051			468,129

Summary of net revenues by geographic area

Geographic Data	2015		2014
Total Revenues:
United States	$	2,498,721	$	191,103
Foreign(1)		10,736,161		1,032,459
	$	13,234,882	$	1,223,562
Accounts receivable:
United States	$	1,788,500	$	40,546
Foreign		113,888		198,268
	$	1,902,388	$	238,814

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Sale of Andrea Anti-Noise Products Division (Tables)

12 Months Ended

Dec. 31, 2015

Sale of Andrea Anti-Noise Products Division [Abstract]

Schedule of discontinued operations of the Division's business segment

	December 31, 2015			December 31, 2014
Operations
Net Revenues	$	662,135			1,563,014
Cost of Sales		596,565			951,530
Gross margin		65,570			611,484
Research and Development Expenses		18,746			240,382
General, administrative and selling expenses		349,960			735,655
Gain on sale of Anti-Noise Products Division		(879,612	)		-
Income (loss) from discontinued operations	$	576,476		$	(364,553	)
	December 31, 2015			December 31, 2014
Assets
Accounts Receivable, net	$	27,303		$	56,411
Inventories, net		122,443			339,232
Property and equipment, net		-			22,927
Assets from discontinued operations	$	149,746		$	418,570
Liabilities
Trade accounts payable	$	-		$	107,228
Other current liabilities		40,075			44,066
Liabilities from discontinued operations	$	40,075		$	151,294

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Summary of Significant Accounting Policies (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares	11,399,821	24,187,055
Stock options to purchase common stock [Member]
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares	11,399,821	18,534,821
Series C Convertible Preferred Stock and related accrued dividends [Member]
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares		2,023,658
Series D Convertible Preferred Stock [Member]
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares		3,628,576

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Summary of Significant Accounting Policies (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Numerator:
Net income (loss)	$ 3,044,170	$ (2,892,593)
Denominator:
Basic Weighted average shares	64,000,309	63,721,035
Effect of dilutive securities:
Denominator for diluted income (loss) per share-adjusted weighted average shares after assumed conversions	71,929,978	63,721,035
Stock options [Member]
Effect of dilutive securities:
Stock options	2,277,435
Series C Convertible Preferred Stock and related accrued dividends [Member]
Effect of dilutive securities:
Convertible Preferred Stock	2,023,658
Series D Convertible Preferred Stock [Member]
Effect of dilutive securities:
Convertible Preferred Stock	3,628,576

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Summary of Significant Accounting Policies (Details 2) - Revenue [Member]	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Customer A [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage	81.00%	72.00%
Customer B [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage	13.00%		[1]

[1] Amounts are less than 10%

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Summary of Significant Accounting Policies (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of significant accounting policies (Textual)
Impairment charges
Advertising Expense	$ 11,000	$ 2,000
Underlying asset lease term, Description	A term of 12 months or less
Minimum [Member]
Summary of significant accounting policies (Textual)
Estimated useful life of property and equipment	3 years
Minimum [Member] | Patents and trademarks [Member]
Summary of significant accounting policies (Textual)
Estimated useful life of intangible assets	10 years
Maximum [Member]
Summary of significant accounting policies (Textual)
Estimated useful life of property and equipment	10 years
Maximum [Member] | Patents and trademarks [Member]
Summary of significant accounting policies (Textual)
Estimated useful life of intangible assets	20 years
Net revenue [Member]
Summary of significant accounting policies (Textual)
Concentration Risk, Customer	10% or more	10% or more
Customer A [Member] | Accounts Receivable [Member]
Summary of significant accounting policies (Textual)
Concentration risk percentage	6.00%	67.00%
Customer B [Member] | Accounts Receivable [Member]
Summary of significant accounting policies (Textual)
Concentration risk percentage	92.00%

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Intangible Assets (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of finite lived Intangible assets
Intangible assets, Gross	$ 9,428,689	$ 9,399,821
Less: accumulated amortization	(9,083,330)	(9,025,664)
Intangible assets, net	345,359	374,157	$ 326,109
Core Technology [Member]
Summary of finite lived Intangible assets
Intangible assets, Gross	8,567,448	8,567,448
Patents and trademarks [Member]
Summary of finite lived Intangible assets
Intangible assets, Gross	$ 861,241	$ 832,373

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Intangible Assets (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of changes the carrying amount of finite lived intangible assets of Patents and Trademarks
Balance	$ 374,157	$ 326,109
Additions during the period	28,868	92,093
Amortization	(57,666)	(44,045)
Ending balance	$ 345,359	$ 374,157

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Intangible Assets (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Intangible assets (Textual)
Amortization	$ (57,666)	$ (44,045)
Estimated amortization expense of intangible assets, Year one	48,000
Estimated amortization expense of intangible assets, Year Two	44,000
Estimated amortization expense of intangible assets, Year Three	41,000
Estimated amortization expense of intangible assets, Year Four	34,000
Estimated amortization expense of intangible assets, Year Five	$ 22,000
Patents and trademarks [Member] | Maximum [Member]
Intangible assets (Textual)
Estimated useful life of intangible assets	20 years
Patents and trademarks [Member] | Minimum [Member]
Intangible assets (Textual)
Estimated useful life of intangible assets	10 years

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Inventories, net (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
INVENTORIES, net
Raw materials	$ 21,253	$ 15,852
Finished goods	152,050	330,240
Inventories, Gross	173,303	346,092
Less: reserve for obsolescence	(115,275)	(129,756)
Inventories, net	$ 58,028	$ 216,336

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Property and Equipment, Net (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 536,006	$ 517,563
Less: accumulated depreciation and amortization	(449,046)	(423,591)
Property and equipment, net	86,960	93,972
Information Technology Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	258,715	240,272
Furniture and fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	87,958	87,958
Tools, molds and testing equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 189,333	$ 189,333

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Property and Equipment, Net (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Property and equipment, net (Textual)
Depreciation and amortization of property and equipment	$ 85,660	$ 115,824
Property, Plant and Equipment [Member]
Property and equipment, net (Textual)
Depreciation and amortization of property and equipment	$ 25,455	$ 54,286

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Revenue Sharing, Note Purchase Agreement, and Long-Term Debt (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Revenue Sharing Note Purchase Agreement and Long-Term Debt [Abstract]
Advance from Revenue Sharing Agreement	$ 312,067	$ 3,500,000
Less: short-term Advance from Revenue Sharing Agreement	196,477
Long-term Advance from Revenue Sharing Agreement, net of short-term Advance from Revenue Sharing Agreement	$ 115,590	$ 3,500,000

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Revenue Sharing, Note Purchase Agreement, and Long-Term Debt (Details 1) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Revenue Sharing Note Purchase Agreement and Long-Term Debt [Abstract]
Note Payable	$ 1,900,000	$ 900,000
PIK interest	$ 775	9,875
Total long-term debt		$ 909,875
Less: current maturities of long-term debt	$ (1,900,775)
Long-term debt, net of current maturities		$ 909,875

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Revenue Sharing, Note Purchase Agreement, and Long-Term Debt (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Revenue Sharing and Note Purchase Agreement (Textual)
Advance from Revenue Sharing Agreement	$ 115,590	$ 3,500,000
Aggregate outstanding amount of note issued for sale		$ 10,700,000
Percentage of revenue applied for payment of accrued and unpaid interest		100.00%
Interest rate	3.00%	3.00%
Increase interest rate		2.00%
Maturity date for notes		Jun. 30, 2020
Notes payable issued to AND34	$ 1,900,000	$ 900,000
Maximum [Member]
Revenue Sharing and Note Purchase Agreement (Textual)
Percentage of revenue allocated to revenue participants		100.00%
Minimum [Member]
Revenue Sharing and Note Purchase Agreement (Textual)
Percentage of revenue allocated to revenue participants		20.00%
London Interbank Offered Rate (LIBOR) [Member]
Revenue Sharing and Note Purchase Agreement (Textual)
Interest rate		2.00%
Description of interest rate	The unpaid principal amount of the Notes (including any PIK Interest) will have an interest rate equal to LIBOR (as defined in the Revenue Sharing Agreement) plus 2% per annum, (3% at December 31, 2015 and 2014); provided that upon and during the continuance of an Event of Default (as set forth in the Revenue Sharing Agreement), the interest rate will increase an additional 2% per annum.

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Other Current Liabilities (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Other Current Liabilities
Accrued payroll and related expenses	$ 347,798	$ 19,161
Accrued patent monetization expenses expenses	1,230,314	415,000
Accrued professional and other service fees	62,721	30,315
Other current liabilities, Total	$ 1,640,833	$ 464,476

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Series C Convertible Preferred Stock (Details) - USD ($)	1 Months Ended	12 Months Ended
	Oct. 10, 2000	Dec. 31, 2015	Dec. 31, 2014
Series C Convertible Preferred Stock (Textual)
Accrued Series C Preferred Stock Dividends		$ 73,921	$ 73,921
Series C Convertible Preferred Stock [Member]
Series C Convertible Preferred Stock (Textual)
Proceed from issuance of private placement	$ 7,500,000
Preferred Stock, value stated	10,000
Increase in stated value of preferred stock	$ 1,671
Additional increase per annum value of preferred stock	5.00%
Preferred stock, conversion price	$ 0.2551	$ 0.2551
Description of additional stated value		Additional amount of $1,671 represents the 5% per annum from October 10, 2000 through February 17, 2004.
Number of common stock shares conversion of preferred stock		2,023,658

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Series D Convertible Preferred Stock (Details) - USD ($)	1 Months Ended		12 Months Ended
	Jun. 04, 2004	Feb. 23, 2004	Dec. 31, 2015	Dec. 31, 2014	Feb. 17, 2004
Series D Convertible Preferred Stock (Textual)
Investment amount under agreement					$ 2,500,000
Preferred stock, shares outstanding
Series D convertible preferred stock [Member]
Series D Convertible Preferred Stock (Textual)
Shares purchased under agreement amount	$ 1,250,000	$ 1,250,000
Shares purchased under agreement shares	1,250,000	1,250,000
Number of common stock for exercise of warrant	2,500,000	2,500,000
Conversion price	$ 0.25	$ 0.25	$ 0.25
Description of 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).
Preferred stock, shares outstanding			907,144
Number of common stock shares conversion of preferred stock	5,000,000	5,000,000	3,628,576
Exercise warrant, period	Warrants were exercisable at any time after December 4, 2004 and before June 4, 2009.	Warrants were exercisable at any time after August 17, 2004.
Warrants, exercise price	$ 0.17	$ 0.38
Warrants expiration date	Jun. 04, 2009	Feb. 23, 2009

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Income Taxes (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Current:
Federal	$ 8,141	$ 38,000
Foreign	$ 146,372	$ 176,136
State and Local
Total Current	$ 154,513	$ 214,136
Deferred
Federal	$ (1,269,000)	$ (1,003,000)
Foreign
State and Local	$ (187,000)	$ (147,000)
Adjustment to valuation allowance related to net deferred tax assets	$ 1,456,000	$ 1,150,000
Total Deferred
Provision for income taxes	$ 154,513	$ 214,136

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Income Taxes (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Schedule of income (loss) before income taxes
Foreign	$ 2,466,823	$ (3,568,897)
Domestic	731,860	890,440
Net income (loss) before income taxes	$ 3,198,683	$ (2,678,457)

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Income Taxes (Details 2)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Schedule of reconciliation between effective income taxes rate and statutory federal tax rate
Tax provision at statutory rate	34.00%	(34.00%)
State and local taxes	5.00%	(5.00%)
Foreign taxes	5.00%	7.00%
Foreign tax deduction	1.00%
Incentive Stock Option Expense	(1.00%)
Change in valuation allowance for net deferred tax assets	(39.00%)	40.00%
Effective income tax rate	5.00%	8.00%

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Income Taxes (Details 3) - USD ($)	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Deferred tax assets:
Accrued expenses	$ 361,000	$ 35,000
Allowance for doubtful accounts	6,000	7,000
Deferred Revenue	2,000	3,000
Reserve for obsolescence	72,000	109,000
Expense associated with non-qualified stock options	115,000	100,000
Revenue Sharing Agreement	681,000	1,781,000
General business credit	1,258,000	1,156,000
NOL carryforward	15,139,000	12,987,000
Deferred tax assets	17,634,000	16,178,000
Less: valuation allowance	$ (17,634,000)	$ (16,178,000)	$ (15,028,000)
Deferred tax asset, net

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Income Taxes (Details 4) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Beginning Balance	$ 16,178,000	$ 15,028,000
Change in Allowance	(1,456,000)	(1,150,000)
Ending Balance	$ 17,634,000	$ 16,178,000

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Income Taxes (Details Textual) - USD ($)

12 Months Ended

Dec. 31, 2015

Dec. 31, 2014

Income Taxes (Textual)

Provision for income taxes

$ 154,513

$ 214,136

Income tax by foreign jurisdiction for licensing revenues

146,372

176,136

Alternative minimum tax

8,000

38,000

Operating loss and credit carryforwards, Net

38,800,000

General business credit

$ 1,258,000

$ 1,156,000

Operating loss and credit carryforwards expiration, Description

Andrea had net operating loss and credit carryforwards of approximately $38.8 million expiring in varying amounts beginning in 2018 through 2033.

General business credits expiration, Description

Andrea General Business Credits of approximately $1.3 million expiring in varying amounts beginning in 2016 through 2030.

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Commitments and Contingencies (Details)	Dec. 31, 2015 USD ($)
Summary of minimum annual future lease payments
2016	$ 54,365
2017	44,124
2018	38,700
2019	39,912
2020	30,856
Total	$ 207,957

XML

Commitments and Contingencies (Details Textual)

1 Months Ended

12 Months Ended

Aug. 01, 2014

USD ($)

May. 31, 2015

SquareFoot

Dec. 31, 2010

Segment

Dec. 31, 2015

USD ($)

SquareFoot

Dec. 31, 2014

USD ($)

Commitments and contingencies (Textual)

Lease expiration date

Oct. 31, 2020

May 31, 2015

Area of warehousing, sales and executive offices (In Square feet) | SquareFoot

3,000

11,000

Rent expense under operating lease

$ 37,676

$ 99,718

Number of defendants | Segment

90

Operating lease , Rental expenses

13,125

Lease and rental expense, Description

The monthly rent under this lease is $2,625 with annual escalations of 3.5%.

Douglas J Andrea [Member]

Commitments and contingencies (Textual)

Term of employment agreement, Description

The effective date of the employment agreement is August 1, 2014 and expires July 31, 2016 and is subject to renewal as approved by the Compensation Committee of the Board of Directors.

Base salary

$ 300,000

Percentage of quarterly bonus

5.00%

Maximum quarterly bonus

$ 12,500

Percentage of annual bonus

9.00%

Annual pre-bonus net after tax earnings, Minimum

$ 300,000

Annual pre-bonus net after tax earnings, Maximum

$ 3,000,000

Percentage of adjusted pre-annual bonus

3.00%

Annual pre-bonus adjusted net after tax earnings, Maximum

$ 3,000,000

Description of employment agreement with Mr. Andrea

Mr. Andrea is also entitled to a change in control payment equal to three times the three year average of the cash incentive compensation paid or accrued as of the date of termination, continuation of health and medical benefits for three years and immediate vesting of all stock options in the event of a change in control during the term of his agreement and subsequent termination of his employment within two years following the change of control. In the event of his termination without cause or resignation with the Company's consent, Mr. Andrea is entitled to a severance payment equal to six months of his base salary, plus the six months prorated portion of his most recent annual and quarterly bonuses, and a continuation of health insurance coverage for Mr. Andrea, his spouse and his dependents for 12 months.

Future minimum cash commitments

$ 398,863

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Stock Plans and Stock-Based Compensation (Details)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Stock Plans and Stock-Based Compensation [Abstract]
Expected life in years (based on simplified method)	8 years	8 years
Risk-free interest rates	2.04%	2.10%
Volatility (based on historical volatility)	205.30%	203.00%
Dividend yield	0.00%	0.00%

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Stock Plans and Stock-Based Compensation (Details 1) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of stock options activity
Options Outstanding, Beginning balance	18,534,821
Options Outstanding, Ending balance	16,929,821	18,534,821
Options Outstanding, Weighted Average Exercise Price, Beginning balance	$ 0.08
Options Outstanding, Weighted Average Exercise Price, Ending balance	0.09	$ 0.08
Options Outstanding, Weighted Average Fair Value, Beginning balance	0.08
Options Outstanding, Weighted Average Fair Value, Ending balance	$ 0.08	$ 0.08
Options Exercisable, Beginning balance	16,317,821
Options Exercisable, Ending balance	14,895,122	16,317,821
Options Exercisable, Weighted Average Exercise Price, Beginning balance	$ 0.08
Options Exercisable, Weighted Average Exercise Price, Ending balance	0.09	$ 0.08
Options Exercisable Weighted Average Fair Value, Beginning balance	0.08
Options Exercisable Weighted Average Fair Value, Ending balance	$ 0.08	$ 0.08
Options [Member]
Summary of stock options activity
Options Outstanding, Beginning balance	18,534,821
Options Outstanding, Cancelled/Expired	(1,510,000)
Options Outstanding, Exercised	(695,000)
Options Outstanding, Granted	600,000	2,200,000
Options Outstanding, Ending balance	16,929,821	18,534,821
Options Outstanding, Weighted Average Exercise Price, Beginning balance	$ 0.08
Options Outstanding, Weighted Average Exercise Price, Cancelled/Expired	0.05
Options Outstanding, Weighted Average Exercise Price, Exercised	0.05
Options Outstanding, Weighted Average Exercise Price, Granted	0.06
Options Outstanding, Weighted Average Exercise Price, Ending balance	0.09	$ 0.08
Options Outstanding, Weighted Average Fair Value, Beginning balance	0.08
Options Outstanding, Weighted Average Fair Value, Cancelled/Expired	0.05
Options Outstanding, Weighted Average Fair Value, Exercised	0.05
Options Outstanding, Weighted average fair value of option, Granted	0.06
Options Outstanding, Weighted Average Fair Value, Ending balance	$ 0.08	$ 0.08
Options Outstanding, Weighted Average Remaining Contractual Life, Beginning balance	3 years 11 months 1 day
Options Outstanding, Weighted Average Remaining Contractual Life, Ending balance	3 years 6 months 22 days
Options Exercisable, Beginning balance	16,317,821
Options Exercisable, Ending balance	14,895,122	16,317,821
Options Exercisable, Weighted Average Exercise Price, Beginning balance	$ 0.08
Options Exercisable, Weighted Average Exercise Price, Ending balance	0.09	$ 0.08
Options Exercisable Weighted Average Fair Value, Beginning balance	0.08
Options Exercisable Weighted Average Fair Value, Ending balance	$ 0.08	$ 0.08
Options Exercisable, Weighted Average Remaining Contractual Life, Beginning balance	3 years 1 month 17 days
Options Exercisable, Weighted Average Remaining Contractual Life, Ending balance	2 years 10 months 6 days

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Stock Plans and Stock-Based Compensation (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Stock Plans and Stock-Based Compensation (Textual)
Options vested	782,301
Weighted average exercise price, Vested	$ 0.09
Weighted average fair value of option	0.09
Common stock fair value	$ 0.07
Stock option outstanding	16,929,821	18,534,821
Stock option shares exercisable	14,895,122	16,317,821
Option outstanding, Aggregate intrinsic value	$ 151,900
Option exercisable, Aggregate intrinsic value	146,900
Option exercised, Aggregate intrinsic value	14,250,000
Stock options exercise price		$ 0.08
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	79,010
Total compensation expense recognized related to stock option awards	$ 113,167	$ 42,574
Unrecognized compensation cost is expected to be recognized period	3 years
Douglas J Andrea [Member]
Stock Plans and Stock-Based Compensation (Textual)
Stock options grants	600,000	2,200,000
Stock options vesting period	3 years	3 years
Weighted average fair value of option granted	$ 0.06	$ 0.08
Weighted average exercise price	$ 0.06	$ 0.08
Weighted average expected life	8 years	8 years
Options fair value on the date of grant	$ 38,000	$ 185,000
2016
Stock Plans and Stock-Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	56,404
2017
Stock Plans and Stock-Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	20,660
2018
Stock Plans and Stock-Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	$ 1,946
1998 Stock Option Plan [Member]
Stock Plans and Stock-Based Compensation (Textual)
Permissible limit of common stock to be acquired by the holders of awards	6,375,000
Stock options vesting period	4 years
Stock options contractual term	10 years
2006 Equity Compensation Plan [Member]
Stock Plans and Stock-Based Compensation (Textual)
Permissible limit of common stock to be acquired by the holders of awards	18,000,000
Shares available for further issuance	1,677,436
Stock options vesting period	4 years
Stock options contractual term	10 years
General, administrative and selling expenses [Member]
Stock Plans and Stock-Based Compensation (Textual)
Total compensation expense recognized related to stock option awards	$ 91,774	36,382
Research and development expenses [Member]
Stock Plans and Stock-Based Compensation (Textual)
Total compensation expense recognized related to stock option awards	$ 21,393	$ 6,192

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Segment Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of consolidated financial information for Andrea's segments
Net product revenues	$ 388,298	$ 326,647
License revenues	12,846,584	896,915
Income (loss) from operations	2,687,213	(2,313,630)
Depreciation and amortization	85,660	115,824
Purchases of property and equipment	18,443	4,952
Purchases of patents and trademarks	28,868	92,093
Assets	8,710,602	4,990,190
Total long lived assets	$ 432,319	$ 468,129
Patent Monetization [Member]
Summary of consolidated financial information for Andrea's segments
Net product revenues
License revenues	$ 12,104,958	$ 4,557
Income (loss) from operations	3,595,645	2,463,461
Depreciation and amortization	$ 28,835	22,023
Purchases of property and equipment
Purchases of patents and trademarks	$ 14,434	46,047
Assets	2,278,587	187,078
Total long lived assets	172,677	187,078
Andrea DSP Microphone and Audio Software Products [Member]
Summary of consolidated financial information for Andrea's segments
Net product revenues	388,298	326,647
License revenues	741,626	892,358
Income (loss) from operations	(908,432)	(149,831)
Depreciation and amortization	54,286	40,597
Purchases of property and equipment	18,443
Purchases of patents and trademarks	14,434	46,046
Assets	6,282,269	4,384,542
Total long lived assets	$ 259,642	$ 281,051

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Segment Information (Details 1) - USD ($)		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
Summary of net revenues and accounts receivable by geographic area
Total Revenues		$ 13,234,882	$ 1,223,562
Accounts receivable		1,902,388	238,814
United States [Member]
Summary of net revenues and accounts receivable by geographic area
Total Revenues		2,498,721	191,103
Accounts receivable		1,788,500	40,546
Foreign [Member]
Summary of net revenues and accounts receivable by geographic area
Total Revenues	[1]	10,736,161	1,032,459
Accounts receivable		$ 113,888	$ 198,268

[1] Total revenue from the People's Republic of China and Singapore represented 81% and 84% of total revenues for the year ended December 31, 2015 and 2014, respectively.

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Segment Information (Details Textual) - Segment	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Segment Information (Textual)
Number of operating segments	2
Peoples Republic of China and Singapore [Member]
Segment Information (Textual)
Net revenues from foreign country as a percentage of total net revenues	81.00%	84.00%

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Sale of Andrea Anti-Noise Products Division (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Operations
Income (loss) from discontinued operations	$ 576,476	$ (364,553)
Andrea Anti-Noise Products [Member]
Operations
Net Revenues	662,135	1,563,014
Cost of Sales	596,565	951,530
Gross margin	65,570	611,484
Research and Development Expenses	18,746	240,382
General, administrative and selling expenses	349,960	$ 735,655
Gain on sale of Anti-Noise Products Division	(879,612)
Income (loss) from discontinued operations	576,476	$ (364,553)
Assets
Accounts Receivable, net	27,303	56,411
Inventories, net	$ 122,443	339,232
Property and equipment, net		22,927
Assets from discontinued operations	$ 149,746	418,570
Liabilities
Trade accounts payable		107,228
Other current liabilities	$ 40,075	44,066
Liabilities from discontinued operations	$ 40,075	$ 151,294

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Sale of Andrea Anti-Noise Products Division (Details Textual)	Apr. 02, 2015 USD ($) Installments	Dec. 31, 2015	Dec. 31, 2014
Sale of Andrea Anti-Noise Products Division (Textual)
Interest rate		3.00%	3.00%
Andrea Anti-Noise Products [Member]
Sale of Andrea Anti-Noise Products Division (Textual)
Sale of property and equipment and intangible assets	$ 900,000
Additional amount receive	100,000
Gain on sale of property plant and equipment	880,000
Cash payment	300,000
Note receivable	600,000
Payable under eighteen installment	$ 34,757
Number of installment | Installments	18
Interest rate	3.25%