Note 6. Commitments And Contingencies

Leases

In May 2015, Andrea entered into a lease for its current 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. Rent expense under this operating lease was $8,470 and $8,176 for the three months ended September 30, 2017 and September 30, 2016, respectively. Rent expense under this operating lease was $25,031 and $24,170 for the nine months ended September 30, 2017 and September 30, 2016, respectively. The monthly rent under this lease is $2,823 with annual escalations of 3.5%.

As of September 30, 2017, the minimum future lease payments under this lease and all other noncancellable operating leases are as follows:

2017 (October 1 – December 31)	$	15,333
2018		62,119
2019		57,529
2020		35,787
Total	$	170,768

Employee Related Agreements

In August 2014, the Company entered into an employment agreement with Mr. Andrea. The effective date of the employment agreement was August 1, 2014 and, as amended for extension of its term, it currently expires on January 31, 2018, subject to renewal as approved by the Compensation Committee of the Board of Directors. Pursuant to his employment agreement, Mr. Andrea receives 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 nine months of his base salary, plus the nine 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 September 30, 2017, the future minimum cash commitments under this agreement aggregate $100,000.

In November 1999, as amended August 2008, the Company entered into a change in control agreement with the Chief Financial Officer, Corisa L. Guiffre. This agreement provides for a change in control payment equal to three times her average annual compensation for the five preceding taxable years, with continuation of health and medical benefits for three years in the event of a change in control of the Company, as defined in the agreement, and subsequent termination of employment other than for cause.

Legal Proceedings

In December 2010, Audrey Edwards, Executrix of the Estate of Leon Leroy Edwards, filed a lawsuit 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 has filed 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 September 2016, the Company filed a Complaint with the United States International Trade Commission (“ITC”), alleging patent infringement against Apple Inc. (“Apple”) and Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (together, “Samsung”), and requesting injunctive relief. An ITC investigation was instituted on October 19, 2016. Apple and Samsung answered the Company’s Complaint on November 21, 2016. Andrea and Samsung settled all of their current disputes on August 16, 2017 by entering into a Settlement Agreement and a Patent License Agreement. Andrea and Samsung moved to terminate the investigation with respect to Samsung based on these agreements on August 17, 2017, and the presiding ITC Administrative Law Judge (“ALJ”) granted the motion on August 22, 2017. The ITC affirmed the ALJ’s ruling on September 13, 2017, terminating Samsung from the investigation. The evidentiary hearing was held between Andrea and Apple on August 21-24, 2017, before the ALJ. The ALJ issued her initial determination on October 26, 2017. The ALJ ruled that (1) Andrea does not have standing to pursue the investigation as the sole complainant, (2) Apple does not literally infringe Andrea’s asserted patent, (3) the asserted patent is valid and enforceable, and (4) Andrea does not have a domestic industry pursuant to ITC law. The ALJ also recommended that, if Andrea does ultimately prove a violation of the relevant statute by Apple, the ITC should issue Andrea’s requested remedies of a limited exclusion order and cease and desist order against Apple, but delay their implementation by 3 months to one year. Andrea notified the ITC that it appeals the ALJ’s unfavorable rulings on standing, non-infringement, domestic industry, and delayed implementation of the requested remedies on November 8, 2017. The Company intends to vigorously prosecute its appeal at the ITC.

Also in September 2016, the Company filed complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Apple and Samsung, and requesting monetary and injunctive relief. Andrea also dismissed its New York case against Samsung on September 13, 2017 based on the aforementioned Settlement Agreement and a Patent License Agreement. The case against Apple remains stayed pending the final outcome of the Company’s litigation at the ITC against Apple.

In January 2017, Apple filed four (4) petitions for inter partes review (“IPR”) of the Andrea patents asserted in the ITC and District Court litigation proceedings with the United States Patent and Trademark Office (PTO). Andrea filed its Patent Owner’s Preliminary Response in two of these IPR proceedings on May 1, 2017. The PTO instituted the four IPR proceedings requested by Apple on July 24, 2017. Andrea filed its Patent Owner’s Response in two of these IPR proceedings on November 7, 2017. Andrea intends to vigorously defend its patents in these PTO proceedings.