10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2016
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

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ANDREA ELECTRONICS CORPORATION
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

New York	11-0482020
(State or other jurisdiction of	(I.R.S. employer identification no.)
incorporation or organization)

	620 Johnson Avenue Suite 1-B, Bohemia,	11716
	(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number (including area code):		631-719-1800

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 ☒  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 ☒  No ☐ 

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 ☒

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 10, 2016, there were 64,914,935 common shares outstanding.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2016			December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash	$	3,023,408		$	5,592,554
Accounts receivable, net of allowance for doubtful accounts of $7,275 and 5,415, respectively		151,038			1,902,388
Inventories, net		102,826			58,028
Prepaid expenses and other current assets		57,372			60,086
Current portion of note receivable		206,580			406,522
Assets from discontinued operations		43,140			149,746
Total current assets		3,584,364			8,169,324
Property and equipment, net		69,312			86,960
Intangible assets, net		319,650			345,359
Long term note receivable		-			103,709
Other assets, net		5,250			5,250
Total assets	$	3,978,576		$	8,710,602
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	297,159		$	2,149,532
Taxes payable		-			45,000
Accrued Series C Preferred Stock Dividends		55,697			73,921
Short-term deferred revenue		-			6,600
Other current liabilities		142,675			1,640,833
Liabilities from discontinued operations		19,800			40,075
Short-term advance from Revenue Sharing Agreement		-			196,477
Current portion of long-term debt		-			1,900,775
Total current liabilities		515,331			6,053,213
Long-term debt		1,002,333			-
Advance from Revenue Sharing Agreement		-			115,590
Total liabilities		1,517,664			6,168,803
Series B Redeemable Convertible Preferred Stock, $.01 par value; authorized: 1,000 shares;
issued and outstanding: 0 shares		-			-
Commitments and contingencies
Shareholders’ equity:
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: 33.3 and 44.2 shares, respectively; liquidation value: $333,269 and
$442,314, respectively		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:
64,914,935 and 64,416,035 shares, respectively		649,149			644,160
Additional paid-in capital		77,790,159			77,727,552
Accumulated deficit		(75,987,469	)		(75,838,986	)
Total shareholders’ equity		2,460,912			2,541,799
Total liabilities and shareholders’ equity	$	3,978,576		$	8,710,602

See Notes to Condensed Consolidated Financial Statements.

2

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Revenues
Net product revenues	$	117,870		$	141,581		$	357,721		$	322,052
License revenues		45,010			173,798			3,144,698			610,732
Total revenues		162,880			315,379			3,502,419			932,784
Cost of revenues
License revenue sharing		289,463			-			289,463			-
Cost of product revenues		28,521			36,684			101,079			97,380
Total cost of revenues		317,984			36,684			390,542			97,380
Gross margin		(155,104	)		278,695			3,111,877			835,404
Patent Monetization expenses		10,074			2,143,616			1,734,245			4,142,138
Research and development expenses		182,335			197,547			562,383			551,888
General, administrative and selling expenses		295,916			321,925			960,271			822,382
Continuing operating loss		(643,429	)		(2,384,393	)		(145,022	)		(4,681,004	)
Interest income (expense), net		3,228			(19,350	)		5,855			(37,411	)
Loss from continuing operations before
provision for income taxes		(640,201	)		(2,403,743	)		(139,167	)		(4,718,415	)
(Benefit) provision for income taxes		(38,710	)		34,120			9,316			119,958
Loss from continuing operations		(601,491	)		(2,437,863	)		(148,483	)		(4,838,373	)
(Loss) income from discontinued operations		-			(60,796	)		-			575,895
Net loss	$	(601,491	)	$	(2,498,659	)	$	(148,483	)	$	(4,262,478	)
Basic and diluted weighted average shares		64,914,935			64,134,024			64,741,959			63,860,211
Basic and diluted net loss per share from
continuing operations	$	(.01	)	$	(.04	)	$	.00		$	(.08	)
Basic and diluted net (loss) income per share
from discontinuing operations	$	.00		$	(.00	)	$	.00		$	.01
Basic and diluted net loss per share	$	(.01	)	$	(.04	)	$	(.00	)	$	(.07	)

See Notes to Condensed Consolidated Financial Statements.

3

ANDREAELECTRONICSCORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(UNAUDITED)

	Series C Convertible Preferred Stock Outstanding		Series C Convertible Preferred Stock		Series D Convertible Preferred Stock Outstanding	Series D Convertible Preferred Stock		Common Stock Shares Outstanding	Common Stock		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Equity
Balance, January 1, 2016	44.231432		$	1	907,144	$	9,072	64,416,035	$	644,160	$	77,727,552	$	(75,838,986	)	$	2,541,799
Conversion of Series C Convertible
Preferred Stock	(10.904533	)		-	-		-	498,900		4,989		13,235		-			18,224
Stock-based Compensation Expense
related to Stock Option Grants	-			-	-		-	-		-		49,372		-			49,372
Net loss	-			-	-		-	-		-		-		(148,483	)		(148,483	)
Balance, September 30, 2016	33.326899		$	1	907,144	$	9,072	64,914,935	$	649,149	$	77,790,159	$	(75,987,469	)	$	2,460,912

See Notes to Condensed Consolidated Financial Statements.

4

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Nine Months Ended
	September 30, 2016			September 30, 2015
Cash flows from operating activities:
Net loss	$	(148,483	)	$	(4,262,478	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		54,038			61,305
Stock based compensation expense		49,372			95,923
Reserve (credit) for inventory obsolescence		12,140			(94,054	)
Provision for income tax withholding		9,316			119,958
PIK interest, net		14,107			59,630
Gain on sale of Anti-Noise Products Division		-			(877,073	)
Accrued interest on note receivable		(9,162	)		(9,817	)
Change in:
Accounts receivable		1,764,734			(105,067	)
Inventories		26,968			403,652
Prepaid expenses, other current assets and other assets		2,714			(7,703	)
Taxes payable		(45,000	)		(32,000	)
Trade accounts payable		(1,852,373	)		820,894
Repayments of Advance from Revenue Sharing Agreement		(312,067	)		-
Other current liabilities		(1,518,433	)		381,103
Short-term deferred revenue		(6,600	)		(2,712	)
Net cash used in operating activities		(1,958,729	)		(3,448,439	)
Cash flows from investing activities:
Purchases of property and equipment		-			(18,443	)
Proceeds from the sale of the Anti-Noise Products Division		-			300,000
Proceeds from the exercise of Stock Options		-			34,750
Proceeds from repayments of note receivable		312,813			-
Purchases of patents and trademarks		(10,681	)		(12,713	)
Net cash provided by investing activities		302,132			303,594
Cash flows from financing activities:
Repayments of long-term notes and PIK interest		(4,112,549	)		-
Proceeds from long-term notes		3,200,000			3,400,000
Net cash (used in) provided by financing activities		(912,549	)		3,400,000
Net (decrease) increase in cash		(2,569,146	)		255,155
Cash, beginning of year		5,592,554			3,574,530
Cash, end of period	$	3,023,408		$	3,829,685
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	12,548		$	-
Income Taxes	$	124,277		$	135,930
Non Cash Investing and Financing Activity:
Conversion of Series C Convertible Preferred Stock and related dividends into common
stock	$	13,235		$	-
Note Receivable received in connection with the sale of the Anti-Noise Products
Division	$	-		$	600,000

See Notes to Condensed Consolidated Financial Statements.

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Note 1.Basis of Presentation

Basis of Presentation - The accompanying unaudited condensed consolidated interim financial statements include the accounts of Andrea Electronics Corporation and its subsidiaries (“Andrea” or the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2015 balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for any other interim period or for the fiscal year.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2015 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2016. The accounting policies used in preparing these unaudited condensed consolidated interim financial statements are consistent with those described in the December 31, 2015 audited consolidated financial statements.

Note 2.Summary of Significant Accounting Policies

Loss Per Share - Loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss adjusts basic loss 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 loss 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:

	For the Three and Nine Months Ended
	September 30, 2016	September 30, 2015
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 7)	16,869,821	16,969,821
Series C Convertible Preferred Stock and related accrued
dividends (Note 4)	1,524,758	2,023,658
Series D Convertible Preferred Stock (Note 5)	3,628,576	3,628,576
Total potentially dilutive common shares	22,023,155	22,622,055

Cash - Cash includes cash and highly liquid investments with original maturities of three months or less. At various times during the periods ended September 30, 2016 and December 31, 2015, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At September 30, 2016 and December 31, 2015, the Company’s cash was held at four financial institutions.

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Customer A		*	30	%		*	23	%
Customer B	19	%	54	%		*	64	%
Customer C		*		*	14	%		*
Customer D		*		*	24	%		*
Customer E		*		*	37	%		*
Customer F	47	%		*		*		*

____________________

       *       Amounts are less than 10%

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As of September 30, 2016, Customer A, B and F accounted for approximately 8%, 17% and 26%, respectively, of accounts receivable. As of December 31, 2015, Customer A and B accounted for approximately 1% and 6%, respectively, of accounts receivable.

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 changes in inventory reserves as part of cost of revenues.

	September 30, 2016			December 31, 2015
Raw materials	$	16,816		$	21,253
Finished goods		203,442			152,050
		220,258			173,303
Less: reserve for obsolescence		(117,432	)		(115,275	)
	$	102,826		$	58,028

Long-Lived Assets - Andrea accounts for its long-lived assets in accordance with Accounting Standards Codification (“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 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 revenues), 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. At September 30, 2016 and December 31, 2015, Andrea concluded that Intangibles and long-lived assets were not required to be tested for recoverability.

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 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 September 30, 2016 and December 31, 2015 the Company had 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.

7

Stock-Based Compensation - At September 30, 2016, Andrea had two stock-based employee compensation plans, which are described more fully in Note 7. Andrea accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation.” ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718, stock-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.

Use of Estimates - The preparation of condensed consolidated interim 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 condensed consolidated interim 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 condensed consolidated interim 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, 2017. 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.

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In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”). ASU No. 2016-08 maintains the core principles of Topic 606 on revenue recognition, but clarifies whether an entity is a principal or an agent in a contract and the appropriate revenue recognition principles under each of these circumstances. The amendments in ASU 2016-08 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement presentation. This ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in income tax benefit or expense in the statements of earnings. This change is required to be adopted prospectively in the period of adoption. In addition, the ASU modifies the classification of certain share-based payment activities within the statements of cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively, beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” ASU No. 2016-10 maintains the core principles of Topic 606 on revenue recognition, but clarifies identification of performance obligations and licensing implementation guidance. The amendments in ASU 2016-10 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow- Scope Improvements and Practical Expedients.” ASU No. 2016-12 maintains the core principles of Topic 606 on revenue recognition, but addresses collectability, sales tax presentation, noncash consideration, contract modifications at transition and completed contracts at transition. The amendments in ASU 2016-12 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13 provides financial statement readers more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. It is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact, if any, this guidance will have on its financial statements.

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not have any effect on reported consolidated net loss for the periods presented.

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

9

Note 3.Revenue Sharing, Note Purchase Agreement and Long-Term Debt

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 (“Monetization Revenues”) currently owned by the Company (the “Patents”) in exchange for $3,500,000, which was originally recorded as an “Advance from Revenue Sharing Agreement” on the accompanying consolidated balance sheet and has been fully repaid as of September 30, 2016. AND34’s rights to the Company’s Monetization Revenues (as defined in the Revenue Sharing Agreement) from the Patents and the Notes are secured by the Patents. Under the terms of the Revenue Sharing Agreement with AND34, Andrea issued and sold to AND34 Notes of $10,800,000 of which have been repaid as of September 30, 2016. On August 10, 2016, Andrea and AND34 executed a Rider to the Revenue Sharing Agreement (“Rider”). Under the Rider, Andrea has agreed to issue and sell to AND34 Additional Notes up to an aggregate original amount of $7,000,000, or such greater amount as AND34 may agree to in its sole discretion, during the four year period beginning on the date of execution of the Rider. The Additional Notes will have a Maturity date of August 31, 2020. The proceeds of the Additional Notes will be used to pay certain expenses related to the Revenue Sharing Agreement, and be used for expenses of the Company incurred in pursuing patent monetization. As of September 30, 2016, the Company issued $1,000,000 in Additional Notes to pay Monetization Expenses.

Any Monetization Revenues will first be applied 100% to the payment of accrued and unpaid interest on, and then to repay outstanding principal of, the Additional Notes. After the Additional 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 50% to the Revenue Participants 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 8). For the nine months ended September 30, 2016, there was approximately $2,944,000 of non-recurring monetization revenues recognized for patent licensing agreements entered into during 2016. During the three months ended September 30, 2016, there was a one-time change to the method of the calculation on distribution of Monetization Revenue under the Monetization Revenue Sharing Agreement in which the Company recorded and paid licensing revenue sharing expense of approximately $290,000.

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.

Advance from Revenue Sharing Agreement

	September 30, 2016		December 31, 2015
Advance from Revenue Sharing Agreement	$	-	$	312,067
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

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

Long-term debt

	September 30, 2016		December 31, 2015
Note Payable	$	1,000,000	$	1,900,000
PIK interest		2,333		775
Total long-term debt	$	1,002,333	$	1,900,775
Less: current maturities of long-term debt		-		(1,900,775	)
Long-term debt, net of current maturities	$	1,002,333	$	-

The unpaid principal amount of the Notes (including any PIK Interest) have an interest rate equal to LIBOR (as defined in the Revenue Sharing Agreement) plus 2% per annum, (3% at September 30, 2016 and December 31, 2015); 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 Additional Notes by the amount of such interest (“PIK Interest”). The outstanding principal balance of the Additional Notes and all unpaid interest thereon will be paid within the next twelve months. The Company may prepay the Additional Notes from time to time in whole or in part, without penalty or premium.

10

Note 4.Series C Redeemable 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,” 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.

On April 4, 2016, 10.904533 shares of Series C Preferred Stock, together with related accrued dividends, were converted into 498,900 shares of Common Stock at a conversion price of $0.2551.

As of September 30, 2016, there were 33.326899 shares of Series C Preferred Stock outstanding, which were convertible into 1,524,758 shares of Common Stock and remaining accrued dividends of $55,697.

Note 5.Series D Redeemable 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 and related warrants 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).

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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 September 30, 2016, there were 907,144 shares of Series D Preferred Stock outstanding which were convertible into 3,628,576 shares of Common Stock.

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 $8,176 and $24,170 for the three and nine months ended September 30, 2016, respectively. The rent expense under this operating lease was $5,250 for the three and nine month periods ended September 30, 2015. The monthly rent under this lease is $2,725 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 zero and $37,676 for the three and nine month periods ended September 30, 2015, respectively.

As of September 30, 2016, the minimum future lease payments under this lease and all other noncancellable operating leases are as follows:

2016 (September 1 – December 31)	$	14,916
2017		55,715
2018		50,287
2019		45,697
2020		30,843
Total	$	197,458

Employment 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 it currently expires on January 31, 2017, 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 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, 2016, the future minimum cash commitments under this agreement aggregate $111,220.

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.

12

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 September 2016, Andrea filed two complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Apple Inc. (“Apple”) and Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”), and requesting monetary and injunctive relief. Neither Apple nor Samsung has responded to Andrea's complaints.

Also in September 2016, Andrea filed a Complaint with the United States International Trade Commission (“ITC”), alleging patent infringement against Apple and Samsung and requesting injunctive relief. The ITC instituted an investigation on October 19, 2016. Apple and Samsung have not yet answered Andrea’s ITC Complaint. Andrea intends to vigorously prosecute its claims against Apple and Samsung.

Note 7.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, authorized 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 could take the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options or other stock-based awards. Awards could be granted to key employees, officers, directors and consultants. No further awards may 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 September 30, 2016, there were 1,692,436 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 weighted-average assumptions. 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.

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 on the date of grant; with vesting periods of up to four years and 10-year contractual terms.

There were no options granted during the three or nine months ended September 30, 2016.

During the three months ended September 30, 2015, the Board granted Mr. Andrea 500,000 stock options with an aggregate fair value of $30,000 (fair value was estimated using the Black-Scholes option-pricing model). The 500,000 grant vests in three equal annual installments over a three year period commencing on August 1, 2016. These 500,000 stock options have an exercise price of $0.06 per share, which was the fair market value of the Company’s common stock on the date of grant, and a term of 10 years.

During the nine months ended September 30, 2015, the Board granted outside consultants 100,000 stock options with an aggregate fair value of $8,000 (fair value was estimated using the Black-Scholes option-pricing model). The 100,000 stock options vest in three equal annual installments over a three year period. These 100,000 stock options have an exercise price of $0.08 per share, which was the fair market value of the Company’s common stock on the date of grant, and a term of 10 years.

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The fair values of the stock options granted for the three and nine-month periods ended September 30, 2015 were estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:

	Three months ended September 30, 2015		Nine months ended September 30, 2015
Expected life in years	8		8
Risk-free interest rates	2.10	%	2.04	%
Volatility	205.8	%	205.3	%
Dividend yield	0	%	0	%

Option activity during 2016 is summarized as follows:

	Options Outstanding							Options Exercisable
	Options Outstanding		Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life
At January 1, 2016	16,929,821		$	0.09	$	0.08	3.56 years	14,895,122	$	0.09	$	0.08	2.85 years
Forfeited	(8,004	)	$	0.08	$	0.08
Canceled	(51,996	)	$	0.06	$	0.05
At September 30, 2016	16,869,821		$	0.09	$	0.08	2.82 years	15,209,426	$	0.09	$	0.08	2.25 years

Based on the September 30, 2016, fair market value of the Company’s common stock of $0.06, the aggregate intrinsic value for the 16,869,821 options outstanding and 15,209,426 shares exercisable is $97,000.

Total compensation expense recognized related to stock option awards was $14,884 and $30,314 for the three months ended September 30, 2016 and 2015, respectively. In the accompanying condensed consolidated statements of operations for the three months ended September 30, 2016, $12,067 of compensation expense is included in general, administrative and selling expenses and $2,817 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statements of operations for the three months ended September 30, 2015, $24,122 of compensation expense is included in general, administrative and selling expenses and $6,192 of compensation expense is included in research and development expenses.

Total compensation expense recognized related to stock option awards was $49,372 and $95,923 for the nine months ended September 30, 2016 and 2015, respectively. In the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2016, $40,921 of compensation expense is included in general, administrative and selling expenses and $8,451 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2015, $77,347 of compensation expense is included in general, administrative and selling expenses and $18,576 of compensation expense is included in research and development expenses.

As of September 30, 2016, there was $29,638 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 during 2016, 2017 and 2018 in the amounts of $7,032, $20,660 and $1,946, respectively.

Note 8.Segment Information

Andrea follows the provisions of ASC 280 “Segment Reporting.” 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 also 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 Amended and Restated 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.

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The following represents selected condensed consolidated interim financial information for Andrea’s segments for the three-month periods ended September 30, 2016 and 2015.

2016 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Three Month Segment Data
Net product revenues	$	-	$	117,870		$	117,870
License revenues		611		44,399			45,010
Continuing operating loss		388,573		254,856			643,429
Depreciation and amortization		6,070		11,817			17,887
Assets		455,334		3,480,102			3,935,436
Property and equipment and intangibles		159,823		229,139			388,962
Purchases of patents and trademarks		491		490			981
2015 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Three Month Segment Data
Net product revenues	$	-	$	141,581		$	141,581
License revenues		1,147		172,651			173,798
Continuing operating loss		2,197,461		186,932			2,384,393
Depreciation and amortization		7,356		12,998			20,354
December 31, 2015 Year End Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Year End Segment Data
Assets	$	2,278,587	$	6,282,269		$	8,560,856
Property and equipment and intangibles		172,677		259,642			432,319
The following represents selected condensed consolidated interim financial information for Andrea’s segments for the nine-month periods ended September 30, 2016 and 2015.
2016 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Nine Month Segment Data
Net product revenues	$	-	$	357,721		$	357,721
License revenues		2,947,319		197,379			3,144,698
Continuing operating income (loss)		712,742		(857,764	)		(145,022	)
Depreciation and amortization		18,195		35,843			54,038
Purchases of patents and trademarks		5,341		5,340			10,681
2015 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Nine Month Segment Data
Net product revenues	$	-	$	322,052		$	322,052
License revenues		4,137		606,595			610,732
Continuing operating loss		4,298,855		382,149			4,681,004
Depreciation and amortization		20,669		40,636			61,305
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		6,357		6,356			12,713

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Management assesses 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 three-month periods ended September 30, 2016 and 2015 total revenues by geographic area were as follows:

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	107,820	$	135,575
Foreign(1)		55,060		179,804
	$	162,880	$	315,379

____________________

(1)      Total revenue from the People’s Republic of China and Singapore represented 25% and 55% of total revenues for the three months ended September 30, 2016 and 2015, respectively.

For the nine-month periods ended September 30, 2016 and 2015 total revenues by geographic area were as follows:

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	1,639,466	$	344,318
Foreign(1)		1,862,953		588,466
	$	3,502,419	$	932,784

____________________

(1)      Total revenue from Israel represented 37% of total revenues for the nine months ended September 30, 2016. Total revenue from the People’s Republic of China and Singapore represented 60% of total revenues for the nine months ended September 30, 2015.

As of September 30, 2016 and December 31, 2015, accounts receivable by geographic area were as follows:

Geographic Data	September 30, 2016		December 31, 2015
Accounts receivable:
United States	$	104,151	$	1,788,500
Foreign		46,887		113,888
	$	151,038	$	1,902,388

Note 9.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 purchase 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.

16

The following table reflects the results of the discontinued operations of the Division’s business segment for the three and nine months ended September 30, 2016 and 2015 and as of September 30, 2016 and December 31, 2015, respectively:

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2016		September 30, 2015			September 30, 2016		September 30, 2015
Operations
Net Revenues	$	3,667	$	87,242		$	72,027	$	600,160
Cost of Sales		3,667		84,397			72,027		537,368
Gross margin		-		2,845			-		62,792
Research and Development Expenses		-		-			-		18,746
General, administrative and selling expenses		-		63,641			-
									347,763
Gain on sale of Anti-Noise Products Division		-		-			-		879,612
(Loss) income from Discontinued Operations	$	-	$	(60,796	)	$	-	$	575,895
	September 30, 2016		December 31, 2015
Assets
Accounts Receivable, net	$	4,603	$	27,303
Inventories, net		38,537		122,443
Assets from Discontinued Operations	$	43,140	$	149,746
Liabilities
Other current liabilities		19,800		40,075
Liabilities from discontinued operations	$	19,800	$	40,075

ITEM 2. 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. 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. As part of our Patent Monetization efforts we plan to license specific, custom designs to our customers, charging royalties at a fixed amount per product or a percentage of sales and we intend to vigorously defend and monetize our intellectual property through licensing arrangements and, where necessary, enforcement actions against those entities using our patented solutions in their products.

Our Critical Accounting Policies

Our unaudited condensed consolidated interim financial statements and the notes to our unaudited condensed consolidated interim financial statements contain information that is pertinent to management's discussion and analysis. The preparation of unaudited condensed consolidated interim financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. A discussion of our critical accounting policies and estimates are included in Management’s Discussion and Analysis or Plan of Operation in our Annual Report on Form 10-K for the year ended December 31, 2015. Management has discussed the development and selection of these policies with the Audit Committee of the Company’s Board of Directors, and the Audit Committee of the Board of Directors has reviewed the Company’s disclosures of these policies. There have been no material changes to the critical accounting policies or estimates reported in the Management’s Discussion and Analysis section of the Annual Report on Form 10-K for the year ended December 31, 2015.

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Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in economic, competitive, governmental, technological and other factors that may affect our business and prospects. Additional factors are discussed below under “Risk Factors” and in Part I, “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015and the Company’s quarterly reports on Form 10-Q. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Results Of Continuing Operations

Three and Nine Months ended September 30, 2016 compared to Three and Nine Months ended September 30, 2015

Total Revenues

	For the Three Months Ended September 30,				%		For the Nine Months Ended September 30,				%
	2016		2015		Change		2016		2015		Change
Patent Monetization revenues
License revenues	$	611	$	1,147	(47	)	$	2,947,319	$	4,137	71,143		(a)
Total Patent Monetization revenues		611		1,147	(47	)		2,947,319		4,137	71,143
Andrea DSP Microphone and Audio
Software Product revenues
Revenues of automotive array
microphone products		17,105		12,899	33			36,965		25,646	44		(b)
Revenue from customized digital
product		11,710		93,768	(88	)		123,490		217,574	(43	)	(c)
All other Andrea DSP Microphone
and Audio product revenues		89,055		34,914	155			197,266		78,832	150		(d)
License revenues		44,399		172,651	(74	)		197,379		606,595	(67	)	(e)
Total Andrea DSP Microphone and
Audio Software Products revenues		162,269		314,232	(48	)		555,100		928,647	(40	)
Total revenues	$	162,880	$	315,379	(48	)	$	3,502,419	$	932,784	275

____________________

(a)	The increase of approximately $2,943,000 in license revenues is the result of non-recurring revenue recognized for patent licensing agreements entered into during 2016.
(b)	The approximate $4,000 and $11,000 increase in sales of automotive array microphone products is the result of decreased product sales to integrators of public safety vehicle solutions for the three and nine months ended September 30, 2016, respectively, as compared to the three and nine months ended September 30, 2015.
(c)	The approximate $82,000 and $95,000 decrease in sales for the three and nine months ended September 30, 2016, respectively, as compared to the three and nine months ended September 30, 2015 is related to timing of product revenues from an OEM customer for a customized digital product.
(d)	The approximate $54,000 and $118,000 increase in all other Andrea DSP Microphone and Audio product revenues sales for the three and nine months ended September 30, 2016, respectively, as compared to the three and nine months ended September 30, 2015 is related to increased product revenues from OEM customers for our DA-250 digital products.
(e)	The $129,000 and $410,000 decrease in license revenues is a result of a decrease of royalties for the three month and nine month periods ended September 30, 2016 as compared to the three month period ended September 30, 2015, respectively.

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Cost of Revenues

Cost of revenues as a percentage of total revenues for the three months ended September 30, 2016 and 2015 was 195% and 12%, respectively. Cost of revenues as a percentage of net revenues for the nine months ended September 30, 2016 and 2015 was 11% and 10%, respectively. During the three months ended September 30, 2016, there was a one-time change to the method of the calculation on distribution of Monetization Revenue under the Monetization Revenue Sharing Agreement in which the Company recorded and paid licensing revenue sharing expense of approximately $290,000.

Patent Monetization Expenses

Patent monetization expenses for the three months ended September 30, 2016 decreased almost 100% to $10,074 from $2,143,616 for the three months ended September 30, 2015. Patent monetization expenses for the nine months ended September 30, 2016 decreased by 58% to $1,734,245 from $4,142,138 for the nine months ended September 30, 2015. The decreases in Patent Monetization expenses for the three and nine months ended September 30, 2016 is mainly attributable to the timing of legal services incurred to pursue patent monetization. The expenses for the three and nine months ended September 30, 2015 are associated with the complaints disclosed under Part II, Item 1 Legal Proceedings in the Form 10-Q for the quarter ended March 31, 2016, filed with the SEC on May 16, 2016 which have been resolved and completed in 2016. The expenses for the three and nine months ended September 30, 2016 include residual patent monetization expenses incurred to the same complaints as well as new file complaints and disclosed in Note 6 in the accompanying notes to the condensed consolidated financial statements. In addition, the expenses for the three months ended September 30, 2016 include a reversal of an over accrual of approximately $280,000.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2016 decreased 8% to $182,335 from $197,547 for the three months ended September 30, 2015. The expenses primarily relate to costs associated with the development of new products. For the three months ended September 30, 2016, the decrease in research and development expenses reflects a 17% decrease in our Patent Monetization efforts to $6,070, or 3% of total research and development expenses, and a 7% decrease in our Andrea DSP Microphone and Audio Software Technology efforts to $176,265, or 97% of total research and development expenses. Research and development expenses for the nine months ended September 30, 2016 increased 2% to $562,383 from $551,888 for the nine months ended September 30, 2015. These expenses primarily relate to costs associated with the development of new products. For the nine months ended September 30, 2016, the increase in research and development expenses reflects a 12% decrease in our Patent Monetization efforts to $18,195, or 3% of total research and development expenses and a 2% increase in our Andrea DSP Microphone and Audio Software Technology efforts to $544,188, or 97% 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 decreased approximately 8% to $295,916 for the three months ended September 30, 2016 from $321,925 for the three months ended September 30, 2015. For the three months ended September 30, 2016, general, administrative and selling expenses related to our Patent Monetization efforts were $83,577, or 28% of the total general, administrative and selling expenses, and general, administrative and selling expenses related to our Andrea DSP Microphone and Audio Software Technology were $212,339, or 72% of total general, administrative and selling expenses. General, administrative and selling expenses increased approximately 17% to $960,271 for the nine months ended September 30, 2016 from $822,382 for the nine months ended September 30, 2015. For the nine months ended September 30, 2016, general, administrative and selling expenses related to our Patent Monetization efforts were $192,674, or 20% of the total general, administrative and selling expenses related to our Andrea DSP Microphone and Audio Software Technology were $767,597, or 80% of total general, administrative and selling expenses.

Interest income (expense), net

Interest income, net for the three months ended September 30, 2016 was $3,228 compared to interest expense, net of $19,350 for the three months ended September 30, 2015. Interest income, net for the nine months ended September 30, 2016 was $5,855 compared to interest expense, net of $37,411 for the nine months ended September 30, 2015. The change in this line item was attributable to a decrease of interest expense related to long-term debt in conjunction with the Revenue Sharing Agreement partially offset by 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 three months ended September 30, 2016 was $38,710 compared to $34,120 for the three months ended September 30, 2015. The income tax provision for the nine months ended September 30, 2016 was $9,316, compared to $119,958 for the nine months ended September 30, 2015. The provision is a result of certain licensing revenues that are subject to withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned.

Net loss

Net loss for the three months ended September 30, 2016 was $601,491 compared to a net loss of $2,498,659 for the three months ended September 30, 2015. Net loss for the nine months ended September 30, 2016 was $148,483 compared to a net loss of $4,262,478 for the nine months ended September 30, 2015. The net loss for the three and nine months ended September 30, 2016 and 2015, respectively, principally reflects the factors described above.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Liquidity And Capital Resources

At September 30, 2016, we had cash of $3,023,408 compared with $5,592,554 at December 31, 2015. The decrease in our cash balance at September 30, 2016 was primarily a result of cash used in operations.

Our working capital balance at September 30, 2016 was $3,069,033 compared to working capital of $2,116,111 at December 31, 2015. The increase in working capital reflects a decrease in total current assets of $4,584,960 and a decrease in total current liabilities of $5,537,882. The decrease in total current assets reflects a decrease in cash of $2,569,146, a decrease in accounts receivable of $1,751,350, an increase in inventories of $44,798, a decrease in prepaid expenses and other current assets of $2,714, a decrease in assets from discontinued operations of $106,606 and a decrease in current note receivable of $199,942. The decrease in total current liabilities of $5,537,882 reflects a decrease in trade accounts payable of $1,852,373, a decrease in short-term deferred revenue of $6,600, a decrease in liabilities from discontinued operations of $20,275, a decrease in the current portion of long-term debt of $1,900,775, a decrease in advance from Revenue Sharing Agreement of $196,477, a decrease of $1,498,158 in other current liabilities, a decrease in current taxes payable of $45,000 and an $18,224 decrease in Accrued Series C Preferred Stock Dividends.

The decrease in cash of $2,569,146 reflects $1,958,729 of net cash used in operating activities, $302,132 cash provided by investing activities, and $912,549 of cash used by financing activities.

The cash used by operating activities of $2,569,146, excluding non-cash charges for the nine months ended September 30, 2016, was attributable to a $1,764,734 decrease in accounts receivable, a $26,968 decrease in inventories, a $2,714 decrease in prepaid expenses, other current assets and other assets, a $1,852,373 decrease in trade accounts payable, a $45,000 decrease in taxes payable, a $1,518,433 decrease in other current liabilities, a $6,600 decrease in short-term deferred revenue, and a $312,067 decrease in advance from the Revenue Sharing Agreement. The changes in accounts receivable, inventories, prepaid expenses, other current assets and other assets, trade accounts payable, other current liabilities and short-term deferred revenue primarily reflect differences in the timing related to both the payments for and the acquisition of inventory as well as for other services in connection with ongoing efforts related to Andrea’s various product lines including continuing efforts to pursue patent monetization.

The cash provided by investing activities of $302,132 reflects $312,813 of repayments in note receivable offset in part by $10,681 in patent and trademark related expenses. The increase in patent and trademark expenses reflects capital expenditures associated with our intellectual property.

The cash used in financing activities of $912,549, reflects proceeds from long-term debt, offset by payments of notes and interest.

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 November 10, 2016, Andrea had approximately $2,900,000 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Andrea’s management, including its 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, Andrea’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that it 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 Andrea’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that all control issues and instances of fraud, if any, within a company have been detected. Andrea’s disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.

There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonable likely to materially affect the Company’s internal controls over financial reporting during the period covered by this Quarterly Report.

PART II OTHER INFORMATION

ITEM 1. 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 September 2016, Andrea filed two complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Apple Inc. (“Apple”) and Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”), and requesting monetary and injunctive relief. Neither Apple nor Samsung has responded to Andrea's complaints.

Also in September 2016, Andrea filed a Complaint with the United States International Trade Commission (“ITC”), alleging patent infringement against Apple and Samsung and requesting injunctive relief. The ITC instituted an investigation on October 19, 2016. Apple and Samsung have not yet answered Andrea’s ITC Complaint. Andrea intends to vigorously prosecute its claims against Apple and Samsung.

ITEM 1A. RISK FACTORS

Risk Factors

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.

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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 for the three months ended September 30, 2016 were $162,880 compared to $315,379 for the three months ended September 30, 2015. Net loss for the three months ended September 30, 2016 was $601,491, or $0.01 loss per share on a basic and diluted basis, compared to a net loss of $2,498,659, or $0.04 loss per share on a basic and diluted basis for the three months ended September 30, 2015. Our total revenues for the nine months ended September 30, 2016 were $3,502,419 compared to $932,784 for the nine months ended September 30, 2015. Net loss for the nine months ended September 30, 2016 was $148,483, or $0.00 per share on a basic and diluted basis, compared to a net loss of $4,262,478, or $0.07 loss per share on a basic and diluted basis for the nine months ended September 30, 2015. We continue to explore opportunities to grow sales in other business areas and vigorously defend and monetize our intellectual property. However, we cannot predict whether such opportunities and defense of our intellectual property will be successful.

Shares Eligible For Future Sale May Have An Adverse Effect On Market Price and 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, 64,914,935 were outstanding as of November 10, 2016. The number of shares outstanding does not include an aggregate of 23,715,591 shares of common stock that are issuable. This number of issuable common shares is equal to approximately 37% of the 64,914,935 outstanding shares. These issuable common shares are comprised of: a) 16,884,821 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) 1,524,758 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.

In addition to the risk factors set forth above and the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and quarterly reports on Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K and quarterly reports on Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITY AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

a)	Exhibits
		Exhibit 10.1 –	Rider to 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
		Exhibit 31.1 –	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
		Exhibit 31.2 –	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
		Exhibit 32    –	Section 1350 Certifications*
		Exhibit 101.0	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statement of Shareholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements 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: November 14, 2016
/s/ DOUGLAS J. ANDREA	Chairman of the Board, President, Chief	November 14, 2016
Douglas J. Andrea	Executive Officer and Corporate Secretary
/s/ CORISA L. GUIFFRE	Vice President, Chief Financial Officer and	November 14, 2016
Corisa L. Guiffre	Assistant Corporate Secretary

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EX-10.1

EXHIBIT 10.1

RIDER TO AMENDED AND RESTATED
REVENUE SHARING AND NOTE PURCHASE AGREEMENT

Reference is made to the Revenue Sharing and Note Purchase Agreement originally dated as of February 14, 2014, and amended and restated as of December 24, 2014 (as so amended and restated, and as amended and in effect from time to time, the “Agreement”) by and among ANDREA ELECTRONICS CORPORATION, a New York corporation (the “Company”), AND34 FUNDING LLC as collateral agent (the “Collateral Agent”) and the financial institutions party thereto as Purchasers.

This Rider (“Rider”) is dated as of August 10, 2016, and, upon becoming effective in accordance with its terms, will hereafter be part of the Agreement.

WHEREAS, the Agreement contemplated that the Company may subsequently request, and the Note Purchasers may in their sole discretion agree to, the sale and purchase of additional Notes;

WHEREAS, the Company now wishes to issue and sell additional Notes to Purchasers and Purchasers are willing to purchase such Notes (hereafter, the “Additional Notes”) subject to the terms and conditions set forth in the Agreement and this Rider;

NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:

A. Definitions. Except as otherwise defined in this Rider, terms defined in the Agreement are used herein as defined therein.

B. Rider Effect on Agreement. Except as specifically provided in this Rider, this Rider does not alter or amend any provision or term of the Agreement, which remains in effect. All references herein to Sections and Schedules refer to Sections and Schedules of the Agreement.

C. Additional Notes.

C.1. Purchase and Sale of Additional Notes.

C.1.1. On August 10, 2016 (the “Rider Date”) and from time to time thereafter as provided herein, the Company agrees to issue and sell, and each Note Purchaser agrees to purchase, for an amount equal to the original principal amount thereof and in accordance with the percentages set forth on Schedule 2.2, Additional Notes in an aggregate original principal amount of up to $7,000,000 (or such greater amount as the Note Purchasers may agree in their sole discretion). The purchase price of the Additional Notes allocated in accordance with the percentages set forth Schedule 2.2 shall be payable in immediately available funds by wire transfer to the deposit account of the Company as identified in writing by the Company to the Note Purchasers prior to the Rider Date and each subsequent date of issuance of Additional Notes thereafter. No Note Purchaser shall be responsible for any default by any other Note Purchaser in its obligation to acquire Additional Notes hereunder. The Company may subsequently request, and the Note Purchasers may in their sole discretion agree to, the sale and purchase of additional Notes in excess of such amount.

1

C.1.2. From time to time following the Rider Date and through the fourth anniversary of the Rider Date (or, upon mutual prior agreement of the Company and the Majority Note Purchasers and subject to an extension of the Maturity Date pursuant to Section C.3.1, through the fifth anniversary of the Rider Date), on not less than 10 Business Days prior written notice, the Company may request that the Note Purchasers acquire, and subject to the conditions set forth in Section 3.3, the Note Purchasers shall acquire, Additional Notes in an aggregate original principal amount of up to $7,000,000 (excluding any PIK Interest) (or such greater amount as the Note Purchasers may agree in their sole discretion). The proceeds of the Additional Notes shall be applied solely to the payment of Monetization Expenses (or to reimburse the Company for the payment of Monetization Expenses). The Company may not request Additional Notes to be acquired more than one time in any calendar month, and any such requests shall be in a minimum amount of $100,000.

C.2. Interest on Additional Notes. The unpaid principal amount of the Additional Notes (including any PIK Interest) shall bear interest at a rate equal to LIBOR plus 2% per annum; provided that upon and during the continuance of an Event of Default under Section 7.1.1, the interest rate shall increase by an additional 2% per annum. Interest on the Additional Notes shall be paid on the last Business Day of each calendar quarter (the “Interest Payment Date”), starting with the calendar quarter ending following the issuance thereof. Such interest may be paid in cash at the option of the Company (and shall be paid in cash to the extent of any unapplied Monetization Revenues) and otherwise shall be paid by increasing the principal amount of the Additional Notes by the amount of such interest, effective as of the applicable Interest Payment Date (“PIK Interest”).

C.3. Payment of Additional Notes.

C.3.1. Payment at Maturity. The principal of the Additional Notes and all unpaid interest thereon or other amounts owing hereunder shall be paid in full in cash on August 31, 2020 (the “Rider Maturity Date”); provided that the Company may request, and at the sole discretion and option of the Note Purchasers the Note Purchasers may consent, to extend the applicable Rider Maturity Date for up to five one year increments.

C.3.2. Optional Prepayments. The Company may prepaythe Additional Notesfrom time to timein whole or in part, without penalty or premium. Any such prepayment shall include accrued and unpaid interest on the amount prepaid.

2

C.3.3. Mandatory Prepayments. Upon receipt of any Monetization Revenues, the Company or the Collateral Agent, as the case may be, shall apply 100% of such Monetization Revenues to the payment of accrued and unpaid interest on, and then to repay outstanding principal of, the Additional Notes. Any such principal prepayment shall be applied to the Additional Notes in the order in which the Additional Notes were issued. Except to the extent that the Collateral Agent is enjoined or stayed from distributing any such Monetization Revenues (other than to the extent such enjoinder or stay arises solely from (x) a dispute among the Purchasers or (y) a dispute between any Purchaser and the Collateral Agent), such direct deposit by payors shall constitute timely payment by the Company of such accrued and unpaid interest and the outstanding principal of the Additional Notes in the amount of such direct deposit. Payments by the Company on the Additional Notes pursuant to this Section C.3.3. shall be made monthly on the tenth Business Day of each month with respect to Monetization Revenues received in the prior month; provided that, if the Company receives a single payment of Monetization Pre-Adjustment Revenues of $25,000 or more, the Company shall be required to determine the amount, if any, of the Monetization Revenues resulting from such payment and to make a payment to the Noteholders of such Monetization Revenues within 10 Business Days of receipt of such payment.

D. Limited Recourse. Notwithstanding any other provision of this Agreement, from and after the date of this Rider, the Purchasers’ recourse with respect to amounts due with respect to the Additional Notes and with respect to the remaining Revenue Stream shall be limited to the Patents and to the Monetization Revenues, and their rights and remedies under the Agreement shall be limited to enforcement against the Patents and the Monetization Revenues including, without limitation, foreclosing on the Patents, exercising their rights under the Patent License and exercising their right to cause the Patents to be assigned to a special purpose entity subject to the license back to the Company set forth inSection 7.3; provided that this limitation shall not limit the Purchasers’ recourse (1) in the event of a breach of the Company’s obligations to apply the portions of Monetization Revenues specified in the Agreement to the payment of the Additional Notes, the Revenue Stream and the other Obligations or (2) to recover their expenses of enforcing their rights and remedies in the event that the Company fails to cooperate in, or seeks to frustrate or impede, the exercise by the Purchasers’ of their rights and remedies with respect to the Patents and the Monetization Revenues, including frustrating or impeding any efforts of the Purchasers to substitute or add as a plaintiff the special purpose entity in any pending litigation concerning the Patents following assignment of the Patents to such entity and including any expenses of the Purchasers in enforcing their rights and remedies in any bankruptcy proceeding commenced by or against the Company.

3

IN WITNESS WHEREOF, the parties hereto have caused this Rider to the Agreement to be duly executed and delivered as of the day of the year first above written.

ANDREA ELECTRONICS CORPORATION, As the Company

By	/s/ Corisa L. Guiffre
	Name:	Corisa L. Guiffre
	Title:	Vice President, Chief Financial
		Officer and Assistant Corporate Secretary

AND34 FUNDING LLC, As A Revenue Participant

By	James K. Noble III
	Name:     James K. Noble III
	Title:       Secretary

AND34 FUNDING LLC, As A Noteholder

By	James K Noble III
	Name:	James K. Noble III
	Title:       Secretary

AND34 FUNDING LLC, As Collateral Agent

By	James K. Noble III
	Name:     James K. Noble III
	Title:       Secretary

EX-31.1

EXHIBIT 31.1

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

I, Douglas J. Andrea, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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: November 14, 2016	/s/ DOUGLAS J. ANDREA
	Douglas J. Andrea
	Chairman of the Board, President, Chief
	Executive Officer and Corporate Secretary

EX-31.2

EXHIBIT 31.2

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

I, Corisa L. Guiffre, certify that:

1.	I have reviewed this report on Form 10-Q of Andrea Electronics Corporation;
2.	Based on my knowledge, this quarterly 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 quarterly 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 - a5(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 small business issuer’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly 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: November 14, 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 Quarterly Report of Andrea Electronics Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2016 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: November 14, 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

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
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-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		64,914,935

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Condensed Consolidated Balance Sheets - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash	$ 3,023,408	$ 5,592,554
Accounts receivable, net of allowance for doubtful accounts of $7,275 and 5,415, respectively	151,038	1,902,388
Inventories, net	102,826	58,028
Prepaid expenses and other current assets	57,372	60,086
Current portion of note receivable	206,580	406,522
Assets from discontinued operations	43,140	149,746
Total current assets	3,584,364	8,169,324
Property and equipment, net	69,312	86,960
Intangible assets, net	319,650	345,359
Long term note receivable		103,709
Other assets, net	5,250	5,250
Total assets	3,978,576	8,710,602
Current liabilities:
Trade accounts payable	297,159	2,149,532
Taxes payable		45,000
Accrued Series C Preferred Stock Dividends	55,697	73,921
Short-term deferred revenue		6,600
Other current liabilities	142,675	1,640,833
Liabilities from discontinued operations	19,800	40,075
Short-term advance from Revenue Sharing Agreement		196,477
Current portion of long-term debt		1,900,775
Total current liabilities	515,331	6,053,213
Long-term debt	1,002,333
Advance from Revenue Sharing Agreement		115,590
Total liabilities	1,517,664	6,168,803
Series B Redeemable Convertible Preferred Stock, $.01 par value; authorized: 1,000 shares; issued and outstanding: 0 shares
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value
Common stock, $.01 par value; authorized: 200,000,000 shares; issued and outstanding: 64,914,935 and 64,416,035 shares, respectively	649,149	644,160
Additional paid-in capital	77,790,159	77,727,552
Accumulated deficit	(75,987,469)	(75,838,986)
Total shareholders' equity	2,460,912	2,541,799
Total liabilities and shareholders' equity	3,978,576	8,710,602
Series C Convertible Preferred Stock [Member]
Shareholders' equity:
Preferred stock, par value	1	1
Total shareholders' equity	1	1
Series D Convertible Preferred Stock [Member]
Shareholders' equity:
Preferred stock, par value	9,072	9,072
Total shareholders' equity	$ 9,072	$ 9,072

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Allowance for doubtful accounts	$ 7,275	$ 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	64,914,935	64,416,035
Common stock, shares outstanding	64,914,935	64,416,035
Series C Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,500	1,500
Preferred stock, shares issued	33.3	44.2
Preferred stock, shares outstanding	33.3	44.2
Preferred stock, liquidation value	$ 333,269	$ 442,314
Series D Convertible Preferred Stock [Member]
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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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues
Net product revenues	$ 117,870	$ 141,581	$ 357,721	$ 322,052
License revenues	45,010	173,798	3,144,698	610,732
Total revenues	162,880	315,379	3,502,419	932,784
Cost of revenues
License revenue sharing	289,463		289,463
Cost of product revenues	28,521	36,684	101,079	97,380
Total cost of revenues	317,984	36,684	390,542	97,380
Gross margin	(155,104)	278,695	3,111,877	835,404
Patent Monetization expenses	10,074	2,143,616	1,734,245	4,142,138
Research and development expenses	182,335	197,547	562,383	551,888
General, administrative and selling expenses	295,916	321,925	960,271	822,382
Continuing operating loss	(643,429)	(2,384,393)	(145,022)	(4,681,004)
Interest income (expense), net	3,228	(19,350)	5,855	(37,411)
Loss from continuing operations before provision for income taxes	(640,201)	(2,403,743)	(139,167)	(4,718,415)
(Benefit) provision for income taxes	(38,710)	34,120	9,316	119,958
Loss from continuing operations	(601,491)	(2,437,863)	(148,483)	(4,838,373)
(Loss) income from discontinued operations		(60,796)		575,895
Net loss	$ (601,491)	$ (2,498,659)	$ (148,483)	$ (4,262,478)
Basic and diluted weighted average shares	64,914,935	64,134,024	64,741,959	63,860,211
Basic and diluted net loss per share from continuing operations	$ (0.01)	$ (0.04)	$ 0.00	$ (0.08)
Basic and diluted net (loss) income per share from discontinuing operations	0.00	0.00	0.00	0.01
Basic and diluted net loss per share	$ (0.01)	$ (0.04)	$ 0.00	$ (0.07)

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2016 - USD ($)	Total	Series C Convertible Preferred Stock [Member]	Series D Convertible Preferred Stock [Member]	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Beginning Balance at Dec. 31, 2015	$ 2,541,799	$ 1	$ 9,072	$ 644,160	$ 77,727,552	$ (75,838,986)
Beginning Balance (in shares) at Dec. 31, 2015		44.231432	907,144	64,416,035
Conversion of Series C Convertible Preferred Stock	18,224			$ 4,989	$ 13,235
Conversion of Series C Convertible Preferred Stock, Shares		(10.904533)		498,900
Stock-based Compensation Expense related to Stock Option Grants	49,372				$ 49,372
Net loss	(148,483)					(148,483)
Balance at Sep. 30, 2016	$ 2,460,912	$ 1	$ 9,072	$ 649,149	$ 77,790,159	$ (75,987,469)
Balance (in shares) at Sep. 30, 2016		33.326899	907,144	64,914,935

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (148,483)	$ (4,262,478)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	54,038	61,305
Stock based compensation expense	49,372	95,923
Reserve (credit) for inventory obsolescence	12,140	(94,054)
Provision for income tax withholding	9,316	119,958
PIK interest, net	14,107	59,630
Gain on sale of Anti-Noise Products Division		(877,073)
Accrued interest on note receivable	(9,162)	(9,817)
Change in:
Accounts receivable	1,764,734	(105,067)
Inventories	26,968	403,652
Prepaid expenses, other current assets and other assets	2,714	(7,703)
Taxes payable	(45,000)	(32,000)
Trade accounts payable	(1,852,373)	820,894
Repayments of Advance from Revenue Sharing Agreement	(312,067)
Other current liabilities	(1,518,433)	381,103
Short-term deferred revenue	(6,600)	(2,712)
Net cash used in operating activities	(1,958,729)	(3,448,439)
Cash flows from investing activities:
Purchases of property and equipment		(18,443)
Proceeds from the sale of the Anti-Noise Products Division		300,000
Proceeds from the exercise of Stock Options		34,750
Proceeds from repayments of note receivable	312,813
Purchases of patents and trademarks	(10,681)	(12,713)
Net cash provided by investing activities	302,132	303,594
Cash flows from financing activities:
Repayments of long-term notes and PIK interest	(4,112,549)
Proceeds from long-term notes	3,200,000	3,400,000
Net cash (used in) provided by financing activities	(912,549)	3,400,000
Net (decrease) increase in cash	(2,569,146)	255,155
Cash, beginning of year	5,592,554	3,574,530
Cash, end of period	3,023,408	3,829,685
Cash paid for:
Interest	12,548
Income Taxes	124,277	135,930
Non Cash Investing and Financing Activity:
Conversion of Series C Convertible Preferred Stock and related dividends into common stock	13,235
Note Receivable received in connection with the sale of the Anti-Noise Products Division		$ 600,000

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Basis of Presentation

9 Months Ended

Sep. 30, 2016

Basis of Presentation [Abstract]

Basis of Presentation

Note 1.Basis of Presentation

Basis of Presentation - The accompanying unaudited condensed consolidated interim financial statements include the accounts of Andrea Electronics Corporation and its subsidiaries (“Andrea” or the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2015 balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for any other interim period or for the fiscal year.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2015 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2016. The accounting policies used in preparing these unaudited condensed consolidated interim financial statements are consistent with those described in the December 31, 2015 audited consolidated financial statements.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2.Summary of Significant Accounting Policies

Loss Per Share - Loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss adjusts basic loss 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 loss 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:

	For the Three and Nine Months Ended
	September 30, 2016	September 30, 2015
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 7)	16,869,821	16,969,821
Series C Convertible Preferred Stock and related accrued
dividends (Note 4)	1,524,758	2,023,658
Series D Convertible Preferred Stock (Note 5)	3,628,576	3,628,576
Total potentially dilutive common shares	22,023,155	22,622,055

Cash - Cash includes cash and highly liquid investments with original maturities of three months or less. At various times during the periods ended September 30, 2016 and December 31, 2015, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At September 30, 2016 and December 31, 2015, the Company’s cash was held at four financial institutions.

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Customer A		*	30	%		*	23	%
Customer B	19	%	54	%		*	64	%
Customer C		*		*	14	%		*
Customer D		*		*	24	%		*
Customer E		*		*	37	%		*
Customer F	47	%		*		*		*

____________________

       *       Amounts are less than 10%

As of September 30, 2016, Customer A, B and F accounted for approximately 8%, 17% and 26%, respectively, of accounts receivable. As of December 31, 2015, Customer A and B accounted for approximately 1% and 6%, respectively, of accounts receivable.

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 changes in inventory reserves as part of cost of revenues.

	September 30, 2016			December 31, 2015
Raw materials	$	16,816		$	21,253
Finished goods		203,442			152,050
		220,258			173,303
Less: reserve for obsolescence		(117,432	)		(115,275	)
	$	102,826		$	58,028

Long-Lived Assets - Andrea accounts for its long-lived assets in accordance with Accounting Standards Codification (“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 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 revenues), 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. At September 30, 2016 and December 31, 2015, Andrea concluded that Intangibles and long-lived assets were not required to be tested for recoverability.

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 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 September 30, 2016 and December 31, 2015 the Company had 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 September 30, 2016, Andrea had two stock-based employee compensation plans, which are described more fully in Note 7. Andrea accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation.” ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718, stock-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.

Use of Estimates - The preparation of condensed consolidated interim 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 condensed consolidated interim 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 condensed consolidated interim 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, 2017. 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.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”). ASU No. 2016-08 maintains the core principles of Topic 606 on revenue recognition, but clarifies whether an entity is a principal or an agent in a contract and the appropriate revenue recognition principles under each of these circumstances. The amendments in ASU 2016-08 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement presentation. This ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in income tax benefit or expense in the statements of earnings. This change is required to be adopted prospectively in the period of adoption. In addition, the ASU modifies the classification of certain share-based payment activities within the statements of cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively, beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” ASU No. 2016-10 maintains the core principles of Topic 606 on revenue recognition, but clarifies identification of performance obligations and licensing implementation guidance. The amendments in ASU 2016-10 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow- Scope Improvements and Practical Expedients.” ASU No. 2016-12 maintains the core principles of Topic 606 on revenue recognition, but addresses collectability, sales tax presentation, noncash consideration, contract modifications at transition and completed contracts at transition. The amendments in ASU 2016-12 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13 provides financial statement readers more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. It is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact, if any, this guidance will have on its financial statements.

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not have any effect on reported consolidated net loss for the periods presented.

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

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Revenue Sharing, Note Purchase Agreement and Long-Term Debt

9 Months Ended

Sep. 30, 2016

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

Revenue Sharing, Note Purchase Agreement and Long-Term Debt

Note 3.Revenue Sharing, Note Purchase Agreement and Long-Term Debt

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 (“Monetization Revenues”) currently owned by the Company (the “Patents”) in exchange for $3,500,000, which was originally recorded as an “Advance from Revenue Sharing Agreement” on the accompanying consolidated balance sheet and has been fully repaid as of September 30, 2016. AND34’s rights to the Company’s Monetization Revenues (as defined in the Revenue Sharing Agreement) from the Patents and the Notes are secured by the Patents. Under the terms of the Revenue Sharing Agreement with AND34, Andrea issued and sold to AND34 Notes of $10,800,000 of which have been repaid as of September 30, 2016. On August 10, 2016, Andrea and AND34 executed a Rider to the Revenue Sharing Agreement (“Rider”). Under the Rider, Andrea has agreed to issue and sell to AND34 Additional Notes up to an aggregate original amount of $7,000,000, or such greater amount as AND34 may agree to in its sole discretion, during the four year period beginning on the date of execution of the Rider. The Additional Notes will have a Maturity date of August 31, 2020. The proceeds of the Additional Notes will be used to pay certain expenses related to the Revenue Sharing Agreement, and be used for expenses of the Company incurred in pursuing patent monetization. As of September 30, 2016, the Company issued $1,000,000 in Additional Notes to pay Monetization Expenses.

Any Monetization Revenues will first be applied 100% to the payment of accrued and unpaid interest on, and then to repay outstanding principal of, the Additional Notes. After the Additional 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 50% to the Revenue Participants 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 8). For the nine months ended September 30, 2016, there was approximately $2,944,000 of non-recurring monetization revenues recognized for patent licensing agreements entered into during 2016. During the three months ended September 30, 2016, there was a one-time change to the method of the calculation on distribution of Monetization Revenue under the Monetization Revenue Sharing Agreement in which the Company recorded and paid licensing revenue sharing expense of approximately $290,000.

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.

Advance from Revenue Sharing Agreement

	September 30, 2016		December 31, 2015
Advance from Revenue Sharing Agreement	$	-	$	312,067
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

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

Long-term debt

	September 30, 2016		December 31, 2015
Note Payable	$	1,000,000	$	1,900,000
PIK interest		2,333		775
Total long-term debt	$	1,002,333	$	1,900,775
Less: current maturities of long-term debt		-		(1,900,775	)
Long-term debt, net of current maturities	$	1,002,333	$	-

The unpaid principal amount of the Notes (including any PIK Interest) have an interest rate equal to LIBOR (as defined in the Revenue Sharing Agreement) plus 2% per annum, (3% at September 30, 2016 and December 31, 2015); 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 Additional Notes by the amount of such interest (“PIK Interest”). The outstanding principal balance of the Additional Notes and all unpaid interest thereon will be paid within the next twelve months. The Company may prepay the Additional Notes from time to time in whole or in part, without penalty or premium.

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Series C Redeemable Convertible Preferred Stock

9 Months Ended

Sep. 30, 2016

Series C Redeemable Convertible Preferred Stock [Abstract]

Series C Redeemable Convertible Preferred Stock

Note 4.Series C Redeemable 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,” 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.

On April 4, 2016, 10.904533 shares of Series C Preferred Stock, together with related accrued dividends, were converted into 498,900 shares of Common Stock at a conversion price of $0.2551.

As of September 30, 2016, there were 33.326899 shares of Series C Preferred Stock outstanding, which were convertible into 1,524,758 shares of Common Stock and remaining accrued dividends of $55,697.

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Series D Redeemable Convertible Preferred Stock

9 Months Ended

Sep. 30, 2016

Series D Redeemable Convertible Preferred Stock [Abstract]

Series D Redeemable Convertible Preferred Stock

Note 5.Series D Redeemable 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 and related warrants 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 September 30, 2016, 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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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

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 $8,176 and $24,170 for the three and nine months ended September 30, 2016, respectively. The rent expense under this operating lease was $5,250 for the three and nine month periods ended September 30, 2015. The monthly rent under this lease is $2,725 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 zero and $37,676 for the three and nine month periods ended September 30, 2015, respectively.

As of September 30, 2016, the minimum future lease payments under this lease and all other noncancellable operating leases are as follows:

2016 (September 1 – December 31)	$	14,916
2017		55,715
2018		50,287
2019		45,697
2020		30,843
Total	$	197,458

Employment 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 it currently expires on January 31, 2017, 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 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, 2016, the future minimum cash commitments under this agreement aggregate $111,220.

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 September 2016, Andrea filed two complaints with the United States District Court for the Eastern District of New York, alleging patent infringement against Apple Inc. (“Apple”) and Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”), and requesting monetary and injunctive relief. Neither Apple nor Samsung has responded to Andrea's complaints.

Also in September 2016, Andrea filed a Complaint with the United States International Trade Commission (“ITC”), alleging patent infringement against Apple and Samsung and requesting injunctive relief. The ITC instituted an investigation on October 19, 2016. Apple and Samsung have not yet answered Andrea’s ITC Complaint. Andrea intends to vigorously prosecute its claims against Apple and Samsung.

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Stock Plans and Stock Based Compensation

9 Months Ended

Sep. 30, 2016

Stock Plans and Stock Based Compensation [Abstract]

Stock Plans and Stock Based Compensation

Note 7.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, authorized 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 could take the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options or other stock-based awards. Awards could be granted to key employees, officers, directors and consultants. No further awards may 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 September 30, 2016, there were 1,692,436 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 weighted-average assumptions. 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.

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 on the date of grant; with vesting periods of up to four years and 10-year contractual terms.

There were no options granted during the three or nine months ended September 30, 2016.

During the three months ended September 30, 2015, the Board granted Mr. Andrea 500,000 stock options with an aggregate fair value of $30,000 (fair value was estimated using the Black-Scholes option-pricing model). The 500,000 grant vests in three equal annual installments over a three year period commencing on August 1, 2016. These 500,000 stock options have an exercise price of $0.06 per share, which was the fair market value of the Company’s common stock on the date of grant, and a term of 10 years.

During the nine months ended September 30, 2015, the Board granted outside consultants 100,000 stock options with an aggregate fair value of $8,000 (fair value was estimated using the Black-Scholes option-pricing model). The 100,000 stock options vest in three equal annual installments over a three year period. These 100,000 stock options have an exercise price of $0.08 per share, which was the fair market value of the Company’s common stock on the date of grant, and a term of 10 years.

The fair values of the stock options granted for the three and nine-month periods ended September 30, 2015 were estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:

	Three months ended September 30, 2015		Nine months ended September 30, 2015
Expected life in years	8		8
Risk-free interest rates	2.10	%	2.04	%
Volatility	205.8	%	205.3	%
Dividend yield	0	%	0	%

Option activity during 2016 is summarized as follows:

	Options Outstanding							Options Exercisable
	Options Outstanding		Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life
At January 1, 2016	16,929,821		$	0.09	$	0.08	3.56 years	14,895,122	$	0.09	$	0.08	2.85 years
Forfeited	(8,004	)	$	0.08	$	0.08
Canceled	(51,996	)	$	0.06	$	0.05
At September 30, 2016	16,869,821		$	0.09	$	0.08	2.82 years	15,209,426	$	0.09	$	0.08	2.25 years

Based on the September 30, 2016, fair market value of the Company’s common stock of $0.06, the aggregate intrinsic value for the 16,869,821 options outstanding and 15,209,426 shares exercisable is $97,000.

Total compensation expense recognized related to stock option awards was $14,884 and $30,314 for the three months ended September 30, 2016 and 2015, respectively. In the accompanying condensed consolidated statements of operations for the three months ended September 30, 2016, $12,067 of compensation expense is included in general, administrative and selling expenses and $2,817 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statements of operations for the three months ended September 30, 2015, $24,122 of compensation expense is included in general, administrative and selling expenses and $6,192 of compensation expense is included in research and development expenses.

Total compensation expense recognized related to stock option awards was $49,372 and $95,923 for the nine months ended September 30, 2016 and 2015, respectively. In the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2016, $40,921 of compensation expense is included in general, administrative and selling expenses and $8,451 of compensation expense is included in research and development expenses. In the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2015, $77,347 of compensation expense is included in general, administrative and selling expenses and $18,576 of compensation expense is included in research and development expenses.

As of September 30, 2016, there was $29,638 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 during 2016, 2017 and 2018 in the amounts of $7,032, $20,660 and $1,946, respectively.

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Segment Information

9 Months Ended

Sep. 30, 2016

Segment Information [Abstract]

Segment Information

Note 8.Segment Information

Andrea follows the provisions of ASC 280 “Segment Reporting.” 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 also 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 Amended and Restated 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 condensed consolidated interim financial information for Andrea’s segments for the three-month periods ended September 30, 2016 and 2015.

2016 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Three Month Segment Data
Net product revenues	$	-	$	117,870		$	117,870
License revenues		611		44,399			45,010
Continuing operating loss		388,573		254,856			643,429
Depreciation and amortization		6,070		11,817			17,887
Assets		455,334		3,480,102			3,935,436
Property and equipment and intangibles		159,823		229,139			388,962
Purchases of patents and trademarks		491		490			981
2015 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Three Month Segment Data
Net product revenues	$	-	$	141,581		$	141,581
License revenues		1,147		172,651			173,798
Continuing operating loss		2,197,461		186,932			2,384,393
Depreciation and amortization		7,356		12,998			20,354
December 31, 2015 Year End Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Year End Segment Data
Assets	$	2,278,587	$	6,282,269		$	8,560,856
Property and equipment and intangibles		172,677		259,642			432,319
The following represents selected condensed consolidated interim financial information for Andrea’s segments for the nine-month periods ended September 30, 2016 and 2015.
2016 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Nine Month Segment Data
Net product revenues	$	-	$	357,721		$	357,721
License revenues		2,947,319		197,379			3,144,698
Continuing operating income (loss)		712,742		(857,764	)		(145,022	)
Depreciation and amortization		18,195		35,843			54,038
Purchases of patents and trademarks		5,341		5,340			10,681
2015 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Nine Month Segment Data
Net product revenues	$	-	$	322,052		$	322,052
License revenues		4,137		606,595			610,732
Continuing operating loss		4,298,855		382,149			4,681,004
Depreciation and amortization		20,669		40,636			61,305
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		6,357		6,356			12,713

Management assesses 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 three-month periods ended September 30, 2016 and 2015 total revenues by geographic area were as follows:

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	107,820	$	135,575
Foreign(1)		55,060		179,804
	$	162,880	$	315,379

____________________

(1)      Total revenue from the People’s Republic of China and Singapore represented 25% and 55% of total revenues for the three months ended September 30, 2016 and 2015, respectively.

For the nine-month periods ended September 30, 2016 and 2015 total revenues by geographic area were as follows:

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	1,639,466	$	344,318
Foreign(1)		1,862,953		588,466
	$	3,502,419	$	932,784

____________________

(1)      Total revenue from Israel represented 37% of total revenues for the nine months ended September 30, 2016. Total revenue from the People’s Republic of China and Singapore represented 60% of total revenues for the nine months ended September 30, 2015.

As of September 30, 2016 and December 31, 2015, accounts receivable by geographic area were as follows:

Geographic Data	September 30, 2016		December 31, 2015
Accounts receivable:
United States	$	104,151	$	1,788,500
Foreign		46,887		113,888
	$	151,038	$	1,902,388

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Sale of Andrea Anti-Noise Products Division

9 Months Ended

Sep. 30, 2016

Sale of Andrea Anti-Noise Products Division [Abstract]

Sale of Andrea Anti-Noise Products Division

Note 9.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 purchase 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 three and nine months ended September 30, 2016 and 2015 and as of September 30, 2016 and December 31, 2015, respectively:

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2016		September 30, 2015			September 30, 2016		September 30, 2015
Operations
Net Revenues	$	3,667	$	87,242		$	72,027	$	600,160
Cost of Sales		3,667		84,397			72,027		537,368
Gross margin		-		2,845			-		62,792
Research and Development Expenses		-		-			-		18,746
General, administrative and selling expenses		-		63,641			-
									347,763
Gain on sale of Anti-Noise Products Division		-		-			-		879,612
(Loss) income from Discontinued Operations	$	-	$	(60,796	)	$	-	$	575,895
	September 30, 2016		December 31, 2015
Assets
Accounts Receivable, net	$	4,603	$	27,303
Inventories, net		38,537		122,443
Assets from Discontinued Operations	$	43,140	$	149,746
Liabilities
Other current liabilities		19,800		40,075
Liabilities from discontinued operations	$	19,800	$	40,075

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Loss Per Share

Loss Per Share - Loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss adjusts basic loss 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 loss 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:

	For the Three and Nine Months Ended
	September 30, 2016	September 30, 2015
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 7)	16,869,821	16,969,821
Series C Convertible Preferred Stock and related accrued
dividends (Note 4)	1,524,758	2,023,658
Series D Convertible Preferred Stock (Note 5)	3,628,576	3,628,576
Total potentially dilutive common shares	22,023,155	22,622,055

Cash

Cash - Cash includes cash and highly liquid investments with original maturities of three months or less. At various times during the periods ended September 30, 2016 and December 31, 2015, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At September 30, 2016 and December 31, 2015, the Company’s cash was held at four financial institutions.

Concentration of Credit Risk

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Customer A		*	30	%		*	23	%
Customer B	19	%	54	%		*	64	%
Customer C		*		*	14	%		*
Customer D		*		*	24	%		*
Customer E		*		*	37	%		*
Customer F	47	%		*		*		*

____________________

       *       Amounts are less than 10%

As of September 30, 2016, Customer A, B and F accounted for approximately 8%, 17% and 26%, respectively, of accounts receivable. As of December 31, 2015, Customer A and B accounted for approximately 1% and 6%, respectively, of accounts receivable.

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 changes in inventory reserves as part of cost of revenues.

	September 30, 2016			December 31, 2015
Raw materials	$	16,816		$	21,253
Finished goods		203,442			152,050
		220,258			173,303
Less: reserve for obsolescence		(117,432	)		(115,275	)
	$	102,826		$	58,028

Long-Lived Assets

Long-Lived Assets - Andrea accounts for its long-lived assets in accordance with Accounting Standards Codification (“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 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 revenues), 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. At September 30, 2016 and December 31, 2015, Andrea concluded that Intangibles and long-lived assets were not required to be tested for recoverability.

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 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 September 30, 2016 and December 31, 2015 the Company had 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 September 30, 2016, Andrea had two stock-based employee compensation plans, which are described more fully in Note 7. Andrea accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation.” ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718, stock-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.

Use of Estimates

Use of Estimates - The preparation of condensed consolidated interim 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 condensed consolidated interim 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 condensed consolidated interim 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, 2017. 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.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”). ASU No. 2016-08 maintains the core principles of Topic 606 on revenue recognition, but clarifies whether an entity is a principal or an agent in a contract and the appropriate revenue recognition principles under each of these circumstances. The amendments in ASU 2016-08 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement presentation. This ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in income tax benefit or expense in the statements of earnings. This change is required to be adopted prospectively in the period of adoption. In addition, the ASU modifies the classification of certain share-based payment activities within the statements of cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively, beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.” ASU No. 2016-10 maintains the core principles of Topic 606 on revenue recognition, but clarifies identification of performance obligations and licensing implementation guidance. The amendments in ASU 2016-10 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow- Scope Improvements and Practical Expedients.” ASU No. 2016-12 maintains the core principles of Topic 606 on revenue recognition, but addresses collectability, sales tax presentation, noncash consideration, contract modifications at transition and completed contracts at transition. The amendments in ASU 2016-12 affect the guidance of ASU 2014-09 which is not yet effective. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13 provides financial statement readers more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company will evaluate the effects, if any, that adoption of this guidance will have on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. It is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact, if any, this guidance will have on its financial statements.

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not have any effect on reported consolidated net loss for the periods presented.

Reclassifications

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not have any effect on reported consolidated net loss for the periods presented.

Subsequent Events

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

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies [Abstract]

Summary of Antidilutive securities excluded from computation of earnings per share

	For the Three and Nine Months Ended
	September 30, 2016	September 30, 2015
Total potentially dilutive common shares as of:
Stock options to purchase common stock (Note 7)	16,869,821	16,969,821
Series C Convertible Preferred Stock and related accrued
dividends (Note 4)	1,524,758	2,023,658
Series D Convertible Preferred Stock (Note 5)	3,628,576	3,628,576
Total potentially dilutive common shares	22,023,155	22,622,055

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Customer A		*	30	%		*	23	%
Customer B	19	%	54	%		*	64	%
Customer C		*		*	14	%		*
Customer D		*		*	24	%		*
Customer E		*		*	37	%		*
Customer F	47	%		*		*		*

____________________

       *       Amounts are less than 10%

Summary of Inventories, net

	September 30, 2016			December 31, 2015
Raw materials	$	16,816		$	21,253
Finished goods		203,442			152,050
		220,258			173,303
Less: reserve for obsolescence		(117,432	)		(115,275	)
	$	102,826		$	58,028

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

9 Months Ended

Sep. 30, 2016

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

Schedule of advance from revenue sharing agreement

	September 30, 2016		December 31, 2015
Advance from Revenue Sharing Agreement	$	-	$	312,067
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

Schedule of long-term debt

	September 30, 2016		December 31, 2015
Note Payable	$	1,000,000	$	1,900,000
PIK interest		2,333		775
Total long-term debt	$	1,002,333	$	1,900,775
Less: current maturities of long-term debt		-		(1,900,775	)
Long-term debt, net of current maturities	$	1,002,333	$	-

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies [Abstract]

Summary of minimum annual future lease payments under operating leases

2016 (September 1 – December 31)	$	14,916
2017		55,715
2018		50,287
2019		45,697
2020		30,843
Total	$	197,458

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Stock Plans and Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2016

Stock Plans and Stock Based Compensation [Abstract]

Schedule of option-pricing model using the following weighted-average assumptions

	Three months ended September 30, 2015		Nine months ended September 30, 2015
Expected life in years	8		8
Risk-free interest rates	2.10	%	2.04	%
Volatility	205.8	%	205.3	%
Dividend yield	0	%	0	%

Schedule of stock option activity

	Options Outstanding								Options Exercisable
		Options Outstanding		Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life		Options Exercisable	Weighted Average Exercise Price		Weighted Average Fair Value		Weighted Average Remaining Contractual Life
At January 1, 2016		16,929,821		$	0.09	$	0.08	3.56 years		14,895,122	$	0.09	$	0.08	2.85 years
Forfeited		(8,004	)	$	0.08	$	0.08
Canceled		(51,996	)	$	0.06	$	0.05
At September 30, 2016		16,869,821		$	0.09	$	0.08	2.82 years		15,209,426	$	0.09	$	0.08	2.25 years

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Information [Abstract]

Summary of consolidated financial information for Andrea's segments

2016 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Three Month Segment Data
Net product revenues	$	-	$	117,870		$	117,870
License revenues		611		44,399			45,010
Continuing operating loss		388,573		254,856			643,429
Depreciation and amortization		6,070		11,817			17,887
Assets		455,334		3,480,102			3,935,436
Property and equipment and intangibles		159,823		229,139			388,962
Purchases of patents and trademarks		491		490			981
2015 Three Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Three Month Segment Data
Net product revenues	$	-	$	141,581		$	141,581
License revenues		1,147		172,651			173,798
Continuing operating loss		2,197,461		186,932			2,384,393
Depreciation and amortization		7,356		12,998			20,354
December 31, 2015 Year End Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Year End Segment Data
Assets	$	2,278,587	$	6,282,269		$	8,560,856
Property and equipment and intangibles		172,677		259,642			432,319
The following represents selected condensed consolidated interim financial information for Andrea’s segments for the nine-month periods ended September 30, 2016 and 2015.
2016 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2016 Nine Month Segment Data
Net product revenues	$	-	$	357,721		$	357,721
License revenues		2,947,319		197,379			3,144,698
Continuing operating income (loss)		712,742		(857,764	)		(145,022	)
Depreciation and amortization		18,195		35,843			54,038
Purchases of patents and trademarks		5,341		5,340			10,681
2015 Nine Month Segment Data	Patent Monetization		Andrea DSP Microphone and Audio Software Products			2015 Nine Month Segment Data
Net product revenues	$	-	$	322,052		$	322,052
License revenues		4,137		606,595			610,732
Continuing operating loss		4,298,855		382,149			4,681,004
Depreciation and amortization		20,669		40,636			61,305
Purchases of property and equipment		-		18,443			18,443
Purchases of patents and trademarks		6,357		6,356			12,713

Summary of net revenues by geographic area

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	107,820	$	135,575
Foreign(1)		55,060		179,804
	$	162,880	$	315,379

(1)      Total revenue from the People’s Republic of China and Singapore represented 25% and 55% of total revenues for the three months ended September 30, 2016 and 2015, respectively.

For the nine-month periods ended September 30, 2016 and 2015 total revenues by geographic area were as follows:

Geographic Data	September 30, 2016		September 30, 2015
Total revenues:
United States	$	1,639,466	$	344,318
Foreign(1)		1,862,953		588,466
	$	3,502,419	$	932,784

(1)      Total revenue from Israel represented 37% of total revenues for the nine months ended September 30, 2016. Total revenue from the People’s Republic of China and Singapore represented 60% of total revenues for the nine months ended September 30, 2015.

As of September 30, 2016 and December 31, 2015, accounts receivable by geographic area were as follows:

Geographic Data	September 30, 2016		December 31, 2015
Accounts receivable:
United States	$	104,151	$	1,788,500
Foreign		46,887		113,888
	$	151,038	$	1,902,388

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Sale of Andrea Anti-Noise Products Division (Tables)

9 Months Ended

Sep. 30, 2016

Sale of Andrea Anti-Noise Products Division [Abstract]

Schedule of discontinued operations of the Division's business segment

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2016		September 30, 2015			September 30, 2016		September 30, 2015
Operations
Net Revenues	$	3,667	$	87,242		$	72,027	$	600,160
Cost of Sales		3,667		84,397			72,027		537,368
Gross margin		-		2,845			-		62,792
Research and Development Expenses		-		-			-		18,746
General, administrative and selling expenses		-		63,641			-
									347,763
Gain on sale of Anti-Noise Products Division		-		-			-		879,612
(Loss) income from Discontinued Operations	$	-	$	(60,796	)	$	-	$	575,895
	September 30, 2016		December 31, 2015
Assets
Accounts Receivable, net	$	4,603	$	27,303
Inventories, net		38,537		122,443
Assets from Discontinued Operations	$	43,140	$	149,746
Liabilities
Other current liabilities		19,800		40,075
Liabilities from discontinued operations	$	19,800	$	40,075

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Summary of Significant Accounting Policies (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares	22,023,155	22,622,055	22,023,155	22,622,055
Stock options to purchase common stock [Member]
Summary of Antidilutive securities excluded from computation of earnings per share
Total potentially dilutive common shares	16,869,821	16,969,821	16,869,821	16,969,821
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	1,524,758	2,023,658	1,524,758	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	3,628,576	3,628,576	3,628,576

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Summary of Significant Accounting Policies (Details 1) - Revenue [Member]	3 Months Ended				9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015		Sep. 30, 2016		Sep. 30, 2015
Customer A [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage		[1]	30.00%			[1]	23.00%
Customer B [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage	19.00%		54.00%			[1]	64.00%
Customer C [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage		[1]		[1]	14.00%			[1]
Customer D [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage		[1]		[1]	24.00%			[1]
Customer E [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage		[1]		[1]	37.00%			[1]
Customer F [Member]
Summary of Concentration of credit risk, Customer as a percentage of revenues
Concentration risk percentage	47.00%			[1]		[1]		[1]

[1] Amounts are less than 10%

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Summary of Significant Accounting Policies (Details 2) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Summary of Significant Accounting Policies [Abstract]
Raw materials	$ 16,816	$ 21,253
Finished goods	203,442	152,050
Inventories, gross	220,258	173,303
Less: reserve for obsolescence	(117,432)	(115,275)
Inventories, net	$ 102,826	$ 58,028

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Summary of Significant Accounting Policies (Details Textual)	9 Months Ended		12 Months Ended
	Sep. 30, 2016 Institutions Compensationplans	Sep. 30, 2015	Dec. 31, 2015 Institutions
Summary of significant accounting policies (Textual)
Number of financial institutions where cash is held | Institutions	4		4
Number of stock-based employee compensation plans | Compensationplans	2
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	8.00%		1.00%
Customer B [Member] | Accounts Receivable [Member]
Summary of significant accounting policies (Textual)
Concentration risk percentage	17.00%		6.00%
Customer F [Member] | Accounts Receivable [Member]
Summary of significant accounting policies (Textual)
Concentration risk percentage	26.00%

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Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Details) - USD ($)	Sep. 30, 2016	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

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Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Details 1) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Revenue Sharing, Note Purchase Agreement and Long-Term Debt [Abstract]
Note Payable	$ 1,000,000
PIK interest	2,333	$ 775
Total long-term debt	1,002,333
Less: current maturities of long-term debt		(1,900,775)
Long-term debt, net of current maturities	$ 1,002,333

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Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Details Textual) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Textual)
Advance from revenue sharing agreement			$ 312,067	$ 3,500,000
Percentage of revenue applied for payment of accrued and unpaid interest		100.00%
Revenue from patenet licensing agrrements		$ 2,944,000
Interest rate	3.00%	3.00%	3.00%
Maturity date for notes		Aug. 31, 2020
Increase interest rate		2.00%
Monetization Expenses	$ 1,000,000	$ 1,000,000
Stock issued		10,800,000
Aggregate original amount	7,000,000	7,000,000
License revenue sharing	$ 289,463	$ 289,463
Maximum [Member]
Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Textual)
Percentage of revenue allocated to revenue participants		50.00%
Minimum [Member]
Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Textual)
Percentage of revenue allocated to revenue participants		20.00%
London Interbank Offered Rate (LIBOR) [Member]
Revenue Sharing, Note Purchase Agreement and Long-Term Debt (Textual)
Interest rate	2.00%	2.00%

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Series C Redeemable Convertible Preferred Stock (Details) - Series C Redeemable Convertible Preferred Stock [Member] - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Oct. 10, 2000	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Series C Convertible Preferred Stock (Textual)
Proceed from issuance of private placement	$ 7,500,000
Increase in stated value of preferred stock	$ 1,671
Preferred stock dividend rate		0.2551%
Additional increase per annum value of preferred stock	5.00%
Preferred stock, conversion price	$ 0.2551	$ 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				1,524,758
Accrued Series C Preferred Stock dividends, Shares		10.904533		10.904533
Shares, outstanding		33.326899		33.326899

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Series D Redeemable Convertible Preferred Stock (Details) - USD ($)	1 Months Ended		3 Months Ended		9 Months Ended
	Jun. 04, 2004	Feb. 23, 2004	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Feb. 17, 2004
Series D Convertible Preferred Stock (Textual)
Investment amount under agreement								$ 2,500,000
Preferred stock, shares outstanding
Series D Redeemable 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		$ 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		907,144
Number of common stock shares conversion of preferred stock					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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Commitments and Contingencies (Details)	Sep. 30, 2016 USD ($)
Summary of minimum annual future lease payments
2016 (September 1 - December 31)	$ 14,916
2017	55,715
2018	50,287
2019	45,697
2020	30,843
Total	$ 197,458

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Commitments and Contingencies (Details Textual)

1 Months Ended

3 Months Ended

9 Months Ended

Aug. 01, 2014

USD ($)

May 31, 2015

SquareFoot

Dec. 31, 2010

Segment

Sep. 30, 2016

USD ($)

Sep. 30, 2015

USD ($)

Sep. 30, 2016

USD ($)

SquareFoot

Sep. 30, 2015

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

$ 0

Number of defendants | Segment

90

Lease and rental expense, Description

The monthly rent under this lease is $2,725 with annual escalations of 3.5%.

Rent expense

$ 8,176

$ 5,250

$ 24,170

$ 5,250

Douglas J Andrea [Member]

Commitments and contingencies (Textual)

Term of employment agreement

The effective date of the employment agreement is August 1, 2014 and expires on January 31, 2017 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 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.

Future minimum cash commitments

$ 111,220

$ 111,220

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Stock Plans and Stock Based Compensation (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2015
Stock Plans and Stock Based Compensation [Abstract]
Expected life in years	8 years	8 years
Risk-free interest rates	2.10%	2.04%
Volatility	205.80%	205.30%
Dividend yield	0.00%	0.00%

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Stock Plans and Stock Based Compensation (Details 1)	9 Months Ended
	Sep. 30, 2016 $ / shares shares
Summary of stock options activity
Options Outstanding, Beginning balance | shares	16,929,821
Options Outstanding, Forfeited | shares	(8,004)
Options Outstanding, Canceled | shares	(51,996)
Options Outstanding, Ending balance | shares	16,869,821
Options Outstanding, Weighted Average Exercise Price, Beginning balance	$ 0.09
Options Outstanding, Weighted Average Exercise Price, Forfeited	0.06
Options Outstanding, Weighted Average Exercise Price, Canceled	0.08
Options Outstanding, Weighted Average Exercise Price, Ending balance	0.09
Options Outstanding, Weighted Average Fair Value, Beginning balance	0.08
Options Outstanding, Weighted Average Fair Value, Forfeited	0.08
Options Outstanding, Weighted Average Fair Value, Canceled	0.05
Options Outstanding, Weighted Average Fair Value, Ending balance	$ 0.08
Options Outstanding, Weighted Average Remaining Contractual Life	3 years 6 months 22 days
Options Outstanding, Weighted Average Remaining Contractuals Life	2 years 9 months 26 days
Options Exercisable, Beginning balance | shares	14,895,122
Options Exercisable, Ending balance | shares	15,209,426
Options Exercisable, Weighted Average Exercise Price, Beginning balance	$ 0.09
Options Exercisable, Weighted Average Exercise Price, Ending balance	0.09
Options Exercisable Weighted Average Fair Value, Beginning balance	0.08
Options Exercisable Weighted Average Fair Value, Ending balance	$ 0.08
Options Exercisable, Weighted Average Remaining Contractual Life	2 years 10 months 6 days
Options Exercisable, Weighted Average Remaining Contractuals Life	2 years 3 months

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Stock Plans and Stock Based Compensation (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Stock Plans and Stock Based Compensation (Textual)
Stock options contractual term			3 years 6 months 22 days
Fair value of common stock	$ 0.06		$ 0.06
Option exercisable, value	$ 97,000		$ 97,000
Stock options with aggregate fair value			$ 8,000
Stock options vest price			100,000
Stock options exercise price			$ 0.08
Share-based payment exercises price			695,000
Stock options exercise price	$ 0.05		$ 0.05
Total compensation expense recognized related to stock option awards	$ 14,884	$ 30,314	$ 49,372	$ 95,923
Stock option outstanding	16,869,821		16,869,821		16,929,821
Stock option exercisable	15,209,426		15,209,426		14,895,122
Mr. Andrea [Member]
Stock Plans and Stock Based Compensation (Textual)
Stock options vesting period		10 years
Options vested		500,000		500,000
Stock options granted outside consultants		500,000
Stock options with aggregate fair value		$ 30,000
Stock options exercise price		$ 0.06		$ 0.06
Stock option exercisable		500,000		500,000
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		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		18,000,000
Shares available for further issuance	1,692,436		1,692,436
Stock options vesting period			4 years
Stock options contractual term			10 years
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	$ 29,638		$ 29,638
2006 Equity Compensation Plan [Member] | 2016 [Member]
Stock Plans and Stock Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	7,032		7,032
2006 Equity Compensation Plan [Member] | 2017 [Member]
Stock Plans and Stock Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	20,660		20,660
2006 Equity Compensation Plan [Member] | 2018 [Member]
Stock Plans and Stock Based Compensation (Textual)
Total unrecognized compensation cost related to nonvested share-based compensation arrangements	1,946		1,946
General, administrative and selling expenses [Member]
Stock Plans and Stock Based Compensation (Textual)
Total compensation expense recognized related to stock option awards	12,067	$ 24,122	40,921	$ 77,347
Research and development expenses [Member]
Stock Plans and Stock Based Compensation (Textual)
Total compensation expense recognized related to stock option awards	$ 2,817	$ 6,192	$ 8,451	$ 18,576

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Segment Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Summary of consolidated financial information for Andrea's segments
Net product revenues	$ 117,870	$ 141,581	$ 357,721	$ 322,052
License revenues	45,010	173,798	3,144,698	610,732
Continuing operating income loss	(643,429)	(2,384,393)	(145,022)	(4,681,004)
Depreciation and amortization	18,127	20,354	54,038	61,305
Assets	3,978,576		3,978,576		$ 8,710,602
Property and equipment and intangible	405,868	18,443	405,868	18,443	432,319
Purchases of patents and trademarks	2,899		10,681	12,713
Patent Monetization [Member]
Summary of consolidated financial information for Andrea's segments
Net product revenues
License revenues	611	1,147	2,947,319	4,137
Continuing operating income loss	388,573	2,197,461	712,742	4,298,855
Depreciation and amortization	6,070	7,376	18,195	20,669
Assets	455,334		455,334		2,278,587
Property and equipment and intangible	159,823		159,823		172,677
Purchases of patents and trademarks	491		5,341	6,357
Andrea DSP Microphone and Audio Software Products [Member]
Summary of consolidated financial information for Andrea's segments
Net product revenues	117,870	141,581	357,721	322,052
License revenues	44,399	172,651	197,379	606,595
Continuing operating income loss	254,856	186,932	(857,764)	382,149
Depreciation and amortization	11,817	12,998	35,843	40,636
Assets	3,480,102		3,480,102		6,282,269
Property and equipment and intangible	229,139	$ 18,443	229,139	18,443	$ 259,642
Purchases of patents and trademarks	$ 490		$ 5,340	$ 6,356

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Segment Information (Details 1) - USD ($)	3 Months Ended				9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015		Sep. 30, 2016		Sep. 30, 2015		Dec. 31, 2015
Summary of net revenues and accounts receivable by geographic area
Net Revenues	$ 162,880		$ 315,379		$ 3,502,419		$ 932,784
Accounts receivable	151,038				151,038				$ 1,902,388
United States [Member]
Summary of net revenues and accounts receivable by geographic area
Net Revenues	107,820		135,575		639,466		344,318
Accounts receivable	104,151				104,151				1,788,500
Foreign [Member]
Summary of net revenues and accounts receivable by geographic area
Net Revenues	55,060	[1]	$ 179,804	[1]	862,953	[2]	$ 588,466	[2]
Accounts receivable	$ 46,887				$ 46,887				$ 113,888

[1] Total revenue from the People's Republic of China and Singapore represented 40% and 68% of total revenues for the three months ended June 30, 2016 and 2015, respectively.

[2] Total revenue from Israel represented 39% of total revenues for the six months ended June 30, 2016. Total revenue from the People's Republic of China and Singapore represented 63% of total revenues for the six months ended June 30, 2015.

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Segment Information (Details Textual) - Segment	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
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	25.00%	55.00%		60.00%
Israel [Member]
Segment Information (Textual)
Net revenues from foreign country as a percentage of total net revenues			37.00%

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Sale of Andrea Anti-Noise Products Division (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Operations
(Loss) income from Discontinued Operations		$ (60,796)		$ 575,895
Andrea Anti-Noise Products [Member]
Operations
Net Revenues	3,667	87,242	72,027	600,160
Cost of Sales	3,667	84,397	72,027	537,368
Gross margin		2,845		62,792
Research and Development Expenses				18,746
General, administrative and selling expenses		63,641		347,763
Gain on sale of Anti-Noise Products Division				879,612
(Loss) income from Discontinued Operations		$ (60,796)		$ 57,589
Assets
Accounts Receivable, net	4,603		4,603		$ 27,303
Inventories, net	38,537		38,537		122,443
Assets from Discontinued Operations	43,140		43,140		149,746
Liabilities
Other current liabilities	19,800		19,800		40,075
Liabilities from discontinued operations	$ 19,800		$ 19,800		$ 40,075

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Sale of Andrea Anti-Noise Products Division (Details Textual)	Apr. 02, 2015 USD ($) Installments	Sep. 30, 2016	Dec. 31, 2015
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
Cash Payment	300,000
Note receivable	600,000
Payable under eighteen installment	$ 34,757
Number of installment | Installments	18
Interest rate	3.25%