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, 2000

                                    OR

(   )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period
       from ____________ to ____________


                         Commission file number 1-4324

                                   --------

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

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

  45 Melville Park Road, Melville, New York                   11747
  -----------------------------------------                 ---------
   (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  X    No
                                                   ---      ---

Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date 13,887,572.

<PAGE>


     ITEM 1. FINANCIAL STATEMENTS

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                                              ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
                                                        CONSOLIDATED BALANCE SHEETS

                                                                         September 30, 2000          December 31, 1999
                                                                      ------------------------     ----------------------
                                                                            (unaudited)                  (audited)
                             ASSETS
<S>                                                                             <C>                        <C>
CURRENT ASSETS:
     Cash and cash equivalents                                                  $3,466,323                 $9,153,148
     Accounts receivable, net of allowance for doubtful
     accounts of $202,521                                                        3,793,145                  2,770,703
     Inventories, net                                                            6,477,682                  7,123,747
     Prepaid expenses and other current assets                                     273,037                    267,817
                                                                              ------------                -----------
              Total current assets                                              14,010,187                 19,315,415

PROPERTY, PLANT AND EQUIPMENT, net                                               1,493,027                  1,930,506
DEFERRED INCOME TAXES                                                            1,806,615                  1,806,615
OTHER ASSETS                                                                     2,197,667                  2,254,989
GOODWILL                                                                        23,166,034                 24,545,877
                                                                              ------------                 ----------
              Total assets                                                    $ 42,673,530               $ 49,853,402
                                                                              ============               ============

              LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Trade accounts payable                                                     $2,419,886                 $2,134,873
     Current portion of long-term debt                                             634,151                    597,247
     Convertible notes, net                                                          -                      1,485,077
     Other current liabilities                                                   1,173,397                  1,076,733
                                                                              ------------                -----------
              Total current liabilities                                          4,227,434                  5,293,930

LONG-TERM DEBT                                                                     244,672                    693,362
OTHER LIABILITIES                                                                   -                          14,477
                                                                              ------------                -----------
              Total liabilities                                                  4,472,106                  6,001,769

SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK, net, $.01 par value;
     500 and 750 shares issued and outstanding, respectively                     4,821,069                  7,187,077
                                                                              ------------                -----------

SHAREHOLDERS' EQUITY:

     Preferred stock, $.01 par value; authorized: 5,000,000
         shares; none issued and outstanding                                        -                           -
     Common stock, $.50 par value; authorized: 35,000,000
         shares; issued and outstanding: 13,867,572 and
         13,242,538 shares, respectively                                         6,933,786                  6,621,269
     Additional paid-in capital                                                 46,612,359                 42,990,641
     Accumulated deficit                                                       (20,165,790)               (12,947,354)
                                                                              -------------               -----------

              Total shareholders' equity                                        33,380,355                 36,664,556
                                                                              ------------               ------------
              Total liabilities and shareholders' equity                      $ 42,673,530               $ 49,853,402
                                                                              ============               ============

                                     See Notes to Consolidated Financial Statements

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<PAGE>
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                                     ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

                                          CONSOLIDATED STATEMENTS OF OPERATIONS

0                                                      (UNAUDITED)

                                                       For the Three Months Ended                   For the Nine Months Ended
                                                              September 30,                               September 30,
                                                   ---------------------------------          -----------------------------------
                                                       2000                  1999                  2000                  1999
                                                       ----                  ----                  ----                  ----

<S>                                                 <C>                   <C>                  <C>                   <C>
NET SALES                                           $5,318,936            $4,326,098           $11,701,688           $13,314,312

COST OF SALES                                        3,772,311             2,953,516             8,537,839             9,244,906
                                                  ------------           -----------           -----------           -----------

              Gross profit                           1,546,625             1,372,582             3,163,849             4,069,406

RESEARCH AND DEVELOPMENT EXPENSES                    1,249,167               747,848             3,488,839             2,352,585

GENERAL, ADMINISTRATIVE AND SELLING EXPENSES         2,389,736             2,306,481             6,784,391             6,832,961
                                                 -------------           ------------          -----------          ------------
              Loss from operations                  (2,092,278)           (1,681,747)           (7,109,381)           (5,116,140)
                                                 -------------           ------------          -----------          ------------

OTHER INCOME (EXPENSE):
     Interest income                                    62,263               107,731               285,655               181,481
     Interest expense                                  (41,055)              (82,070)             (193,238)             (224,407)
     Other                                              25,632                                      10,892                   -
                                                 -------------           -----------          ------------          -------------
                                                        46,840                25,661               103,309               (42,926)
                                                 -------------           -----------          ------------          -------------

LOSS BEFORE PROVISION FOR INCOME TAXES              (2,045,438)           (1,656,086)           (7,006,072)           (5,159,066)

PROVISION FOR INCOME TAXES
                                                           -                     -                     -                     -
                                                 -------------          ------------          ------------          ------------

              Net loss                             $(2,045,438)          $(1,656,086)          $(7,006,072)          $(5,159,066)
                                                 ==============         ============          ============          ============

PREFERRED STOCK DIVIDENDS                               60,577                94,097               212,364               102,622
                                                 --------------         ------------         -------------          ------------

              Net loss applicable to common
                shareholders                       $(2,106,015)          $(1,750,183)          $(7,218,436)          $(5,261,688)
                                                 ==============         =============         ============          ============

PER SHARE INFORMATION:

Net Loss Per Share:
     Basic                                               $(.15)               $(.13)                 $(.53)                $(.40)
                                                 ==============         =============         ============          ============
     Diluted                                             $(.15)               $(.13)                 $(.53)                $(.40)
                                                 ==============         =============         ============          ============

Shares used in computing net loss per share:
     Basic                                          13,836,893            13,235,908            13,702,946            13,225,185
                                                 =============          =============         ============          ============
     Diluted                                        13,836,893            13,235,908            13,702,946            13,225,185
                                                 =============          =============         ============          ============

                                     See Notes to Consolidated Financial Statements

</TABLE>


<PAGE>


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                ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                  (UNAUDITED)

                                                                              Additional                               Total
                                              Shares            Common          Paid-In            Accumulated      Shareholders'
                                           Outstanding           Stock          Capital              Deficit            Equity
                                           -----------          ------         ---------           -----------      -------------
<S>               <C> <C>                    <C>            <C>              <C>               <C>                  <C>
BALANCE, December 31, 1999                   13,242,538     $ 6,621,269      $ 42,990,641      $  (12,947,354)      $36,664,556
   Conversion of Series B Redeemable
     Convertible Preferred Stock, net
     of related costs                           371,909         185,955         2,231,447              -              2,417,402
   Exercise of stock options, net of
     related costs                              253,125         126,562         1,390,271              -              1,516,833
   Preferred stock dividends                    -              -                  -                  (212,364)         (212,364)
   Net loss                                     -              -                  -                (7,006,072)       (7,006,072)
BALANCE, September 30, 2000                  13,867,572     $ 6,933,786      $ 46,612,359        $(20,165,790)      $33,380,355



                                     See Notes to Consolidated Financial Statements

</TABLE>



<PAGE>
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                                     ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (UNAUDITED)

                                                                                    For the Nine Months Ended September 30,
                                                                               --------------------------------------------
                                                                                     2000                             1999
                                                                                     ----                             ----
<S>                                                                            <C>                              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                    $(7,006,072)                     $(5,159,066)
     Adjustments to reconcile net loss to net cash used in operating
         activities:
             Non-cash interest expense                                              39,964                          215,314
             Depreciation and amortization                                       2,633,944                        2,355,078
             (Increase) Decrease in:
               Accounts receivable, net                                         (1,022,442)                         624,507
               Inventories                                                         646,065                          366,484
               Prepaid expenses and other current assets                          (420,436)                         (70,950)
               Other assets                                                            769                         (313,450)
             Increase (Decrease) in:
               Trade accounts payable                                              285,013                          113,487
               Other current and long term liabilities                             (98,660)                        (489,601)
                                                                                ----------                       -----------
                  Net cash used in operating activities                         (4,941,855)                      (2,358,197)
                                                                                ----------                       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                                     (221,688)                        (795,912)
                                                                                ----------                       -----------
                  Net cash used in investing activities                           (221,688)                        (795,912)
                                                                                ----------                       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net from proceeds from Series B Redeemable Convertible Preferred
       Stock                                                                          -                           7,500,000
   Payments of debt obligations                                                   (555,038)                         (545,350)
   Payment of convertible notes                                                 (1,485,077)                            -
   Proceeds from issuance of common stock upon exercise of stock
       options, net of related costs                                            ----------                          110,724
                                                                                                                 ----------
                                                                                 1,516,833
                  Net cash (used in) provided by financing activities             (523,282)                       7,065,374
                                                                                ----------                        ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            (5,686,825)                       3,911,265
                                                                                ==========                        =========
CASH AND CASH EQUIVALENTS, beginning of period                                   9,153,148                        5,437,423
                                                                                ----------                        ---------
CASH AND CASH EQUIVALENTS, end of period                                        $3,466,323                      $ 9,348,688
                                                                                ==========                      ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Non-cash investing and
financing activities:
     Conversion of Series B Redeemable Convertible Preferred Stock
         and related accrued dividends into common stock                        $2,417,402                     $       -
                                                                                ==========                     ===========
     Issuance of warrants in connection with Series B Redeemable
         Convertible Preferred Stock                                            $       -                      $   348,457
                                                                                ==========                     ===========

                                     See Notes to Consolidated Financial Statements

</TABLE>

<PAGE>



                ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation - The accompanying consolidated financial
     statements include the accounts of Andrea Electronics Corporation and its
     subsidiaries (collectively, the "Company"). All intercompany balances and
     transactions have been eliminated in consolidation.

     The consolidated financial statements have been prepared in accordance
     with generally accepted accounting principles for interim financial
     reporting. Accordingly, they do not include all of the information and
     footnotes required by generally accepted accounting principles for
     complete financial statements. 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 for any interim period are not necessarily indicative of the
     results to be expected for the fiscal year. For further information,
     refer to the consolidated financial statements and accompanying footnotes
     included in the Company's annual report on Form 10-K for the year ended
     December 31, 1999.

2.   Earnings Per Common Share - Basic net income (loss) per common share is
     computed by dividing net income (loss) by the weighted-average number of
     common shares outstanding. Diluted net income (loss) per common share is
     computed by dividing net income (loss) by the weighted-average number of
     common shares and dilutive common share equivalents and convertible
     securities then outstanding.


     The following chart provides a reconciliation of information used in
calculating the per share amounts:

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                                            For the Three Months Ended         For the Nine Months Ended September
                                                  September 30,                                30,
                                            --------------------------         -----------------------------------

                                            2000                 1999               2000                 1999
                                            ----                 ----               ----                 ----
Numerator:
<S>                                     <C>                 <C>                 <C>                  <C>
     Net loss                           $(2,045,438)        $(1,656,086)        $(7,006,072)         $(5,159,066)
     Preferred stock dividends               60,577              94,097             212,364              102,622
                                        -----------         -----------         -----------          -----------
       Net loss applicable to
         common shareholders            $(2,106,015)        $(1,750,183)        $(7,218,436)         $(5,261,688)
                                        ===========         ===========         ===========          ===========
Denominator:

     Weighted-average common
     shares outstanding -- Basic         13,836,893          13,235,908          13,702,946           13,225,185
     Effect of dilutive
     employee stock options                    -                  -                   -                    -
                                        -----------        ------------         -----------
     Weighted-average common
     shares outstanding -- Diluted       13,836,893          13,235,908          13,702,946           13,225,185
                                        ===========        ============         ===========          ===========
Net loss per share:
     Basic                                    $(.15)              $(.13)              $(.53)               $(.40)
                                        ===========        ============         ===========          ===========
     Diluted                                  $(.15)              $(.13)              $(.53)               $(.40)
                                        ===========        ============         ===========          ===========

</TABLE>

<PAGE>



3.   Comprehensive Income - The Company follows the provisions of SFAS No.
     130, "Reporting Comprehensive Income", which requires companies to report
     all changes in equity during a period, except those resulting from
     investment by owners and distribution to owners, in a financial statement
     for the period in which they are recognized. Comprehensive income is the
     total of net income (loss) and all other non-owner changes in equity (or
     other comprehensive income) such as unrealized gains/losses on securities
     available-for-sale, foreign currency translation adjustments and minimum
     pension liability adjustments. Comprehensive and other comprehensive
     income must be reported on the face of the annual financial statements
     or, in the case of interim reporting, in the footnotes to the financial
     statements. For the nine months ended September 30, 2000 and 1999, the
     Company's operations did not give rise to items includible in
     comprehensive income (loss), which were not already included in net
     income (loss). Accordingly, the Company's comprehensive income (loss) is
     the same as its net income (loss) for all periods presented.

4.   Derivative Instruments - SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities" establishes accounting and reporting
     standards for derivative instruments, including certain derivative
     instruments embedded in other contracts, and for hedging activities. SFAS
     No. 133 is effective for all fiscal years beginning after June 15, 1999
     (subsequently amended by SFAS No. 137 and SFAS No.138, to be effective
     for all fiscal years beginning after June 15, 2000) and will not require
     retroactive restatement of prior period financial statements. This
     statement requires the recognition of all derivative instruments as
     either assets or liabilities in the balance sheet measured at fair value.
     Derivative instruments will be recognized as gains or losses in the
     period of change. If certain conditions are met where the derivative
     instrument has been designated as a fair value hedge, the hedge items may
     also be marked to market through earnings, thus creating an offset. If
     the derivative is designed and qualifies as a cash flow hedge, the
     changes in fair value of the derivative instrument may be recorded in
     comprehensive income. While the Company operates in international
     markets, it does so presently without the use of derivative instruments.


5.   Procurement Agreement - The Company has an agreement with International
     Business Machines and its subsidiaries ("IBM"), as amended, to produce
     and procure certain products, as defined. The agreement continues in full
     force and effect unless terminated earlier for material breach by either
     party, as defined. For the nine-month period ending September 30, 2000,
     sales of the Company's products to IBM and certain of IBM's affiliates,
     distributors, licensees and integrators accounted for approximately 59%
     of the Company's total net sales.

6.   Convertible Notes - On June 10, 1998, the Company issued and sold in a
     private placement, $10,753,000 aggregate principal amount of 6%
     Convertible Notes (the "Notes") due June 10, 2000. The remaining
     obligation from these notes was paid in cash on June 9, 2000.

7.   Series B Redeemable Convertible Preferred Stock - On June 22, 1999, the
     Company issued and sold in a private placement $7,500,000 of Series B
     Redeemable Convertible Preferred Stock (the "Series B Preferred Stock"),
     and a warrant covering 75,000 shares of the Company's common stock. Each
     share of Series B Preferred Stock has a stated value of $10,000 plus
     dividends of 4% per annum, which sum is convertible into common stock at
     a conversion price equal to the lower of $8.775 (the "Maximum Conversion
     Price") and the average of the two lowest closing bid prices of the
     common stock during the 15 consecutive trading days immediately preceding
     a conversion date (the "Market Price"), subject to certain adjustments,
     including anti-dilution. The 4% dividends may, at the option of the
     Company, be paid in cash. The warrant has an exercise price of $8.775 per
     share and expires on June 18, 2004.


     On February 25, 2000, 250 shares of the Series B Preferred Stock,
     together with related accrued dividends, were converted into 371,909
     shares of common stock.

     Upon the announcement of a major transaction, as defined, the investor
     shall have the right to require the Company to redeem all or a portion of
     the investor's Series B Preferred Shares at a redemption price equal to
     the greater of 120% of the stated value plus any accrued dividends and
     the Market Price on the day of announcement. In addition, upon the
     occurrence of certain triggering events, as defined, and depending on the
     Company's control over such events, the investor may have the right to
     require the Company to a) redeem all or a portion of the Preferred Shares
     at a redemption price equal to the greater of 120% of the stated value
     plus any accrued dividends and the Market Price on the day of
     announcement, or b) pay a penalty equal to 1% of the remaining principal
     amount outstanding for a period not to exceed 20 days in any 365 day
     period, and adjust the Maximum Conversion Price, as defined.

     As of September 30, 2000, the remaining 500 shares of Series B Preferred
     Stock are convertible into the Company's common stock. Any unconverted
     Series B Preferred Stock that remains outstanding on June 18, 2004, will
     automatically convert into the Company's common stock. The Company has
     reserved 1,744,235 of common stock for issuance upon conversion of the
     shares of the Series B Preferred Stock.

     As of September 30, 2000, the Series B Preferred Stock is recorded net of
     the unaccreted present value of the warrants of $178,931. Due to the
     redemption features discussed above, the Series B Preferred Stock is
     presented outside of stockholders' equity in the accompanying
     consolidated balance sheet.

8.   Acquisition Of Business -On May 5, 1998, the Company acquired all of the
     outstanding shares of capital stock of Lamar (the "Acquisition"). The
     consideration paid by the Company for the Acquisition was approximately
     1,800,000 shares of restricted common stock and $3,000,000 in cash and
     notes payable. Of the approximately 1,800,000 shares issued to the
     sellers, one-third became freely transferable on the first anniversary of
     the closing, an additional one-third became transferable on the second
     anniversary and the last one-third becomes transferable on the third
     anniversary. Of the aggregate cash consideration to be paid by the
     Company, $2,000,000 was paid through 1999, $500,000 was paid on May 5,
     2000, and the remaining $500,000 is payable on May 5, 2001. The
     Acquisition was accounted for under the purchase method of accounting
     and, accordingly, the operating results of Lamar have been included in
     the consolidating operating results since the date of acquisition. The
     Acquisition was valued using an independent appraisal of the fair value
     of the consideration paid and the assets purchased, and resulted in
     goodwill of approximately $27.6 million, which is being amortized over 15
     years. Goodwill at September 30, 2000 is approximately $23.2 million,
     which is net of approximately $4.4 million in accumulated amortization.

9.   Segment Information - The Company follows the provisions of SFAS No. 131,
     "Disclosures about Segments of an Enterprise and Related Information."
     Reportable operating segments are determined based on the Company's
     management approach. The management approach, as defined by SFAS No. 131,
     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 the Company's results of operations are
     primarily reviewed on a consolidated basis, the chief operating
     decision-maker also manages the enterprise in three segments: (i) Andrea
     Anti-Noise Products, (ii) Aircraft Communications Products, and (iii)
     Far-field Digital Audio Technology Products. The following represents
     selected consolidated financial information for the Company's segments
     for the three months ended September 30, 2000, and 1999:


<TABLE>
<CAPTION>

                                                                             Far-field
                                        Andrea             Aircraft        Digital Audio
                                      Anti-Noise        Communications       Technology      September 30,
        Segment Data                   Products            Products           Products           2000
-----------------------------        -----------      ---------------      -------------     -------------
<S>                                  <C>                 <C>                <C>             <C>
 Net sales                           $ 4,560,017         $  603,056         $   155,863     $ 5,318,936
 Income (loss) from operations           652,886           (170,911)         (2,574,253)     (2,092,278)
 Depreciation                            108,868             32,956              43,389         185,213

</TABLE>


<TABLE>
<CAPTION>


                                                                             Far-field
                                        Andrea           Aircraft          Digital Audio
                                      Anti-Noise       Communications        Technology      September 30,
        Segment Data                   Products          Products             Products           1999
-----------------------------        -----------      ---------------      -------------     -------------
<S>                                  <C>                 <C>                <C>             <C>
 Net sales                           $ 3,549,392         $ 776,706          $   -             $ 4,326,098
 Income (loss) from operations        (1,790,486)          108,739              -              (1,681,747)
 Depreciation                            221,373            37,052              -                 258,425

</TABLE>

For the three months ended September 30, 2000 and 1999, sales and accounts
receivable by geographic area are as follows:

                                September 30,          September 30,
  Geographic Data                   2000                    1999
---------------------           ------------           ------------
Sales:
       United States            $ 3,960,340             $ 2,215,225
       Europe                       487,129                 809,591
       Other foreign                871,467               1,301,282
                                -----------             -----------
                                $ 5,318,936             $ 4,326,098
                                ===========             ===========
Accounts receivable:
       United States            $ 2,447,034             $ 2,175,420
       Europe                       719,147                 688,382
       Other foreign                626,964               1,379,473
                                -----------             -----------
                                $ 3,793,145             $ 4,243,275
                                ===========             ===========


10.  Legal Proceedings - As previously reported in "Item 3. Legal Proceedings"
     in the Company's Annual Report on Form 10-K for the year ended December
     31, 1999, on November 17, 1998 a complaint was filed against us in the
     U.S. District Court for the Eastern District of New York by NCT Group,
     Inc. ("NCT"; formerly Noise Cancellation Technologies, Inc.) and NCT
     Hearing Products, Inc., one of NCT's subsidiaries. The complaint involves
     two of Andrea's patents, U.S. Patent No. 5,732,143 and U.S. Patent No.
     5,825,897. These patents relate to certain active noise reduction
     technology that is particularly applicable to aircraft passenger
     headphones. Andrea does not currently derive any sales or licensing
     revenue from aircraft passenger headphones. The complaint requests a
     declaration that these two patents are invalid and unenforceable and that
     NCT's products do not infringe upon these two patents. The complaint
     alleges that Andrea has engaged in unfair competition by misrepresenting
     the scope of the two patents, tortiously interfering with prospective
     contractual rights between NCT and its existing and potential customers,
     making false and disparaging statements about NCT and its products, and
     falsely advertising Andrea's ANR products. The complaint seeks to enjoin
     Andrea from engaging in these alleged activities and seeks compensatory
     damages of not less than $5 million, punitive damages of not less than
     $50 million and plaintiffs' costs and attorneys' fees. On December 30,
     1998, we filed and served an answer to the NCT complaint, denying the
     allegations and asserting affirmative defenses and counterclaims. Our
     counterclaims allege that NCT has infringed U.S. Patents Nos. 5,732,143
     and 5,825,897, and that NCT has engaged in trademark infringement, false
     designation of origin, and unfair competition. The counterclaims also
     allege that NCT's patent infringement has been and is willful. The
     counterclaims seek injunctive relief with respect to the allegations of
     patent infringement, trademark infringement, false designation of origin
     and unfair competition. We are also seeking exemplary and punitive
     damages, prejudgment interest on all damages, costs, reasonable
     attorneys' fees and expenses. During the second half of 1999, both NCT
     and Andrea submitted briefs to the Court on whether to have an early
     hearing on the meaning of the claims in the two Andrea patents. This type
     of hearing is called a "Markman Hearing." We are unable to anticipate
     when the Court will issue a decision on this question. We and NCT are
     proceeding with discovery, including document production and depositions.
     If this suit is ultimately resolved in favor of NCT, we could be
     materially adversely effected. We believe, however, that NCT's
     allegations are without merit and we intend to vigorously defend Andrea
     and to assert against NCT the claims described above.

     On March 11, 1999, we were notified about a claim filed with the New York
     State Environmental Protection and Spill Compensation Fund (the "Fund")
     by the owners (Mark J. Mergler and Ann Mergler, the "Claimants") of
     property adjoining our former Long Island City facility. This claim
     alleges property damages arising from petroleum migrating from our former
     facility and was purportedly detected in the basement of the Claimants'
     property. In their claim to the Fund, the Claimants alleged that their
     property has been damaged and that they have incurred remedial costs. In
     the event the Fund honors this claim in whole or in part, we may be
     liable to reimburse the Fund. The New York State Department of
     Environmental Conservation has asserted a demand that we investigate and
     remediate the discharge of petroleum from a fuel oil storage tank at our
     former Long Island City facility, and determine whether the petroleum
     discharge has migrated to the Claimants' adjoining property. We engaged
     environmental consultants to investigate the discharge from the fuel oil
     storage tank and we are currently funding remediation work. We denied,
     however, the allegations that any petroleum discharge has migrated to the
     Claimant's property and objected to the claim made by the Claimant to the
     Fund. On September 2, 1999, a civil action related to this matter was
     commenced in the Nassau County Supreme Court by Mark J. Mergler and Ann
     Mergler. The plaintiffs allege that the fuel oil released from the
     heating system of our former facility has migrated beneath and onto the
     neighboring property causing an excess of $1,000,000 in direct and
     consequential damages. The plaintiffs' allegations against us include,
     negligence, nuisance and strict liability under the New York State
     Navigation Law. We have submitted an answer denying the allegations and
     all liability relating to the alleged property damage. This lawsuit is at
     an early stage and we are unable to evaluate the likelihood of an
     unfavorable outcome or estimate the amount or range of potential loss, if
     any.

     In addition to the litigation described above, we are from time to time
     subject to routine litigation incidental to our business.

11.  Reclassifications - Certain prior year amounts have been reclassified to
     conform to the current year presentation.

12.  Subsequent Event- On October 12, 2000, the company issued and sold in a
     private placement $7,500,000 of Series C Redeemable Convertible Preferred
     Stock (the "Series C Preferred Stock"). Each of the 750 shares of Series
     C Preferred Stock has a stated value of $10,000 plus dividends of 5% per
     annum, which sum is convertible into Common Stock at a conversion price
     initially equal to 110% of the average of the two lowest closing bid
     prices of the Common Stock during the 5 consecutive trading days
     immediately preceding the issuance date for the first nine months. The
     conversion price will be reset every six months thereafter to the lesser
     of the then existing conversion price and the average of the two lowest
     closing bid prices of the Common Stock during the 5 consecutive trading
     days immediately preceding the six-month reset dates or, for the period
     beginning on the day two years after the initial issuance and ending on
     the maturity of the Series C Preferred Stock, the least of: (i) the then
     existing conversion price, (ii) the average of the two lowest closing bid
     prices of the Common Stock during the 15 consecutive trading days
     immediately preceding such two year date and (iii) the closing bid price
     on the day of conversion, subject in each case to certain adjustments.
     The 5% dividend amount may, at the option of the Company, be paid in
     cash. The Series C Preferred Stock is convertible or redeemable at
     maturity by the Company, based upon certain circumstances at that time,
     and is redeemable by the holder upon certain events. The Company has the
     right to require the conversion of the Series C Preferred Stock after one
     year upon the satisfaction of certain conditions. During the 548-day
     period beginning on October 10, 2000, the investor, subject to certain
     conditions, may exercise an option to purchase up to an additional $2.5
     million of the Company's Series C Preferred Stock.

     Upon the announcement of a major transaction or upon certain triggering
     events, as defined, the investor shall have the right to require the
     Company to redeem all or a portion of the investor's Series C Preferred
     Shares at a redemption price equal to the greater of (a) 120% of the
     Liquidation Value, as defined, or (b) the product of the applicable
     conversion rate in effect on the date of the major transaction or the
     triggering event, the closing bid price of the common stock of the
     Company on the trading day immediately preceding the major transaction or
     triggering event or the closing bid price of the common stock of the
     Company on the date the holder's delivery to the Company of notice. In
     addition, if the Company is unable to effect such redemption (i) interest
     will accumulate on the value of the Series C Preferred Shares that the
     Company is unable to redeem at the rate of 2% per month and (b) the
     holders of the Series C Preferred Stock are entitled to void their
     redemption notices and receive a reset of their applicable conversion
     price.




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 communications products that facilitate natural language,
human/machine interfaces.

Examples of the applications and interfaces for which Andrea Anti-Noise
Products and Andrea digital signal processing ("DSP") Microphone and Software
Products provide benefits include: Internet and other computer-based speech;
telephony communications; automotive telematics; multi-point conferencing;
speech recognition; multimedia; personal digital assistants ("PDAs"); distance
learning; military and commercial aircraft communications; 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, military and commercial aircraft systems, cellular
and other wireless communication devices and automotive communication systems.
High quality audio communication technologies will be required for these
emerging "far-field" voice applications, ranging from continuous speech
dictation, to 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 strategy is to maintain and extend our market position with our Andrea
Anti-Noise Products; broaden our Andrea Anti-Noise Product lines and Andrea
DSP Microphone and Software Product lines through internal research and
development and, from time to time, strategic acquisitions; design our
products to satisfy specific end-user requirements identified by our
collaborative partners; and outsource manufacturing of certain products in
order to achieve economies of scale. An important element of our strategy for
expanding the channels of distribution and broadening the base of users for
our products is our collaborative arrangements with OEMs, software publishers,
and distributors and retailers actively engaged in the various markets in
which our products have application. Under some of these arrangements, we
supply our products for sale by our collaborative partners. Under others, the
collaborative partners supply us with software that we include with our
products. In addition, we have been increasing our own direct marketing
efforts.

The success of our strategy will depend on our ability to, among other things,
increase sales of our line of existing Andrea Anti-Noise Products and Andrea
DSP Microphone and Software Products, contain costs, manage growth, introduce
additional Andrea Anti-Noise Products and Andrea DSP Microphone and Software
Products, maintain the competitiveness of our technologies through successful
research and development, and achieve widespread adoption of our products and
technologies.

In order to complement our internal efforts to develop DSP technology, in May
1998, we acquired Lamar Signal Processing, Ltd. ("Lamar"), an Israeli
corporation engaged in the development of DSP noise cancellation microphone
solutions for voice-driven interfaces covering a wide range of audio and
acoustic applications. This acquisition resulted in a substantial amount of
goodwill. The amortization of this goodwill had, and will continue to have, a
negative, non-cash impact on our results of operations.

We outsource the assembly of most of our Andrea Anti-NoiseProducts from
purchased components, and we are currently assembling our Andrea DSP
Microphone and Software Products from purchased components at our New York and
Israeli facilities. We manufacture our Aircraft Communications Products at our
New York facility.

The interim results of operations of the Company presented in this report are
not necessarily indicative of the actual sales or results of operations to be
realized for the full year.


Cautionary Statement Regarding Forward-Looking Statements

Certain information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations for the three months ended
September 30, 2000 (the "2000 Third Quarter") compared to the three months
ended September 30, 1999 (the "1999 Third Quarter"), and for the nine months
ended September 30, 2000 (the "2000 First Nine Months") compared to the nine
months ended September 30, 1999 (the "1999 First Nine Months"), are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. The words "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "seeks," variations of such words, and similar expressions
are intended to identify forward-looking statements. We have based these
forward-looking statements on our current expectations, estimates and
projections about our business and industry, our beliefs and certain
assumptions made by our management. Investors are cautioned that matters
subject to forward-looking statements involve risks and uncertainties
including economic, competitive, governmental, technological and other factors
that may affect our business and prospects. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict. In order to
obtain the benefits of these "safe harbor" provisions for any such
forward-looking statements, we wish to caution investors and prospective
investors about the following significant factors, which, among others, have
in some cases affected our actual results and are in the future likely to
affect our actual results and could cause them to differ materially from those
expressed in any such forward-looking statements. These factors include:

o    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 under our collaborative
          development arrangements;
     -    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.

o    We cannot assure that the level of sales and gross profit, if any, that
     we achieve in any particular fiscal period will not be significantly
     lower than in other fiscal periods. Our revenues for the 2000 Third
     Quarter were approximately $5.3 million compared to approximately $4.3
     million in the 1999 Third Quarter. For the 2000 Third Quarter, we had a
     net loss applicable to common shareholders of approximately $2.1 million
     versus a net loss of $1.8 million for the 1999 Third Quarter. Our
     revenues for the 2000 First Nine Months were approximately $11.7 million
     compared to approximately $13.3 million in the 1999 First Nine Months.
     For the 2000 First Nine Months, we had a net loss applicable to common
     shareholders of approximately $7.2 million versus a net loss of $5.3
     million for the 1999 First Nine Months.

o    While we are examining opportunities for further cost-reduction,
     production efficiencies and diversification of our business, we may
     continue to accumulate losses and the market price of our common stock
     could decline. In order to remain competitive, we intend to continue to
     incur substantial research and development, selling and general and
     administrative expenses. These expenses may not be necessarily or easily
     reduced if sales revenue is below expectations and, therefore, net income
     or loss may be disproportionately affected by any reduction in sales
     revenue. Accordingly, we believe that period-to-period comparisons of our
     results of operations may not necessarily be meaningful and should not be
     relied upon as indications of future performance.

o    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 35,000,000 shares of common stock presently
     authorized, 13,887,572 were outstanding as of November 1, 2000. This does
     not include (i) 5,253,125 shares of our common stock reserved for
     issuance upon exercise of outstanding options granted under our 1991
     Performance Equity Plan and 1998 Stock Plan and shares of our common
     stock reserved for further option grants under the 1991 Performance
     Equity Plan and 1998 Stock Plan, (ii) 1,744,235 shares of common stock
     reserved for issuance upon conversion of the Series B Convertible
     Preferred Stock and exercise of the related warrant and (iii) 2,500,000
     shares of common stock reserved for issuance upon conversion of the
     Series C Convertible Preferred Stock. To the extent that Series B
     Convertible Preferred Stock is converted and the related warrant is
     exercised or the Series C Convertible Preferred Stock is converted or we
     issue additional shares of capital stock, the ownership interests of
     holders of common stock would be diluted.

     We have 750 shares of Series C Convertible Preferred Stock outstanding
     and during the 548-day period beginning on October 10, 2000, the
     investor, subject to certain conditions, may exercise an option to
     purchase up to an additional $2.5 million of the Company's Series C
     Preferred Stock. The number of shares of common stock issuable upon the
     conversion of the Series C Convertible Preferred Stock depends on the
     prices of the common stock as quoted on the American Stock Exchange and
     the initial conversion price is equal to 110% of the average of the two
     lowest closing bid prices of the Common Stock during the five consecutive
     trading days immediately preceding the issuance date for the first nine
     months. The conversion price will be reset every six months thereafter to
     the lesser of the then existing conversion price and the average of the
     two lowest closing bid prices of the Common Stock during the five
     consecutive trading days immediately preceding the six-month reset dates
     or, for the period beginning on the day two years after the initial
     issuance and ending on the maturity of the Series C Convertible Preferred
     Stock, the least of:  (i) the then existing conversion price, (ii) the
     average of the two lowest closing bid prices of the Common Stock during
     the 15 consecutive trading days immediately preceding such two year date
     and (iii) the closing bid price on the day of conversion, subject in each
     case to certain adjustments. We cannot predict the price of the common
     stock in the future. If the price of our common stock decreases over
     time, the number of shares of common stock issuable upon conversion of the
     Series C Convertible Preferred Stock will increase and the holders of
     common stock would experience substantial dilution of their investment.

     We have 500 shares of Series B Convertible Preferred Stock and a warrant
     for 75,000 shares of common stock outstanding and, subject to certain
     conditions and limitations. The number of shares of common stock issuable
     upon the conversion of the Series B Convertible Preferred Stock depends
     on the prices of the common stock as quoted on the American Stock
     Exchange shortly before the date of conversion. We cannot predict the
     price of the common stock in the future. If the price of our common stock
     decreases over time, the number of shares of common stock issuable upon
     conversion of the Series B Convertible Preferred Stock will increase and
     the holders of common stock would experience substantial dilution of
     their investment. On February 25, 2000, 250 shares of Series B
     Convertible Preferred Stock were converted into 371,909 shares of common
     stock.

     In addition, in May 1998, we issued 1,800,000 shares of common stock as
     part of the consideration for our acquisition of Lamar Signal Processing,
     Ltd., of which 600,000 shares of common stock are subject to trading
     restrictions that expire in May 2001. As the restrictions expire, the
     shares are subject to demand and piggyback registration rights.

o    Most of our current and potential competitors have significantly greater
     financial, technology development, marketing, technical support and other
     resources than we do. Consequently, these competitors may be able to
     respond more quickly to new or emerging technologies and changes in
     customer requirements, or devote greater resources to the development,
     marketing, and sale of their products than we can. We cannot assure that
     one or more of these competitors will not independently develop
     technologies that are substantially equivalent or superior to our
     technology.

o    We have entered into several collaborative and distribution arrangements
     with software publishers and computer hardware manufacturers relating to
     the marketing and sale of Andrea Anti-Noise Products and Andrea DSP
     Microphone and Software Products. Under these collaborative arrangements,
     our products are or will be sold to end users through inclusion of the
     products of our collaborators. The revenue derived by us from these
     arrangements will be based in large part upon the sale of our
     collaborator's products. Our success will therefore be dependent to a
     substantial degree on the efforts of these collaborators in marketing
     existing products and new products under development with which to
     include our products and technologies. We cannot assure that any product
     of any of our collaborators incorporating our products and technologies
     will be marketed successfully. Our collaborators generally are not
     contractually obligated to any minimum level of sales of our products or
     technologies. Furthermore, our collaborators may develop their own
     microphone or earphone products or technologies that compete with our
     products and technologies. We cannot assure that these collaborators will
     not replace our products or technologies with, or give higher priority
     to, the sales of these competitive products or technologies. We have also
     established direct arrangements with large electronic and computer retail
     chains in the United States, as well as with certain distributors in
     Europe and the Americas. We cannot assure that any of these channels will
     devote sufficient resources to support the sale of our products. We are
     also currently discussing additional arrangements with other software
     companies, several major automotive companies, several major personal
     computer companies, consumer electronic manufacturers, and electronic and
     computer retailers. We cannot assure that any of these discussions will
     result in any definitive agreements. We are substantially dependent on
     our product procurement relationship with IBM. During the 2000 Third
     Quarter, IBM and certain of IBM's affiliates, distributors, licensees and
     integrators accounted for 59% of our net sales. While we are a party to a
     procurement agreement with IBM covering the purchase by IBM of certain of
     our Andrea Anti-Noise Microphone and Earphone products and Andrea DSP
     Microphone and Software Products for inclusion with certain of IBM's
     personal computer products, IBM is not obligated to purchase these
     products and is free to purchase microphone and earphone products and
     technologies from our competitors. Our failure to maintain sales of
     Andrea Anti-Noise Products and Andrea DSP Microphone and Software
     Products to IBM would have a material adverse effect on our business,
     results of operations and financial condition.

o    We conduct assembly operations at our facilities in New York and Israel
     and through subcontractors. During initial production runs of Andrea
     Anti-Noise Products, we perform assembly operations at our New York
     facility from purchased components. As sales of any particular Andrea
     Anti-Noise Product increase, assembly operations are primarily
     transferred to a subcontractor in Asia. Any failure on the part of this
     subcontractor to meet our production and shipment schedules could have a
     material adverse effect on our business, results of operations and
     financial condition.

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

     We assemble our Aircraft Communications Products at our New York facility
     from purchased components. Certain highly specialized components for our
     Aircraft Communications Products sold for military and industrial use
     have limited sources of supply, the availability of which can affect
     particular products. We do not believe, however, that our earnings have
     been, or will be, materially affected due to unavailability of these
     components.

o    We rely on a combination of patents, patent applications, trade secrets,
     copyrights, trademarks, nondisclosure agreements with our employees,
     licensees and potential licensees, limited access to and dissemination of
     our proprietary information, and other measures to protect our
     intellectual property and proprietary rights. We cannot assure, however,
     that the steps we have taken to protect our intellectual property will
     prevent its misappropriation or circumvention.

o    We have been granted 19 patents in the United States covering our Andrea
     Anti-Noise and Andrea DSP Microphone and Software Products, and we have
     other U.S. and non-U.S. patent applications currently pending. We cannot
     assure that patents will be issued with respect to these applications or
     any patent applications filed by us in the future.

o    Our performance is substantially dependent on the performance of our
     executive officers and key employees. We are dependent on our ability to
     retain and motivate high quality personnel, especially management and
     product and technology development teams. The loss of the services of any
     of our executive officers or other key employees could have a material
     adverse effect on our business, results of operations and financial
     condition. Our future success also depends on our continuing ability to
     attract and retain additional highly qualified technical personnel.
     Competition for qualified personnel is intense and we cannot assure that
     we will be able to attract, assimilate or retain qualified personnel in
     the future. Our inability to attract and retain the necessary technical
     and other personnel could have a material adverse effect on our business,
     results of operations and financial condition.

Results Of Operations

Quarter Ended September 30, 2000 Compared to the Quarter Ended September 30,
1999

Sales

Sales for the 2000 Third Quarter were $5,318,936, an increase of 23% from
sales of $4,326,098 for the 1999 Third Quarter. Sales for the 2000 First Nine
Months were $11,701,688, a decrease of 12% from the 1999 First Nine Months
sales of $13,314,312. The increase in sales for the 2000 Third Quarter
reflects an approximate 23% increase in sales of Andrea Anti-Noise Products to
$4,560,011 or 86% of total sales, an approximate 4% decrease in sales of our
Aircraft Communications Products, to $603,056, or 11% of total sales, offset
by initial sales of Far-field Digital Audio Technology Products of $155,863,
or 3% of total sales. The increase in sales over the 1999 Third Quarter is
primarily due to the significant increase in USB headset and USB adapter
shipments to IBM during the quarter. The decrease in sales over the 1999 First
Nine Months is due to i) lower volumes of PC headset sales to the Company's
original equipment manufacturing (OEM) customers, and ii) a decrease in unit
sales of Aircraft Communications Products. For the 2000 Third Quarter, sales
of our computer headsets to IBM and certain of its affiliates, distributors,
licensees and integrators accounted for approximately 59% of our total sales.

Cost of Sales

Cost of sales as a percentage of sales for the 2000 Third Quarter increased to
71% from 68% for the 1999 Third Quarter. Cost of sales as a percentage of
sales for the 2000 First Nine Months increased to 73% from 69% for the 1999
First Nine Months. This increase in cost of sales percentage is primarily a
result of margin pressure associated with the comparable product mix, offset,
to an extent by an increase in USB-related sales, which sales provided
incremental revenue coverage over which to spread the Company's pool of fixed
overhead costs.

Research and Development

Research and development expenses for the 2000 Third Quarter increased 67% to
$1,249,167 from $747,848 for the 1999 Third Quarter. Research and development
expenses for the 2000 First Nine Months were $3,488,839, an increase of 48%
from the 1999 First Nine Months research and development expenses of
$2,352,585. This increase is due to the Company's continuing efforts to
develop and commercialize its Far-field Digital Audio Technologies, coupled
with, to a lesser extent, efforts in Aircraft Communication product
technologies and Andrea Anti-Noise Product technologies. Specifically, during
the 2000 Third Quarter, Far-field Digital Audio Technology efforts were
$1,038,419, or 83% of total research and development expenses, Aircraft
Communications technology efforts were $139,386, or 11% of total research and
development expenses and Andrea Anti-Noise Product efforts were $71,362, or 6%
of total research and development expenses. With respect to Far-field Digital
Audio 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 the Company's Digital Super Directional Array
microphone technology ("DSDA") and certain other related technologies obtained
through the acquisition of Lamar in May 1998. Correspondingly, the activities
of Lamar accounted for approximately 24% of the total research and development
expenses during the 2000 Third Quarter. The Company believes that the
acquisition of Lamar significantly reinforces its position in digital signal
processing by extending the Company's marketing programs to other industries,
including the consumer electronics and professional audio markets, among
others. With respect to Aircraft Communication technologies, research efforts
are primarily focused on developing intercom systems that are capable of
accepting the Company's digital audio software technologies. The Company
anticipates continued significant increases in research and development
expenses during the forth quarter, with particular emphasis on Far-field
Digital Audio Technologies.

General, Administrative and Selling Expenses

General, administrative and selling expenses for the 2000 Third Quarter
increased 4% to $2,389,736 from $2,306,481 from the 1999 Third Quarter.
General, administrative and selling expenses for the 2000 First Nine Months
were $6,784,391, a decrease of 1% from the 1999 First Nine Months general,
administrative and selling expenses of $6,832,961. The relative high level of
general, administrative and selling expenses, primarily attributable to the
Far-field Digital Audio Technology product line, reflects significant business
development expenses relating to existing and prospective collaborative
arrangements with OEMs, software publishers and developers. The Company also
incurs significant promotional, marketing and sales expenses to promote
product awareness and acceptance of the Far-field Digital Audio Technology
product line. In addition, included in general, administrative and selling
expenses in the 2000 Third Quarter and 2000 First Nine Months is goodwill
amortization expense of $459,948 and $1,379,843, respectively.

Other Income (Expense)

Other income for the 2000 Third Quarter increased 83% to $46,840 from $25,661
from the 1999 Third Quarter. Other income for the 2000 First Nine Months was
$103,309 compared to other expense of $42,926 for the 1999 First Nine Months.
This change was primarily due to miscellaneous rental income activity.

Provision for Income Taxes

The Company did not record income tax expense or benefit for the 2000 Third
Quarter or 2000 First Nine Months in light of the net loss recorded for the
periods. Furthermore, the realization of a portion of the Company's reserved
deferred tax assets, if and when realized, will not result in a tax benefit in
the consolidated statement of operations, but will result in an increase in
additional paid in capital as they are related to tax benefits associated with
the exercise of stock options. The Company will be continually re-assessing
its reserves on deferred income tax assets in future periods on a quarterly
basis.

Net Income (Loss)

Net loss for the 2000 Third Quarter was $2,045,438 compared to a net loss of
$1,656,086 for the 1999 Third Quarter. Net loss for the 2000 First Nine Months
was $7,006,072, compared to net loss of $5,159,066 for the 1999 First Nine
Months. The levels of net loss for the 2000 Third Quarter and 2000 First Nine
Months principally reflect the factors described above.

Liquidity And Capital Resources

The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and proceeds from the
sale of convertible notes, preferred stock or other securities to certain
financial institutions. At September 30, 2000, we had cash and cash
equivalents of $3,466,323 compared with $9,153,148 at December 31, 1999. The
balance of cash and cash equivalents at September 30, 2000 is primarily a
result of the Company's issuance and sale in a private placement of $7,500,000
of its Series B Redeemable Convertible Preferred Stock (the "Series B
Preferred Stock"). On February 25, 2000, 250 shares of the Series B Preferred
Stock were converted into 371,909 shares of common stock at a conversion price
of $6.91 per share. On October 12, 2000, the company raised an additional $7.5
million as a result of the issuance and sale in a private placement of its
Series C Redeemable Convertible Preferred Stock ("Series C Preferred Stock").
The Company is using the net proceeds from the issuance of the Series B
Preferred Stock and the Series C Preferred Stock for costs associated with
technology development, tooling costs, creating and maintaining strategic
alliances, payment of certain debt obligations and general working capital
requirements.

In connection with the acquisition of Lamar, of the aggregate cash
consideration to be paid by the Company, $1,000,000 was paid on May 5, 1998,
the closing date, and $500,000 was paid on each of the six, twelve and
twenty-four month anniversaries of the closing date, with the remainder
payable on the thirty-six month anniversary of the closing. The $500,000 in
additional cash consideration remaining, due on the thirty-six month
anniversary of the closing, is recorded as a component of current portion of
long-term debt on the accompanying consolidated balance sheet.

Working capital at September 30, 2000, was $9,782,753 compared to $14,021,485
at December 31, 1999. The decrease in working capital reflects decreases in
total current assets and total current liabilities of $5,305,228, and
$1,066,496, respectively. The decrease in total current assets reflects
decreases in cash and inventory of $5,686,825 and $646,065, respectively,
offset by increases in accounts receivable and prepaid expenses and other
current assets of $1,022,442, and $5,220, respectively. The decrease in
current liabilities reflects a decrease in convertible notes of $1,485,077,
offset by increases in trade accounts payable of $285,013, current portion of
long-term debt of $36,904 and other current liabilities of $96,664.

The decrease in cash from December 31, 1999 to the period ending September 30,
2000 of $5,686,825 reflects $4,941,855 of net cash used in operating
activities, $221,688 of net cash used in investing activities and $523,282 of
net cash used in financing activities.

The cash used in operating activities, excluding non-cash charges, is
primarily attributable to the $7,006,072 net loss for the 2000 First Nine
Months, a $1,022,422 increase in accounts receivable, a $420,436 increase in
prepaid expenses and other current assets offset by a $646,065 decrease in
inventory and a $285,013 increase in accounts payable. The increase in
accounts receivables primarily reflects the increase in sales during the 2000
Third Quarter sales. The increase in prepaid expenses and other current assets
primarily includes the recognition of increased premiums for prepaid property
taxes and insurance, as well as increases in other service costs related to
the remainder of 2000. The increase in accounts payable and the decrease in
inventory primarily reflect differences in the timing related to both the
payments for and the acquisition of raw materials as well as for other
services in connection with ongoing efforts related to the Company's various
product lines.

The cash used in investing activities is primarily attributable to investments
in the Company's existing information systems, as well as, to a lesser extent,
capital expenditures consisting of the ongoing upgrade of manufacturing dies
and molds for Andrea Anti-Noise Products.

The net cash used in financing activities reflects the payment of the
remaining principal amount of the Notes and the twenty-four month anniversary
installment payment to the former shareholders of Lamar, partially offset by
exercises of employee stock options.

Demand for the Company's products and technologies has required the Company to
raise additional working capital to support operations. In addition, the
acquisition of Lamar will require the Company to continue to provide working
capital to support Lamar's operations and to repay notes to the sellers of
Lamar. In June 1998, the Company raised $10 million through the issuance and
sale of the Notes. In June 1999, the Company raised $7.5 million through the
issuance and sale of Series B Preferred Stock. In October 2000, the company
raised $7.5 million through the issuance and sale of Series C Preferred Stock.
We believe that our current levels of cash and our access to financing
sources, provide sufficient liquidity and capital resources to fund working
capital requirements for at least twelve to eighteen months. Notwithstanding
the significance of sales of Andrea Anti-Noise Products as a percentage of our
total sales during the 2000 First Nine Months, we cannot assure that demand
will continue for these products or any of our other products, including
future products related to our Andrea Microphone Array Products and Software
Technologies, or, that if such demand does exist, that we will be able to
obtain the necessary working capital to increase production and marketing
resources to meet such demand on favorable terms, or at all.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal sources of financing activities include the issuance to
financial institutions of convertible debt and convertible redeemable
preferred stock. We are affected by market risk exposure primarily through the
effect of changes in interest rates on amounts payable in stock by us under
convertible debt. A significant rise in interest rates could materially
adversely affect our financial condition and results of operations. At
September 30, 2000, there was $5 million of unconverted redeemable preferred
stock. We do not utilize derivative financial instruments to hedge against
changes in interest rates or for any other purpose. In addition, substantially
all transactions by us are denominated in U.S. dollars. As such, we have
shifted foreign currency exposure onto its foreign customers. As a result, if
exchange rates move against foreign customers, we could experience difficulty
collecting unsecured accounts receivable, the cancellation of existing orders
or the loss of future orders. The foregoing could materially adversely affect
our business, financial condition and results of operations.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

       Exhibit Number                  Description
       --------------                  -----------
         27                       Financial Data Schedule


(b)  Reports on Form 8-K

The Registrant did not file any Reports on Form 8-K during the three-month
period ended September 30, 2000.




                                  SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


<TABLE>
<CAPTION>

ANDREA ELECTRONICS CORPORATION

<S>                                      <C>                                         <C>
 /s/ Christopher P. Sauvigne             President and Chief                         November 10, 2000
----------------------------               Operating Officer
 Christopher P. Sauvigne

 /s/ Richard A. Maue                     Senior Vice President, Chief                November 10, 2000
 Richard A. Maue                           Financial Officer, and Secretary
</TABLE>