<PAGE>
                     SECURITIES AND EXCHANGE COMMISSION
                         Washington, D. C. 20549

                                FORM 10-Q

(Mark One)


(X)   QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the quarterly period ended June 30, 1998

                         OR

(  )  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE 
      ACT OF 1934 
      For the transition period from __________ to__________



                        Commission file number 1-4324


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

          New York                                   11-0482020    
 (State or other jurisdiction of                  (I.R.S. Employer 
  incorporation or organization)                Identification No.)

11-40 45th Road, Long Island City, New York                        11101     
(Address of principal executive offices)                         (Zip Code)

                               1-800-442-7787
             (Registrant's telephone number, Including area code)


Indicate by check mark whether the registrant: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.  11,124,175.


<PAGE> 2
Item 1 - FINANCIAL STATEMENTS

ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                      June 30,              December 31,
ASSETS                                1998                  1997
                                      ------------          -----------
                                      (unaudited)           (audited)
<S>                                   <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents           $ 9,341,861           $ 2,059,338
  Marketable securities                   646,039               102,717
  Accounts receivable, net              4,153,282             4,568,433
  Inventories, net                      8,116,532             5,766,927
  Deferred income taxes                   473,000               909,569
  Prepaid expenses and other
    current assets                      1,437,287             1,023,661
                                       ----------            ----------
            Total current asset  s     24,168,001            14,430,645

PROPERTY, PLANT AND EQUIPMENT, net      1,250,088             1,022,342
DEFERRED INCOME TAXES                   1,004,572               897,046
OTHER ASSETS                            2,014,131             1,439,151
INTANGIBLE                             27,305,563                     -
                                       ----------            ----------
            Total assets              $55,742,355           $17,789,184
                                       ==========            ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade accounts payable              $ 1,502,363           $   966,783
  Current portion of long term debt        93,440                     -
  Convertible notes - current portion           -             1,193,472
  Other current liabilities             1,854,466               483,731
                                       ----------            ----------
            Total current liabilities   3,450,269             2,643,986

CONVERTIBLE NOTES                      10,018,825                     -
LONG TERM DEBT                          2,703,188                     -

OTHER LIABILITIES                                                38,500
                                       ----------            ----------
            Total liabilities          16,172,282             2,682,486
                                       ----------            ----------

SHAREHOLDERS' EQUITY:
  Common stock, $.50 par value;
   authorized: 15,000,000 shares;
   issued and outstanding: 11,105,730
   and 8,706,692 shares, respectively   5,552,865             4,353,346
  Additional paid-in capital           34,595,924             9,881,915
  Retained earnings (accumulated
    deficit)                             (578,716)              871,437
                                       ----------            ----------
           Total shareholders' equity $39,570,073            15,106,698
                                       ----------            ----------
           Total liabilities and
           shareholders' equity       $55,742,355           $17,789,184
                                       ==========            ==========

</TABLE>
                  See Notes to Consolidated Financial Statements

                                    Page 2

<PAGE> 3

              ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)
<TABLE>
<CAPTION>
                                                         For the                           For the               
                                                    Three Months Ended                Six Months Ended           
                                                         June 30,                          June 30,              
                                                    1998            1997             1998            1997     
                                               -----------     ------------     -----------      ------------
<S>                                           <C>              <C>              <C>              <C>        
SALES                                         $   4,370,358    $   6,080,875    $  8,845,428     $  11,465,144
COST OF SALES                                     2,753,932        3,579,233       5,574,154         6,775,141
                                               ------------     ------------     -----------      ------------
    Gross Profit                                  1,616,426        2,501,642       3,271,274         4,690,003

RESEARCH AND DEVELOPMENT EXPENSES                   582,646           88,809         990,098           241,633

GENERAL, ADMINISTRATIVE AND
 SELLING EXPENSES                                 2,897,114        1,546,168       5,290,448        2,799,242
                                               ------------     ------------     -----------      -----------
    Income (loss) from operations                (1,863,334)         866,665      (3,009,272)       1,649,128

OTHER INCOME (EXPENSE)
  Interest income                                    62,671           22,236          73,315           41,284
  Interest expense                                  (85,664)         (60,380)       (110,119)        (126,907)
  Rent and miscellaneous income                           -           58,033       1,924,966          115,783
                                               ------------     ------------     -----------      -----------
                                                    (22,993)          19,889       1,888,162           30,160
                                               ------------     ------------     -----------      -----------

INCOME (LOSS) BEFORE INCOME TAXES                (1,886,327)         886,554      (1,121,110)       1,679,288

PROVISION FOR INCOME TAXES                                -         (208,518)       (329,043)        (394,811)
                                               ------------     ------------     -----------      -----------
    NET INCOME (LOSS)                         $ (1,886,327)    $     678,036    $ (1,450,153)    $  1,284,477
                                              ============      ============     ===========      ===========

PER SHARE INFORMATION:
Net Income (loss) Per Share
Basic                                         $        .18)   $         .08    $      (.15)     $        .16
                                                ==========     ============     ==========       ===========
Diluted                                       $       (.18)   $         .08    $      (.15)     $        .16
                                                ==========     ============     ==========       ===========

Shares used in computing
 net income (loss) per share:
Basic                                           10,339,488        8,060,350      9,641,748         7,880,040
                                              ============     ============     ==========        ==========
Diluted                                         10,339,488        8,285,350      9,641,748         8,105,040
                                              ============     ============    ===========        ==========

</TABLE>
             See Notes to Consolidated Financial Statements

                                Page 3

<PAGE> 4
                          ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                           (UNAUDITED)
<TABLE>
<CAPTION>
                                                                           Retained
                                                           Additional      Earnings/          Total
                              Shares        Common         Paid-In         (Accumulated       Shareholders'
                              Outstanding   Stock          Capital         Deficit)           Equity
<S>                           <C>           <C>             <C>            <C>                <C>         
                              ------------  -------------   -------------   -------------     ------------
BALANCE,
 December 31, 1997            8,706,692     $ 4,353,346     $ 9,881,915    $   871,437        $15,106,698

Exercise of stock
 options, net of
 related costs                  343,000         171,500         915,541              -          1,087,041

Issuance of common stock
 for acquisition, net of
 related costs                1,818,000         909,000      22,519,781              -         23,428,781

Conversion of Convertible
 Debentures                     238,038         119,019       1,278,687              -          1,397,706

Net Income                            -               -               -     (1,450,153)        (1,450,153)
                             ----------     -----------     -----------    -----------         ----------
BALANCE, June 30, 1998
                             11,105,730     $ 5,552,865     $34,595,924    $  (578,716)       $39,570,073
                             ==========     ===========     ===========    ===========         ==========
</TABLE>

             See Notes to Consolidated Financial Statements

                                Page 4

<PAGE> 5
<TABLE>
                           ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (UNAUDITED)

<CAPTION>
                                                                        For the Six Months Ended  
                                                                                  June 30,
                                                                            1998             1997     
<S>                                                                     <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                       $(1,450,153)     $  1,284,477
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
    Depreciation and amortization                                         1,095,693           155,304
    Gain on sale of building                                             (1,864,767)                 
    Deferred income taxes                                                   329,043           385,735
    Non-cash interest on convertible debt                                    32,259           126,907
    Changes in assets and liabilities, excluding effects of acquisition:
      Accounts receivable                                                   436,368        (1,580,969)
      Inventories                                                        (2,320,982)          (82,322)
      Prepaid expenses and other current assets                            (982,470)         (189,157)
      Other assets                                                         (574,980)                -
      Trade accounts payable                                                434,643           423,250
      Other current and long term liabilities                               318,795           (63,369)
                                                                         ----------       -----------
        Net cash provided by (used in) operating activities              (4,546,551)          459,856
                                                                         ----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net                            (715,720)          (59,331)
Proceeds from sale of building                                            2,282,563
Maturities (Purchases) of investment securities                            (543,322)          100,666
Acquisition of business, net of cash acquired                              (947,276)                -
                                                                         ----------       -----------
        Net cash provided by investing activities                            76,245            41,335
                                                                         ----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible debentures                                 10,000,000                 -
Long term debt proceeds                                                     665,788                 -
Exercise of stock options                                                 1,087,041           312,938
                                                                         ----------       -----------
        Net cash provided by financing activities                        11,752,829           312,938
                                                                         ----------       -----------
NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                     7,282,523           814,129
                                                                         ----------       -----------
CASH AND CASH EQUIVALENTS - beginning of period                           2,059,338           921,065
                                                                         ----------       -----------
CASH AND CASH EQUIVALENTS - end of period                               $ 9,341,861      $  1,735,194
                                                                         ==========       ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Conversion of debt into common stock                                    $ 1,397,706      $    434,636
Issuance of notes payable for acquisition                               $ 1,564,000                 -
Issuance of Common Stock for acquisition                                $23,428,781                 -
</TABLE>


             See Notes to Consolidated Financial Statements


                                      Page 5

<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

I.  BASIS OF PRESENTATION.  The accompanying consolidated financial statements 
include the accounts of the Company and its subsidiaries (collectively, "Andrea 
Electronics" or 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, 1997.

II.  STOCK SPLIT.  On September 2, 1997, the Company's Board of Directors 
authorized a two-for-one stock split effected in the form of a 100% stock 
dividend that was distributed on September 17, 1997 to shareholders of record
on September 10, 1997.  All share and per share data included in the
accompanying financial statements have been restated to reflect the stock split
for all periods presented. 

III.  EARNINGS PER COMMON SHARE.  Effective December 31, 1997, the Company 
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings 
Per Share".  Basic net income per common share ("Basic EPS") is computed by 
dividing net income by the weighted average number of common shares
outstanding.
 
Diluted net income per common share ("Diluted EPS") is computed by dividing
net income by the weighted average number of common shares and dilutive common
share equivalents and convertible securities then outstanding.  SFAS No. 128
requires the presentation of both Basic EPS and Diluted EPS on the face of the 
consolidated statements of operations.  The impact of the adoption of this 
statement was not material to all previously reported EPS amounts. 

The following chart provides a reconciliation of information used in
calculating the per share amounts for the three months ended June 30, 1998
and 1997:

<TABLE>
<CAPTION>
                                                   Net Income                    Net Income (Loss)
                                                   (Loss)         Shares         Per Share
<S>                                                <C>            <C>            <C>
1998
  Net loss                                         $(1,886,327)   10,339,488     Basic    $   (.18)
  Effect of dilutive employee stock options                  -             -                     -
                                                                  ----------              --------
                                                                  10,339,488     Diluted  $   (.18)
                                                                  ==========              ========
1997
  Net Income                                       $   678,036     8,060,350     Basic    $    .08
  Effect of dilutive employee stock options                          225,000                     -
                                                                  ----------              --------
                                                                   8,285,350     Diluted  $    .08
                                                                  ==========              ========
</TABLE>
                                    Page 6
<PAGE> 7
IV.  COMPREHENSIVE INCOME.  In the first quarter of 1998, the Company adopted 
SFAS No. 130, "Reporting Comprehensive Income", which requires companies to 
report all changes in equity during a period, except those resulting form 
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 and all other nonowner 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 1997, and for
the quarters ended June 30, 1998 and 1997, the Company's operations did not
give rise to items includible in comprehensive income which were not already
included in net income (loss).  Therefore, the Company's comprehensive income
(loss) is the same as its net income (loss) for all periods presented. 

V.  DERIVATIVES.  In June 1998, the Financial Accounting Standards Board issued 
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".  
The Statement establishes accounting and reporting standards requiring that 
every derivative instrument (including certain derivative instruments embedded 
in other contracts) be recorded in the balance sheet as either an asset or 
liability measured at its fair value.  The statement requires that changes in 
the derivative's fair value be recognized currently in earnings unless specific 
hedge accounting criteria are met.  Special accounting for qualifying hedges 
allows a derivative's gains and losses to offset related results on the hedged 
item in the income statement, and requires that a company must formally 
document, designate, and assess the effectiveness of transactions that receive 
hedge accounting.  This Statement is effective for fiscal years beginning after 
June 15, 1999.  A company may also implement the Statement as of the beginning 
of any fiscal quarter after issuance (that is, fiscal quarters beginning June 
16, 1998 and thereafter).  SFAS No. 133 cannot be applied retroactively.   SFAS 
No. 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997.  While the Company
operates in international markets, it does so presently without the use of
derivatives and therefore this new pronouncement is not applicable. 

VI.  DEBT FINANCING.  On September 23, 1997, the Company entered into an $8 
million credit facility with a financial institution consisting of a revolving 
loan based on eligible accounts receivable and inventory, as defined.  The 
facility, together with the Company's availability under commercial letters of 
credit, approximates $10 million.  The agreement matures on September 23, 1998 
and automatically renews on an annual basis unless terminated by either party, 
as provided in the agreement.  The facility is subject to normal banking terms 
and conditions, including financial covenant compliance and, at June 30, 1998, 
there was approximately $665 thousand outstanding under the agreement.

VII.  PROCUREMENT AGREEMENT.  In August 1997, the Company entered into an 
agreement with International Business Machines Corporation and its subsidiaries 
("IBM") to produce and procure certain products, as defined.  The agreement 
replaces all previous agreements with IBM and will continue in full force and 
effect unless terminated earlier for material breach by either party, as 
defined.  During the three months ended June 30, 1998, sales of the Company's 
computer headsets to IBM and certain of IBM's affiliates, distributors, 
licensees, and integrators accounted for approximately 50% of the Company's 
total net sales.

VIII.  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 ("Notes") due June 10, 2000.  The Notes will be convertible into shares
of the Company's common stock at a conversion price equal to the average of
the two lowest closing bid prices of the Common Stock during the 30 trading
days preceding any date of conversion, subject to a maximum conversion price
of $16.125 per share.  The Notes become convertible on the earlier of
October 8, 1998 and the effectiveness of a registration statement under the
Securities Act of 1933, as amended, covering the sale of the shares of Common
Stock into which the Notes are convertible, which registration statement the
Company filed on August 10, 1998.  At the option of the Company, interest is
payable in the form of cash or shares of Common Stock at the conversion price
then in effect.  The maximum number of shares issuable upon conversion is
2,100,000 shares.  The Company will use the $10 million in net proceeds from
the issuance of the Notes for costs associated with technology acquisition and
development, tooling costs, relocation costs, a new management information
system and general working capital requirements.

IX.  ACQUISITION.  On May 5, 1998, the Company acquired all of the outstanding 
shares of capital stock of Lamar Signal Processing, Ltd. ("Lamar"), an Israeli 
corporation engaged in the development of digital signal processing (DSP) noise 
cancellation microphone solutions for voice-driven interfaces covering a wide 
range of audio and acoustic applications. The consideration paid by the Company 
for the acquisition of Lamar was 1,800,000 shares of restricted common stock
and $3,000,000.  Of the 1,800,000 shares, one-third becomes freely
transferable on the first anniversary of the closing, an additional one-third
on the second anniversary and the last one-third on the third anniversary.  Of
the aggregate cash consideration to be paid by the Company, $1,000,000 was
paid on May 5, 1998 with the remainder payable in four equal installments on
each of the sixth, twelfth, twenty-four and thirty-six month anniversaries of
the closing.  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 resulted in goodwill of approximately $27.6 million, which is
included in intangible assets in the accompanying consolidated balance sheet
and is being amortized over a 15-year period.

The pro forma results listed below reflect purchase price accounting 
adjustments, consisting primarily of amortization of goodwill using a 15-year 
amortization period and interest expense on the discounted value of the $2 
million in notes payable, assuming the acquisition occurred at the beginning of 
each period presented.  Pro forma sales amounts would not be materially 
different from the historical results reported herein:

                                     Page 8

<PAGE> 9
<TABLE>

                                          1997           1998
<S>                                       <C>            <C>
Net Income (loss)                         $ 502,821      $(1,819,482)        
Net Income (loss) per share:
  Basic                                   $     .05      $      (.17)
  Diluted                                 $     .05      $      (.17)
</TABLE>
X.  RECLASSIFICATIONS.  Certain prior year amounts have been reclassified to 
conform to the current year presentation.


                                    Page 9

<PAGE> 10
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS

OVERVIEW

Andrea Electronics Corporation's mission is to provide state-of-the-art 
communications products for the voice-activated, natural language-driven, 
"human/machine interface" markets that are rapidly emerging from the conver-
gence of the telecommunications and computer industries, and for the defense 
electronics markets that are requiring increasingly higher quality voice 
communication products. The Company's strategy for serving these markets is to 
leverage its expertise in audio communications technology, including its 
patented Andrea Anti-Noise Active Noise Cancellation ("ANC") and Andrea 
AntiNoise Active Noise Reduction ("ANR") technologies, and to continue 
developing, manufacturing and marketing a line of Andrea Anti-Noise headsets, 
handsets and other communication devices to cost-effectively enhance voice 
communications for end users of the growing number of new, voice-based computer 
and computer telephony applications and interfaces.  In addition, to extend the 
Company's position in technology enhancing communications, the Company has be-
gun to develop its Andrea DSP/Trademark/ products based on digital signal pro-
cessing (DSP) technology.  In order to complement internal efforts
surrounding DSP development, on May 5, 1998, the Company acquired all of the
outstanding shares of capital stock of Lamar Signal Processing, Ltd. ("Lamar"),
an Israeli corporation engaged in the development of digital signal processing
(DSP) noise cancellation microphone solutions for voice-driven interfaces
covering a wide range of audio and acoustic applications.

Examples of the applications and interfaces for which Andrea Anti-Noise
products provide benefit include: Internet and other computer-based speech;
telephony communications; multi-point conferencing; multi-player Internet and
CD ROM interactive games; speech recognition; multimedia; military and indus-
trial communications; and other applications and interfaces that incorporate
natural language processing.  The Company believes that end users of these
applications and interfaces will require high quality microphone and
earphone products that enhance voice transmission, particularly to and from
noisy environments, for use with personal computers, business and
residential telephones, military headsets, cellular and other wireless
telephones, personal communication systems and avionics communications
systems.  High quality audio communication technologies will also be
required for 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.

An important element of the Company's strategy for expanding the channels of 
distribution and broadening the base of users for its products is its set of 
collaborative arrangements with software publishers, distributors and retailers 
actively engaged in the various markets in which the Company's products have 
application, and with hardware OEMs.  Under some of these arrangements, the 
Company supplies its products for sale by the collaborative partners.  Under 
others, the collaborative partners supply the Company with software that the 
Company includes with its products.  In addition, the Company is also seeking
to increase its own direct marketing efforts.
                               Page 10

<PAGE> 11
The Company outsources the manufacturing of Andrea Anti-Noise products for its 
OEM, consumer and commercial customers.  The Company also manufactures and 
distributes intercom systems and related components for military applications 
and industrial applications ("Traditional Military Products").  In contrast to 
the outsourced manufacturing of its Andrea Anti-Noise products for the non-
military markets, the Company continues to manufacture its Traditional Military 
Products in its own facility.  To the extent that the Company succeeds in 
developing a new line of products for military use that incorporate ANC and ANR 
technology, management anticipates that it will manufacture these new military 
products through both outsourcing and self-manufacturing.

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 of the statements contained in this Prospectus or in the information 
incorporated by reference herein may constitute forward-looking statements 
within the meaning of Section 27A of the Securities Act and Section 21E of the 
Exchange Act.  The words "anticipates," "believes", "estimates," "expects", 
"intends," "plans," "seeks," variations of such words, and similar expressions 
are intended to identify forward-looking statements.  Such forward-looking 
statements are based on current expectations, estimates and projections about 
the Company's business and industry, management's beliefs and certain 
assumptions made by the Company's management.  Investors are cautioned that 
matters subject to forward-looking statements involve risks and uncertainties 
including economic, competitive, governmental, technological and other factors 
which may affect the Company's 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.  The Company
cautions prospective investors about the following significant factors, which,
among others, have in some cases affected the Company's actual
results and are in the future likely to affect the Company's
actual results and could cause them to differ materially from those
expressed in any such forward-looking statements: the rate at which 
the Company's Anti-Noise technology is accepted by the diverse range of users 
and applications within the global communications and informatics marketplace; 
the ability of the Company to maintain a competitive position for its Andrea 
Anti-Noise products in terms of technical specifications, quality, price, 
reliability and service and to develop similarly competitive Andrea DSP
(digital signal processing) products, which will require the Company to have
sufficient funds for research and development, marketing and general and
administrative expenses; the ongoing ability of the Company to enter into
and maintain collaborative relationships with larger companies in the fields
of telecommunications, computer manufacturing, software design and publishing, 
Internet and online services, defense-related manufacturers and system 
providers, and retail and direct marketing distributors; and in the event that 
the Company experiences continued significant growth in demand for Andrea Anti-
Noise products, the ability of the Company to raise sufficient external capital 
to fund the working capital requirements for meeting such demand.  The failure 
of the Company to surmount the challenges posed by any one or more of these 
factors could have a material adverse effect on the Company's business, results 
of operations and financial condition.

                                   Page 11
<PAGE> 12
RESULTS OF OPERATIONS

    Sales

Sales for the three months ended June 30, 1998 (the "1998 Second Quarter") were 
$4,370,358, a decrease of 28% over the three months ended June 30, 1997 (the 
"1997 Second Quarter").  Sales for the 1998 First Half were $8,845,428, a 
decrease of 23% over the six months ended June 30, 1997 (the "1997 First
Half"). These decreases in sales over both the three month and six month
periods primarily reflect a shift in product mix to lower-priced and
lower-margin products to original equipment manufacturers (OEMs).
In terms of sales on a per unit basis, the Company realized a 17%
increase over the 1997 Second Quarter, offset by the aforementioned
shift in product mix, reflecting an approximately 45% decrease in
per unit sales prices for the same period.  The decrease in sales
during the 1998 Second Quarter reflected an approximate 30% decrease
in sales of Andrea Anti-Noise products to $3,366,948, or 77% of
total sales, and an approximate 20% decrease in sales of the
Company's Traditional Military Products, to $1,003,410, 
or 23% of total sales.  The decrease in sales during the 1998 First Half 
reflected an approximate 25% decrease in sales of Andrea Anti-Noise products
to $6,881,601 or 78% of total sales, and an approximate 15% decrease in
sales of the Company's Traditional Military Products to $1,963,827 or 22% of
total sales.  During the 1998 First Half, sales of the Company's computer
headsets to IBM and certain of IBM's affiliates, distributors, licensees, and
integrators accounted for approximately 49% of the Company's total sales. 

Management believes that the general slowing of growth rates in PC
sales during the first half of 1998 contributed to the weaker demand
for the Company's products.  In addition, specific to retail
efforts, unexpected increases in investments in both time and
money have been required to not only penetrate, but also to 
maintain a positive sell-through position of the Company's microphone 
technologies.  Management expects, however, that the Company will continue 
increasing its presence among the top office/computer superstores throughout 
1998.  Since the fourth quarter of 1997, the Company has established product 
presence in five of its targeted superstores including CompUSA, Staples, 
Computer City and most recently, OfficeMax.  During the First Half of 1998, 
total retail sales approximated 7% of Andrea Anti-Noise products.  Retail sales 
during the First Half of 1997 were nominal.

    Cost of Sales

Cost of sales as a percentage of sales for the 1998 Second Quarter and the 1998 
First Half increased to 63% from 59% the 1997 Second Quarter and 1997 First 
Half.  The increase in cost of sales related to product sales during the 1998 
Second Quarter is primarily a result of the shift in product mix described
above under "Sales".

    Research and Development

Research and development expenses increased to $582,646 for the 1998 Second 
Quarter from $88,809 for the 1998 First Quarter.  These increases are primarily 
a result of the Company's continuing efforts on developing its digital signal 
processing technology, coupled with efforts in computer/telephony headset 
technologies, which efforts are anticipated to result in nine new 
computer/telephony products by the end of 1998.  In addition, the second
quarter of 1998 marked the first full quarter of research and
development activities at the recently established, wholly-owned
subsidiary, Andrea Digital Technologies ("ADT") based in Utah.
Research efforts at ADT are primarily focused on the pursuit of
commercializing a natural language-driven human/machine interface by 
developing an optimal far-field microphone solution for various voice-driven 
interfaces, incorporating the Company's DSDA technology obtained through the 
recent acquisition of Lamar Signal Processing, Ltd. ("Lamar") in early May of 
this year.  Correspondingly, the activities of Lamar since the date of 
acquisition provided for approximately 10% of the total research and
development expenses for the second quarter of 1998.  Based in Haifa, Israel,
Lamar reinforces the Company's position in digital signal processing by
broadening the Company's exposure to other industries including the consumer
electronics and professional audio markets, among others. Considering all of
the foregoing, through the 1998 First Half, total research and development
expenses approximate 90% of the entire research and development expense for
fiscal 1997.  Management anticipates additional sequential quarterly
increases in research and development spending as 1998 progresses.  

     General, Administrative and Selling Expenses

General, administrative and selling expenses increased 87% to $2,897,114 for the
1998  Second  Quarter  from  $1,546,168  for the 1997 Second  Quarter.  General,
administrative  and selling  expenses  increased 89% to $5,290,448  for the 1998
First Half from $2,799,242 for the 1997 First Half. These  increases,  primarily
attributable to the ANC/ANR  product lines and the recent  acquisition of Lamar,
reflect significant increased business development expenses relating to existing
and  prospective   collaborative   arrangements  with  hardware  OEMs,  software
publishers and developers, distributors and retailers. The Company also incurred
increased promotional, marketing and sales expenses to promote product awareness
and  acceptance  of the  ANC/ANR  product  lines,  particularly  in  the  retail
marketplace,  and incurred significant expenses with developing global expansion
efforts.  Also included in general,  administrative and selling expenses for the
1998 Second Quarter is goodwill  amortization of approximately  $300,000 related
to the acquisition of Lamar.

     Other Income (Expense)

Other income for the 1998 First Half was $1,888,162 compared to other income of 
$30,160 for the 1997 First Half.  This change is primarily attributable to the 
net gain on the sale of the Company's corporate headquarters during the 1998 
First Half of $1,864,767.  


                                   Page 12

<PAGE> 13

     Provision for Income Taxes

The  provision  for  income  taxes  of  $208,518  in  the  1997  Second  Quarter
represented an effective tax rate of 23.5%, which is comprised of tax expense at
the Company's  combined statutory rate of approximately 42%, partially offset by
a reduction in the  Company's  reserve on  previously-generated,  fully-reserved
deferred  income tax assets.  No additional  income tax provision or benefit was
recorded in the 1998 Second  Quarter,  as the Company did not  generate  taxable
income  (the  year-to-date  provision  relates  principally  to the  sale of the
Company's  building  during  the  1998  First  Quarter).  The  Company  will  be
continually  re-assessing  its  reserves on  deferred  income tax assets as 1998
progresses.  The  realization  of most of the  remaining  reserved  deferred tax
assets  (excluding  those  generated  and  fully  reserved  in the  1998  Second
Quarter),  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.

     Net Income (Loss)

Net loss for the 1998 Second Quarter was $1,886,327, compared to net income of 
$678,036 for the 1997 Second Quarter.  Net loss for the 1998 First Half was 
$1,450,153, compared to net income of $1,284,477 for the 1997 First Half.  The 
levels of net loss for the 1998 Second Quarter and 1998 First Half principally 
reflect the factors discussed 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 borrowings provided by
certain financial institutions.  At June 30, 1998, the Company had cash and cash
equivalents  of $9,341,861  compared with  $2,059,338 at December 31, 1997.  The
significant  increase  since  December  31,  1997 is  primarily  a result of the
Company's  issuance and sale in a private  placement,  of $10,753,000  aggregate
principal  amount of 6% Convertible  Notes. The Company will use the $10 million
in net  proceeds  from the  issuance  of the  Notes for  costs  associated  with
technology acquisition and development,  tooling costs,  relocation costs, a new
management  information  system and general  working  capital  requirements.  In
connection  with  the  acquisition  of Lamar of the  aggregate  $3,000,000  cash
consideration to be paid by the Company, $1,000,000 was paid on May 5, 1998, the
closing date, with the remainder  payable in four equal  installments on each of
the six, twelve, twenty-four and thirty-six month anniversaries of the closing.

Working  capital at June 30, 1998 was  $20,717,732  compared to  $11,786,659  at
December 31, 1997. The increase in working capital reflects an increase in total
current assets of $9,737,356, offset by an increase in total current liabilities
of $806,283.  The increase in total current assets  reflects an increase in cash
of $7,282,523,  an increase in marketable  securities of $543,322, a decrease in
accounts  receivable  of $415,151,  an increase in inventory  of  $2,349,605,  a
decrease in  deferred  income  taxes of $436,569  and an increase of $413,626 in
prepaid expenses and other current assets.  The increase in current  liabilities
reflects a $535,580  increase  in trade  accounts  payable,  an  increase in the
current  portion of long term debt of $98,440  (representing  debt  assumed as a
result of the  acquisition  of Lamar),  a  $1,193,472  decrease  in  convertible
debentures  (which were converted to equity during the 1998 First Quarter) and a
$1,370,735 increase in other current liabilities.

The  increase  in cash of  $7,282,523  reflects  $4,546,551  of net cash used in
operating  activities,  $76,245 of net cash provided by investing activities and
$11,752,829 of cash provided by financing activities. The cash used in operating
activities,  excluding  non-cash  charges,  is  primarily  attributable  to  the
$1,450,153  operating  loss in the 1998 First Half,  coupled with an increase in
inventory of the  Company's  Anti-Noise  computer  headsets in  anticipation  of
future sales. Other  contributing  factors include increases in prepaid expenses
and other  assets.  The cash  provided  by  investing  activities  is  primarily
attributable  to the sale of the Company's  primary  operating  facility in Long
Island City, New York, offset by the cash consideration paid upon closing of the
acquisition of Lamar. Also contributing to the offset include increases in
capital expenditures consisting of the ongoing upgrade of manufacturing dies and
molds for Andrea Anti-noise products, investments in the Company's existing

                                     Page 13

<PAGE> 14
information systems and investments in marketable securities. In connection with
the sale of the Company's primary operating facility,  relocation is anticipated
to occur during the third quarter of 1998, and the lease expense associated with
the new facility is anticipated to range between  $450,000 to $550,000 per year.
The net cash  provided by financing  activities  resulted  from the issuance and
sale of convertible notes,  drawdowns on the Company's revolving credit facility
and the exercise of employee stock options.

The decrease in accounts receivable primarily reflects the decrease in sales 
during the 1998 First Half coupled with more aggressive collection procedures.  
Generally, the Company collects receivables from sales within three months.

The increase in prepaid expenses and other current assets primarily includes the
recognition  of increased  premiums for prepaid  property  taxes and  insurance,
increased  fulfillment  costs  associated  with  expansion  efforts  as  well as
increases  in other  service  costs  related  to the  second  half of 1998.  The
increase in other  assets  represents  increases in patent and  trademark  costs
associated  with  the  Company's   proprietary   technology,   as  well  as  the
establishment  of an escrow account in connection with the sale of the Company's
primary operating facility.

The increase in trade accounts payable and other current liabilities primarily 
reflects 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 Andrea Anti-Noise products and recently acquired 
DSDA technology. 

Demand  for  Andrea  Anti-Noise  products  has  required  the  Company  to raise
additional  working capital to support its production  operations.  In addition,
the  acquisition  of Lamar will require the Company to provide  working  capital
support  Lamar in order to  enable it to pay its debts as they  become  due.  In
December 1995, April 1996 and August 1996, the Company raised additional working
capital through the issuance of convertible subordinated debentures. On June 10,
1998, as described  above,  the Company raised $10 million  through the issuance
and sale of convertible notes. In addition, the Company entered into a revolving
credit agreement in September 1997 that provides maximum  borrowings of up to $8
million based on eligible  accounts  receivable  and inventory,  as defined,  of
which approximately $665,000 was outstanding at June 30, 1998.

Notwithstanding  the significance of sales of Andrea Anti-Noise  products during
the 1998 First Half,  no  assurance  can be given that demand will  continue for
these products or any of the Company's other products at profitable prices or at
all,  or that  demand  will  emerge for any  future  products  developed  by the
Company,   including  those  based  on  the  Company's  recently  acquired  DSDA
technology, if any, or, that if such demand does so continue or emerge, that the
Company  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.

In  anticipation  of the year 2000,  the Company is  developing a plan to ensure
that all of its  systems  are able to  properly  recognize  the year  2000.  The
Company is currently  assessing the ability of its recently acquired  management
information  systems to properly  perform,  and will be  conducting  significant
transaction  testing  throughout  the  implementation.   The  Company  does  not
anticipate  any  material   deficiencies  and,  further,   does  not  anticipate
difficulty  or  significant  additional  expense  in  achieving  full  year 2000
capability.  The cost of the  upgrade to the  Company's  management  information
systems is not expected to exceed $1 million, which upgrade will achieve several
objectives,  including,  among others,  satisfaction  of the year 2000 computing
requirements.


                                   Page 14

<PAGE> 15
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits.

Exhibit                                 
Number          Description

4.1       Securities Purchase Agreement,  dated as of June 10, 1998, relating
          to the sale of the  Registrant's  6% Convertible  Notes due June 10,
          2000 (with form of Note attached thereto). (Incorporated herein by
          reference to the Registrant's Registration Statement on Form S-3,
          File No. 333-61115).

10.1      Registration Rights Agreement,  dated as of June 10, 1998, relating
          to registration  rights  granted to the  holders of the 
          Registrant's  6% Convertible Notes due June 10, 2000. (Incorporated
          herein by reference to the Registrant's Registration Statement on
          Form S-3, File No. 333-61115).

27          Financial Data Schedule

 (b)  Reports on Form 8-K.

During the  three-month  period ended June 30, 1998,  the  registrant  filed the
following  Current Reports on Form 8-K on the indicated  dates: (i) on April 17,
1998,  for the purpose of  announcing  that the  registrant  had entered into an
agreement to acquire all of the outstanding  ordinary shares of capital stock of
Lamar Signal Processing, Ltd., an Israeli corporation ("Lamar"); and (ii) on May
8, 1998,  for the purpose of announcing  that the registrant had acquired all of
the outstanding ordinary shares of capital stock of Lamar.



                                    Page 15

<PAGE> 16
                                   SIGNATURES

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


ANDREA ELECTRONICS CORPORATION

/s/ John N. Andrea        Co-President               August 14, 1998
----------------------
    John N. Andrea

/s/ Patrick D. Pilch      Executive Vice President,  August 14, 1998
----------------------  and Chief Financial Officer


                                  Page 16