IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS
FORM 10-Q IS BEING FILED IN PAPER PURSUANT TO A
TEMPORARY HARDSHIP EXEMPTION.
===========================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-21456
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1361276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
372 Danbury Road
Wilton, Connecticut 06897
(Address of principal executive offices, including
zip code)
(203) 761-7900
(Registrant's telephone number, including area
code)
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 stock, as of the latest
practicable date.
Class Outstanding at May 12, 1997
- ----------------------- ---------------------------
Common Stock, $.01 par value 21,084,156 shares
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<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q
Contents
Page Number
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet--
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statement of Operations--
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows--
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. Other Information
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Balance Sheet
(in thousands except per share and share amounts)
<CAPTION>
March 31, December 31,
--------------- -------------
1997 1996
--------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $101,927 $ 8,198
Accounts receivable 1,051 1,061
Inventories 645 821
Prepayments and other current assets 371 232
---------- ---------
Total current assets 103,994 10,312
---------- ---------
Equipment 2,643 2,444
Accumulated depreciation (1,930) (1,798)
---------- ---------
Net equipment 713 646
---------- ---------
Other non-current assets 5,920 1,302
---------- ---------
Total assets $110,627 $ 12,260
========== =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,562 $ 1,548
---------- ---------
Total current liabilities 1,562 1,548
---------- ---------
Long-term debt
CDA Note, 7.4% 4,989 4,989
Senior Discount Notes, 13.25% 97,447 -
---------- ---------
Total long-term debt 102,436 4,989
---------- ---------
Common stock purchase warrants 5,100 -
---------- ---------
Commitments - -
---------- ---------
Stockholders' equity
Preferred stock (par value $1.00
per share, 2,000,000 shares
authorized, none issued and outstanding) - -
Common stock (par value $0.01 per share;
35,000,000 and 25,000,000 shares
authorized, 21,078,206 and 21,047,106
shares issued and outstanding in 1997
and 1996) 211 210
Additional paid-in capital 50,730 50,655
Accumulated deficit (49,412) (45,142)
--------- ---------
Total stockholders' equity 1,529 5,723
--------- ---------
Total liabilities and stockholders'
equity $110,627 $ 12,260
======== ========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Revenues
Product sales $ 254 $ 1,048
Maintenance 266 173
---------- ---------
Total revenues 520 1,221
---------- ---------
Cost of goods sold
Product sales 323 1,244
Maintenance 242 200
---------- ---------
Total cost of goods sold 565 1,444
---------- ---------
Gross profit (loss) (45) (223)
----------- ---------
Operating expenses
Selling, general and administrative 2,017 1,696
Research and development 490 313
Depreciation and amortization 41 42
----------- ---------
Total operating expenses 2,548 2,051
----------- ---------
Loss from operations (2,593) (2,274)
----------- ---------
Other income (expenses)
Interest income 1,046 34
Interest expense (2,723) (87)
----------- ---------
Total other income (expenses) (1,677) (53)
----------- ---------
Net loss $ (4,270) $ (2,327)
=========== =========
Earnings per Share
Weighted average common shares
outstanding 21,055 11,767
=========== =========
Net loss per common share $ (0.20) $ (0.22)
=========== =========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows Used in Operating Activities:
Net loss ($ 4,270) ($2,327)
Other adjustments to reconcile net loss
to net cash used in operating activities 3,198 (244)
---------- --------
Cash used in operating activities (1,072) (2,571)
---------- --------
Cash Flows Used in Investing Activities:
Capital expenditures (199) (76)
Capitalized product development costs (75) (223)
---------- --------
Cash used in investing activities (274) (299)
---------- --------
Cash Flows from Financing Activities:
Net proceeds from issuance of long-term
debt 89,900 1,650
Proceeds from issuance of common stock
warrants 5,100 -
Proceeds from exercise of stock options 75 1
---------- -------
Cash provided by financing activities 95,075 1,651
---------- -------
Net increase (decrease) in cash and cash
equivalents 93,729 (1,219)
---------- -------
Cash and cash equivalents at beginning of
period 8,198 3,210
---------- -------
Cash and cash equivalents at end of period $101,927 $1,991
======== =======
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1 -Basis of Consolidation:
Electronic Retailing Systems International, Inc. ("ERS"
or the "Company"), was incorporated in 1993 under the laws
of the State of Delaware as a holding company for the
business and assets of Electronic Retailing Systems
International, Inc., incorporated in 1990 under the laws of
Connecticut, and an affiliated partnership. The condensed
consolidated financial statements include the accounts of
the Company and all of its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Note 2 -Basis of Presentation:
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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, the accompanying
unaudited condensed consolidated financial statements
include all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of
the results of the interim periods. Operating results for
the three month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the
full year ending December 31, 1997. The accompanying
unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31,
1996, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
Earnings (loss) per common share is computed using the
weighted average number of common shares and common share
equivalents assumed to be outstanding during the period.
Common share equivalents consist of the Company's common
shares issuable upon exercise of stock options and stock
purchase warrants. The computation of earnings (loss) per
common share does not reflect common share equivalents that
are anti-dilutive.
Note 3- Inventories:
Inventories are stated at the lower of cost (determined
on a first in, first out basis) or market value.
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Inventories at March 31, 1997 consist of $143,000 of
materials and supplies and $502,000 of finished goods.
Inventories at December 31, 1996 consisted of $188,000 of
materials and supplies and $633,000 of finished goods.
Inventories in excess of expected requirements due to new
product introductions or product enhancements are expensed
currently.
Note 4 - Sale of Senior Discount Notes and Warrants:
On January 24, 1997, the Company completed the sale,
in a private offering (the "Private Placement"), of 147,312
Units ("Units") consisting of $147,312,000 principal amount
at maturity of 13.25% Senior Discount Notes due February 1,
2004 (the "Notes") together with warrants (the "Warrants")
to purchase an aggregate of 2,538,258 shares of Common
Stock, at an exercise price of $5.23 per share, exercisable
from the period commencing on the first anniversary of
closing through February 1, 2004.
The Units were sold to investors at a price aggregating
$100 million, representing a yield to maturity on the Notes
of 13.25%. No cash interest will accrue on the Notes prior
to February 1, 2000. Interest will be payable thereafter on
February 1 and August 1 of each year commencing August 1,
2000. The Notes are non-callable prior to February 1, 2001.
Upon specified change in control events, each holder has the
right to require the Company to purchase its Note at a
specified price. The net proceeds to the Company from the
sale of the Units approximated $95 million, of which $5.1
million was attributed to the Warrants based on an estimate
of their fair value.
The indenture under which the Notes were issued places
limitations on operations and sales of assets by the Company
or its subsidiaries, requires maintenance of certain
financial ratios in order for the Company to incur
additional indebtedness (subject to specified exceptions),
requires the delivery by the Company's subsidiaries of
guaranties if specified debt is subsequently incurred by
such subsidiaries, and limits the Company's ability to pay
cash dividends or make other distributions to the holders of
its capital stock or to redeem such stock.
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 5 - New Accounting Standard:
In February 1997, the Financial Accounting Standards Board
issued Financial Accounting Standard No. 128 "Earnings per
Share" ("FAS 128") to be effective for financial statements
for periods ending after December 15, 1997.
The changes required by FAS 128 adjust the calculation
of earnings per share ("EPS") under generally accepted
accounting principles in the U.S. to be more consistent with
international standards. Under the new standard, companies
will replace the reporting of "primary" EPS with "basic"
EPS. Basic EPS is calculated by dividing the income
available to common stockholders by the weighted average
number of common shares outstanding for the period, without
consideration for common stock equivalents. "Fully diluted"
EPS will be replaced by "diluted" EPS, which will be similar
to fully diluted EPS as previously computed.
Due to the Company's generation of losses there is no
difference anticipated between "primary" EPS as reported by
the Company and "basic" EPS as computed under FAS 128.
Note 6 - Subsequent Event:
The Company has engaged Patricof & Co. in connection with
certain corporate finance services and, in addition to fees
that become due if certain transactions are consummated,
Patricof's retainer includes three-year warrants issued in
the second quarter exercisable with respect to 250,000
shares of Common Stock at an exercise price of $5.24 per
share.
<PAGE>
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The market for ESL systems is in the development stage, and
the Company estimates that, as of December 31, 1996,
approximately 120 stores in the United States were operating
such systems, out of a potential market in excess of 100,000
supermarkets and other stores. Large supermarket chains have
tested the productivity benefits as well as the technical
functionality of ESL systems in pilot stores, as a result of
which the Company believes they are in a position to consider
rolling out the systems. The Company's objective is to be the
worldwide leader in the emerging ESL system market as product
adoption and penetration increases.
Because the market for ESL systems is in the development
stage, market acceptance of and demand for these systems are
subject to a high level of uncertainty. The Company's success
will depend upon the rate at and extent to which retailers
choose to install ESL systems throughout their stores. The
initial acceptance and rate of installation by retailers may
be affected by numerous factors beyond the Company's control,
including the customer's assessment of the benefits of and the
need for ESL systems and the customer's available capital
resources.
Since its inception in April 1990, the Company has been
engaged primarily in the development, design, market testing
and, more recently, sale of the ERS ShelfNet System. The
Company subcontracts to third parties the manufacture and
assembly of the components comprising the ERS ShelfNet System.
In addition, the Company engages unaffiliated parties to
augment its internal development resources and to assist it in
the continued development of the ERS ShelfNet System. Since
inception and through March 31, 1997, the Company has
generated cumulative revenues of $13.1 million, and has
incurred a cumulative net loss of approximately $70 million,
which includes non-cash charges in the amount of $8.6 million
for stock option compensation expense.
The Company historically has marketed the ERS ShelfNet System
for sale at prices generally in excess of $100,000 per store.
The purchase of an ESL system from the Company has therefore
represented a significant capital expenditure for capital-
constrained retailers. The Company now intends also to market
its ERS ShelfNet System on a fee based arrangement whereby the
Company will own the system and, with no upfront cash cost to
the retailer, furnish the system to retailers (generally for a
period of up to five years), who will pay monthly fees to the
Company based largely on their actual usage of the system. The
Company believes this program, known as "Save As You Go" (the
"SayGo Plan"), will increase market acceptance of the ERS
ShelfNet System. However, there can be no assurance that the
<PAGE>
pricing strategy will be accepted by customers or will be
successful in helping the Company to attain profitability.
Under the SayGo Plan, the Company will recognize revenues as
monthly usage and other fees are billed to customers. Also,
under the SayGo Plan the Company will retain ownership of the
systems, which will be reflected as long-term assets on the
Company's consolidated balance sheet and which will be
depreciated on a straight-line basis over the shorter of their
economic lives or five years.
Results of Operations
Revenues. During the three month period ended March 31,
1997, the Company's total revenues were $520,000 compared to
$1,221,000 in the corresponding quarter in 1996. Product
sales in the first quarter of 1997 included $122,000 of
software license fees; no such revenues were recorded in the
comparable quarter of the prior year. In each of the three
month periods ended March 31, 1997 and 1996, product sales
were to three customers within the supermarket industry.
Maintenance revenues for the three months ended March 31,
1997 increased to $266,000 from $173,000 in the
corresponding 1996 period reflecting a larger installed
customer base. The Company anticipates that past patterns
in revenues may not be indicative of future results of
operations as the Company introduces its SayGo Plan, under
which the Company will recognize revenues as monthly usage
and other fees are billed to customers.
Cost of goods sold. Cost of goods sold consists of the cost
of hardware components of the ERS ShelfNet System, system
installation costs, depreciation of tools and dies owned by
the Company and utilized in the manufacturing of hardware
components, amortization of capitalized product development
costs, warranty and maintenance costs, freight and inventory
obsolescence.
In connection with introduction of the SayGo Plan, the
Company will depreciate the cost of hardware components of
its system over the shorter of their estimated useful lives
of five years.
Cost of goods sold was $565,000 for the three months ended
March 31, 1997, compared to $1,444,000 for the three months
ended March 31, 1996, reflecting decreased product sales in
1997. The gross loss (cost of goods sold in excess of
revenues) decreased to 9% in the first quarter of 1997, from
18% in the first quarter of 1996. Cost of goods sold for
the three months ended March 31, 1997 included warranty and
maintenance expenses of $242,000 compared to $200,000 for
the same period in 1996, reflecting the growing installation
base for the ERS ShelfNet System. The Company anticipates
that system enhancements to be implemented in 1997 will
decrease future warranty and maintenance expenses per
<PAGE>
installation and, in the future, that the cost of goods sold
will decrease as a percentage of revenues as a result of
higher manufacturing volumes of its components and as the
installation process is improved.
Selling, General and Administrative. Selling, general and
administrative costs consist of costs associated with
selling and administrative staff, overhead, market research
and development, and customer service personnel. Selling,
general and administrative costs increased to $2,017,000 for
the three month period ended March 31, 1997, compared to
$1,696,000 for the same period in 1996. This increase
reflects efforts to expand the Company's organization in
anticipation of sales growth.
Research and Development. Research and development expenses
were $490,000 for the three month period ended March 31,
1997 compared to $313,000 for the same period in 1996,
reflecting increased hardware engineering activities.
Additionally, for the three month periods ended March 31,
1997 and 1996, respectively, the Company capitalized $75,000
and $223,000 of product development software costs that will
be amortized over the shorter of the estimated useful life
of the related software product or process or three years.
Interest Income. Interest income increased to $1,046,000 for
the three month period ended March 31, 1997, compared to
$34,000 for the same period in 1996, due to increased cash and
cash equivalents available for investment, including the
proceeds of the sale, in a private offering (the "Private
Placement") of 147,312 Units consisting of $147,312,000
principal amount at maturity of 13.25% Senior Discount Notes
due February 1, 2004 (the "Senior Discount Notes") together
with warrants (the "Warrants") to purchase an aggregate of
2,538,258 shares of common stock, $.01 par value ("Common
Stock") consummated on January 24, 1997.
Interest Expense. Interest expense increased to $2,723,000
for the three month period ended March 31, 1997, compared to
$87,000 for the same period in 1996. Interest expense in
1996 and 1997 included interest on amounts borrowed from the
Connecticut Development Authority ("CDA") and additionally, in
1997, interest on the 13.25% Senior Discount Notes. Commencing
with the consummation of the Private Placement in January
1997, the Company will record interest on an amount equal to
the net proceeds to the Company from the Senior Discount Notes
at the annual rate of 13.25%. Additional expense will be
recorded as a result of the amortization of the discount
recorded on the Senior Discount Notes (for value attributed to
the Warrants) and the amortization of costs of issuance.
Income Taxes. The Company has incurred net losses since
inception which have generated net operating loss
carryforwards of approximately $46 million for federal and
<PAGE>
state income tax purposes, which are available to offset
future taxable income and expire through the year 2012 for
federal income tax purposes. In consideration of the
Company's accumulated losses through March 31, 1997 and the
uncertainty of its ability to utilize any future tax
benefits resulting from these loses, the impact of this
potential tax benefit has been eliminated in the Company's
condensed consolidated financial statements.
Liquidity and Capital Resources
As of March 31, 1997, the Company had net working capital of
$102,432,000, reflecting cash and cash equivalents of
$101,927,000, compared to net working capital of $8,764,000,
reflecting cash and cash equivalents of $8,198,000 at December
31, 1996. The increase in net working capital and in cash and
cash equivalents resulted primarily from $95 million in net
proceeds raised in the Private Placement.
Net cash used in operations was $1,072,000 for the three
months ended March 31, 1997, compared to net cash of
$2,571,000 used for operating activities for the three months
ended March 31, 1996, resulting primarily from the net losses
of $4,270,000 and $2,327,000, respectively, for such periods.
Cash used in investing activities totaled $274,000 for the
three months ended March 31, 1997, compared to $299,000 of
cash used in investing activities for the three months ended
March 31, 1996. Investing activities included capital
expenditures of $199,000 and $76,000 for the three months
ended March 31, 1997 and 1996, respectively. The Company also
incurred $75,000 and $223,000 in product development costs in
the respective 1997 and 1996 periods.
In addition to selling the ERS ShelfNet System to customers at
a price generally in excess of $100,000 per store, under the
SayGo Plan the Company will offer the system on a fee based
arrangement whereby the Company retains ownership of the
system. As a result, the Company will have substantial cash
requirements for manufacturing and carrying costs attendant to
introduction of the SayGo Plan, which will not initially be
covered by revenues calculated on the basis of usage fees paid
by customers. Accordingly, the Company will require
substantial funds in order to support the introduction of the
SayGo Plan.
To date, the Company has not generated positive cash flow from
operations, and has historically funded its operations
primarily through loans from its stockholders; the sale of
interests in an affiliated partnership; the initial public
offering consummated in May 1993; its arrangements with the
CDA; the sale of Series A Preferred Stock, $1.00 par value, to
the Company's principal stockholders and members of its Board
of Directors and their affiliates, the offshore public
<PAGE>
offering and contemporaneous private placement of Common Stock
in July 1996 and the Private Placement.
The aggregate of $5,000,000 principal amount of indebtedness
to the CDA (the "CDA Note") is repayable five years after the
August 1994 closing and is convertible to shares of Common
Stock, through August 12, 1997 at an adjusted conversion price
calculated at $3.00 plus the average price of the Common Stock
during the eighteen months prior to conversion and thereafter
at $3.00 plus the average market price of the Common Stock
during the twelve months prior to conversion. At closing, the
CDA acquired five-year warrants to purchase 699,724 shares (as
adjusted through March 31, 1997) of Common Stock, exercisable
at an adjusted price through August 12, 1997 calculated at
$2.58 plus the average market price of the Common Stock during
the eighteen months prior to exercise, and thereafter as $2.58
plus the average market price of the Common Stock during the
twelve months prior to exercise. Under its arrangements with
the CDA, the Company will be obligated to comply with certain
covenants (some of which remain in effect for up to ten years
from closing), whether or not the CDA Note has been paid in
full, or be subject to certain penalties including immediate
repayment of the CDA Note in full. In the event of specified
changes in control of the Company coupled with prepayment of
its note, the Company has rights to repurchase such warrants
and shares at the fair market value thereof (calculated
pursuant to such arrangements), and thereby, subject to the
foregoing, extinguish such covenants. In all events (and
notwithstanding any such repurchase), if the Company relocates
outside of Connecticut before August 2004, all advances made
by the CDA are subject to acceleration, together with a
penalty of $250,000.
In January 1997, the Company completed the private sale of
147,312 Units, consisting of $147,312,000 principal amount at
maturity of its Senior Discount Notes and Warrants, which were
sold to investors at a price aggregating $100 million ($95
million net proceeds to the Company). The Senior Discount
Notes mature on February 1, 2004, with accrual of cash
interest at the rate of 13.25% per annum commencing February
1, 2000, such interest payable thereafter on February 1 and
August 1 of each year commencing August 1, 2000. The Senior
Discount Notes may be called, at the Company's option, in
whole or in part, at any time after February 1, 2001, and upon
specified change in control events, each holder has the right
to require the Company to purchase its Senior Discount Note,
at specified prices.
The indenture under which the Senior Discount Notes were
issued places limitations on operations and sales of assets by
the Company or its subsidiaries, requires maintenance of
certain financial ratios in order for the Company to incur
additional indebtedness (subject to specified exceptions),
<PAGE>
requires the delivery by the Company's subsidiaries of
guaranties if specified debt is subsequently incurred by such
subsidiaries, and limits the Company's ability to pay cash
dividends or make other distributions to the holders of its
capital stock or to redeem such stock. The Warrants are,
subsequent to January 24, 1998, exercisable through February
1, 2004 with respect to an aggregate of 2,538,258 shares of
Common Stock, at a per share price of $5.23.
The Company will utilize the net proceeds from the Private
Placement in connection with the anticipated expansion of its
operations, including for manufacturing and carrying costs
attendant to the SayGo Plan, and for general corporate
purposes, including the funding of the Company's ongoing
engineering and development efforts. The Company believes the
proceeds of the Private Placement, together with its other
cash and cash equivalents, will be sufficient to meet the
Company's currently anticipated operating and capital
expenditure requirements for the foreseeable future.
The Company continues actively to explore, evaluate and have
discussions with respect to collaborative development projects
and related arrangements, and the Company may consider
additional transactions, consistent with the provisions of the
Indenture, that will further enhance its liquidity. The
Company has not reached any determination with respect to the
size or nature of any such transaction, or whether any such
transaction will be undertaken, and there can be no assurance
that any such transaction will be effected. The Company has
engaged Patricof & Co. in connection with certain corporate
finance services and, in addition to fees that become due if
certain transactions are consummated, Patricof's retainer
includes three-year warrants issued in the second quarter
exercisable with respect to 250,000 shares of Common Stock at
an exercise price of $5.24 per share.
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q
Part II-Other Information
PART II. Other Information
Item 2. CHANGES IN SECURITIES
(c) As described under "Item 2. Management's
Discussion and Analysis of Financial Condition
and Results of Operations" of Part I of this
report, on January 24, 1997 the Company
consummated the private sale of 147,312 Units,
consisting of an aggregate of $147,312,000
principal amount at maturity of its Senior
Discount Notes and 147,312 Warrants, in a
transaction exempt from the registration
requirements of the Securities Act of 1933
(the "Act") by virtue of Section 4(2) thereof.
Credit Suisse First Boston Corporation and UBS
Securities LLC were the initial purchasers of
the Units (the "Initial Purchasers"). The
Units were sold to investors, consisting of
qualified institutional buyers (as defined in
Rule 144A under the Act) and institutional
"accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (4) under the Act) at a
price aggregating approximately $100,000,000
(of which $5,100,000 was attributed to the
Warrants), with the discount to the Initial
Purchasers equal to approximately $3,875,000.
The Warrants are, subsequent to January 24,
1998, exercisable through February 1, 2004
with respect to an aggregate of 2,538,258
shares of Common Stock, at a per share price
of $5.23.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed or incorporated by
reference as part of this Quarterly Report on
Form 10-Q are listed on the attached Index to
Exhibits.
<PAGE>
(b) Current Reports on Form 8-K
During the quarter ended March 31, 1997, the
Company filed a Current Report on Form 8-K
dated January 24, 1997 addressing, under
"Item 5. Other Events" thereunder, the
completion of the Private Placement; and
filed a Current Report on Form 8-K dated
February 7, 1997 addressing, under "Item 5.
Other Events" thereunder, certain changes in
management. No financial statements were
included with such reports.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
05/15/97 s/Bruce F. Failing, Jr.
- -------- --------------------------
Date Bruce F. Failing, Jr.
Vice Chairman and
Chief Executive Officer
05/15/97 s/ William B. Fischer
- -------- ---------------------------
Date William B. Fischer
Vice President, Finance
(principal financial and
accounting officer)
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q for the Three Months Ended March 31, 1997
Index to Exhibits
Exhibit Number Document Description
- -------------- --------------------
11 Computation of Net Loss Per Common Share
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed.
Exhibit 11
Electronic Retailing Systems International, Inc.
Computation of Net Loss Per Common Share
Three Months
Ended
March 31, 1997
--------------
Net loss ($ 4,270,000)
===========
Weighted average common shares outstanding 21,055,493
===========
Earnings (loss) per common share ($0.20)
===========
Calculation of weighted average shares outstanding
- --------------------------------------------------
Shares issued and outstanding at Dec. 31, 1996 21,047,106
Issuance of shares pursuant to stock option plan 8,387
-----------
Weighted average common shares outstanding 21,055,493
===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 101,927
<SECURITIES> 0
<RECEIVABLES> 1,203
<ALLOWANCES> (152)
<INVENTORY> 645
<CURRENT-ASSETS> 103,994
<PP&E> 2,643
<DEPRECIATION> (1,930)
<TOTAL-ASSETS> 110,627
<CURRENT-LIABILITIES> 1,562
<BONDS> 102,436
0
0
<COMMON> 211
<OTHER-SE> 1,318
<TOTAL-LIABILITY-AND-EQUITY> 110,627
<SALES> 254
<TOTAL-REVENUES> 520
<CGS> 323
<TOTAL-COSTS> 565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> (2,723)
<INCOME-PRETAX> (4,270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,270)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0
</TABLE>
