THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE PERIOD
ENDED JUNE 30, 1997 FILED ON AUGUST 14, 1997
PURSUANT TO A RULE 201 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 June 30, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
488 Main Avenue
Norwalk, Connecticut 06851
------------------------------
(Address of principal executive offices, including zip
code)*
(203) 849-2500
---------------
(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 August 13, 1997
- ----------------------- ----------------------------
Common Stock, $.01 par value 21,098,156 shares
==============================================================
* The address listed above is a new address for
registrant's principal executive offices.
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q
Contents
Page Number
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet--June 30, 1997 and
December 31, 1996 3
Condensed Consolidated Statement
of Operations--Three and Six
Months Ended June 30, 1997 and
1996 4
Condensed Consolidated Statement
of Cash Flows--Six Months Ended
June 30, 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>
June 30, December 31,
1997 1996
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 98,388 $ 8,198
Accounts receivable 363 1,061
Inventories 1,290 821
Prepayments and other current assets 854 232
-------- --------
Total current assets 100,895 10,312
-------- --------
Equipment 2,519 2,444
Accumulated depreciation (1,431) (1,798)
-------- --------
Net equipment 1,088 646
-------- --------
Other non-current assets 6,194 1,302
-------- --------
Total assets $108,177 $12,260
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,874 $ 1,548
-------- --------
Total current liabilities 1,874 1,548
-------- --------
Long-term debt
CDA Note, 7.4% 4,990 4,989
Senior Discount Notes, 13.25% 100,874 -
-------- --------
Total long-term debt 105,864 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,
21,098,156 and 21,047,106 shares issued and
outstanding in 1997 and 1996) 211 210
Additional paid-in capital 51,240 50,655
Accumulated deficit (56,112) (45,142)
------- --------
Total stockholders' (deficit) equity (4,661) 5,723
------- --------
Total liabilities and stockholders' equity $108,177 $12,260
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------ ---------------
1997 1996 1997 1996
----- ----- ---- ----
<S> <C> <C> <C> <C>
Revenues
Product $ 51 $1,251 $ 305 $2,299
Maintenance 237 175 503 348
------ ------- -------- ------
Total revenues 288 1,426 808 2,647
------ ------- -------- ------
Cost of goods sold
Product sales 250 1,282 573 2,526
Maintenance 184 245 426 445
------ ------- -------- ------
Total cost of goods sold 434 1,527 999 2,971
------ ------- -------- ------
Gross profit (loss) (146) (101) (191) (324)
------ ------- -------- ------
Operating expenses
Selling, general and administrative 3,573 1,757 5,590 3,453
Research and development 668 251 1,158 564
Depreciation and amortization 75 40 116 82
------- ------- -------- ------
Total operating expenses 4,316 2,048 6,864 4,099
------- ------- -------- ------
Loss from operations (4,462) (2,149) (7,055) (4,423)
------- ------- -------- ------
Other income (expenses)
Interest income 1,392 16 2,438 50
Interest expense (3,630) (99) (6,353) (186)
------- ------- -------- ------
Total other expenses (2,238) (83) (3,915) (136)
------- ------- -------- ------
Net loss $(6,700) $(2,232) $(10,970) $(4,559)
======= ======= ======== =======
Earnings per Share
Weighted average common shares
outstanding 21,087 11,796 21,071 11,782
======== ======= ======== =======
Net loss per common share $ (0.32) $ (0.19) $ (0.52) $ (0.41)
======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Statement of Cash Flows
(n thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1996
---- -----
<S> <C> <C>
Cash Flows Used in Operating Activities:
Net loss ($10,970) ($4,559)
Other adjustments to reconcile net loss to net cash
used in operating activities 7,332 884
-------- ------
Cash used in operating activities (3,638) (3,675)
-------- ------
Cash Flows Used in Investing Activities:
Capital expenditures (745) (145)
Capitalized product development costs (155) (394)
-------- ------
Cash used in investing activities (900) (539)
-------- ------
Cash Flows from Financing Activities:
Net proceeds from issuance of long-term debt 89,553 1,650
Proceeds from issuance of common stock purchase 5,100 -
warrants
Proceeds from exercise of stock options 75 1
-------- ------
Cash provided by financing activities 94,728 1,651
-------- ------
Net increase (decrease) in cash and cash
equivalents 90,190 (2,563)
-------- ------
Cash and cash equivalents at beginning of period 8,198 3,210
-------- ------
Cash and cash equivalents at end of period $98,388 $647
======== ======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 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 and six month periods ended June
30, 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.
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 3- Inventories:
Inventories are stated at the lower of cost (determined on a first
in, first out basis) or market value. Inventories at June 30,
1997 consist of $562,000 of materials and supplies and $728,000 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
June 30, 1997
(Unaudited)
With the consummation of the Private Placement in January 1997,
the Company commenced recording interest on an amount equal to the
gross proceeds from the Private Placement plus prior recorded and
unpaid interest at the annual rate of 13.25%. Additional expense
is being recorded as a result of the amortization of the discount
recorded on the Notes (for value attributed to the warrants) and
the amortization of the costs of issuance.
Note 5 - Additional Warrants
The Company has engaged Patricof & Co. in connection with certain
corporate finance services and, in addition to three-year warrants
issued to Patricof in the second quarter of 1997 exercisable with
respect to 250,000 shares of Common Stock at an exercise price of
$5.24 per share, Patricof may receive fees that become due if
certain transactions are consummated.
Note 6 - 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.
<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 June 30, 1997, approximately 125 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 June
30, 1997, the Company has generated cumulative revenues of $13.4 million,
and has incurred a cumulative net loss of approximately $76.7 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 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.
<PAGE>
Results of Operations
Revenues. During the three month period ended June 30, 1997, the
Company's total revenues were $288,000 compared to $1,426,000 in the
corresponding quarter in 1996. Revenues for the six months ended June
30, 1997 were $808,000 compared to $2,647,000 in the corresponding
period of 1996. The Company believes that the decrease in revenues in
1997 compared to 1996 reflects the decreased demand for the Company's
previous generation product attendant to plans to introduce a new
generation product designed to provide advantages in ease of installation,
ease of use and lower cost of ownership.
In the three and six month periods ended June 30, 1997, revenues were
concentrated among four and five significant customers within the
supermarket industry comprising 81% and 85%, respectively, of total
revenues. For the three and six month periods ended June 30, 1996,
revenues were concentrated among two significant customers comprising
87% and 73%, respectively, of total revenues. There were no software
license fees recorded in the second quarter of 1997 whereas revenues in
the second quarter of 1996 included $243,000 of software license fees,
or 17% of total revenues. For the six month periods ended June 30, 1997
and 1996 software license fees were $122,000 and $243,000, respectively,
or 15% and 9% of total revenues.
Maintenance revenues for the three months ended June 30, 1997 increased
to $237,000 from $175,000 in the corresponding 1996 period, reflecting a
larger installed customer base. For the first half of 1997 maintenance
revenues increased to $503,000 from $348,000 in the first half of 1996.
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 or five years.
<PAGE>
Primarily due to decreased product sales, cost of goods sold decreased
to $434,000 for the three months ended June 30, 1997, from $1,527,000
for the three months ended June 30, 1996, and to $999,000 for the first
half of 1997, from $2,971,000 in the first half of 1996. Warranty and
maintenance expenses included in cost of goods sold decreased to
$184,000 in the three months ended June 30, 1997 compared to $245,000
for the same period in 1996, and to $426,000 in the first half of 1997
from $445,000 in the first half of 1996, which included reductions in
warranty costs. The gross loss (cost of goods sold in excess of
revenues) increased in the second quarter to 51% of total revenues, from
7% in the comparable 1996 period, while the gross loss in the first six
months of 1997 increased to 24% of total revenues from 12% in the 1996
corresponding period, reflecting reduced installation volumes.
The Company anticipates that system enhancements to be implemented in
1997 will decrease future warranty and maintenance expenses per
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 $3,573,000 for the three month period ended June 30, 1997,
compared to $1,757,000 for the same period in 1996. For the first six
months of 1997 selling, general and administrative costs increased to
$5,590,000 from $3,453,000 in the comparable 1996 period. These
increases reflect efforts to expand the Company's organization in
anticipation of sales growth. In addition, results for the three and six
month periods include the effect of a special non-cash charge of
$510,000 for the issuance of common stock purchase warrants.
Research and Development. Research and development expenses were
$668,000 for the three month period ended June 30, 1997 compared to
$251,000 for the same period in 1996. For the six months ended June 30,
1997 research and development expenses were $1,158,000 compared to
$564,000 for the corresponding period of the previous year. Such
increases reflect expanded hardware engineering activities.
Additionally, for the three month and six month periods ended June 30,
1997 the Company capitalized $80,000 and $155,000 of product development
software costs. In the comparable 1996 periods $171,000 and $394,000,
respectively, of such costs were capitalized. These product development
costs are 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 $1,392,000 for the three
month period ended June 30, 1997, compared to $16,000 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. For the six months ended
June 30, 1997 interest income increased to $2,438,000 from $50,000 in the
corresponding period of the prior year.
<PAGE>
Interest Expense. Interest expense increased to $3,630,000 for the three
month period ended June 30, 1997, compared to $99,000 for the same period
in 1996. For the first half of 1997 interest expense increased to
$6,353,000 from $186,000 in the first half of 1996. Interest expense in
1997 and 1996 included interest on amounts borrowed from the Connecticut
Development Authority ("CDA") and additionally, in 1997, interest on the
13.25% Senior Discount Notes. With the consummation of the Private
Placement in January 1997, the Company commenced recording interest on an
amount equal to the gross proceeds from the Private Placement plus prior
recorded and unpaid interest at the annual rate of 13.25%. Additional
expense is being 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 $48
million for federal and 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 June 30, 1997 and the uncertainty of its
ability to utilize any future tax benefits resulting from these losses,
the impact of this potential tax benefit has been eliminated in the
Company's condensed consolidated financial statements.
Liquidity and Capital Resources
As of June 30, 1997, the Company had net working capital of $99,021,000,
reflecting cash and cash equivalents of $98,388,000, 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 the approximately $95
million in net proceeds raised in the Private Placement.
Net cash used in operations was $3,638,000 for the six months ended June
30, 1997, compared to net cash of $3,675,000 used for operating activities
for the six months ended June 30, 1996. In the first six months of 1997,
the net loss of $10,970,000 included $6,156,000 of non-cash interest and
related amortization expense not used by operations. The net cash used in
operations in the first six months of 1996 was comprised primarily of the
net loss of $4,559,000.
Cash used in investing activities totaled $900,000 for the six months ended
June 30, 1997, compared to $539,000 of cash used in investing activities
for the six months ended June 30, 1996. Investing activities included
capital expenditures of $745,000 and $145,000 for the six months ended June
30, 1997 and 1996, respectively. The Company also capitalized $155,000 and
$394,000 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 the introduction of the SayGo Plan, which will not initially
be covered by revenues, calculated on the basis of usage fees paid by
<PAGE>
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 of its Common Stock 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, an offshore public offering and
contemporaneous private placement of Common Stock in July 1996 and the
Private Placement.
Cash from financing activities provided $94,728,000 in the first half of
1997 as a result of the Private Placement, compared to $1,651,000 provided
by financing activities in the first half of 1996. The Company borrowed
the remaining $1,650,000 under its facility with the CDA during the first
half of 1996.
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 at an adjusted conversion price
calculated at $3.00 plus the average 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) of Common Stock,
exercisable at an adjusted price calculated at $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.
<PAGE>
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), 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
three-year warrants issued in the second quarter of 1997 exercisable
with respect to 250,000 shares of Common Stock at an exercise price of
$5.24 per share, Patricof may receive fees that become due if certain
transactions are consummated.
<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 April
29,1997 the Company issued three-year warrants,
exercisable with respect to 250,000 shares of Common
Stock at an exercise price of $5.24 per share, to
Patricof & Co. in connection with certain corporate
finance services. Such issuance was exempt from the
registration requirements of the Securities Act of
1933 by virtue of Section 4(2) thereof.
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.
(b) Current Reports on Form 8-K
During the quarter ended June 30, 1997, the Company did
not file a Current Report on Form 8-K.
<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.
August 14, 1997 s/Bruce F. Failing, Jr.
--------------- ----------------------------
Date Bruce F. Failing, Jr.
Vice Chairman and Chief
Executive Officer
August 14, 1997 s/Michael Luetkemeyer
- ---------------- ----------------------------
Date Michael Luetkemeyer
Chief Financial Officer
(principal financial and accounting
officer)
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q for the Three and Six Months Ended June 30, 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.
<PAGE>
<TABLE>
Exhibit 11
Electronic Retailing Systems International, Inc.
Computation of Net Loss Per Common Share
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss ($6,700,000) ($10,970,000)
========== ===========
Weighted average common shares
outstanding 21,087,148 21,071,189
========== ===========
Earnings (loss) per common share ($0.32) ($0.52)
========== ===========
Calculation of weighted average
shares outstanding
- --------------------------------
Shares issued and outstanding at
Dec. 31, 1996 21,047,106 21,047,106
Issuance of shares pursuant to
stock option plan 40,042 24,083
---------- ----------
Weighted average common
shares outstanding 21,087,148 21,071,189
=========== ===========
</TABLE>
<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 SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 98,388
<SECURITIES> 0
<RECEIVABLES> 501
<ALLOWANCES> (138)
<INVENTORY> 1,290
<CURRENT-ASSETS> 100,895
<PP&E> 2,519
<DEPRECIATION> (1,431)
<TOTAL-ASSETS> 108,177
<CURRENT-LIABILITIES> 1,874
<BONDS> 105,864
0
0
<COMMON> 211
<OTHER-SE> (4,661)
<TOTAL-LIABILITY-AND-EQUITY> 108,177
<SALES> 305
<TOTAL-REVENUES> 808
<CGS> 573
<TOTAL-COSTS> 999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,915
<INCOME-PRETAX> (10,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,970)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> 0
</TABLE>
