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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 September 30, 2000
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
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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.)
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 October 31, 2000
---------------------- -------------------------------
Common Stock, $.01 par value 21,295,383 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--
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statement of
Operations--Three and Nine Months Ended
September 30, 2000 and 1999 4
Condensed Consolidated Statement of Cash
Flows-Nine Months Ended September 30,
2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 17
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds 18
Item 4. Submission of Matters to a Vote of
Securityholders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
INDEX TO EXHIBITS 21
<PAGE>
<TABLE> Electronic Retailing Systems International, Inc.
Condensed Consolidated Balance Sheet
(in thousands except per share and share amounts)
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,688 $ 37,386
Accounts receivable, net 1,943 2,304
Inventories, net 2,161 3,772
Prepayments and other current
assets 334 765
--------- --------
Total current assets 10,126 44,227
--------- --------
Equipment 3,938 4,802
Accumulated depreciation (2,184) (2,287)
--------- --------
Net equipment 1,754 2,515
--------- --------
Other non-current assets 6 2,774
Note receivable 3,796 --
--------- --------
Total assets $ 15,682 $ 49,516
========= ========
LIABILITIES, REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 5,552 $ --
Accounts payable and accrued
expenses 1,709 2,557
Deferred revenue 152 505
--------- --------
Total current liabilities 7,413 3,062
--------- --------
Long-term debt 6,882 98,207
--------- --------
Total Liabilities 14,295 101,269
--------- --------
Redeemable preferred stock, Series A-1 3,999 --
(par value $1.00 per share; 40,000 --------- --------
authorized, 39,985 issued and out-
standing; liquidation preference
$100 per share)
Common stock purchase warrants 5,100 5,100
--------- --------
Total Redeemable Securities 9,099 5,100
--------- --------
Stockholders' deficit
Common stock (par value $0.01 per
share; 35,000,000 authorized,
21,295,383 and 21,282,637 shares
issued and outstanding in 2000
and 1999, respectively) 212 212
Additional paid-in capital 51,376 51,374
Accumulated deficit (59,300) (108,439)
--------- --------
Total stockholders' deficit (7,712) (56,853)
--------- --------
Total liabilities, redeemable securities
and stockholders' deficit $ 15,682 $ 49,516
========= ========
See accompanying notes to condensed 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 Nine Months Ended
September 30, September 30,
---------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Product sales $ 866 $ 1,005 $ 2,895 $ 2,313
Maintenance 113 233 671 633
--------- --------- --------- ---------
Total revenues 979 1,238 3,566 2,946
--------- --------- --------- ---------
Costs of goods sold
Product sales 1,092 908 3,231 3,337
Maintenance 50 233 240 578
--------- --------- --------- ---------
Total cost of goods sold 1,142 1,141 3,471 3,915
--------- --------- --------- ---------
Gross profit (loss) (163) 97 95 (969)
--------- --------- --------- ---------
Operating expenses
Selling, general and
administrative 1,633 2,653 5,154 8,235
Research and development 887 1,444 3,098 4,030
Depreciation and amorti-
zation 660 100 826 295
--------- --------- --------- ---------
Total operating expenses 3,180 4,197 9,078 12,560
--------- --------- --------- ---------
Loss from operations (3,343) (4,100) (8,983) (13,529)
--------- --------- --------- ---------
Other income (expenses)
Interest and other income 121 671 1,045 2,087
Interest expense (148) (4,839) (5,629) (14,121)
Gain/Loss on disposals -- (1) (2) (13)
Loss on investment and other
assets (1,053) -- (2,120) --
--------- --------- --------- ---------
Total other expenses, net (1,080) (4,169) (6,706) (12,047)
--------- --------- --------- ---------
Loss before extraordinary
item (4,423) (8,269) (15,689) (25,576)
Extraordinary item
Gain on extinguishment of
Debt 45,870 -- 64,828 --
--------- --------- --------- ---------
Net income (loss) $ 41,447 $ (8,269) $ 49,139 $ (25,576)
========= ========= ========= =========
Earnings per share
Weighted average common
shares outstanding 21,292 21,272 21,290 21,258
========= ========= ========= =========
Basic and diluted net income
(loss) per common share:
Loss before
extraordinary item $ (0.20) $ (0.39) $ (0.74) $ (1.20)
Extraordinary item $ 2.15 $ -- $ 3.05 $ --
--------- --------- --------- ---------
Net income (loss) $ 1.95 $ (0.39) $ 2.31 $ (1.20)
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
--------------------
2000 1999
------ ------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ 49,139 ($25,576)
Other adjustments to reconcile
net income (loss) to net cash used in
operating activities (55,786) 15,481
------- -------
Cash used in operating activities (6,647) (10,095)
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (221) (330)
Disposal of fixed assets 2 16
Note Receivable (4,550) --
Equity investment in NewCheck (1,950) --
Other, net 75 16
------- -------
Cash used in investing activities (6,644) (298)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash used for early debt retirement (18,407) (5,000)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,698) (15,393)
------- -------
Cash and cash equivalents at beginning
of period 37,386 63,877
------- -------
Cash and cash equivalents at end of
period $ 5,688 $48,484
======= =======
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(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
unaudited 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, the year-end condensed balance sheet data
was derived from audited financial statements, but does
not include all disclosures required under generally
accepted accounting principles.
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 nine month periods ended
September 30, 2000 are not necessarily indicative of
the results to be expected for the full year ending
December 31, 2000. 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, 1999,
included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions covering a
broad spectrum of the Company's financial activities,
and while the Company believes these estimates to be
prudent, there exists a possibility that unexpected
events might affect these estimates. Actual results
could differ from those estimates and the difference
could be material. The Company's future results and
inventory valuation could be adversely affected by a
number of factors, including (a) the timely
availability and acceptance of electronic shelf
labeling systems, (b) the impact of competitive
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
products and pricing, and (c) the Company's ability to
obtain system components from suppliers.
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.
The Company has sustained net losses and negative cash
flows from operations since its inception and
management expects these conditions to continue through
the year ending December 31, 2000. During the third
quarter of 2000 and as described under Note 4, in order
to enhance long-term liquidity the Company used $13.8
million in cash and issued certain additional
securities in exchange for all of its remaining
outstanding 13-1/4% Senior Discount Notes due 2004. As
a result, management believes that existing resources
will enable the Company to fund operations into the
second quarter of 2001, after which there is
significant uncertainty about the Company's ability to
continue to conduct its operations as a going concern.
Accordingly, the Company will need to raise additional
long-term financing to support operations and service
debt and eliminate such uncertainty. The Company has no
current arrangement with respect to, or sources of,
additional financing. Management's plans with respect
to these issues include a proactive effort to seek new
financing, but there can be no assurance that such
financing would be available on terms reasonable to the
Company. In the event that the Company were unable to
raise any required additional financing, the Company's
operations would need to be scaled back or
discontinued.
Note 3 -Inventories:
Inventories are stated at the lower of cost (determined
on a first in, first out basis) or market value.
Inventories at September 30, 2000 consist of $686,000
of materials and supplies and $1,475,000 of finished
goods. Inventories at December 31, 1999 consisted of
$2,000,000 of materials and supplies and $1,772,000 of
finished goods. Inventories in excess of expected
requirements due to new product introductions or
product enhancements are expensed currently.
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note 4 -Debt and Common Stock Purchase Warrants:
In August 1999, the Company repaid to the Connecticut
Development Authority (the "CDA"), in accordance with
its terms, an aggregate of $5,000,000 principal amount
of indebtedness. In August 1999, warrants to purchase
699,724 shares (as adjusted) of Common Stock, held by
the CDA expired without exercise. If the Company
relocates outside of Connecticut before 2004, the
Company remains obligated to pay a penalty to the CDA
of $250,000.
In January 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 "Senior Discount Notes") together
with warrants to purchase an aggregate of 2,538,258
shares of common stock, $.01 par value ("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
Senior Discount Notes of 13.25%. No cash interest
accrued on the Senior Discount Notes prior to February
1, 2000. The Senior Discount Notes provided for
interest to be payable thereafter on February 1 and
August 1 of each year commencing August 1, 2000. The
Senior Discount Notes were to be non-callable prior to
February 1, 2001. Upon specified change in control
events, each holder had the right to require the
Company to purchase its Senior Discount Note at a
specified price. The net proceeds to the Company from
the Private Placement approximated $95 million.
The indenture under which the Senior Discount Notes
were issued placed limitations on operations and sales
of assets by the Company or its subsidiaries, required
maintenance of certain financial ratios in order for
the Company to incur additional indebtedness (subject
to specified exceptions), required the delivery by the
Company's subsidiaries of guaranties if specified debt
was subsequently incurred by such subsidiaries, and
limited the Company's ability to pay cash dividends or
make other distributions to the holders of its capital
stock or to redeem such stock.
With the consummation of the Private Placement in
January 1997, the Company commenced recording interest
on the outstanding Senior Discount Notes on an amount
equal to the gross proceeds from the Private Placement
plus prior recorded and unpaid interest at the annual
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
rate of 13.25%. Additional interest expense has been
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 the costs of issuance.
During the fourth quarter of 1999, the Company
repurchased: (i) $45.25 million aggregate principal
amount at maturity of Senior Discount Notes in open
market transactions from holders not affiliated with
the Company for an aggregate purchase price of $7.01
million; and (ii) $1.095 million aggregate principal
amount at maturity of Senior Discount Notes as the
result of a tender offer by the Company for an
aggregate purchase price of $.170 million. The Company
incurred $818,000 in transaction fees related to these
purchases. During the first quarter of 2000, the
Company repurchased $24.549 million aggregate principal
amount at maturity of Senior Discount Notes in open
market transactions from holders who were not
affiliated with the Company for an aggregate purchase
price of $4.65 million, and recognized an extraordinary
gain of $18.959 million ($0.89 per share).
During the third quarter of 2000, the Company completed
the exchange of $76.418 million principal amount at
maturity of Senior Discount Notes for an aggregate of
$13.76 million, in cash, approximately $5 million
principal amount of the Company's 10% Guaranteed
Secured Notes due August 1, 2001 (the "10% Notes"),
approximately $5 million principal amount of the
Company's 8% Guaranteed Secured Notes due August 1,
2004 (the "8% Notes"), and 39,985 shares of the
Company's newly-created Series A-1 Convertible
Preferred Stock, $1.00 par value ("Series A-1 Preferred
Stock"), subject to automatic conversion as described
below, plus cash in lieu of fractional shares. The 10%
Notes and 8% Notes are recorded together with interest
through maturity. The notes submitted for exchange
represented all of the remaining outstanding Senior
Discount Notes. The exchange was accounted for in
accordance with the provisions of FASB 115, "Accounting
by Debtors and Creditors for Troubled Debt
Restructurings." The Company recognized an
extraordinary gain of $45.870 million ($2.15 per share)
as a result of the exchange of the Senior Discount
Notes.
The 10% Notes and 8% Notes (the "Notes") are guaranteed
by the Company's subsidiaries and are collateralized by
the assets of the Company and its subsidiaries. The
Notes contain covenants that, among other matters,
restrict distributions on the Company's Common Stock
and limit the ability of the Company and its sub-
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
sidiaries to incur indebtedness for borrowed money and
create liens on their assets.
The Company's Series A-1 Preferred Stock does not
entitle the holders to dividends or, except in limited
circumstances, voting rights. The Series A-1 Preferred
Stock entitles the holders to a liquidation preference
per share of $100 and, subject to specified exceptions,
is subject to automatic conversion upon consummation of
specified equity transactions aggregating at least $20
million over any twelve-month period (including any
cash distributions on the Company's investment in
NewCheck) into the same securities offered in such
transaction and at the same price, payable by
application of the liquidation preference of the Series
A-1 Preferred Stock. Under certain limited
circumstances, up to five percent of the preferred
shares may be subject to mandatory redemption, at the
option of the holder, following consummation of such
equity transactions.
Long-term debt as of September 30, 2000 was comprised
of the 8% Notes totaling $5 million, plus interest,
and, as of December 31, 1999 was comprised of 13.25%
Senior Discount Notes totaling $98.2 million. At
September 30, 2000, the 10% Notes, plus interest, were
classified as current liabilities.
Note 5 - Agreements with NewCheck Corporation
On February 11, 2000, in exchange for payments
aggregating $6.5 million, the Company acquired 262,802
shares of the newly-created Series C Convertible
Preferred Stock, $.0001 par value (the "NewCheck Senior
Preferred Stock"), of NewCheck Corporation
("NewCheck"), together with NewCheck's 8% Convertible
Promissory Note (the "NewCheck Convertible Note") in
the aggregate principal amount of approximately
$4,550,000, convertible into an additional 613,205
shares of NewCheck Senior Preferred Stock. NewCheck is
engaged in the development and commercialization of
retailing productivity solutions for use in
supermarkets and other retail environments similar to
those addressed by the Company's system. The shares of
NewCheck Senior Preferred Stock acquired by the Company
at closing represented approximately 19% of NewCheck's
outstanding voting securities.
The NewCheck Convertible Note accrues interest, payable
at maturity, at the per annum rate of 8%, matures on
the fifth anniversary of issue, is repayable (together
with interest) in shares of NewCheck Senior Preferred
Stock at the election of NewCheck. The NewCheck
Convertible Note is convertible after two years (and
earlier in specified circumstances) into shares of
NewCheck Senior Preferred Stock.
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
The Company applies the equity method of accounting to
its investment in NewCheck. NewCheck has experienced
recurring losses. In applying the equity method, the
Company has reduced its investment in NewCheck by an
amount corresponding to its share of NewCheck losses,
first by reducing its equity investment to zero and
then by applying any remainder to its note receivable
from NewCheck. For the nine months ended September 30,
2000, the Company recognized write-downs of these
securities by $1.366 million and $0.754 million,
respectively, as reflected in the statement of
operations. In addition, amortization of the difference
between the Company's investment and the initial
underlying value of its share of net assets has been
included in depreciation and amortization in the amount
of $0.584 million.
The Company and NewCheck have also entered into a
management agreement under which, for an initial term
of five years, the Company will manage NewCheck's
operations. In exchange for the agreement, and in
addition to continuing reimbursements to the Company of
the costs of performance, at closing the Company was
issued 1,110,000 ten-year warrants, with an exercise
price of $.001 per share, exercisable after the first
year to acquire shares of NewCheck Common Stock equal
to approximately 16% of NewCheck's voting securities
outstanding at closing (giving effect to such warrants
and to the conversion of the NewCheck Convertible
Note). Subsequent to closing, the Company has allocated
to one of its executive officers 260,000 of such
warrants in connection with performance of such
arrangements. At closing, the Company received
additional ten-year warrants that vest with respect to
specified percentages of the outstanding NewCheck
Common Stock in the event the equity value of NewCheck
exceeds specified levels during the three years after
closing. Subsequent to closing, of its maximum
entitlement under such additional warrants of up to 15%
of NewCheck's equity, on a fully-diluted basis, the
Company has allocated an aggregate of 4% thereof to
four executive officers in connection with performance
of such arrangements.
Note 6 -New Accounting Standards:
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS
137, which the Company is required to adopt effective
beginning January 1, 2001. The Company is currently
evaluating the impact on its financial statements of
adopting the standard and will comply as required;
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
however, the impact is not expected to be material on
the Company's financial statements.
In December of 1999, the staff of the Securities and
Exchange Commission issued its Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements". SAB No. 101, as amended,
provides guidance on the measurement and timing of
revenue recognition in financial statements of public
companies. Changes in accounting policies to apply the
guidance of SAB No. 101 must be adopted by recording
the cumulative effect of the change in the fiscal
quarter ending June 30, 2000. SAB No. 101(B) has
extended adoption date to December 15, 2000.
Management has not yet determined the effect SAB No.
101 will have, if any, on its accounting policies or
the amount of the cumulative effect to be recorded from
adopting SAB No. 101.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Overview
The market for electronic shelf labeling ("ESL") systems is
in the development stage, and the Company estimates that, as
of September 30, 2000, approximately 216 stores in the United
States were operating such systems, out of a potential market
in excess of 100,000 supermarkets and other stores. As a
result, 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, and there can be no assurance that supermarket
chains will choose to install ESL systems in a significant
number of stores.
Since its inception in 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. The Company
has never been profitable and has incurred significant net
operating losses and negative cash flow from operations to
date. Since inception and through September 30, 2000, the
Company has generated cumulative revenues of $25.6 million,
and has incurred a cumulative operating loss of $130.9
million. The Company expects losses and negative cash flow
from operations to continue in the current fiscal year, and
the accumulated deficit to increase, while the Company
concentrates on the foregoing activities and until it has
established a sufficient revenue generating customer base.
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 has also marketed its ERS
ShelfNet System on a fee based arrangement under its SayGo
Plan. The Company intends to continue, during its current
fiscal year, to develop additional strategies to accelerate
market recognition and acceptance of the system and its
benefits, but there can be no assurance that any such
approaches will be material to the determination of
additional retailers to install the Company's system in the
emerging market for ESLs.
In February 2000, the Company acquired an interest in
NewCheck Corporation ("NewCheck"), of Jacksonville, Florida,
which also does business under the name of Productivity
<PAGE>
Solutions, Inc. NewCheck is engaged in the development and
commercialization of retailing productivity solutions, namely
self-checkout systems, for use in supermarkets and other
retail environments similar to those addressed by the
Company's system. Under a management agreement extended to
NewCheck, the Company manages NewCheck's operations within
the parameters of a business plan authorized by NewCheck's
board of directors.
During the third quarter of 2000, in order to enhance long-
term liquidity, an aggregate of $76.4 million, constituting
all of the remaining outstanding, Senior Discount Notes were
acquired by the Company in exchange for $13.8 million in
cash, $10 million principal amount of new indebtedness
(recorded with interest through maturity), and $4 million
liquidation preference of newly-created preferred stock. Such
exchange followed the acquisition by the Company during
fourth quarter 1999 and first quarter 2000 of an aggregate of
$70.9 million principal amount at maturity of Senior Discount
Notes.
The Company's ability to service its outstanding indebtedness
and other obligations will depend largely on the extent to
which the Company can implement successfully its business
strategy of achieving large-scale commercialization of the
ERS ShelfNet System, and there can be no assurance that the
Company will be able to implement fully its strategy or that
the anticipated results of its strategy will be realized. As
a result of the factors set forth above, the Company will
need to raise additional long-term financing to support
operations and service debt and eliminate the significant
uncertainty about the Company's ability to continue to
conduct its operations as a going concern. The Company has no
current arrangement with respect to, or sources of,
additional financing. In the event the Company is unable to
raise any required additional financing, the Company's
operations would need to be scaled back or discontinued. See
"Liquidity and Capital Resources" below.
Statements contained in and preceding management's discussion
and analysis contain various forward-looking statements and
information that are based on information currently available
to management and management's beliefs and assumptions. When
used in this document, the words "anticipate", "designed to",
"estimate", "believes", "plans", and similar expressions are
intended to identify forward-looking statements, but are not
the exclusive means of identifying such statements. Such
statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of
factors, including, without limitation, the timely
availability and acceptance of new products, the rate of
development of the emerging market for ESL systems, the
impact of competitive products and pricing, the ability to
obtain system components from suppliers, the management of
growth, and other factors set forth in reports and other
documents filed by the Company with the Securities and
Exchange Commission from time to time.
<PAGE>
Results of Operations
Revenues. During the three-month period ended September 30,
2000, the Company's revenues were $979,000 compared to
$1,238,000 in the corresponding quarter in 1999. During the
nine-month period ended September 30, 2000, the Company's
total revenues were $3,566,000 compared to $2,946,000 in the
corresponding period in 1999. The increase in revenues in
year-to-date 2000 compared to the same period in 1999
reflects the impact of the Company's increased sales
activity. Although 17 systems were installed during the
first nine months of both years, the 1999 activity included
six systems accounted for under the Company's SayGo plan,
under which the Company recognizes revenues as monthly usage
and other fees are billed to customers.
In both the third quarter of 2000 and the comparable 1999
period, the Company recorded sales of six systems. The
decrease in revenue for the 2000 period is primarily due to
lower maintenance and service revenue as the improved
ShelfNet product becomes a larger part of the customer base,
requiring less maintenance than the previously installed
wired systems. While maintenance revenue increased 6% to
$671,000 for the nine month period ended September 30, 2000,
most of the increase occurred during the first six months of
the year.
In the three and nine-month periods ended September 30, 2000,
revenues were concentrated among two significant customers
within the supermarket industry comprising 94% and 85% of
total revenues, respectively. For the three and nine month
periods ended September 30, 1999, revenues were concentrated
among two significant customers comprising 87% and 86% of
total revenues, respectively.
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. Under the SayGo Plan, the Company depreciates
the cost of hardware components of its system over the
shorter of their estimated useful lives or five years.
Cost of goods sold was largely unchanged for the third
quarter of 2000 at $1,142,000 compared to the same quarter in
1999. The gross margin decreased in the third quarter of
2000 to a loss of 16% compared to a gross profit of 8% for
the same period in 1999, due to favorable inventory
adjustments made in the third quarter of 1999 of
approximately $200,000 and nonrecurring increases in
installation costs of approximately $80,000 during the third
quarter of 2000. For the nine-month period ended September
30, 2000, cost of goods sold was $3,471,000, an 11% decrease
compared to $3,915,000 in 1999. Gross profit for the nine-
month period in 2000 was $95,000 (3% of revenue) compared to
a loss of $969,000 (33% of revenue), in the comparable nine
<PAGE>
months of 1999. The favorable variance is primarily a result
of lower warranty maintenance costs. Additionally, charges
related to inventory reserves decreased during the nine
months ended September 30, 2000 to $148,000, compared to
$551,000 in the corresponding period for 1999.
Warranty and maintenance expenses included in cost of goods
sold decreased to $50,000 in the third quarter of 2000
compared to $205,000 for the 1999 quarter. For the nine-month
period ended September 30, 2000, warranty and maintenance
expenses were $240,000 compared to $568,000 for the same
period in 1999. The Company anticipates that future warranty
and maintenance expenses per installation would decrease as a
greater percentage of the installed base consists of wireless
installations, and that the cost of goods sold as a
percentage of revenues would decrease 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 expense consists of costs associated with
selling and administrative staff, overhead, market research
and development, and customer service personnel. Selling,
general and administrative costs decreased to $1,633,000 for
the three months ended September 30, 2000 compared to
$2,653,000 for the same quarter in 1999, and to $5,154,000
for the nine-month period ended September 30, 2000 compared
to $8,235,000 for the same period in 1999. These decreases
reflect a decrease in compensation related expense from 1999
resulting from an overall decrease in employee headcount,
reimbursement of certain operating expenses under the
management agreement with NewCheck and other general cost
reductions.
Research and Development. Research and development expenses
were $887,000 for the three months ended September 30, 2000
compared to $1,444,000 for the three months ended September
30, 1999, and $3,098,000 for the nine-month period ended
September 30, 2000 compared to $4,030,000 for the same period
in 1999. Such decreases reflect a reduction in overall
hardware and software engineering activities resulting from a
focus on core product enhancement and new product
development.
Interest Income. Interest income decreased to $121,000 for
the three months ended September 30, 2000 compared to
$671,000 for the three months ended September 30, 1999, and
to $1,045,000 for the nine-month period ended September 30,
2000 compared to $2,087,000 for the same period in 1999, due
to the decreased cash and cash equivalents available for
investment.
Interest Expense. Interest expense decreased to $148,000 for
the three months ended September 30, 2000 compared to
$4,839,000 for the same period in 1999, and to $5,629,000 for
the nine-month period ended September 30, 2000 compared to
$14,121,000 for the same period in 1999. Interest expense in
<PAGE>
1999 included interest on amounts borrowed from the
Connecticut Development Authority ("CDA"), which matured in
August 1999, and, in both 1999 and the current year, non-cash
interest on the Senior Discount Notes, all of which were
acquired during the period from the fourth quarter of 1999
through the third quarter of the current year as described
below. With the consummation in January 1997 of the private
sale (the "Private Placement") of 147,312 units (the "Units")
each consisting of Senior Discount Notes with a principal
amount at maturity of $1,000 and one warrant (collectively
the "1997 Warrants") to purchase 17.23 shares of common
stock, $.01 par value ("Common Stock"), 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 has
been recorded as a result of the amortization of the discount
recorded on the Senior Discount Notes (for value attributed
to the 1997 Warrants) and the amortization of costs of
issuance. See "Liquidity and Capital Resources" below for
information concerning the retirement of all outstanding
Senior Discount Notes.
Loss on Investment and other Assets. During the quarter and
nine-month period ended September 30, 2000, the Company
recorded losses of $1,053,000 and $2,120,000 related to its
investment in NewCheck. The Company accounts for its
investment in NewCheck under the equity method. NewCheck has
experienced recurring losses. See Note 5 of the Notes to
Consolidated Financial Statements included under "Item 1.
Financial Statements" of Part 1 of this report with respect
to the Company's reduction of its investment in NewCheck by
an amount corresponding to its share of NewCheck's losses, as
reflected in the statement of operations, which information
is incorporated by reference herein.
Income Taxes. The Company has incurred net losses since
inception which have generated net operating loss
carryforwards for federal income tax purposes of
approximately $49.6 million at September 30, 2000 which are
available to offset future taxable income and expire through
the year 2013. In consideration of the Company's accumulated
losses 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 unaudited condensed consolidated financial
statements. During the fourth quarter of 1999 and the first
and third quarters of the current year, the Company's net
operating loss carryforwards were reduced as a consequence of
the Company's recognition of extraordinary gain as
hereinafter described and after utilizing the Company's
operating loss to offset such gain for tax purposes.
Extraordinary Gain. In the first quarter of 2000, the Company
recognized an extraordinary gain of $18.959 million as the
result of the acquisition of $24.549 million principal amount
at maturity of Senior Discount Notes for a cost of $4.652
million, net of fees. The extraordinary gain is net of
transaction fees of $247,000 and the write off of $625,000 of
debt issuance costs. These acquisitions followed the
<PAGE>
acquisition of $45.25 million principal amount at maturity of
Senior Discount Notes during the fourth quarter of 1999.
In the third quarter of 2000, the Company completed the
exchange of $76.42 million principal amount at maturity of
Senior Discount Notes for an aggregate of $13.76 million, in
cash, approximately $5 million principal amount of the
Company's 10% Guaranteed Secured Notes due August 1, 2001
(the "10% Notes"), approximately $5 million principal amount
of the Company's 8% Guaranteed Secured Notes due August 1,
2004 (the "8% Notes"), and 39,985 shares of the Company's
newly-created Series A-1 Convertible Preferred Stock, $1.00
par value ("Series A-1 Preferred Stock"), plus cash in lieu
of fractional shares. The 10% Notes and 8% Notes are recorded
with interest through maturity. The notes submitted for
exchange represented 100% of the remaining outstanding Senior
Discount Notes. The Company recognized an extraordinary gain
of $45.870 million, net of transaction fees of $1.177 million
and the write off of $1.722 million of debt issuance costs.
Liquidity and Capital Resources
As of September 30, 2000, the Company had net working capital
of $2,713,000, reflecting cash and cash equivalents of
$5,688,000, compared to net working capital of $41,165,000,
reflecting cash and cash equivalents of $37,386,000 at
December 31, 1999. The decrease in net working capital and
in cash and cash equivalents resulted primarily from the
funding of the Company's operations, the acquisition by the
Company of its outstanding Senior Discount Notes and the
Company's purchase of securities of NewCheck. As described
below, on July 6, 2000 the Company used cash of $13,755,240,
and issued additional securities, to retire its outstanding
Senior Discount Notes.
Net cash used in operations was $6,647,000 for the nine
months ended September 30, 2000, compared to net cash of
$10,095,000 used for operating activities for the same period
in 1999, resulting primarily from the net losses (prior to
accounting for the 2000 extraordinary gain of $64,828,000) of
$15,689,000 and $25,576,000, respectively, for such periods.
In the first nine months of 2000, the net cash used in
operations also reflected a decrease in accounts receivable
(net of allowance for doubtful accounts) of $361,000 and a
decrease in inventory (net of reserves) of $1,476,000,
compared to an increase in accounts receivable (net of
allowance for doubtful accounts) of $100,000 and a decrease
in inventory (net of reserves) of $688,000 during the
comparable period in 1999. In the first nine months of 2000,
the net loss included $784,000 of non-cash interest expense,
compared to $12,978,000 of such expense in the prior year.
See Note 5 of the Notes to Condensed Consolidated Financial
Statements included under "Item 1. Financial Statements" of
Part 1 of this report with respect to write-downs of the
securities of NewCheck held by the Company and amortization
of the difference between the Company's investment and the
initial underlying value of its share of the net assets of
NewCheck, which information is incorporated by reference
<PAGE>
herein. During the nine months ended September 30, 2000, the
Company recorded a net operating loss of $8,983,000,
excluding $64,828,000 of gain ($45,870,000 in the third
quarter) recognized upon acquisition by the Company of Senior
Discount Notes.
Cash used in investing activities totaled $6,644,000 for the
nine months ended September 30, 2000 compared to $298,000 of
cash used in investing activities for the same period in
1999. The increase in investing activities was primarily due
to the investment of $1,950,000 in NewCheck equity and
$4,550,000 in NewCheck convertible debt.
In February 2000, in exchange for payments aggregating $6.5
million, the Company acquired shares of NewCheck's newly-
created Series C Convertible Preferred Stock, $.0001 par
value (the "NewCheck Senior Preferred Stock"), representing
approximately 19% of NewCheck's voting securities outstanding
at closing, together with NewCheck's 8% Convertible
Promissory Note (the "NewCheck Convertible Note") in the
aggregate principal amount of $4.55 million, convertible into
additional shares of NewCheck Senior Preferred Stock. The
NewCheck Senior Preferred Stock is entitled, pursuant to its
terms, to receive preferential dividends, payable semi-
annually in additional shares of NewCheck Senior Preferred
Stock, at the rate of 8% per annum on the liquidation
preference per share, which cumulate if not paid, is subject
to certain redemption rights exercisable by the holders and
participates on an "as converted" basis with NewCheck's
common stock, $.0001 par value ("NewCheck Common Stock"), and
other participating series, in the proceeds of certain
events. Each share of NewCheck Senior Preferred Stock is
convertible into three shares of NewCheck Common Stock at the
election of the holder, is automatically converted in
specified circumstances, carries a number of votes equal to
the number of shares of NewCheck Common Stock issuable upon
conversion, and votes together with the NewCheck Common Stock
and other voting securities of NewCheck.
The NewCheck Convertible Note accrues interest, payable at
maturity, at the per annum rate of 8%, matures on the fifth
anniversary of issue, and is repayable (together with
interest) in shares of NewCheck Senior Preferred Stock at the
election of NewCheck. The NewCheck Convertible Note is
convertible after two years (and earlier in specified
circumstances) into shares of NewCheck Senior Preferred
Stock.
Under the management agreement dated February 11, 2000
extended by the Company to NewCheck, the Company will manage
NewCheck's operations and, in addition to warrants issued to
the Company with respect to NewCheck Common Stock, the
Company will be reimbursed for the costs of its performance.
To the extent the Company continues to offer its system under
the SayGo Plan, in addition to pursuing maximum sales of the
system, the Company will require substantial funds for
manufacturing and carrying costs not initially covered by
<PAGE>
revenues calculated on the basis of usage fees paid by
customers. Under the SayGo Plan, the Company will retain
ownership of the system, 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. The Company intends,
during its current fiscal year, to develop additional
strategies to accelerate market recognition and acceptance of
the system and its benefits, but there can be no assurance
that any such approaches will be material to the
determination of additional retailers to install the
Company's system in the emerging market for ESLs.
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 1996 and the Private
Placement.
Cash used in financing activities during the nine months
ended September 30, 2000 was $18,407,000 to acquire all of
the outstanding principal amount at maturity of Senior
Discount Notes. Cash used in financing activities in the
first nine months of 1999 totaled $5,000,000, resulting from
the repayment of indebtedness to the CDA, which matured in
August 1999.
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 the 1997 Warrants,
which were sold to investors at a price aggregating $100
million ($95 million net proceeds to the Company). The 1997
Warrants are 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. During the first quarter of
2000, the Company repurchased $24.549 million aggregate
principal amount at maturity of Senior Discount Notes in
open market transactions from holders who were not
affiliated with the Company for an aggregate purchase price
of $4.65 million. On July 6, 2000, the Company completed the
exchange of $76,418,000 principal amount at maturity of its
Senior Discount Notes for an aggregate of $13,755,240, in
cash, approximately $5,000,000 principal amount of the
Company's 10% Guaranteed Secured Notes due August 1, 2001,
approximately $5,000,000 principal amount of the Company's 8%
Guaranteed Secured Notes due August 1, 2004, and 39,985
shares of Series A-1 Preferred Stock, plus cash in lieu of
fractional shares. The 10% Notes and 8% Notes are recorded
with interest through maturity. The notes submitted for
exchange represented 100% of the outstanding Senior Discount
Notes.
<PAGE>
The Company's 10% Notes accrue interest payable at the rate
of 10% per annum, semi-annually, through issuance of
additional 10% Notes. Upon consummation by the Company of
specified equity transactions (the "Equity Investment")
aggregating at least $20 million over any twelve-month period
(including any cash distributions on the Company's investment
in NewCheck), the 10% Notes will be subject to mandatory
prepayment. The Company's 8% Notes accrue interest payable at
the rate of 8% per annum, semi-annually, through issuance of
additional 8% Notes. Upon consummation by the Company of
specified equity transactions aggregating at least $40
million on a cumulative basis from Closing, the 8% Notes will
be subject to mandatory prepayment.
The 10% Notes and 8% Notes (the "Notes") are subject to
prepayment at the election of the Company, in the case of the
10% Notes without premium and in the case of the 8% Notes at
premiums ranging up to eight percent of the principal
prepaid. Upon specified change-in-control events, the Notes
will be subject to mandatory prepayment at specified
premiums. The Notes are guaranteed by the Company's
subsidiaries and are collateralized by the assets of the
Company and its subsidiaries. The Notes contain covenants
that, among other matters, restrict distributions on the
Common Stock, and limit the ability of the Company and its
subsidiaries to incur indebtedness for borrowed money and
create liens on their assets.
The Series A-1 Preferred Stock does not entitle the holders
to dividends or, except in limited circumstances, voting
rights. The Series A-1 Preferred Stock entitles the holders
to a liquidation preference per share of $100 and, subject to
specified exceptions, is subject to automatic conversion upon
consummation of the Equity Investment, into the same
securities offered in such transaction and at the same price,
payable by application of the liquidation preference of the
Series A-1 Preferred Stock. Under certain limited
circumstances, up to five percent of the preferred shares may
be subject to mandatory redemption, at the option of the
holder, following consummation of the Equity Investment.
The Company expects net losses and negative cash flows from
operations to continue through the current fiscal year. As a
result of the factors set forth above, the Company believes
that its existing resources will be sufficient to meet the
Company's currently anticipated operating and capital
expenditure requirements as it implements its business
strategy into the second quarter of 2001, after which there
is significant uncertainty about the Company's ability to
continue to conduct its operations as a going concern. The
Company's ability to service its indebtedness, including
payment of the 10% Notes, due in August 2001, and meet its
other obligations will depend, among other factors, on the
acceptance of the Company's system in its intended market and
the Company's success in implementing its business strategy
and achieving large scale commercialization of the ERS
ShelfNet System.
<PAGE>
In the event commercialization does not result in sufficient
liquidity to the Company, the Company will need to raise
additional long-term financing to support operations, service
debt and eliminate the uncertainty about the Company's
ability to continue as a going concern. The Company has no
current arrangement with respect to, or sources of, any
additional financing. Management's plans with respect to
these issues include a proactive effort to seek new
financing, but there can be no assurance that any such
financing would be available on terms reasonable to the
Company. In the event the Company were unable to raise any
required additional financing, the Company's operations would
need to be scaled back or discontinued.
Market Risk
The Company is subject to market risks related to changes in
interest rates and, accordingly, the Company's objective is
to minimize any impact on its financial position from these
risks. The Company's cash and cash equivalents predominantly
consist of short-term, highly-liquid U.S. treasury bills and
certificates of deposit, in order to minimize interest rate
risk. The Company does not enter into transactions involving
derivative financial instruments for speculative trading
purposes.
The Company utilizes sensitivity analysis, along with other
techniques, as a basis for measuring the impacts that market
risk exposure may have on the fair value of the Company's
debt and financial instruments. If market interest rates
were to increase immediately and uniformly by ten percent
from levels at September 30, 2000, the decline in fair value
of the portfolio would not be material. The Company's long-
term debt bears interest, for the most part, at a fixed rate
and, therefore, relative to its long-term debt, an immediate
ten percent change in the market interest rates would not
materially impact the Company's financial statements.
These effects of hypothetical changes in interest rates,
however, ignore other effects the same movement may have
arising from other variables, and actual results could differ
from the sensitivity calculations of the Company. The
Company regularly assesses additional relevant variables,
establishes policies and business practices to protect
against the adverse effects of using any given financial
instruments and does not anticipate any material losses
generated by these risks.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
For information concerning this item, see "Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk," which information
is incorporated herein by reference.
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q for the Nine Months Ended
September 30, 2000
PART II. Other Information
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) As more fully described under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" of Part I of this
report (which information is incorporated by reference into
this item), on July 6, 2000 the Company completed the private
exchange of $76,418,000 principal amount at maturity of its
Senior Discount Notes due February 1, 2004 for an aggregate
of: (i) $13,755,240, in cash, calculated on the basis of
$180 for each $1,000 principal amount at maturity of Senior
Discount Notes; (ii) approximately $5,000,000 principal
amount of the Company's 10% Guaranteed Secured Notes due
August 1, 2001, calculated on the basis of $65.42961 for each
$1,000 principal amount at maturity of Senior Discount Notes;
(iii) approximately $5,000,000 principal amount of the
Company's 8% Guaranteed Secured Notes due August 1, 2004,
calculated on the basis of $65.42961 for each $1,000
principal amount at maturity of Senior Discount Notes; and
(iv) 39,985 shares of the Company's newly-created Series A-1
Convertible Preferred Stock, calculated on the basis of
0.5234368 shares for each $1,000 principal amount of Senior
Discount Notes, plus cash in lieu of fractional shares. The
Series A-1 Preferred Stock entitles the holders to a
liquidation preference per share of $100 and, subject to
specified exceptions, is subject to automatic conversion,
upon consummation by the Company of specified equity
transactions aggregating at least $20 million over any
twelve-month period, into the same securities offered in such
transactions and at the same price, payable by application of
the liquidation preference of the Series A-1 Preferred Stock.
Registration under the Securities Act of 1933 of the 10%
Notes, 8% Notes and Series A-1 Preferred Stock issued in the
foregoing transaction was not required because such
securities were issued in a transaction not involving any
public offering within the meaning of Section 4(2) of said
act.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
(a) On October 13, 2000, the Company convened its
Annual Meeting of Stockholders (the "Annual
Meeting").
(b) Not applicable because (i) proxies for the Annual
Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934 together
with the Company's Proxy Statement dated September
15, 2000; (ii) there was no solicitation in
<PAGE>
opposition to management's nominees as listed in
such Proxy Statement; and (iii) all of such
nominees were elected.
(c) At the Annual Meeting, the Company's stockholders
voted in favor of the election of management's
nominees for election as directors of the Company.
The holders of 15,496,315 shares voted in favor
of, and the holders of 30,712 shares withheld
their vote for, the election of David Diamond; the
holders of 15,496,315 shares voted in favor of,
and the holders of 30,712 shares withheld their
vote for, the election of Bruce F. Failing, Jr.;
the holders of 15,496,315 shares voted in favor
of, and the holders of 30,712 shares withheld
their vote for, the election of Norton Garfinkle;
the holders of 15,496,315 shares voted in favor
of, and the holders of 30,712 shares withheld
their vote for, the election of Michael Persky;
and the holders of 15,496,315 shares voted in
favor of, and the holders of 30,712 shares
withheld their vote for, the election of Donald E.
Zilkha.
At the Annual Meeting, the stockholders voted in
favor of a proposal to approve an amendment to the
Company's 1993 Employee Stock Option Plan in order
to increase the number of shares issuable pursuant
to the exercise of options under such plan from
3,500,000 to 4,500,000 shares of Common Stock of
the company. The holders of 15,334,970 shares
voted in favor of, the holders of 167,807 shares
voted against, the holders of 24,250 shares
abstained and there were no broker non-votes with
respect to approval of such proposal.
(d) Not applicable.
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 September 30, 2000,
the Company filed a Current Report on Form 8-
K dated July 6, 2000 reporting, under "Item
2. Acquisition or Disposition of Assets"
thereunder, the acquisition by the Company of
its outstanding Senior Discount Notes. No
financial statements were included with such
report.
<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.
November 14, 2000 s/Bruce F. Failing, Jr.
----------------- -------------------------
Date Bruce F. Failing, Jr.
Vice Chairman and Chief
Executive Officer
November 14, 2000 s/Jerry McAuliffe
----------------- -------------------------
Date Jerry McAuliffe
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
Electronic Retailing Systems International, Inc.
Form 10-Q for the Three Months Ended September 30, 2000
Index to Exhibits
Exhibit Number Document Description
-------------- --------------------
10(a) Electronic Retailing Systems, Inc.
1993 Employee Stock Option Plan
11 Statement of Computation of Per
Share Earnings
27 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission
for information only and is not
filed.
