SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549

                            FORM 10-K

          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                    Commission file
    December 31, 1997                        number 0-21456
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        ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
        ------------------------------------------------
     (Exact name of registrant as specified in its charter)

         Delaware                                 06-1361276
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(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)               Identification No.)

        488 Main Avenue
        Norwalk, Connecticut                  06851
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(Address of principal executive offices)     (Zip Code)

Registrant's telephone number, including area code: 203-849-2500
                                                    ------------
Securities registered pursuant to Section 12(b) of the Act: None
                                                            ----
Securities registered pursuant to Section 12(g) of the Act:

                  Common Stock, $.01 par value
                  ----------------------------
                        (Title of class)

          Indicate by a 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 as 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 by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this chapter) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]


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          State the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price
at which the common equity was sold, or the average bid and asked
prices of such common equity, as of a specified date within 60
days prior to the date of filing.


Aggregate market value as of March 15, 1998.....$34,053,746


          Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date.

          Common Stock, $.01 par value,
            as of March 15, 1998 . . . . . . . 21,216,166 shares


               DOCUMENTS INCORPORATED BY REFERENCE

          List hereunder the documents, all or portions of which
are incorporated by reference herein, and the part of the Form 10-
K into which the document is incorporated: Proxy Statement to be
filed with respect to the 1998 Annual Meeting of Stockholders-Part
III.
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                             PART I
ITEM 1.  BUSINESS

General

     Electronic Retailing Systems International, Inc. (the
"Company" or "ERS") develops and provides electronic shelf label
("ESL") systems designed to allow supermarket chains and other
retailers to increase productivity, reduce labor costs and improve
management information systems. The ERS ShelfNet(R) system (the
"ERS ShelfNet System") has been designed as a productivity
enhancing center store automation system, which replaces paper
price tags on retail shelves with electronic liquid crystal
display units and provides a suite of applications to enhance a
retailer's pricing, inventory, shelf management, merchandising and
promotional activities. The ERS ShelfNet System is comprised of
proprietary hardware and software that electronically link a
store's shelves to its point-of-sale ("POS") systems and central
computer.

     The ERS ShelfNet System functions as a local area network,
utilizing open systems networking architecture driven by the
Company's software and communications hardware, which are designed
to interface with other store and vendor applications. Each ESL is
a miniature data transceiver that is capable of storing, receiving
and returning alphanumeric messages. An ERS store-based local area
network has up to 20,000 individual ESLs connected to a central
server. The ERS ShelfNet System is designed to allow retailers to:

     o    Implement price changes almost instantaneously from the
          store's central computer or directly from corporate or
          regional headquarters;

     o    Ensure pricing integrity by accurately displaying and
          monitoring product prices;

     o    Streamline stock monitoring activities to reduce lost
          sales resulting from the failure to properly stock
          items;

     o    Increase the speed and accuracy of placing product
          displays and promotional material by reducing and
          simplifying the tasks required of store employees; and

     o    Audit inventory more efficiently and improve
          computerized inventory ordering systems.


ERS believes these features enable retailers to reduce labor
costs, increase productivity and pricing accuracy, and improve
inventory management, thereby raising such retailers' gross
margins and lowering their operating costs in the highly
competitive U.S. retailing market.


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     As of December 31, 1997, the ERS ShelfNet System was
installed in 53 U.S. retail stores, including stores owned by such
leading supermarket chains as Stop & Shop Supermarket Company
("Stop & Shop"), H.E. Butt Grocery Co. ("HEB"), Big Y Foods, Inc.
("Big Y"), Shaw's Supermarkets, Inc. ("Shaw's), The Great Atlantic
& Pacific Tea Company, Inc. ("A&P") and K Mart Corporation ("K
Mart"), and one supermarket owned by the Overwaitea Food Group
Division of Great Pacific Industries, Ltd. (the "Overwaitea Food
Group"). The Company estimates that, as of December 31, 1997, of
the approximately 29,900 supermarkets in the United States,
approximately 120 stores were operating ESL systems.

     As described under "Marketing and Product Plans" below, the
Company has announced its transition to a new marketing and
pricing program, and a new generation ERS ShelfNet System.
Although the Company has commenced solicitation of orders for its
new generation system while it completes field testing of the
system, the Company has not begun installation of the system in
significant quantities (see "Customers" below) and there can be no
assurance that the new generation ERS ShelfNet System will
function successfully over time in actual retail usage or will
result in lower costs of manufacturing, installing and maintaining
the system that management anticipates. During the year ended
December 31, 1997, the Company experienced decreased revenues
compared to the prior year, resulting, among other matters, from
the decreased demand for the Company's previous generation product
attendant to plans to introduce the new generation product and the
Company's transition to its new marketing and pricing program.

     The Company was incorporated in February 1993 to serve as a
holding company for the business and assets of Electronic
Retailing Systems International, Inc. (the "Principal
Subsidiary"), which was incorporated in Connecticut in 1990, and
ERS Associates Limited Partnership (the "Partnership"), which was
organized in Connecticut in 1992 in order to continue the business
and hold the principal assets of the Principal Subsidiary. The
combination of the Company, the Principal Subsidiary and the
Partnership effected immediately prior to the closing of the
Company's initial public offering (the "Initial Public Offering")
of common stock, $.01 par value ("Common Stock"), in May 1993, is
herein referred to as the "Reorganization". Unless the context
otherwise requires, references herein to the "Company" refer to
Electronic Retailing Systems International, Inc., a Delaware
corporation, and its subsidiaries and, with respect to operations
prior to the Reorganization, its predecessors. References to
historical financial information of the Company prior to the date
of the Reorganization refer to the historical financial
information of the Principal Subsidiary.

     In October 1997, the Company and Telepanel Systems Inc., a
company incorporated under the Canada Business Corporation Act
("Telepanel"), executed a combination agreement dated such date
(the "Combination Agreement"), which provides for the combination
of the Company and Telepanel pursuant to a plan of arrangement
under Canadian law (the "Arrangement"). In March 1998, the Company
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announced that the condition to closing contained in the
Combination Agreement requiring confirmation that the Arrangement
would qualify for pooling-of-interests accounting treatment has
failed to be satisfied, following successive discussions by
Telepanel with the U.S. Securities and Exchange Commission
addressing the effects of a debenture financing undertaken by
Telepanel in October 1997. The Company's Board of Directors has
determined that it does not intend to waive the condition to
combine regarding qualification for pooling-of-interests
accounting treatment. The Company and Telepanel are engaged in
discussions regarding a mutually acceptable termination of the
Combination Agreement. See "Proposed Combination with Telepanel"
below.

     This Annual Report on Form 10-K contains 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 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.

New Marketing and Product Plans

     The Company has announced that (i) it will launch a new
marketing and pricing program designed to facilitate rapid market
acceptance and installation of the ERS ShelfNet System and (ii) it
planned to introduce a new generation ERS ShelfNet System that
provides spread spectrum microwave transmission of data directly
to wireless ESLs. The Company expects that implementation of these
initiatives will reduce the cost of installing and maintaining the
ERS ShelfNet System. As described under "Customers" below, the
Company has completed installation of four new generation systems,
has commenced installation of two additional new generation
systems and has received purchase orders covering five additional
new generation systems. The Company has obtained its first non-
binding letter of intent providing for installation of the new
generation ERS ShelfNet System under its new marketing and pricing
program in approximately 60 supermarkets, and is continuing its
efforts to procure additional letters of intent. The initial
letter of intent is, and all such additional arrangements will be,
subject to numerous conditions, including the negotiation and
execution of definitive contract terms.


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     New Marketing and Pricing Program

     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 retailers. The
Company now intends also to offer the ERS ShelfNet System on a fee
based arrangement called "Save-As-You-Go" (the "SayGo Plan")
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 primarily on their actual usage of the system.
The Company believes that the SayGo Plan will accelerate market
acceptance of the ERS ShelfNet System.

     Management estimates that, under the SayGo Plan, the annual
cost savings and benefits realized by its anticipated supermarket
customers using the ERS ShelfNet System could substantially exceed
the anticipated annual cost to the customer for the new generation
system proposed by ERS. For example, management estimates, based
on studies conducted in collaboration with the Company's current
customers, that cost savings and benefits to a supermarket with
15,000 ESLs that changes 2,500 to 4,500 prices per week could,
under the Company's proposed SayGo Plan, provide an annual net
contribution per store ranging from approximately $40,000 to
approximately $240,000 through the anticipated level of usage of
the applications afforded by the ERS ShelfNet System. However,
there can be no assurance that any such cost savings or benefits
will be realized by any customer.

     Enhancement of the ERS ShelfNet System

     The Company has announced its plan to introduce the new
generation ERS ShelfNet System, providing spread spectrum
microwave transmission of data directly to wireless ESLs. The
enhanced ERS ShelfNet System is designed to provide additional
flexibility and convenience to customers by expanding potential
coverage by the Company's ESLs to the entire store and allowing
the retailer to change store placement of the ESLs more easily.
The Company believes that the cost of installing and maintaining
its wireless ESLs will be lower than that of its current ESL
system, which requires the wiring of store aisles. As described
under "Customers" below, the Company has completed installation of
four new generation systems, has commenced installation of two
additional new generation systems and has received purchase orders
covering five additional new generation systems.

     Letters of Intent

     The Company has obtained its first non-binding letter of
intent providing for installation of the new generation ERS
ShelfNet System under the SayGo Plan in approximately 60
supermarkets, and is continuing its efforts to procure additional
letters of intent. The initial letter of intent is, and all such
additional arrangements will be, subject to numerous conditions,
including negotiation and execution of definitive contract terms.
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See "Marketing and Sales" below for a description of the terms to
be proposed initially by the Company.

     Financing

     In January 1997, the Company raised approximately $95 million
in net proceeds as a result of the private sale (the "Private
Placement") of 147,312 units (the "Units"), each consisting of 13-
1/4% Senior Discount Notes due 2004 with a principal amount at
maturity of $1,000 (the "Senior Discount Notes") and one warrant
(collectively, the "1997 Warrants") to purchase 17.23 shares of
Common Stock at $5.23 per share.

Business Strategy

     The Company's strategy is to achieve increasing recurring
revenue through greater market penetration of the ERS ShelfNet
System. The Company intends: (i) to focus its initial marketing
efforts under the SayGo Plan on the supermarket sector of the
retail industry; (ii) to continue to reduce the manufacturing
costs of the system to increase the Company's profitability; and
(iii) to continue to enhance, develop and support value-added
applications of the ERS ShelfNet System.

     o    SayGo Plan.  The Company believes that its SayGo Plan
          will facilitate more rapid market acceptance of the ERS
          ShelfNet System because it does not require an initial
          cash investment by the customer. The Company intends to
          use the proceeds from the Private Placement to install
          the ERS ShelfNet System in supermarkets under the SayGo
          Plan.

     o    Initial Focus on Supermarket Sector.  The Company
          intends initially to focus its marketing efforts on the
          supermarket sector because of the Company's established
          relationships with supermarket chains and because of the
          Company's belief that supermarket operators generally
          are more receptive than other retailers to utilizing
          technology to reduce operating costs and improve
          productivity. The Company estimates that, as of December
          31, 1997, of the approximately 29,900 supermarkets in
          the United States, approximately 120 stores were
          operating ESL systems.

     o    Reduce Manufacturing Costs.  The Company intends to
          continue its efforts to reduce the cost of manufacturing
          its wireless ESLs through the application of established
          chip manufacturing techniques to the ESL's integrated
          circuit, the integration of various components in the
          ESL and the achievement of significant economies of
          scale expected as a result of the higher manufacturing
          volumes the Company believes will arise from the
          implementation of the SayGo Plan.


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     o    Value-Added Applications.  In order to increase the
          appeal of the Company's system to prospective customers
          (by increasing the level of potential cost savings) and
          to encourage existing customers to adopt the new
          generation system and to install additional systems, the
          Company intends to develop additional productivity
          enhancing applications for the ERS ShelfNet System.

     Although the Company has commenced solicitation of orders for
the new generation system while it completes field testing of the
system, the Company has not begun installation of the system in
significant quantities (see "Customers" below) and there can be no
assurance that the new generation ERS ShelfNet System will
function successfully over time in actual retail usage or will
result in lower costs of manufacturing, installing and maintaining
the system that management anticipates. During the year ended
December 31, 1997 the Company experienced decreased revenues
compared to the prior year, resulting, among other factors, from
the decreased demand for the Company's previous generation product
attendant to plans to introduce the new generation product,
unanticipated delays in the implementation of the new generation
product and the Company's transition to its new marketing and
pricing program.

Retail Industry Overview

     The Company's target market consists of retailers that stock
a large number of stockkeeping units ("SKUs"), operate in highly
competitive environments, have relatively low margins and change
prices frequently. Such retailers include supermarkets, discount
mass merchandisers, chain drug stores and convenience stores. The
Company believes that such retailers generally seek automated
solutions to reduce labor costs and improve efficiencies in
operations. The approximate number of supermarkets, discount mass
merchandisers, chain drug stores and convenience stores in the
United States is set forth in the table below. The table does not
include the European market, where the aggregate number of
comparable stores is greater than in the United States.

          Type of Store            Number of Stores

     Supermarkets. . . . . . . . .      29,870
     Discount mass merchandisers .      10,075
     Chain drug stores . . . . . .      19,995
     Convenience stores. . . . . .      56,000
                                        ------
       Total . . . . . . . . . . .     115,940
                                       =======

Source:  Progressive Grocer Annual Report, April 1997; MMR Annual
         Report, April 21, 1997.


     The Company believes that many of its target retailers are
capital constrained and have compared potential investments in the
ERS ShelfNet System to alternative capital expenditures. Such
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alternative uses of capital include purchasing additional stores,
remodeling and refurbishing existing stores, making acquisitions
and investing in technology, including ESL systems. The Company's
SayGo Plan is designed to eliminate a retailer's upfront cash cost
to install the ERS ShelfNet System, instead assessing charges
largely for services the retailer actually uses. Thus, the ERS
ShelfNet System will constitute an operating expense (that the
Company estimates to be more than offset by cost savings and
benefits) rather than a capital expenditure for retailers,
allowing retailers to conserve capital for other projects while
also choosing to install the ERS ShelfNet System.

Supermarket Sector

     The supermarket sector is mature, intensely competitive and
tends to have margins that are among the lowest in the retailing
industry. The Company estimates that an average supermarket stocks
approximately 19,500 SKUs, most of which are available at
competitive stores, and runs frequent promotions with respect to
many of these items. As a result, a supermarket's success depends
in large part on the efficiency of its operations, which in turn
affects its ability to offer competitive prices and maintain
acceptable operating margins. Supermarkets are under constant
pressure to reduce costs, manage inventory more effectively and
offer competitive prices.

     Historically, supermarkets have been among the first
retailers to adopt technologies designed to reduce labor and other
costs, improve operations and enhance customer service. For
example, POS scanners were first introduced in the supermarket
sector and have achieved the greatest level of market penetration
there. While fewer than 15 supermarkets in the United States had
POS scanners in 1974, by 1995 approximately 95% of all chain
supermarket stores and approximately 80% of independent
supermarket stores had installed POS scanners. POS systems have
enabled retailers to reduce labor costs, improve pricing integrity
and increase efficiency while also providing additional
applications such as electronic funds transfer and computerized
inventory management. The Company believes that supermarkets and
other retailers will more quickly adopt other technological
innovations as a result of their experience with POS scanners. As
a result, and because of the Company's established relationships
with supermarket chains and its installed base of ERS ShelfNet
Systems in supermarkets, the Company intends to continue to focus
its marketing efforts in the supermarket sector.

Challenges Facing Retailers That Affect the Company

     The Company has designed the ERS ShelfNet System to address
retailer productivity, labor costs, merchandising and competitive
market share issues, as summarized below:


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     Manual Price Changes

     Although POS systems have enabled supermarkets to achieve
efficiencies at the "front end" of the store, the center of the
typical store has not been automated and remains labor intensive.
The Company estimates that an average supermarket carries
approximately 19,500 SKUs and changes approximately 2,500 prices
per week at the shelf with newly printed paper labels. These price
changes require numerous manual steps resulting in (i) significant
labor costs and (ii) delays in implementing price changes
following special promotions or increases in wholesale costs, both
of which adversely affect supermarket profitability.

     Pricing Integrity

     In addition to being labor intensive and time-consuming,
manual implementation of price changes also is more susceptible to
pricing inaccuracy. Stores with inaccurate prices risk customer
dissatisfaction as well as fines and penalties levied by
governmental agencies. According to Supermarket News, February 5,
1996, over 90% of supermarket executives surveyed rate the issue
of pricing verification as extremely or highly important. As a
result, supermarket operators incur significant expense in
auditing pricing integrity and correcting pricing inaccuracies.

     Merchandising Management

     Supermarkets actively promote products at the shelf with a
variety of merchandising materials such as "hangers" or "bibs",
which are affixed to the shelf or a product's price label and
alert consumers to pricing or promotional activities. Supermarkets
install and remove bibs manually, with employees generally walking
the aisle and checking promotional items against a printed list
arranged according to the shelfset schematics (called
"planograms"). The Company believes using such a printed list is
an unnecessarily time-consuming, inaccurate and costly process.

     Replenishment/Inventory Management

     Supermarkets lose sales (and their corresponding margins)
when products are inadvertently missing from designated
planogrammed shelves, often due to lost or damaged paper labels.
In addition, damaged and handwritten paper labels result in
increased order entry errors, which increases both out-of-stocks
(resulting in lost sales) and labor costs associated with the
product ordering process.

     Shelfset Management

     Typically, supermarkets carefully develop planograms for the
management of products and product categories in the stores, on
the belief that products perform best in the aggregate when
arranged on shelves in the quantities and with the facings
prescribed by the planogram. When paper labels are lost, damaged
or moved, deviations from the planogram occur, resulting in a
higher incidence of out-of-stock items, loss of sales of
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potentially high margin items, continued stocking of discontinued
or unauthorized products, and increased time and labor associated
with new cut-ins to a shelfset that differ from the planogram.

ERS ShelfNet Applications

     The ERS ShelfNet System has been designed (i) to replace
paper price tags on retail shelves with electronic liquid crystal
display units, and (ii) to provide a suite of applications to
address the challenges to retailers of manual price changes,
pricing integrity, merchandising management, replenishment/
inventory management and shelfset management. The ERS ShelfNet
System's applications are designed to include Instant Response
Pricing to eliminate manual price changes, Integrated Electronic
Pricing to ensure pricing integrity, Quick Point of Purchase
(QuickPop(R)) Merchandising to reduce the cost of changing
merchandising materials, AccuStock(TM) to facilitate inventory
replenishment and ShelfSet Audit to provide for efficient shelf
set management.

Retail Challenge                      ERS Solution

Manual Price             Instant Response Pricing. The ERS
 Changes. . . . . . . .  ShelfNet System allows retailers to
                         implement price changes almost
                         instantaneously from the store's central
                         computer or directly from corporate or
                         regional headquarters, which the Company
                         believes facilitates significant labor
                         savings from manual implementation of
                         price changes. In addition, electronic
                         price changes are significantly faster
                         to implement, which the Company believes
                         leads to increased margins as prices may
                         be increased promptly following special
                         promotions or increases in wholesale
                         prices.

Pricing Integrity . . .  Integrated Electronic Pricing. The ERS
                         ShelfNet System electronically links a
                         store's POS systems and its ESLs,
                         virtually eliminating discrepancies
                         between prices displayed on the store
                         shelves and prices charged at checkout.
                         This assurance of pricing integrity
                         permits retailers to reduce or eliminate
                         manual pricing audits and fines paid to
                         governmental entities for pricing
                         inaccuracies. In addition, such pricing
                         accuracy can result in fewer price
                         checks and errors at checkout, can
                         result in faster checkout times,
                         improved cashier productivity and
                         increased customer satisfaction.


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Merchandising            QuickP.O.P.  The  ERS ShelfNet  System's
Management . . . . . .   QuickP.O.P application is designed to
                         increase the speed and accuracy of
                         placing product displays and promotional
                         material by displaying a signal on the
                         ESLs of products that require the
                         addition or removal of merchandising
                         bibs or hangers. This is intended to
                         eliminate the time-consuming and
                         potentially inaccurate manual process of
                         checking promotional items against a
                         printed list arranged according to the
                         planogram.

Replenishment/           AccuStock.  The  ERS  ShelfNet  System's
 Inventory               AccuStock  application  is  designed  to
 Management . . . . . .  allow authorized store personnel to
                         change ESLs from a price display to an
                         out-of-stock message. This procedure
                         replaces the current system of noting
                         out-of-stocks manually, with the use of
                         a label scanner, which requires follow-
                         up by the store employee. AccuStock
                         facilitates simple notation of out-of-
                         stocks during normal stocking
                         procedures, with the system
                         automatically generating an out-of-stock
                         report that can be resolved quickly by
                         store management. In addition, the
                         display of an out-of-stock message,
                         rather than removal of a paper label,
                         holds the shelf placement for the
                         missing product, increasing planogram
                         integrity.

Shelfset Management . .  ShelfSet Audit. The ERS ShelfNet System
                         is designed to maintain shelfsets more
                         easily, because the ESLs stay locked in
                         place and cannot be moved back and forth
                         as can paper tags. In addition, the ESL
                         is designed to display product facing
                         information and section, shelf, and bay
                         locations for simple, more accurate and
                         less paper-intensive planogram
                         implementations or changes. These
                         features are intended to reduce labor
                         associated with shelfset management and
                         stocking and increase planogram
                         compliance and monitoring.


Management estimates that, under the SayGo Plan, the cost savings
and benefits to its anticipated supermarket customers using the
ERS ShelfNet System (including the full suite of its applications
at the anticipated level of usage) could provide an annual net
contribution per store ranging from approximately $40,000 to
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approximately $240,000. See "New Marketing and Product Plans-New
Marketing and Pricing Program" above.

The ERS ShelfNet System

     The Company's ESL system replaces paper price tags on retail
shelves with liquid crystal display labels and transmits pricing
and other information to and from the shelf edge. The Company's
new generation system permits the transmission of data directly to
wireless ESLs.

     Each ERS ShelfNet System generally consists of 10,000 to
20,000 ESLs and the necessary communication and support
infrastructure to link the ESLs with the store's central computer
and POS systems. The Company's new generation system consists of
the following components:

     Electronic Shelf Label

     Each ESL is a mini data transceiver contained in a plastic
case, which displays price and other information by means of a
wide-angle view liquid crystal display window. The ESL is also
able to display pricing and other promotional information for the
consumer and inventory and reorder information for store
employees, and is equipped with two buttons designed to allow
store staff to interact with the store computers from the ESL on
the shelf. The Company offers five different sizes and types of
ESLs for use in different applications, such as SKUs for coolers
and freezers. The Company's currently installed ESLs are powered
through the rails to which they are connected, whereas the
wireless ESLs are powered by long-life batteries.

     Spread Spectrum Wireless Network

     Communication to the ESLs is managed by a high frequency,
real-time communication system that uses spread spectrum
technology. Active cell antennae in the store ceiling send and
receive signals to and from wireless ESLs in their respective
coverage areas. The cells form a radio frequency infrastructure in
which multiple, non-overlapping cells may be active
simultaneously, while overlapping cells synchronize their
transmissions, permitting spectrum re-use. The redundancy of
transmission provided by ERS' spread spectrum network helps to
eliminate interference problems and to ensure that complete
information is clearly communicated.

     Communication Hub

     The local area network's communication hub, located in the
store's back office area, has two functions: (i) the hub
distributes signals to the ESLs through computerized information
processors which relay information to active cell antennae in the
store ceiling and from the antennae to the individual product ESLs
located on the shelf and (ii) the hub receives information from
the information processors which has been relayed by the antennae
in the ceiling after receipt from the ESLs located on the shelf.
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     System Controller

     The system controller is a personal computer or the existing
in-store processor, also located in the store's back office area,
which is linked directly to the store's electronic POS system. The
system software resides in the system controller, and allows the
same pricing data that is incorporated into the POS system to be
used with the ERS ShelfNet System simultaneously. The system
controller communicates the pricing or other data directly to and
from the communication hub. The system controller is designed to
receive information from the store's corporate or regional
headquarters (such as product price or promotional information)
and to communicate data to such headquarters (such as product
order information).

     Software System

     The Company's ESL system is designed to be compatible with
electronic POS scanning systems and is compatible with systems
provided by the three major, worldwide suppliers of POS systems,
IBM, NCR, and Fujitsu-ICL. The Company's system may also be
interfaced with major store operating systems, such as OS/2,
Windows NT and Unix. Because the "intelligence" of the ERS
ShelfNet System is located in the system controller and not the
individual ESLs, the Company is able to incorporate new functions
into its system by upgrading software without replacing any
hardware.

     The Company's system can be linked to an in-store laser
printer capable of printing paper overlays for ESLs, paper labels
for non-electronic shelves and other promotional items. The
Company furnishes its customers with specific procedures and
guidelines for each application which show store managers how to
utilize the ERS system and software tools, and a data collection
and analysis format to document productivity increases and to
monitor ongoing improvements in store operations.

Marketing and Sales

     General

     The Company historically has marketed its ERS ShelfNet System
for sale, at prices generally in excess of $100,000 per store, a
significant capital expenditure for retailers. The Company now
intends also to market the ERS ShelfNet System under its SayGo
Plan, whereby the Company will own the system and, with no upfront
cash cost to the retailer, furnish the system to retailers who
will pay monthly fees to the Company based largely on their actual
usage of the system.

     The Company will continue to focus its marketing efforts on
major national and regional supermarket chains. The Company
believes that each supermarket chain will typically choose a
single supplier of ESL systems to maximize chainwide efficiency.
Therefore, the Company's marketing strategy is to make
installations in a small number of stores in each of the largest
<PAGE>
<PAGE>
supermarket chains in North America and then to build upon such
installations by installing systems through the rest of the
chain's stores. In response to retailing trends, the Company has
also increased its marketing efforts to mass merchandisers.

     Based upon its experience to date, the Company expects that
the adoption process for the ERS ShelfNet System will occur in
four successive phases, as follows:

     o    Detailed review of store procedures and systems and
          documentation of expected cost savings and benefits;

     o    Agreement for multi-store adoption of the ERS ShelfNet
          System subject to design, installation and
          implementation of a single store evaluation system and
          concurrent design of integration plans, operating
          procedures and training programs for broader use by the
          retailer;

     o    Installation of the first group of stores within a
          chain, defined by a geographic or merchandising region,
          to establish final chain-wide operating procedures; and

     o    Chain-wide commercial rollout.

     SayGo Agreements

     The Company has obtained its first non-binding letter of
intent providing for installation of the ERS ShelfNet System under
the SayGo Plan, and is continuing its efforts to procure
additional letters of intent. The initial letter of intent is, and
all such additional arrangements will be, subject to numerous
conditions, including negotiation and execution of definitive
contract terms.

     Under the terms proposed by the Company, the Company will own
the ERS ShelfNet System and furnish the system to qualified
customers, identified by the Company as those retailers who meet
minimum requirements with respect to price change potential per
store and number of ESLs ordered. The Company intends that its
contract with such customers will provide for: (i) a fixed rate
charge per ESL per month, (ii) a base rate charge per ESL
transaction, and (iii) a base charge for optional items included
in the installation, less volume discounts. Charges will be billed
to the customer on a monthly basis.

     The Company's proposals will allow the customer to terminate
the program and return the Company's system at any time after the
first twelve months. The customer's fees will cease upon
termination, except for agreed upon amounts in certain
circumstances.

     Under the SayGo Plan, the Company will recognize revenues as
monthly usage and other fees are billed to customers, and will
depreciate the cost of hardware components of its systems over the
shorter of their estimated useful lives or five years. In
<PAGE>
<PAGE>
connection with introduction of the SayGo Plan, the Company will
have substantial cash requirements for manufacturing and carrying
costs which will not initially be covered by revenues.

     Organization

     The Company currently markets its products directly to major
retail chains through a marketing and sales force. The Company's
marketing and sales personnel have significant retail experience,
including experience in the POS system and local area network
industries. The Company's marketing staff works with existing and
potential customers to define their needs for ESL systems and to
coordinate their implementation of the ERS ShelfNet System. The
Company exhibits its system at major trade shows worldwide and
produces and distributes promotional materials to increase market
awareness of the Company's system.

     In addition, the Company will continue to investigate the
feasibility of marketing its system through indirect channels such
as value added resellers and distributors. The Company has
obtained letters of intent, subject to definitive contract terms,
to enter into reseller arrangements from Data Systems, Inc., to
market the Company's products throughout North America, from
Stores Automated Systems, Inc., with respect to the United States,
from Sweda Canada, Inc., with respect to Canada, from Seal
Electronica Ltda., with respect to Brazil, and, in another
situation, with respect to Finland. In June 1997, the Company
entered into a five-year agreement with Symbol Technologies, Inc.
("Symbol"), granting Symbol the right, subject to specified
exceptions and exclusion of certain markets in the United States,
to resell the Company's products worldwide and, subject to
achievement of specified market penetration objectives, the
exclusive right to resell the Company's products in Europe.
Pursuant to such arrangements and subject to meeting certain
minimum sales criteria, Symbol would also have the right to
manufacture the Company's ESL system. The Company has not yet
generated revenues under its arrangements with Symbol.

     Collaborative Development

     The Company has collaborated with supermarket retailers and
suppliers of in-store wireless networks, printing services,
merchandise planning systems and other retail systems providers in
order to develop a better understanding of customer needs and to
offer comprehensive customer solutions. The Company will continue
to pursue such efforts and will seek additional strategic partners
to assist the Company in the broad market adoption and roll-out of
the Company's new generation system.

Customers

     As of December 31, 1997, the ERS ShelfNet System was
installed in 53 U.S. retail stores, including those owned by such
leading supermarket chains as Stop & Shop, HEB, Big Y, Shaw's,
A&P, and K Mart, and one supermarket owned by the Overwaitea Food
Group in Canada. Installations at December 31, 1997 reflect a
<PAGE>
<PAGE>
reduced customer base compared to the prior year-end, resulting
principally from the deinstallation of the Company's previous
generation product from stores operated by The Vons Companies,
Inc. ("Vons"), following the acquisition of Vons.

     In June 1996, the Company obtained a sub-contract from NCR
under NCR's prime contract to upgrade POS systems at U.S. military
commissaries, subject to receipt of purchase orders by the Company
from NCR. Pursuant to such arrangements, the Company has filled an
order by NCR for a software license covering the installation of
the ERS ShelfNet System.

     The Company has installed its new generation system in four
Shaw's stores, is currently installing its new generation system
in one additional Shaw's store and has received purchase orders
covering four new generation systems from Stop & Shop and one from
Shaw's. The Company has also received a purchase order from J.H.
Harvey Company under which it has commenced installation of its
first store with a new generation system.

     During the year ended December 31, 1997 Stop & Shop, Shaw's,
and HEB accounted for 41%, 22% and 11%, respectively, of the
Company's consolidated revenues; during the year ended December
31, 1996, Stop & Shop, Big Y and Shaw's accounted for 46%, 20% and
13%, respectively, of the Company's consolidated revenues; and
during the year ended December 31, 1995 HEB, Vons and Shaw's
accounted for 30%, 27% and 26%, respectively, of the Company's
consolidated revenues.

Installation and Customer Service

     The ERS ShelfNet System is designed to be installed in a
store without disrupting normal store operations. In connection
with the introduction of its new generation system, the Company
intends to use a team comprised of one Company employee and two
sub-contracted installers to install communications infrastructure
and software and, if rail strips are also ordered by the customer,
up to an additional five sub-contracted installers to install such
hardware. The ESLs generally will be programmed by the customer or
at the Company's facilities and shipped to the site where they
will be installed by the customer.

     The Company's customer service group is staffed with
employees experienced in POS and other retail systems. The
Company's SayGo Plan will commit the Company to a standard
maintenance contract, at no additional charge, with extended
maintenance services available at additional charges to the
customer.

Manufacturing

     The Company utilizes third parties to manufacture and
assemble the components comprising the ERS ShelfNet System. The
Company's ESLs currently incorporate a microprocessor which is
supplied solely by Sanyo. However, the Company believes that other
<PAGE>
<PAGE>
suppliers could produce equivalent microprocessors within
approximately four months. The Company's policy is to maintain an
inventory of microprocessors sufficient to meet substantially all
of its requirements during any such period. The Company intends to
evaluate, from time to time, establishing relationships with other
manufacturers of microprocessors to provide a second source of
supply for its ESLs.

     The Company intends to maintain its practice of utilizing
manufacturing subcontractors, and has a supply arrangement with
Surface Mount Technology Ltd., of Hong Kong, for the assembly of
ESLs. The Company also continues to utilize Modulus, Inc. as a
domestic source for the assembly of its ESLs. The Company has not
experienced interruptions or delays in the manufacture or assembly
of its systems, and believes that alternative sources of system
components are readily available.

Engineering and Development

     The Company's principal engineering and development efforts
have been conducted through software and hardware development
groups located at its facilities in Connecticut and Massachusetts.
These groups focus on improvements to current technology and also
on new applications of existing technology. The Company's
engineering staff also generates the functional specifications and
development schedules for each of the Company's customers. The
Company has also from time to time engaged third parties to design
hardware components based upon requirements or specifications
developed by the Company, and entered into arrangements with
hardware and software developers to augment the Company's internal
activities in the area of long-term product development. The
Company's arrangements with such developers are typically subject
to termination by the Company without penalty, and continuation of
such arrangements will in each case depend upon the satisfactory
achievement by such developers of specified milestones or other
satisfactory performance by them.

     During the years ended December 31, 1997, 1996 and 1995, the
Company incurred expenses for research and development activities
of, respectively, $2,425,000, $1,117,000 and $2,491,000. During
the years ended December 31, 1997, 1996 and 1995, the Company
capitalized an aggregate of $375,000, $592,000, and $475,000,
respectively, in costs of internal labor and outside services
associated with product development.

Intellectual Property

     The Company has aggressively pursued an intellectual property
rights strategy to protect its product developments. The Company's
policy is to file patent applications to protect its technology,
inventions and improvements that are important to the development
of its business, and to seek copyright protection with respect to
its software. The Company also relies upon trade secrets, know-
how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position.

<PAGE>
<PAGE>
     The Company holds fourteen United States patents and has nine
additional United States patent applications pending, and eighteen
foreign patent applications pending. The Company also has other
applications under preparation and intends to continue to file
patent applications on its novel products and systems. Certain of
these patents and patent applications are directed to salient
features of the Company's ESL system, in particular relating to
the ESL and associated hardware, and the communications network
linking the components of the system.

     The Company's wholly-owned subsidiary, Amacrine
International, Inc. ("Amacrine"), is entitled to use, and to grant
sublicenses with respect to, certain patents directed to an
alphanumeric display module and radio frequency communications
system, which Amacrine designed and developed for Telepanel under
a technical services agreement which existed between such
companies. The Company has become aware of certain statements made
by Telepanel, which the Company believes are without merit,
regarding whether Telepanel is entitled to a sublicense fee in
respect of such patents.

     The Company attempts to protect certain computer software and
service applications through the use of copyright and trade secret
law. The Company relies on non-disclosure agreements with its
employees, customers, consultants, and strategic partners.

     Although the Company believes that patents and other
intellectual property rights are important to its business, there
can be no assurance that patents will issue from any applications
therefor, or if patents issue, that the claims allowed will be of
adequate scope to protect the Company's technology or that issued
patents or other technology rights will not be challenged or
invalidated. The Company's business could be adversely affected by
increased competition in the event that any patent granted to it
is adjudicated to be invalid or is inadequate in scope to protect
the Company's operations, or if any of the Company's other
arrangements related to technology are breached or violated.

     In 1993 in connection with the settlement of certain
litigation, the Company was granted a limited non-exclusive
license in the United States, Canada, the United Kingdom,
Australia, Japan and Germany covering certain United States and
foreign patents, of which Telepanel is the exclusive licensee.
During 1994, the United States patent underlying Telepanel's
patent rights applicable to such license expired.

     Although the Company believes that its products and
technology do not infringe intellectual property rights of others,
there can be no assurance that third parties will not assert
infringement claims in the future or that such claims will not be
successful. Furthermore, the Company could incur substantial costs
in defending itself in patent infringement suits brought by others
and in prosecuting suits against patent infringers.


<PAGE>
<PAGE>
Competition

     The Company believes that the only ESL system suppliers
offering a product currently competing with the Company's system
in the United States are Telepanel, Pricer and, recently, NCR.
Telepanel has publicly reported the existence of an arrangement
with IBM whereby IBM may market the Telepanel system. The Company
believes NCR also has developed and is testing an ESL system in
the United States. Outside of the United States, in addition to
Pricer, the Company expects to compete with a number of companies
with ESL systems under development.

     The emerging ESL system market is characterized by rapid
technological advances and evolving industry standards, and the
Company may be subject to a high degree of potential competition
with additional companies which may attempt to develop or market
competing ESL systems. In the future, the Company may face
competition from vendors of POS systems, or scanner manufacturers
which offer products related to POS systems, who may elect to
enter the market for ESL systems. The ERS ShelfNet System is also
subject to competition from vendors selling traditional paper
labeling methods, as well as providers of hand-held portable data
terminals.

     The principal competitive factors in the Company's business
are product functionality, price/performance and reliability. The
Company believes that it competes favorably on each of these
factors.

Proposed Combination With Telepanel

     In October 1997, the Company and Telepanel entered into the
Combination Agreement. Under the terms of the Combination
Agreement, the obligations of the Company and Telepanel to
consummate the Arrangement are subject to the satisfaction or
waiver, where permissible, prior to May 31, 1998, of certain
conditions set forth in the Combination Agreement, including the
receipt of certain accountants' letters relating to the
qualification of the transaction (the "Transaction") for pooling-
of-interests accounting treatment, obtaining approval of the
stockholders of the Company and of Telepanel, the approval
(without material condition or costs) of the plan of arrangement
contemplated by the Combination Agreement by the Ontario Court of
Justice (General Division), and the receipt of certain consents
from the holders of debt of the Company and Telepanel.

     In March 1998, the Company announced that the condition to
closing contained in the Combination Agreement requiring
confirmation that the Arrangement would qualify for pooling-of-
interests accounting treatment has failed to be satisfied,
following successive discussions by Telepanel with the U.S.
Securities and Exchange Commission addressing the effects of a
debenture financing undertaken by Telepanel in October 1997. The
Company's Board of Directors has determined that it does not
intend to waive the condition to combine regarding qualification
for pooling-of-interests accounting treatment.
<PAGE>
<PAGE>
     The Combination Agreement provides for Telepanel to be
recapitalized and for each common share, without par value
(collectively, the "Telepanel Common Shares"), of Telepanel to be
exchanged for .5566 of an exchangeable share of Telepanel
(collectively, the "Exchangeable Shares"), each share of which
would entitle the holder (i) to dividend and other rights
economically equivalent to those of one share of Common Stock,
(ii) through a voting trust, to vote at meetings of stockholders
of the Company, and (iii) at the option of the holder, to exchange
such share for one share of Common Stock. As a result of the
Transaction, ERS would have become the sole beneficial owner of
the outstanding Telepanel Common Shares. Under the Combination
Agreement, the Board of Directors of the Company would also have
been expanded at the effective time of the Arrangement, to consist
of nine members, five of whom are currently directors of the
Company, three of whom are currently directors of Telepanel and
the remaining one of whom would be designated by both the Company
and Telepanel.

     In February 1998, as an interim arrangement pursuant to the
Combination Agreement, the Company and Telepanel entered into a
joint distribution agreement (the "Joint Distribution Agreement")
providing for creation of a joint venture (the "Joint Venture") to
hold specified distribution rights granted by each party until
consummation of the Arrangement or termination of the Combination
Agreement, or until specified defaults under the Joint
Distribution Agreement. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources" for a description of working
capital facilities extended by the Company under the joint venture
arrangements, which the Company has notified the Joint Venture and
Telepanel are in default.

     Telepanel has stated that it views the Company's position on
the accounting treatment of the Transaction as a termination of
the Combination Agreement, which Telepanel accepts, although
alleging that the lack of pooling-of-interests accounting
treatment is not available to ERS as a basis for termination. The
Company has communicated to Telepanel its rejection of Telepanel's
position in view of the terms of the Combination Agreement and
recent developments. The Company and Telepanel are engaged in
discussions regarding a mutually acceptable termination of the
Combination Agreement.

Employees

     As of December 31, 1997, the Company had 109 full-time
employees, consisting of 48 engaged in engineering and development
and manufacturing support, 22 in marketing and sales activities,
19 in customer services and 20 in general administrative and
executive functions. At such date, the Company had an additional
13 part-time employees, engaged primarily in customer service
functions. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship
with its employees to be excellent.

<PAGE>
<PAGE>
Government Regulation

     Accuracy in pricing on the part of supermarkets has been an
objective of state and local regulation. At least 22 states
currently have laws or regulations requiring some form of "unit
pricing" (which require prices and price per measure to be
displayed either on the package or the shelf), and at least seven
states (and other local jurisdictions) have laws requiring "item
pricing" (which require the marking of prices on individual
consumer packages for some or all products in the retail store).
The existence of item pricing laws applicable to any of the
Company's intended customers increases such customers' costs of
providing price information to consumers and may decrease or
eliminate some of the potential benefits of implementation of the
ERS ShelfNet System. In the State of Minnesota, item pricing is
not required if the price is clearly presented on the shelf and
consumers are offered the means by which to mark individual items.
In the State of Connecticut, the item pricing law allows the
State's Commissioner of Consumer Protection to exempt from item
pricing requirements stores employing an approved ESL system.

     The United States Federal Communications Commission has
established standards for radio frequency emissions from computer
products, and certain components utilized in the Company's ESL
system must comply with such criteria. All components currently
incorporated into the ERS ShelfNet System comply with such
standards, and the Company does not anticipate any material delays
in securing any required certification for components under
development by the Company. Certain foreign countries also
regulate radio frequency emissions.

Executive Officers

     The executive officers of the Company, and their respective
ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
     Name                     Age    Position
     ----                     ---    --------
<S>                           <C>    <C>
Norton Garfinkle              67     Chairman of the Board
Bruce F. Failing, Jr.         49     Vice Chairman of the Board
                                      and Chief Executive Officer
Michael Luetkemeyer           48     Vice President, Chief
                                       Financial Officer
Lester Briney                 54     Vice President, Chief
                                       Technical Officer
Michael Persky                34     Vice President, Marketing
Michael R. Valiton            36     Senior Vice President,
                                       Operations
</TABLE>

     Mr. Garfinkle, the Company's Chairman of the Board, is a
founder of the Company. Since 1970, Mr. Garfinkle has also been
the Chairman of Cambridge Management Corporation, which
manufactures and markets the DAP series of massively parallel
<PAGE>
<PAGE>
processing computers, and has also served during this period as
Chairman of its affiliates, including Oxford Management
Corporation, which specialize in the research and development of
new technologies. From 1985 to 1988, Mr. Garfinkle was Chairman of
Oral Research Laboratories, Inc., a manufacturer of dental hygiene
products founded by Mr. Garfinkle. Mr. Garfinkle also served as a
director of Actmedia, Inc. from 1975 to 1978 and from 1983 to
1988. In December 1995, pursuant to an agreement with New York
State authorities, Mr. Garfinkle admitted to a misdemeanor
relating to his 1989 New York State return and paid all taxes
required by the agreement.

     Mr. Failing, the Company's Vice Chairman of the Board and
Chief Executive Officer, is a founder of the Company, and served
as President through February 1997. In 1973, Mr. Failing
co-founded Actmedia, Inc., a provider of in-store advertising for
the supermarket industry, and was President and Chief Executive
Officer of Actmedia, Inc. until its sale in 1989.

     Mr. Luetkemeyer has been Vice President-Chief Financial
Officer of the Company since July 1997. Prior to joining the
Company, Mr. Luetkemeyer was Manager-Finance, GE Plastics Americas
at General Electric Company from 1996 to 1997. From 1994 to 1996,
Mr. Luetkemeyer was Vice President-Finance, Ocean, Radar and
Sensor Systems at Lockheed Martin, and from 1993 to 1994, was Vice
President-Controller at Harris Semiconductor. Mr. Luetkemeyer was
Manager-Finance, Defense Systems Department at General Electric
Company from prior to 1992 to 1993.

     Mr. Briney has been Vice President-Chief Technical Officer of
the Company since May 1997. Prior to joining the Company, Mr.
Briney was Assistant Vice President-Advanced Technology at
SystemSoft Corp., a software development company from 1995 to
1997, and held various positions at Prodigy Services Corp., the
last of which was as Executive Director, Technology and
Architecture from prior to 1992 to 1995.

     Mr. Persky has been Vice President-Marketing since December
1997, having joined the Company in October 1997. Prior to joining
the Company, Mr. Persky was Vice President-Marketing for
Executone, Inc., a manufacturer of telephone systems, since 1996.
From prior to 1992 to 1996, Mr. Persky held various marketing
positions with Octel Communications (formerly VMX, Inc.), a voice
mail supplier, the last of which was as Marketing Director,
Europe, Middle East and Africa.

     Mr. Valiton has been Senior Vice President of the Company
since March 1996, having joined the Company in July 1994 and
became Vice President, Delivery in January 1995. From prior to
1992 until joining the Company, Mr. Valiton held various positions
with Ungermann-Bass, Inc., the last of which was as Director of
Customer Administration.


<PAGE>
<PAGE>
ITEM 2. PROPERTIES

     The Company's executive offices are located at 488 Main
Avenue, Norwalk, Connecticut, where the Company leases
approximately 29,400 square feet of space under a lease requiring
payment of annual rent (in addition to utility charges and
increases in operating expenses and real estate taxes) in an
amount, currently, at approximately $454,000 increasing to
approximately $688,000 in the final year, subject to the Company's
right to terminate the lease after five years upon payment of
specified sums. Of the Company's currently leased space in
Norwalk, approximately 6,100 square feet is devoted to office and
administrative uses, approximately 11,000 square feet to
engineering and development activities, approximately 6,100 square
feet to marketing, sales and customer service functions, and
approximately 6,200 square feet, which the Company began leasing
on January 1, 1998, is currently not being used.

     The Company has obtained an option to lease the remaining
portion of all space (up to approximately 35,000 square feet in
aggregate) as it becomes available in the building, which houses
its executive offices. The lease term and cost per square foot for
all additional space will be on terms comparable to those of the
original lease.

     The Company has entered into a lease arrangement in
Boxborough, Massachusetts, with respect to approximately 22,500
square feet, which expires in September 2002 and requires annual
rent (in addition to increases in operating expenses and real
estate taxes) in an amount currently of approximately $268,000,
increasing to approximately $290,000 in the final year of the
lease. The space is used for engineering and development
activities. The Company leases additional space at other smaller
locations where required to support operations. The foregoing
facilities are regarded by management as adequate in all material
respects for the current requirements of the Company's business.

     As described under Note 6 of the Notes to the Company's
Consolidated Financial Statements included in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K", the Company's indebtedness to the Connecticut Development
Authority (the "CDA") is secured by the assets of the Company and
the Principal Subsidiary.

ITEM 3. LEGAL PROCEEDINGS

     In 1992, in proceedings commenced by the Company in the High
Court of Justice, Chancery Division, England against defendants
John Baxter and Epsi'lanne (UK) Limited, the defendants served
counterclaims seeking, among other things, to enjoin the Company
from selling its system in the United Kingdom. The Company does
not believe that these counterclaims have any merit.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.
<PAGE>
<PAGE>
                             PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS

     (a) The Company's Common Stock is currently traded on the
over-the-counter market, with price quotations reported on the
Nasdaq Stock Market under the symbol "ERSI."  The following table
sets forth, for the calendar periods indicated, the range of
quarterly high and low sales prices for the Common Stock, as
reported on the  Nasdaq National Market System. Quotations
represent prices between dealers and do not include retail mark-
ups, mark-downs or commissions.
<TABLE>
<CAPTION>
     1996                          High        Low
                                   ----        ----
     <S>                           <C>         <C>
     First Quarter. . . . .        $3.25       $1.63
      Second Quarter . . . .        2.38        1.63
     Third Quarter. . . . .         4.13        1.63
     Fourth Quarter . . . .         4.25        2.63

     1997                          High        Low
                                   ----        ----
     First Quarter. . . . .        $7.38       $3.38
     Second Quarter . . . .         7.50        4.63
     Third Quarter. . . . .         7.44        5.13
     Fourth Quarter . . . .         7.13        3.31
</TABLE>

     Since July 11, 1996, the Common Stock has also been admitted
to trading on the Alternative Investment Market of the London
Stock Exchange.

     As of March 15, 1998, the number of record holders of the
Company's Common Stock was 630.

     The Company has never paid or declared any cash dividends on
its Common Stock and does not intend to pay cash dividends on its
Common Stock in the foreseeable future. The Company intends to
retain its earnings, if any, for the future operation and
expansion of its business. The payment of dividends in the future
will depend upon the restrictions imposed by the indenture
pursuant to which the Senior Discount Notes were issued, the
Company's available earnings, the capital requirements of the
Company, its general financial condition and other factors deemed
pertinent by the Board of Directors. See Note 6 of the Notes to
the Company's Consolidated Financial Statements included in
response to "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-
Liquidity", which information is incorporated herein by reference.

     (b)  Not applicable.

<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The following tables reflect summary historical consolidated
financial data with respect to the Company for the periods
indicated and should be read in conjunction with the Company's
Consolidated Financial Statements included in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".

     The following selected consolidated statement of operations
and balance sheet data, insofar as it relates to each of the five
years in the period ended December 31, 1997, has been derived from
audited consolidated financial statements, including the
consolidated balance sheet as of December 31, 1997 and 1996 and
the related consolidated statement of operations for each of the
three years in the period ended December 31, 1997 and the notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
                                    Year Ended December 31,
                              -----------------------------------------------
                              1997       1996     1995      1994      1993(1)
                              ----       ----     ----      ----      ----
                                (Amounts in thousands, except per share data)
<S>                           <C>        <C>      <C>       <C>       <C>
Consolidated Statement
 of Operations Data:

Revenues....................  $ 1,972    $ 5,002  $  2,973  $2,376   $  1,122
Cost of goods sold..........    3,699      6,204     4,113   3,822      1,718
                              -------    -------  -------- --------   --------
 Gross profit (loss)........   (1,727)    (1,202)  ( 1,140) (1,446)   (   596)
                              -------    -------  -------- --------   --------
Operating expenses:
 Selling, general and
  administrative............   13,378      6,807     6,952   6,039      5,966
 Research and development...    2,425      1,117     2,491   2,571      2,325
 Depreciation and amorti-
  zation....................      301        162       107     149        177
  Stock option compensation(2)   --           44        27   1,119      7,454
                              -------    -------  -------- --------   --------
  Total operating expenses..   16,104      8,130     9,577   9,878     15,922
                              -------    -------  -------- --------   --------
  Loss from operations......  (17,831)    (9,332)  (10,717)(11,324)   (16,518)
                              -------    -------  -------- --------   --------
Other income (expenses):
 Interest income............    4,982        302       134     288        438
 Interest expense...........  (14,024)      (382)     (291)    (65)      (340)
 Gain (loss) on short-term
  investments...............     --         --           6    (177)      --
                              -------    -------  -------- --------   --------
Total other income
   (expense)................   (9,042)       (80)     (151)     46         98
                              -------    -------  -------- --------   --------
Loss before minority
 interest in consolidated
 affiliate..................  (26,873)    (9,412)  (10,868)(11,278)   (16,420)
Minority interest in loss
 of consolidated affiliate..     --         --        --      --          423
                             --------    -------  -------- --------   --------
Net loss...................  $(26,873)   $(9,412) $(10,868)$(11,278)  $(15,997)
                             ========    =======  ======== ========   ========
Earnings per share:
 Weighted average number
  of common shares out-
  standing..................   21,096     16,169    11,743   11,682     10,736
                             ========    =======  ======== ========   ========
Basic loss per common
  share(3)                   $  (1.27)   $  (.60)  $ (0.95) $ (0.97)  $  (1.49)
                             ========    =======  ======== ========   ========

</TABLE>
<TABLE>
<CAPTION>
                                          December 31,
                               ------------------------------------------
                               1997     1996     1995      1994     1993
                               ----     ----     ----      ----     ----
                                           (Dollars in thousands)
<S>                         <C>        <C>      <C>       <C>      <C>
Consolidated Balance
 Sheet Data:

Net working capital.......  $ 88,372   $ 8,764  $ 5,283   $ 3,452   $11,642
Total assets..............   100,208    12,260    8,316     5,195    13,241
Long-term debt............   113,102     4,989    3,335     1,981      --
Common stock purchase
 warrants.................     5,100      --       --        --        --
Stockholders' (deficit)
 equity...................   (20,476)    5,723    3,215     2,268    12,405
______________________

(1)  Reflects the consummation of the Reorganization immediately
prior to the closing of the Initial Public Offering.

(2)  Compensation expense recognized in 1996, 1995 and 1994 related
to services provided by employees during those periods. The non-cash
compensation expense recognized for 1993 included compensation earned for
services prior to the Reorganization and compensation earned for the period
subsequent to the Reorganization through December 31, 1993.

(3)  In 1997, the Company adopted Statement of Financial Accounting
Standards No.128 "Earnings Per Share". Due to the Company's loss position,
the Company has reported "basic" loss per common share. The presentation
of "dilutive" loss per common share is not required as common stock
equivalents are anti-dilutive.

</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Overview

     The market for ESL systems is in the development stage, and
the Company estimates that, as of December 31, 1997, approximately
120 stores in the United States were operating such systems, out
of a potential market in excess of 100,000 supermarkets and other
stores. Large supermarket chains have tested the productivity
<PAGE>
<PAGE>
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 December 31, 1997, the Company has generated cumulative
revenues of $14.6 million, and has incurred a cumulative net loss
of approximately $92.6 million.

     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 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. Such assets will be subject to periodic impairment
testing as prescribed by Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of.


<PAGE>
<PAGE>
Results of Operations

     Year ended December 31, 1997 compared to year ended December
      31, 1996

     Revenues.  The Company's revenues were $1,972,000 in 1997,
compared to $5,002,000 in 1996. The Company believes that the
decrease of $3,030,000 in revenues in 1997 compared to 1996
reflects the decreased demand for ERS' previous generation product
attendant to plans to introduce a new generation product.

     In 1997, revenues were concentrated among three significant
customers within the supermarket industry comprising 74% of total
revenues, with one customer accounting for 41% thereof.
Approximately 46% of revenues in 1996 was attributable to a single
customer, with three customers accounting for 79% of total
revenues. For the years ended December 31, 1997 and 1996 software
license fees were $122,000 and $243,000, respectively, or 11% and
6% of product sales. For the year ended December 31, 1997,
maintenance revenues decreased to $825,000 from $896,000 in the
prior year, due primarily to a reduced customer base of the
previous generation product.

     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.

     Cost of goods sold decreased to $3,699,000 in 1997, from
$6,204,000 in 1996. Warranty and maintenance expenses included in
the cost of goods sold decreased to $758,000 in 1997 from $966,000
in 1996, which included reductions in warranty costs. The gross
loss (cost of goods sold in excess of revenues) in 1997 increased
to 88% of total revenues from 24% in the 1996 corresponding
period, reflecting reduced installation volumes.

     The increase in gross loss is primarily the result of ERS'
transition to a new generation of wireless products. During this
transition, ERS has experienced high initial material costs and
installation inefficiencies. Additionally, because of a reduction
in product sales in 1997, depreciation of manufacturing equipment
and amortization of product development costs comprised a
significant share of the cost of sales.

<PAGE>
<PAGE>
     ERS anticipates that system enhancements to be implemented in
1998 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.

     Cost of goods sold in 1996 also includes a special provision
for excess inventory of $750,000 recorded in the fourth quarter of
1996, in connection with the introduction of the new generation
electronic shelf labeling system.

     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 $6,571,000, to $13,378,000 in 1997,
compared to $6,807,000 in 1996. This reflects increased salary,
recruiting and rental expense related to efforts to expand ERS'
organization in anticipation of sales growth. In addition, results
include direct transaction costs associated with the proposed
Telepanel arrangement of approximately $585,000 and 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 $2,425,000 in 1997 compared to $1,117,000 in 1996. Such
increases reflect expanded hardware and software engineering
activities and the development of training programs. During the
years ended December 31, 1997 and 1996, the Company also
capitalized product development costs of $375,000 and $592,000,
respectively. 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 $4,982,000 in
1997 compared to $302,000 in 1996, due to increased cash and cash
equivalents available for investment, including the proceeds of
the Private Placement, of 147,312 Units consisting of $147,312,000
principal amount at maturity of Senior Discount Notes together
with the 1997 Warrants to purchase an aggregate of 2,538,258
shares of Common Stock consummated on January 24, 1997.

     Interest Expense.  Interest expense increased to $14,024,000
in 1997 compared to $382,000 in 1996. Interest expense represents
interest on amounts borrowed from the CDA and additionally, in
1997, non-cash interest on the 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 an 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 1997
Warrants) and the amortization of costs of issuance.


<PAGE>
<PAGE>
     Income Taxes.  The Company has incurred net losses since
inception which have generated net operating loss carry forwards
for federal income tax purposes of approximately $70 million,
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 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 consolidated
financial statements as of December 31, 1997 and 1996 (see Note 11
of the Notes to Consolidated Financial Statements included in
response to "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K").

     Year ended December 31, 1996 compared to year ended December
      31, 1995

     Revenues.  The Company's revenues were $5,002,000 in 1996,
compared to $2,973,000 in 1995. The increase of $2,029,000 in 1996
is primarily attributable to greater product sales in 1996,
including software license fees in the amount of $243,000 (6% of
product sales for 1996) recorded in the second quarter of 1996.
The increase in revenue also reflects a $586,000 increase in
maintenance revenue associated with a larger installed customer
base. All revenues are attributable to sales to customers in the
supermarket industry. In 1996, a single customer was responsible
for 46% of revenues and 79% of revenues was attributable to three
customers. Approximately 30% of revenues in 1995 was attributable
to a single customer, with three customers accounting for 83% of
total revenues.

     Cost of Goods Sold. Cost of goods sold was $6,204,000 in 1996
compared to $4,113,000 in 1995, reflecting increased product sales
in 1996. The Company realized lower hardware component costs on
installations during 1996 as compared to 1995, reflecting an
increase in the use of high volume low cost suppliers. Cost of
goods sold in 1996 includes warranty and maintenance expenses of
$966,000, compared to $561,000 for such expenses in 1995. The
increase in warranty and maintenance costs reflects the growing
installation base for the ERS ShelfNet System.

     Cost of goods sold in 1996 also includes a special provision
for excess inventory of $750,000 recorded in the fourth quarter of
1996, in connection with the introduction of the new generation
electronic shelf labeling system.

     Selling, General and Administrative. Selling, general and
administrative costs decreased $145,000, to $6,807,000 in 1996,
compared to $6,952,000 in 1995, reflecting reduced discretionary
spending in 1996.

     Research and Development.  Research and development expenses
were $1,117,000 in 1996 compared to $2,491,000 in 1995, reflecting
the winding down or completion in 1996 of several hardware and
software development projects commenced in prior years. During the
years ended December 31, 1996 and 1995, the Company also
<PAGE>
<PAGE>
capitalized product development costs of $592,000 and $475,000,
respectively, that will be amortized over the shorter of the
estimated useful life of the related software product or process
or three years.

     Interest Income.  Interest income increased to $302,000 in
1996 compared to $134,000 in 1995, due to increased cash and cash
equivalents available for investment.

     Interest Expense.  Interest expense increased to $382,000 in
1996 compared to $291,000 in 1995. Interest expense represents
interest on amounts borrowed from the CDA and, through July 24,
1995, a revolving credit facility with the principal stockholders
of the Company and members of the Board of Directors and their
affiliates.

     Income Taxes. 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
consolidated financial statements as of December 31, 1996 and 1995
(see Note 11 of the Notes to Consolidated Financial Statements
included in response to "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K").

Liquidity and Capital Resources

     As of December 31, 1997, the Company had net working capital
of $88,372,000 reflecting cash and cash equivalents of $82,400,000
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 during
1997 resulted primarily from approximately $95 million in net
proceeds raised in the Private Placement.

     Net cash used in operations was $16,831,000 in 1997, compared
to net cash of $7,549,000 used for operating activities in 1996,
resulting primarily from the net losses of $26,873,000 and
$9,412,000, respectively, for such periods. See "Results of
Operations-Year Ended December 31, 1997 Compared to Year Ended
December 31, 1996" for a description of decreased revenue in 1997
compared to 1996 resulting, among other factors, from the
Company's transition to its new marketing and product plans. In
1997, the net loss of $26,873,000 included $12,798,000 of non-cash
interest expense. The 1997 net cash used in operations also
reflected a decrease in trade accounts receivable (net of
allowance for doubtful accounts) of $842,000 and  an increase in
inventory (net of reserves) of $6,452,000, compared to decreases
of $283,000 and $1,053,000, respectively, for such items during
the prior year. During the fourth quarter of 1997, the Company
increased inventory in anticipation of sales growth in the ensuing
year. During 1997, current liabilities increased $934,000
reflecting an increase in outstanding trade payables, compared to
a reduction of $217,000 in the prior year.


<PAGE>
<PAGE>
     Cash used in investing activities totaled $3,709,000 in 1997
compared to $989,000 of cash used by investing activities in 1996.
Investing activities included capital expenditures of $3,334,000
and $397,000 in 1997 and 1996, respectively. The Company also
incurred $375,000 and $592,000 in 1997 and 1996, respectively, in
product development costs.

     In addition to selling the ERS ShelfNet System to customers
at a price generally in excess of $100,000 per store, under the
Company's proposed SayGo Plan the Company will offer the system on
a fee based arrangement whereby the Company retains ownership of
the system. See "Item 1. Business-Marketing and Sales-SayGo
Agreements" above, for a description of fixed and variable charges
proposed by the Company under the SayGo Plan. As a result, the
Company will have substantial cash requirements for manufacturing
and carrying costs attendant to introduction of the SayGo Plan,
which will not initially be covered by revenues calculated on the
basis of usage fees paid by customers. Accordingly, the Company
will require substantial funds in order to support the
introduction of the SayGo Plan.

     To date, the Company has not generated positive cash flow
from operations, and has historically funded its operations
primarily through loans from its stockholders, the sale of
interests in an affiliated partnership, the Initial Public
Offering consummated in 1993, its arrangements with the CDA, the
sale of Series A Preferred Stock, $1.00 par value ("Series A
Preferred Stock"), to the Company's principal stockholders and
members of the Company's Board of Directors and their affiliates,
an offshore public offering and contemporaneous private placement
of Common Stock in 1996 and the Private Placement.

     Cash from financing activities provided $94,742,000 in 1997,
as a result of the Private Placement, compared to $13,526,000 in
1996, during which the Company completed the offshore public
offering of an aggregate of 4,963,500 shares of Common Stock, in
accordance with Regulation S under the Securities Act of 1933, and
the contemporaneous private placement of an aggregate of 911,657
shares of Common Stock to subscribers, including certain members
of the Board of Directors and their affiliates, for aggregate
proceeds of approximately $12 million.

     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 Senior Discount Notes
mature on February 1, 2004, with accrual of cash interest at the
rate of 13-1/4% 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 Notes at specified prices.

<PAGE>
<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 1997 Warrants are, since 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 remains obligated to the CDA for an aggregate of
$5,000,000 principal amount of indebtedness (the "CDA Note"),
repayable five years after the August 1994 closing and convertible
to shares of Common Stock at an adjusted conversion price
calculated at $3.00 plus the average market price of the Common
Stock during the twelve months prior to conversion. At closing,
the CDA acquired five-year warrants to purchase 699,724 shares (as
adjusted through December 31, 1997) 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.

     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.

     On October 29, 1997, the Company and Telepanel executed the
Combination Agreement, which provides for the Arrangement, as a
result of which the Company would have become the sole beneficial
owner of the outstanding Telepanel Common Shares. In March 1998,
the Company announced that the condition to closing contained in
<PAGE>
<PAGE>
the Combination Agreement requiring confirmation that the
Arrangement would qualify for pooling-of-interests accounting
treatment has failed to be satisfied, and that the Company's Board
of Directors has determined that it does not intend to waive the
condition to combine regarding qualification for pooling-of-
interests accounting treatment. The Company and Telepanel are
engaged in discussions regarding a mutually acceptable termination
of the Combination Agreement. See "Item 1. Business-Proposed
Combination with Telepanel" for information concerning the
Arrangement, which information is incorporated by reference
herein.

     Pursuant to the Combination Agreement, in February 1998 the
Company and Telepanel entered into the Joint Distribution
Agreement providing for the creation of the Joint Venture. Under
the Joint Distribution Agreement, the Company has advanced the
amount of $2,000,000 to the Joint Venture, on a revolving basis,
which accrues interest, payable monthly, at the prime rate plus
2.5% per annum, is guaranteed by Telepanel and its subsidiaries
and is secured by all of the assets of Telepanel and its
subsidiaries (such collateral subordinated in right to specified
bank indebtedness but prior in right to any other interest). All
amounts advanced by the Company to the Joint Venture, if not
earlier repaid from specified receivables of Telepanel and its
subsidiaries, were to have been due within 180 days of termination
of the Combination Agreement (or earlier, in the event of
specified defaults). The Company has delivered notice to the Joint
Venture and Telepanel accelerating repayment of all outstanding
amounts under such facility, as a result of the failure of the
Joint Venture to make payment of interest when due and
notwithstanding attempts to make payment of interest alone after
the due date therefor.

     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 Senior
Discount Notes. 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 considered the impact of year 2000 issues on
its current hardware and software offerings in the ordinary course
of its product development efforts. Management believes that the
Company's systems and applications are or will be year 2000
compliant in sufficient time and without significant impact on the
financial results of the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
         ABOUT MARKET RISK

          Not applicable.


<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see "Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K", which
information is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

          Not applicable.

                            PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning this item, see "Item 1. Business-
Executive Officers" and the Proxy Statement to be filed with
respect to the 1998 Annual Meeting of Stockholders (the "Proxy
Statement"), which information is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

     For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For information concerning this item, see the Proxy Statement
which information is incorporated herein by reference.

                             PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
          AND REPORTS ON FORM 8-K

          (a) 1. Financial Statements:

               The consolidated financial statements filed in this
Annual Report on Form 10-K are listed in the attached Index to
Consolidated Financial Statements and Schedules.

               2. Financial Statement Schedules:

               No consolidated financial statement schedules are
filed in this Annual Report on Form 10-K because they are not
required or are inapplicable or the required information is
otherwise shown in the consolidated financial statements or notes
thereto.

<PAGE>
<PAGE>
               3. Exhibits:

               The exhibits required to be filed as part of this
Annual Report on Form 10-K are listed in the attached Index to
Exhibits.

          (b) Current Reports on Form 8-K:

               During the quarter ended December 31, 1997, the
Company filed a Current Report on Form 8-K dated October 29, 1997
reporting, under "Item 5. Other Events" thereunder, the execution
of the Combination Agreement with Telepanel. No financial
statements were included with such report.


<PAGE>
<PAGE>
                        POWER OF ATTORNEY

     The issuer and each person whose signature appears below
hereby appoint Norton Garfinkle, Bruce F. Failing, Jr. and Michael
Luetkemeyer as attorneys-in-fact with full power of substitution,
severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which
amendments may make such changes in the report as the
attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange
Commission.

                           SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 30, 1998              ELECTRONIC RETAILING SYSTEMS
                                    INTERNATIONAL, INC.


                                   By s/Bruce F. Failing, Jr.
                                     -------------------------
                                     Bruce F. Failing, Jr.
                                     Vice Chairman of the
                                      Board and Principal
                                      Executive Officer

     Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:

Signature                        Title            Date

s/Bruce F. Failing, Jr.   Vice Chairman of the    March 30, 1998
-----------------------    Board and Principal
Bruce F. Failing, Jr.      Executive Officer


s/Michael Luetkemeyer      Vice President,        March 30, 1998
----------------------     Chief Financial
Michael Luetkemeyer        Officer


s/Paul A. Biddelman       Director                March 30, 1998
----------------------
Paul A. Biddelman



<PAGE>
<PAGE>


s/David Diamond           Director                March 30, 1998
----------------------
David Diamond


s/Norton Garfinkle        Director                March 30, 1998
----------------------
Norton Garfinkle


s/George Weathersby       Director                March 30, 1998
----------------------
George Weathersby


s/Donald E. Zilkha        Director                March 30, 1998
----------------------
Donald E. Zilkha


<PAGE>
<PAGE>
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


Financial Statements:

Report of Independent Accountants...............       F-2

Consolidated Balance Sheet, December 31,
  1997 and 1996..................................      F-3

Consolidated Statement of Operations for
  the years ended December 31, 1997, 1996
  and 1995.......................................      F-4

Consolidated Statement of Cash Flows
  for the years ended December 31, 1997, 1996
  and 1995.......................................      F-5

Consolidated Statement of Changes in
  Stockholders' (Deficit) Equity for the years
  ended December 31, 1997, 1996 and 1995.........      F-6

Notes to Consolidated Financial Statements.......      F-7



Financial Statement Schedules:

No Financial Statement Schedules are included herein because they
are not required, are inapplicable, or the information is
otherwise shown in the consolidated financial statements or the
notes thereto.






















                               F-1

<PAGE>
<PAGE>
                REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of
  Electronic Retailing Systems International, Inc.

In our opinion, the consolidated financial statements listed in
the index on page F-1 present fairly, in all material respects,
the financial position of Electronic Retailing Systems
International, Inc. and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



PRICE WATERHOUSE LLP



Stamford, Connecticut
March 6, 1998, except for
Note 13, which is as of
March 30, 1998

















                               F-2

<PAGE>
<PAGE>
<TABLE>  Electronic Retailing Systems International, Inc.
                   Consolidated Balance Sheet
         (in thousands, except per share and share amounts)
<CAPTION>
                                                  December 31,
                                                  -------------------
                                                    1997       1996
                                                    ----       ----
<S>                                              <C>           <C>
Assets
Current assets
 Cash and cash equivalents (Note 2)              $ 82,400      $8,198
 Accounts receivable - net of allowance
   for doubtful accounts of $229 in 1997
   and $90 in 1996                                    203       1,061
 Receivables from affiliates (Note 3)                  36          20
 Installations in progress                            202          87
 Inventories - net of reserves of $1,021 in
   1997 and $838 in 1996 (Note 2)                   7,273         821
 Prepayments and other current assets                 740         125
                                                 ---------   --------
   Total current assets                            90,854      10,312
                                                 ---------   --------
Furniture and Equipment (Note 2)                    5,055       2,444
 Accumulated depreciation                          (1,753)     (1,798)
                                                 ---------   --------
Furniture and equipment, net                        3,302         646
                                                 ---------   --------
Debt issuance costs (Note 2)                        5,038         403
Other non-current assets                            1,014         899
                                                 ---------   --------
Total assets                                    $ 100,208   $  12,260
                                                =========    ========
Liabilities and Stockholders' (Deficit)
 Equity
Current liabilities
  Accounts payable and accrued expenses          $  2,128    $  1,286
  Accrued salaries and benefits                       354         262
                                                 --------     -------
    Total current liabilities                       2,482       1,548
                                                 --------     -------
 Long-term debt (Note 6)                          113,102       4,989
                                                 --------     -------
 Common stock purchase warrants (Note 6)            5,100        -
 Commitments  (Note 8)                               -           -

Stockholders' equity
 Preferred stock, undesignated (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 authorized;
  21,187,035 and 21,047,106 shares issued and
  outstanding in 1997 and 1996, respectively)         211         210
 Additional paid-in capital                        51,328      50,655
 Accumulated deficit                              (72,015)    (45,142)
                                                   -------    -------
   Total stockholders' (deficit) equity           (20,476)      5,723
                                                   -------    -------
Total liabilities and stockholders'
  (deficit) equity                               $100,208     $12,260
                                                 ========     =======
   See accompanying notes to consolidated financial statements
                               F-3
</TABLE>
<PAGE>
<TABLE>
         Electronic Retailing Systems International, Inc.
               Consolidated Statement of Operations
             (in thousands, except per share amounts)
<CAPTION>

                                             Year Ended December 31,
                                           ----------------------------
                                           1997       1996        1995
                                           ----       ----        ----
<S>                                        <C>        <C>         <C>
Revenues
 Product sales                             $ 1,147    $ 4,106     $  2,663
 Maintenance                                   825        896          310
                                          --------   --------    ---------
   Total revenues                            1,972      5,002        2,973
                                          --------   --------    ---------
Cost of goods sold
 Product sales                               2,941      4,488        3,552
 Maintenance                                   758        966          561
 Special inventory provision (Note 2)          -          750          -
                                           -------    -------    ---------
  Total cost of goods sold                   3,699      6,204        4,113
                                          --------   --------    ---------
 Gross profit (loss)                        (1,727)    (1,202)      (1,140)
                                          --------    -------    ---------
Operating expenses
 Selling, general and administrative
  (including amounts to related parties
   of $125 in 1997, $34 in 1996 and $91
   in 1995)  (Note 3)                       13,378     6,807        6,952
 Research and development (Note 9)           2,425     1,117        2,491
 Depreciation and amortization                 301       162          107
 Stock option compensation (Note 10)          -           44           27
                                          --------  --------    ---------
  Total operating expenses                  16,104     8,130        9,577
                                          --------  --------    ---------
 Loss from operations                      (17,831)   (9,332)     (10,717)
                                          --------  --------    ---------
Other income (expenses)
 Interest income                             4,982       302          134
 Interest expense (including amounts
   to related parties of $52 in 1995)
   (Notes 3 and 6)                         (14,024)     (382)        (291)
 Gain (loss) on short-term investments
   (Note 2)                                   -           -             6
                                          --------  --------    ---------
  Total other income (expenses)             (9,042)      (80)        (151)
                                          --------  --------    ---------
  Net loss                                $(26,873)  $(9,412)    $(10,868)
                                          ========  ========    =========
Earnings per Share
 Weighted average common shares
  outstanding                               21,096    16,169       11,743
                                          ========  ========    =========
Basic loss per common share (Note 2)       $ (1.27) $  (0.60)    $  (0.95)
                                          ========  ========    =========


     See accompanying notes to consolidated financial statements
</TABLE>
                                 F-4

<PAGE>
<TABLE>
             Electronic Retailing Systems International, Inc.
                    Consolidated Statement of Cash Flows
                               (in thousands)
<CAPTION>
                                                  Year Ended December 31,
                                              ----------------------------
                                               1997         1996      1995
                                               ----         ----      ----
<S>                                            <C>          <C>       <C>
Net Cash Flows from Operating Activities:
Net loss                                       $ (26,873)  $(9,412)   $ (10,868)
Adjustments to reconcile net loss
 to net cash used in operating activities:
  Depreciation and amortization                    1,799        660         463
  Common stock purchase warrants                     510         -           -
  Provision for inventory obsolescence               392        843         94
  Provision for doubtful accounts                    252        168         82
  Stock option compensation                           -          44         27
  Accrued interest                                12,798         -           -
  Accounts receivable                                606        126       (935)
  Inventories                                     (6,844)       209       (591)
  Other current and non-current assets              (405)        30       (252)
  Current liabilities                                934       (217)        820
                                               ---------  ---------   ---------
    Net cash used in operating activities        (16,831)    (7,549)   (11,160)
                                               ---------  ---------   ----------
Cash Flows from Investing Activities:
 Capital expenditures                             (3,334)     (397)        (452)
 Capitalized product development costs              (375)     (592)        (475)
 Proceeds from sales or maturities of
  short-term investments                              -          -       1,027
                                                ---------  ---------  ----------
     Cash (used in) provided by investing
      activities                                  (3,709)     (989)        100
                                                ---------  ---------  ----------
Cash Flows from Financing Activities:
 Net proceeds from the issuance of long-
   term debt                                      89,478         -          -
 Net proceeds from the issuance of common stock      164     12,111         -
 Net proceeds from the issuance of long-term
   note                                              -       1,650       1,350
 Net proceeds from the issuance of common stock
   purchase warrants                               5,100         -          -
Cash payments to preferred stockholders
  upon conversion                                     -       (235)         -
Net proceeds from the issuance of preferred
  stock                                               -          -       8,789
 Borrowings under line of credit                      -          -       3,000
                                                ---------  --------- ----------
   Cash provided by financing activities          94,742     13,526     13,139
                                                ---------  ---------  ----------
Net increase in cash and cash
 equivalents                                      74,202      4,988      2,079
                                                ---------  ---------  ----------
Cash and cash equivalents at beginning of period   8,198      3,210      1,131
                                                ---------  ---------  ----------
Cash and cash equivalents at end of period      $ 82,400    $ 8,198   $  3,210
                                                =========  =========  ==========

There were no cash payments for income taxes in the years 1997,
1996 and 1995. Cash payments for interest expense were $339, $380 and $262
in 1997, 1996 and 1995, respectively, including payments of $52 made to
related parties in 1995. In 1995, preferred stock was issued in a non cash
exchange for surrender of $3 million of debt held by preferred stock
subscribers. In 1996, preferred stock was converted to 3,138,900 shares of
common stock in a non cash transaction.

        See accompanying notes to consolidated financial statements
</TABLE>                         F-5
<PAGE>
<PAGE>
<TABLE>
         Electronic Retailing Systems International, Inc.
        Consolidated Statement of Changes in Stockholders'
                      (Deficit) Equity
           (in thousands, except share amounts)
<CAPTION>
                                                         Additional
                                  Preferred   Common      Paid-in   Accumulated
                                    Stock     Stock       Capital    Deficit     Total
                                  ---------   ------     --------- -----------  -----
<S>                               <C>         <C>        <C>       <C>           <C>
Balances at December 31, 1994     $   -       $    117   $ 26,457  $ (24,306)  $  2,268
                                  ---------   ---------  ---------  ----------  --------
 Vesting of previously issued
  stock options                                                27                   27
 Issuance and sale of 120,000
  shares of preferred stock            120                 11,668                11,788
 Issuance of 3,246 shares of
  preferred stock as dividends           3                    322      (325)        -
 Net loss for year
   (10,868)   (10,868)
                                  ---------   ---------  --------- ----------  ---------
Balances at December 31, 1995     $    123    $    117   $ 38,474  $ (35,499)  $  3,215
                                  ---------   ---------  --------- ----------  ---------
 Vesting of previously issued
  stock options                                                44                    44
 Issuance of 65,860 common shares
  with exercise of stock options                     1                               1
 Issuance of 2,310 shares of
  preferred stock as dividends           2                    229       (231)       -
 Issuance and sale of 4,963,500
   common shares in offshore
   offering, and issuance of
   218,957 common shares to
   placement agent                                  52     10,087                 10,139
 Issuance and sale of 911,657
   common shares in private
   placement                                         9      1,982                  1,991
 Conversion of Series A preferred
  stock and issuance of 3,138,900
  common shares                       (125)         31       (161)                 (255)
 Net loss for year                                                    (9,412)    (9,412)
                                  ---------   ---------  --------- ----------  ---------
Balances at December 31, 1996     $   -       $    210   $ 50,655  $ (45,142)  $  5,723
                                  ---------   ---------  --------- ----------  ---------
 Issuance of common stock
  purchase warrants                                           510                   510
 Issuance of 139,929 common
  shares with exercise of stock
   options                                           1        163                   164
 Net loss for year
   (26,873)   (26,873)
                                  ---------   ---------  --------- ----------  ---------
Balances at December 31, 1997     $    -      $    211   $ 51,328  $ (72,015)  $(20,476)
                                  =========   =========  ========= ==========  =========





       See accompanying notes to consolidated financial statements
</TABLE>                             F-6
<PAGE>
<PAGE>
              Electronic Retailing Systems International, Inc.
                 Notes to Consolidated Financial Statements

Note 1 -Organization:

     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 Company develops and supplies
     electronic shelf labeling systems. Electronic shelf labeling
     systems replace paper price tags on retail shelves with
     liquid crystal display labels and transmit pricing and other
     information to and from the aisle. The Company's system is
     designed to address retailers' needs for improved pricing
     accuracy and labor efficiencies by electronically linking a
     store's shelves to its POS scanners and central computer. The
     Company currently operates in North America.

Note 2 -Summary of Significant Accounting Policies:

     Basis of Consolidation

     The consolidated financial statements include the accounts of
     the Company and all of its subsidiaries. All significant
     intercompany balances and transactions have been eliminated.

     Use of Estimates

     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. While actual results could differ from those
     estimates, management believes that it is unlikely that any
     one event would have a material effect on the Company's
     future operating results.

     Cash Equivalents

     Cash equivalents consist of short-term, highly-liquid U.S.
     Treasury Bills and certificates of deposit with original
     maturities of less than three months and are stated at cost,
     which approximates market. Interest income is accrued as
     earned.

     Cash and cash equivalents at December 31, 1997 included
     deposits of $2,969,000 held as interest bearing collateral
     for irrevocable letters of credit of the same amount relating
     to future inventory purchases in 1998. There were no letters
     of credit outstanding at December 31, 1996.

                               F-7
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     Financial Instruments

     Financial instruments include cash, cash equivalents, letters
     of credit fully collateralized by cash and cash equivalents,
     accrued salaries and expenses, a convertible long-term note,
     long-term debt and common stock purchase warrants. Financial
     instruments are carried at cost or accrued carrying value
     which approximates fair market value.

     Inventories

     Inventories are stated at the lower of cost (determined on a
     first in, first out basis) or market value. Inventories at
     December 31, 1997 consist of approximately $3,286,000 of
     materials and supplies and $3,987,000 of finished goods.
     Inventories at December 31, 1996 consisted of approximately
     $188,000 of materials and supplies and $633,000 of finished
     goods. Inventories in excess of expected requirements due to
     new product introductions are expensed currently.

     In December 1996, the Company announced its new generation
     wireless electronic shelf labeling system. As such, the
     Company assessed the expected market demand for the new
     product and the inventory on hand needed to support its
     forecasted installations and the maintenance requirements of
     its existing installed base. Based on this assessment the
     Company recorded a special provision for excess inventory of
     $750,000 in the fourth quarter of 1996. Charges for excess,
     slow moving and obsolete inventory for the years 1997, 1996
     and 1995 were $392,000, $843,000, which includes the 1996
     special provision, and $94,000, respectively.

     Furniture and Equipment

     Furniture and equipment is stated at cost. Depreciation is
     provided on the straight-line method over the estimated
     useful lives of the respective assets, none of which exceeds
     five years.

     Furniture and equipment as of December 31, 1997 and 1996, was
     comprised of the following:
<TABLE>
<CAPTION>
                                          1997       1996
                                          ----       ----
     <S>                                  <C>        <C>
     Furniture                            $1,723     $  191
     Equipment                             3,332      2,253
                                          ------     ------
     Furniture and equipment,
       at cost                             5,055      2,444
     Accumulated depreciation             (1,753)    (1,798)
                                          ------     ------
     Furniture and equipment, net         $3,302     $  646
                                          ======     ======
</TABLE>                       F-8
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     Fully depreciated furniture and equipment no longer in use of
     $722 was written-off during 1997.

     Product Development Costs

     The Company capitalizes product development costs,
     principally wages and contractor fees, after establishing
     commercial and technical viability. Product development costs
     are stated at the lower of cost or net realizable value.
     These costs are amortized using the straight-line method over
     the shorter of the estimated useful life of the product or
     three years. Amortization commences when the product is
     available for general release to customers. As of December
     31, 1997 and 1996, unamortized capitalized costs of $969,000
     and $857,000, respectively, are included as other non-current
     assets in the accompanying consolidated balance sheet.
     Amortization expense totaled $262,000, $203,000 and $7,000
     for 1997, 1996 and 1995, respectively.

     Debt Issuance Costs

     The Company has capitalized costs incurred in connection with
     the issuance of debt. Such costs are principally investment
     banking, legal, accounting, financial printing, and other
     related fees and costs. These costs are amortized using the
     effective interest method over the lives of the respective
     debt arrangements. As of December 31, 1997 and 1996,
     unamortized debt issuance costs of $5,038,000 and $403,000,
     respectively, respectively, are included as other non-current
     assets in the accompanying consolidated balance sheet.
     Amortization expense totaled $440,000, $19,000 and $17,000
     for 1997, 1996 and 1995.

     Revenue Recognition

     Revenue is recognized when the product is shipped or upon
     completion of installation of a trial electronic shelf label
     system, provided that no significant obligations remain and
     collection of the resulting receivable is deemed probable.
     Revenue from providing installation services to customers is
     recognized upon the completion of an installation.
     Maintenance revenue for services provided under maintenance
     contracts is recognized over the service contract period.
     Other revenue for parts and services is recognized when
     provided.

     Income Taxes

     The Company accounts for income taxes in accordance with
     Statement of Financial Accounting Standards No. 109,
     "Accounting for Income Taxes" which requires an asset and
     liability approach to the recognition of deferred tax assets
     and liabilities for the expected future tax consequences of
     events that have been recognized in the Company's financial

                               F-9
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     statements or tax returns. Deferred income taxes relate to
     timing differences between financial and income tax reporting
     for stock option compensation, product development costs,
     depreciation and other items.

     Adoption of New Accounting Standards

     In 1997, the Company adopted Statement of Financial
     Accounting Standards No. 128 "Earnings per Share" ("FAS
     128"), which is 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
     replace the reporting of "primary" EPS with "basic" EPS.
     Basic EPS is calculated by dividing the income or loss
     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 is replaced by "diluted" EPS, which is similar to fully
     diluted EPS as previously computed.

     Due to the Company's loss position, the Company has reported
     only "basic" EPS. The presentation of "dilutive" EPS is not
     required as common stock equivalents are anti-dilutive. The
     number of securities at December 31, 1997 that could
     potentially dilute basic EPS in the future is 5,969,004. Such
     securities, which have been excluded from the calculation of
     basic EPS as they are anti-dilutive, include employee and
     director stock options, convertible debt, and common stock
     purchase warrants.

     The Company adopted Statement of Financial Accounting
     Standards No. 123, "Accounting for Stock-Based Compensation"
     ("FAS 123"), effective January 1, 1996. FAS 123 indicates a
     preference for a fair value based method of accounting for
     employee stock options, but allows for continuation of the
     intrinsic value based method under Accounting Principles
     Board Opinion No. 25, Accounting for Stock Issued to
     Employees ("APB Opinion 25"). The Company has chosen to
     continue its use of the intrinsic value based method of
     accounting. (See Note 10).

Note 3 -Related Party Transactions:

     The Company incurs certain common costs on behalf of
     affiliates, which are reimbursed by the affiliates. The
     Company subleases a portion of its headquarters facility to
     an affiliate. Such common costs, including sublease payments,
     amounted to $55,000, $63,000 and $112,000 in 1997, 1996 and
     1995, respectively (see Note 8). Unpaid amounts are included
     in receivables from affiliates at December 31, 1997, 1996 and
     1995.
                              F-10
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     The Company has received consulting services and paid a
     member of its Board of Directors, both directly and through
     an affiliate of the Company, fees of $125,000 in 1997. The
     Company also has received consulting services and paid a
     former member of its Board of Directors fees of $34,000 in
     1996 and 1995 and also received consulting services and paid
     fees to another former member of the Board of Directors of
     $20,000 in 1995.

     On March 30, 1995, the Company entered into a revolving
     credit facility with its principal stockholders and certain
     members of its Board of Directors and their affiliates. On
     July 24, 1995, in connection with the sale of preferred stock
     (see Note 4), $3 million in debt borrowed under such
     revolving credit facility was surrendered, and the unused
     portion of the facility in the amount of $2 million was
     terminated. Interest expense in 1995 on amounts borrowed
     under the line of credit totaled $52,000, at an average rate
     of prime plus 1%. Additionally, a facility fee of $100,000
     was paid to the lenders pursuant to the terms of the credit
     facility.

Note 4 -Preferred Stock:

     On July 24, 1995, the Company completed a private sale of
     85,000 shares of its newly-created Series A Cumulative,
     Convertible Preferred Stock, $1.00 par value ("Series A
     Preferred Stock"), for an aggregate purchase price of $8.5
     million. The purchase price was delivered by surrender of $3
     million of the Company's debt held by the subscribers, which
     consisted of certain members of the Company's Board of
     Directors and their affiliates, and cash in the amount of
     $5.5 million. Subsequently in 1995, an affiliate of the
     Company's Chairman of the Board, and one of the subscribers,
     acquired 35,000 additional shares of Series A Preferred Stock
     at a purchase price per share of $100.

     On July 11, 1996 in connection with the Company's offshore
     public offering (see Note 5) and contemporaneous private
     placement, holders of the Company's Series A Preferred Stock
     converted their shares, in accordance with their terms, into
     an aggregate of 3,138,900 shares of Common Stock, $.01 par
     value ("Common Stock"). In connection with the conversion,
     payments aggregating $235,000 were made to the Series A
     Preferred Stock holders.

     Each share of Series A Preferred Stock entitled the holder to
     a dividend of $7.50 per annum, payable quarterly, which would
     cumulate if not paid. Dividends were payable by the Company,
     at its election, either in cash or in the form of additional
     shares of Series A Preferred Stock valued at $100 per share.
     Dividends paid to holders of record of such stock in 1996 and
     1995 were paid in the form of additional shares of Series A
     Preferred Stock (aggregating 5,556 shares).

                              F-11 
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     Each share of Series A Preferred Stock, valued at $100, was
     convertible into shares of the Company's Common Stock at a
     conversion price of $4.00 (subject to certain adjustments),
     and was subject to redemption, at the option of the Company,
     at a price of $100 under certain conditions. Holders of
     Series A Preferred Stock voted together with holders of
     Common Stock, each share carrying one vote, and were entitled
     to a liquidation preference of $100 per share.

Note 5 -Common Stock Offering:

     On July 11, 1996, the Company completed the offshore public
     offering of an aggregate of 4,963,500 shares of its Common
     Stock, in accordance with Regulation S under the Securities
     Act of 1933, and the contemporaneous private placement to
     subscribers, including certain members of the Company's Board
     of Directors and their affiliates, of an aggregate of 911,657
     shares of Common Stock. Net proceeds from these transactions
     were approximately $12 million (exclusive of non-cash
     expenses represented by the issuance of 218,957 shares of
     Common Stock as commissions).

     On January 13, 1997, the Company's stockholders voted to
     approve an increase in the number of authorized shares of
     Common Stock from 25,000,000 to 35,000,000 shares.

Note 6 -Long-Term Debt and Common Stock Purchase Warrants:

     On August 12, 1994, the Company completed a financing
     arrangement with the Connecticut Development Authority
     ("CDA"), under which the CDA loaned $2 million to the Company
     at closing and agreed to loan the Company up to an additional
     $3 million through August 12, 1997. At December 31, 1995,
     $3.35 million was outstanding under such facility, with the
     remainder of the $5 million credit limit advanced in February
     1996. Such indebtedness is repayable five years after
     closing, accrues interest, payable monthly, at a rate of 7.4%
     per annum, is subject to prepayment without premium at the
     option of the Company, and is convertible into shares of the
     Common Stock of the Company. Such indebtedness is secured by
     the Company's assets. The Company also issued to the CDA
     warrants to purchase 600,000 shares of Common Stock. At
     issuance, the initial conversion price of the debt and
     exercise price of the warrants was $13.00 per share which was
     in excess of the then market price of the Company's Common
     Stock of $7.00. Due to the excess, nominal value was assigned
     to the warrants.

     During 1995, the Company also entered into agreements with
     the CDA, which became effective upon consummation of the
     initial sale of the Company's Series A Preferred Stock (see
     Note 4), whereby the conversion price of the debt held by the
     CDA and the exercise price of its warrants were reduced so as
     to be calculated as $3.00 plus the average market price of
     Common Stock during the twelve months prior to conversion.
                              F-12
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     Pursuant to such agreements, and as a result of additional
     provisions contained in the CDA's warrants, effective upon
     consummation of the sale of the Preferred Stock, and issuance
     of the initial dividend thereon: (i) the exercise price of
     the CDA's warrants was reduced so as to be calculated as
     $2.58 plus the average market price of the Common Stock
     during the twelve months prior to exercise, and (ii) the
     number of shares subject to purchase upon exercise of the
     CDA's warrants was adjusted to 699,724.

     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 13-1/4% Senior Discount Notes due February 1,
     2004 (the "Notes") together with 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-
     1/4%. 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
     Private Placement approximated $95 million.

     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.

     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 interest 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.

     Long-term debt as of December 31, 1997 and 1996 was comprised
     of the following:


                              F-13
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                                          1997       1996
                                          ----       ----
     <S>                                  <C>        <C>
     7.4% CDA Note due August 12, 1999    $  4,993   $4,989
     13.25% Senior Discount Notes
       due February 1, 2004 (in-
       cluding interest accrued
       of $12,798)                         108,109     --
                                          --------   ------
     Total long-term debt                 $113,102   $4,989
                                          ========   ======
</TABLE>

     The Company 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
     a price of $5.24 per share, Patricof & Co. may receive fees
     that become due if certain transactions are consummated. The
     estimated fair value of warrants issued to Patricof & Co.
     approximated $510,000, and has been recorded as an increase
     to Additional Paid-in Capital.

Note 7 -Customer Information:

     All of the Company's sales are to customers in the retail
     food market industry. Significant customer sales for the
     years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
     Customer                                1997  1996   1995
     --------                                ----  ----   ----
     <S>                                     <C>   <C>    <C>
     The Stop & Shop Supermarket Company      41%   46%    --
     Big Y Foods, Inc.                        --    20%    --
     Shaw's Supermarkets, Inc.                22%   13%    26%
     H.E. Butt Grocery Co.                    11%   --     30%
     The Vons Companies, Inc.                 --    --     27%
</TABLE>

     Accounts receivable at December 31, 1997 and 1996 are
     unsecured and concentrated among major supermarket chains in
     the United States. If the customers within this concentration
     failed to pay according to the terms of their agreements
     these receivables would be reduced to nominal value.

Note 8 -Commitments:

     The Company leases its facilities under operating lease
     agreements. During 1997, 1996 and 1995 rental expense
     amounted to approximately $424,000, $278,000 and $295,000,
     respectively.

                              F-14
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     Future minimum lease payments on a calendar year basis under
     non-cancelable leases, as of December 31, 1997 are, as
     follows:

                                     Total
                                   Commitments
                                   -----------

          1998                     $  777,000
          1999                        751,000
          2000                        788,000
          2001                        816,000
          2002                        777,000
          2003 and thereafter       2,988,000
                                   ----------
                                   $6,897,000
                                   ==========

Note 9 -Research and Development:

     Research and development activities were a major component of
     the Company's expenditures and efforts during 1997, 1996 and
     1995. The Company's research and development expenses
     (including the allocation of applicable salaries) during
     1997, 1996 and 1995 were $2,425,000, $1,117,000 and
     $2,491,000, respectively.

     During 1995 the Company had research and development
     contracts with unaffiliated parties for both hardware and
     software elements of its electronic shelf labeling system.
     The Company reimbursed these contractors generally based on
     milestone achievements or satisfactory performance.

Note 10 - Stock Option and Defined Contribution Plan:

     The Company has an employee stock option plan whereby options
     to purchase shares of Common Stock may be granted to key
     employees of the Company. In June 1994 and December 1996, the
     stockholders approved an increase in the number of authorized
     shares of Common Stock available for issuance under the plan
     from 850,005 to 1,225,000 and from 1,225,000 to 1,775,000,
     respectively. In December 1997, the Company's Board of
     Directors, subject to stockholders' approval, authorized an
     increase in the number of authorized shares of Common Stock
     available for issuance under the plan to 3,500,000 shares.
     Options granted under the plan typically become exercisable
     over a period of four years.

     A summary of all option activity pursuant to the employee
     stock option plan is as follows:

                              F-15
<PAGE>
<PAGE>
<TABLE> Electronic Retailing Systems International, Inc.
          Notes to Consolidated Financial Statements

<CAPTION>
                                             Price Range    Options

                                             -----------    -------
     <S>                                     <C>            <C>
     Options outstanding December 31, 1994   $.01 - $8.50   730,370
                                                           --------
        Options granted                      $.01 - $5.63   480,205
        Options exercised                    $.01          (27,766)
        Options canceled                     $.01 - $8.50 (265,080)
                                                           --------
     Options outstanding December 31, 1995   $.01 - $6.00   917,729
                                                           --------
        Options granted                      $1.88 -$2.25   380,784
        Options exercised                    $ .01          (65,860)
        Options canceled                     $2.25 -$6.00  (354,161)
                                                           --------
     Options outstanding December 31, 1996   $ .01 -$5.875  878,492
                                                           --------
        Options granted                      $4.88 -$6.19 1,117,117
        Options exercised                    $.01  -$5.00  (139,929)
        Options canceled                     $.01  -$6.13  (120,552)
                                                          ---------
     Options outstanding December 31, 1997   $.01 - $6.19 1,735,128
                                                          =========
</TABLE>
     The following table summarizes information about employee stock
     options outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
                           Weighted   Weighted             Weighted
Range of                   Average    Average              Average
Exercise      Number       Remaining  Exercise  Number     Exercise
 Prices       Outstanding  Life       Price     Exercisable  Price
--------      -----------  ---------  --------  ----------- ---------
<S>           <C>          <C>        <C>       <C>          <C>
$ .01           292,593    4 years    $ .01      94,773      $ .01
$2.25-$3.63     244,838    9          $2.27      71,760      $2.27
$4.88-$6.19   1,197,697    9          $5.53     104,917      $5.21
              ---------                         -------
              1,735,128                         271,450
              =========                         =======
</TABLE>
     Additionally, the Company has a director stock option plan
     under which options covering shares of Common Stock may be
     granted to directors of the Company. During 1997, 50,000
     options were granted to directors of the Company to purchase
     an equal number of common shares pursuant to this plan at an
     option price of $5.69. In January 1997, the stockholders
     approved an increase in the number of authorized shares of
     Common Stock available under the plan from 50,000 to 150,000.
     In December 1997, the Company's Board of Directors, subject to
     stockholder approval, authorized an increase in the number of
     authorized shares of Common Stock available under the plan to
     750,000. As of December 31, 1997 options covering an aggregate
     of 172,500 shares of Common Stock were outstanding under the

                              F-16
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     plan (of which options covering 50,000 shares remain subject
     to stockholder approval of the plan expansion).

     The Company applies APB Opinion 25 and related interpretations
     in accounting for its employee and director stock option
     plans. The consolidated statement of operations for the years
     ended December 31, 1996 and 1995 includes noncash stock option
     compensation expense of $44,000, and $27,000, respectively,
     representing compensation earned for employee service through
     the periods then ended related to option grants. Had
     compensation expense for the Company's employee stock option
     plan been determined based on the fair value at the grant
     dates of awards under the plan, consistent with FAS 123, the
     Company's net loss and basic loss per common share would have
     been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                            1997           1996          1995
                            ----           ----          ----
<S>                         <C>            <C>           <C>
Net loss:
     As reported            ($26,873,000)  ($9,412,000) ($10,868,000)
     Pro forma              ($28,052,000)  ($9,412,000) ($11,221,000)

Basic loss per common share:
     As reported            ($1.27)        ($0.60)       ($0.95)
     Pro forma              ($1.33)        ($0.60)       ($0.98)
</TABLE>

     The fair value of each stock option grant was estimated on the
     date of grant using the Black-Scholes option-pricing model
     with the following weighted-average assumptions used in 1997,
     1996 and 1995:
<TABLE>
<CAPTION>
                                   1997      1996      1995
                                   ----      ----      ----
     <S>                           <C>       <C>       <C>
     Dividend yield                  0%       0%        0%
     Expected volatility           114%      53%       53%
     Risk-free interest rate         6%       7%        7%
     Expected life                 6 years   5 years   5 years
</TABLE>

     The weighted average fair value of stock options granted
     during the years ended December 31, 1997, 1996 and 1995 was
     $4.82, $1.31 and $2.98, respectively.

     The Company has a defined contribution profit sharing and
     savings plan which qualifies under Section 401(k) of the
     Internal Revenue Code for employees meeting certain service
     requirements. Participants may contribute up to 30% of their
     gross wages, not to exceed in any given year a limitation set
     by Internal Revenue Service regulations (such limitation was
     $9,500 in 1997). The plan provides for discretionary matching
                              F-17
<PAGE>  Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     contributions, as determined by the Board of Directors, to be
     made by the Company. There have been no discretionary amounts
     contributed to the plan as of December 31, 1997.

Note 11 -Income Taxes:

     The Company has incurred net losses since inception which have
     generated net operating loss carryforwards of $70.0 million
     for federal income tax purposes. These carryforwards are
     available to offset future taxable income and begin to expire
     in the year 2008. These losses are subject to limitation on
     future years utilization should certain ownership changes
     occur.

     The net operating loss carryforwards and temporary differences
     between the carrying amounts of assets and liabilities for
     financial reporting and income tax purposes result in a
     noncurrent deferred tax benefit at December 31, 1997 and 1996
     of $32.5 million and $21.1 million, respectively. In
     consideration of the Company's accumulated losses and the
     uncertainty of its ability to utilize this deferred tax
     benefit in the future, the Company has recorded a valuation
     allowance of an equal amount on such dates to fully offset the
     deferred tax benefit amount.

     Significant components of the noncurrent deferred tax asset at
     December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                   1997                1996
                                   ----                ----
<S>                                <C>                 <C>
Net operating loss carryforwards   $29,127,000         $18,256,000
Stock option compensation            2,642,000           2,566,000
Other                                  762,000             293,000
                                   ----------          -----------
Total deferred tax benefit          32,531,000          21,115,000
Valuation allowance                (32,531,000)        (21,115,000)
                                   ----------          -----------
Net noncurrent deferred tax asset  $   --             $     --
                                   ==========         ============
</TABLE>

     In 1997, 1996 and 1995 a statutory Federal income tax rate of
     34% and a state income tax rate of 7.6%, net of the Federal
     tax benefit, were applicable to the Company. Due to the
     Company's taxable losses the effective tax rate was nil in
     each year.

     The income tax provision calculated for financial reporting
     purposes differs from income taxes determined by applying the
     statutory Federal income tax rate to the financial statement
     net loss for the years ended December 31, 1997, 1996 and 1995
     as a result of the following:

                              F-18
<PAGE>
<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                                   1997       1996        1995
                                   ----       ----        ----
<S>                                <C>        <C>         <C>
  Tax benefit at Federal statutory rate$ 9,083,000$3,200,000$3,695,000
  State income tax benefit, net of
    Federal tax charge               2,031,000   714,000     825,000
  Net loss not providing current
    year tax benefit               (11,063,000)(3,608,000)(4,428,000)
  Other                              (  51,000)  (306,000)   (92,000)
                                   ---------------------  ----------
     Provision for income taxes    $    -     $    -      $     -
                                   =====================  ==========
</TABLE>

Note 12 -ERS / Telepanel Combination:

     On October 29, 1997, the Company and Telepanel Systems Inc.,
     a company incorporated under the Canada Business Corporations
     Act ("Telepanel"), executed an agreement providing for the
     combination of the Company and Telepanel. The combination
     agreement provides for Telepanel to be recapitalized and each
     Telepanel Common Share to be exchanged for .5566 of an
     Exchangeable Share of Telepanel, each share of which would
     entitle the holder (i) to dividend and other rights
     economically equivalent to those of one share of the Company's
     Common Stock, (ii) through a voting trust, to vote at meetings
     of stockholders of the Company, and (iii) at the option of the
     holder, to exchange such share for one share of the Company's
     Common Stock. As a result of the transaction, ERS would have
     become the sole beneficial owner of the outstanding Telepanel
     Common Shares.

     Under the terms of the combination agreement, the obligations
     of the Company and Telepanel to consummate the transaction are
     subject to the satisfaction or waiver, where permissible, of
     certain conditions set forth in the combination agreement,
     including the receipt of certain accountants' letters relating
     to the transaction's qualification for pooling-of-interests
     accounting treatment, obtaining approval of the stockholders
     of the Company and of Telepanel, the approval (without
     material condition or costs) of the plan of arrangement
     contemplated by the Combination Agreement by the Court, and
     the receipt of certain consents from the holders of debt of
     ERS and Telepanel.

     In February 1998, as an interim arrangement pursuant to the
     combination agreement, the Company and Telepanel entered into
     a joint distribution agreement providing for creation of a
     joint venture (the "Joint Venture") that would hold specified
     distribution rights until consummation of the combination or
     termination of the combination agreement, or until specified

                              F-19

<PAGE>
        Electronic Retailing Systems International, Inc.
           Notes to Consolidated Financial Statements

     defaults under the joint distribution agreement. The Company
     has advanced the amount of $2,000,000 to the Joint Venture, on
     a revolving basis (the "Facility"), which accrues interest,
     payable monthly, at the prime rate plus 2.5% per annum, is
     guaranteed by Telepanel and its subsidiaries and is secured by
     all of the assets of Telepanel and its subsidiaries (such
     collateral subordinated in right to specified bank
     indebtedness but prior in right to any other interest). All
     amounts advanced by the Company to the Joint Venture, if not
     earlier repaid from specified receivables of Telepanel and its
     subsidiaries, are due within 180 days of termination of the
     combination agreement (or earlier, in the event of specified
     defaults).

Note 13 -Subsequent Events

     On March 17, 1998, the Company announced that the condition to
     closing contained in the combination agreement requiring
     confirmation that the transaction would qualify for pooling-
     of-interests accounting treatment failed to be satisfied, and
     that the Company's Board of Directors has determined that it
     does not intend to waive the condition to combine regarding
     qualification for pooling-of-interests accounting treatment.
     In addition, on March 20, 1997, the Company delivered notice
     to the Joint Venture and Telepanel accelerating all
     outstanding amounts under the Facility, as a result of the
     failure of the Joint Venture to make payment of interest when
     due and notwithstanding attempts by Telepanel on March 26,
     1998 to make payment of interest after the due date therefor.
     The Company and Telepanel are engaged in discussions regarding
     a mutually acceptable termination of the combination
     agreement.

     The Company has delivered notice to the Joint Venture and
     Telepanel accelerating all outstanding amounts under the
     Facility, as a result of the failure of the Joint Venture to
     make payment of interest when due and notwithstanding attempts
     to make payment of interest after the due date therefor.







                                 F-20
<PAGE>
<PAGE>
                           INDEX TO EXHIBITS

Exhibit

Number                   Document Description

-------                  --------------------

3.1       -    Certificate of Incorporation of the
                Company (Incorporated by reference
                to Exhibit 3.1 of the Registration
                Statement on Form S-4 No. 333-21893).

3.2       -    By-laws of the Company.

10.1      -    Form of Reorganization Agreement
                dated March 12, 1993 among the
                Company, the Principal Subsidiary,
                Norton Garfinkle, The G/N
                Garfinkle Trust, Bruce F.
                Failing, Jr., The Failing Trust,
                Elizabeth Z. Failing, Robert D.
                Power and John Stevens (Incorporated
                by reference to Exhibit 10.1 to
                the Registration Statement on
                Form S-1 No. 33-59486).

10.2      -    Form of Registration Rights Agreement
                dated March 12, 1993 among the Company,
                Norton Garfinkle, The G/N Garfinkle
                Trust, Bruce F. Failing, Jr., The
                Failing Trust, Elizabeth Z. Failing,
                Robert D. Power and John Stevens
                (Incorporated by reference to Exhibit
                10.2 to the Registration Statement on
                Form S-1 No. 33-59486).

10.3      -    Form of Restated Stockholders' Agree-
                ment dated March 12, 1993 among
                Norton Garfinkle, The G/N Garfinkle
                Trust, Bruce F. Failing, Jr., The
                Failing Trust and Elizabeth Z. Failing
                (Incorporated by reference to Exhibit
                10.3 to the Registration Statement on
                Form S-1 No. 33-59486).

10.4      -    Amendment No. 1 to Restated Stockholders
                Agreement dated October 29, 1997.

10.5      -    Form of Reorganization Agreement
                dated March 12, 1993 among the
                Company, the Partnership, the
                the Principal Subsidiary, and the
                limited partners of the Partnership
                (Incorporated by reference to
                Exhibit 10.4 to the Registration
                Statement on Form S-1 No. 33-59486).


                                  E-1
<PAGE>
<PAGE>
                           INDEX TO EXHIBITS
Exhibit

Number                   Document Description

-------                  --------------------

10.6      -    Form of Registration Rights Agreement
                dated March 12, 1993 among the
                Company and the limited partners of
                the Partnership (Incorporated by
                reference to Exhibit 10.5 to
                the Registration Statement on
                Form S-1 No. 33-59486).

10.7      -    Registration Rights Agreement dated as
                of July 24, 1995 among the Company,
                Donald E. Zilkha, Bruce F. Failing,
                Jr., Hanseatic Corporation and Garfinkle
                Limited Partnership II (Incorporated by
                reference to Exhibit 5(d) of the Current
                Report on Form 8-K dated July 24, 1995).

10.8      -    Technical Services Agreement dated
                October 1, 1985 between Telepanel, Inc.
                and Amacrine International, Inc.
                (Incorporated by reference to Exhibit
                10.10 to the Registration Statement on
                Form S-1 No. 33-59486).

10.9      -    License Agreement dated January 27,
                1993 between the Company and Telepanel
                Systems Inc. (Incorporated by reference
                to Exhibit 10.11 to the Registration
                Statement on Form S-1 No. 33-59486).

10.10     -    Note and Warrant Purchase Agreement
                dated as of August 12, 1994 among
                the Company, the Principal Subsidiary,
                and the Connecticut Development
                Authority (Incorporated by reference
                to Exhibit 10(a) to the Quarterly
                Report on Form 10-Q for the period
                ended June 30, 1994), together with
                7.4% Convertible Note dated August
                12, 1994 executed by the Company
                and the Principal Subsidiary
                to the Connecticut Development
                Authority (Incorporated by reference
                to Exhibit 10(b) to the Quarterly
                Report on Form 10-Q for the period
                ended June 30, 1994), and Stock
                Subscription Warrant dated
                August 12, 1994 issued by the
                Company to the Connecticut
                Development Authority (Incorporated
                by reference to Exhibit 10(c) to
                the Quarterly Report on Form 10-Q
                for the period ended June 30, 1994),
                and Conditional Assignment and Security
                                  E-2
<PAGE>
<PAGE>
                           INDEX TO EXHIBITS

Exhibit

Number                   Document Description

-------                  --------------------

                Agreement dated August 12, 1994 among
                the Company, the Principal Subsidiary
                and the Connecticut Development Authority
                (Incorporated by reference to Exhibit
                10(d) to the Quarterly Report on Form
                10-Q for the period ended June 30, 1994).

10.11     -    Placing Agreement dated July 5, 1996
                between the Company and Henderson
                Crosthwaite Institutional Brokers
                Limited (Incorporated by reference
                to Exhibit 5(c) to the Company's
                Current Report on Form 8-K dated
                July 11, 1996), together with
                Agreement with respect to U.S. Sec-
                urities Laws dated July 2, 1996
                between the Company and Henderson
                Crosthwaite Institutional Brokers
                Limited (Incorporated by reference
                to Exhibit 5(d) to the Company's
                Current Report on Form 8-K dated
                July 11, 1996).

10.12     -    Forms of Subscription Agreement accep-
                ted July 5, 1996 by the Company (Incor-
                porated by reference to Exhibit 5(f)
                to the Company's Current Report on
                Form 8-K dated July 11, 1996, together
                with Registration Rights Agreement dated
                July 11, 1996 between the Company and
                the subscribers parties thereto (Inc-
                orporated by reference to Exhibit 5(g)
                to the Company's Current Report on
                Form 8-K dated July 11, 1996).

10.13     -    Purchase Agreement dated as of January
                20, 1997 between the Company and
                Credit Suisse First Boston Corporation
                and UBS Securities LLC (Incorporated by
                reference to Exhibit 1.1 to the  Regis-
                tration Statement on Form S-4 No.
                333-21893).

10.14     -    Warrant Agreement dated as of January
                24, 1997 between the Company and
                American Stock Transfer & Trust Company
                (Incorporated by reference to Exhibit
                10.20 to the  Registration
                Statement on Form S-4 No. 333-21893).


                                  E-3
<PAGE>
<PAGE>
                           INDEX TO EXHIBITS
Exhibit

Number                   Document Description

-------                  --------------------

10.15     -    Indenture dated as of January 24,
                1997 between the Company and United
                States Trust Company of New York (Inc-
                orporated by reference to Exhibit 4.1
                to the Registration Statement on
                Form S-4 No. 333-21893).

10.16     -    Registration Rights Agreement dated
                January 20, 1997 between the Company
                and Credit Suisse First Boston Corp-
                oration and UBS Securities LLC (Inc-
                orporated by reference to Exhibit
                4.3 to the Registration Statement
                on Form S-4 No. 333-21893).

10.17     -    Lease Agreement dated May 30, 1997
                between 488 Main Avenue Associates,
                LLC and the Company, together with
                Amendment No. 1 thereto.

10.18     -    Lease Agreement dated October 1, 1997
                between Kurian Limited Partnership and
                the Company.

10.19     -    Combination Agreement dated October 29,
                1997 between the Company and Telepanel
                Systems Inc. (Incorporated by reference
                to Exhibit 5(a) of the Current Report
                on Form 8-K dated October 29, 1997).

10.20     -    Joint Distribution Agreement dated
                February 3, 1998 between the Company
                and Telepanel Systems Inc.

10.21     -    Form of the Company's 1993 Employee
                Stock Option Plan.

10.22     -    Form of the Company's 1993 Director
                Stock Option Plan.

11.1      -    Statement of Computation of Per Share
                Earnings.

12.1      -    Statement of Computation of Ratio of
                Earnings to Fixed Charges.

21        -    Subsidiaries of the Company.

23.1      -    Consent of Price Waterhouse LLP.

24        -    Power of Attorney (See "Power of Attorney"
                in this Annual Report on Form 10-K).

27        -    Financial Data Schedule.