<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21287
PEERLESS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3732595
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2381 Rosecrans Avenue, El Segundo, CA 90245
(Address of principal executive offices, including zip code)
(310) 536-0908
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
The number of shares of Common Stock outstanding as of July 31, 1997 was
10,592,663.
<PAGE>
PEERLESS SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - Financial Information
Item 1. Financial Statements
Balance Sheets
July 31, 1997 and January 31, 1997............................. 3
Statements of Operations
Three Months Ended July 31, 1997 and 1996, and
Six Months Ended July 31, 1997 and 1996........................ 4
Statements of Cash Flows
Six Months Ended July 31, 1997 and 1996........................ 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
PART II - Other Information
Item 1. Legal Proceedings.............................................. 14
Item 2. Changes in Securities.......................................... 14
Item 3. Defaults Upon Senior Securities................................ 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 5. Other Information.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures..................................................................... 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
PEERLESS SYSTEMS CORPORATION
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 8,963 $ 24,162
Short term investments 11,801 2,000
Trade accounts receivable, net 3,547 3,314
Unbilled receivables 1,133 363
Deferred tax asset 1,692 1,692
Prepaid expenses and other current assets 601 253
-------- --------
Total current assets 27,737 31,784
Investments 8,008 --
Property and equipment, net 1,788 1,665
Other assets 409 453
Deferred tax asset 1,207 1,207
-------- --------
Total assets $ 39,149 $ 35,109
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 467 $ 568
Accrued wages 637 711
Accrued compensated absences 505 345
Other current liabilities 480 337
Income taxes payable 1,043 100
Deferred rent, current portion 76 76
Deferred revenue, current portion 5,100 4,591
-------- --------
Total current liabilities 8,308 6,728
Deferred rent 400 217
Deferred revenue 100 100
-------- --------
Total liabilities 8,808 7,045
-------- --------
Stockholders' equity:
Common stock 10 10
Additional paid-in capital 37,601 37,225
Deferred compensation (286) (346)
Accumulated deficit (6,984) (8,825)
-------- --------
Total stockholders' equity 30,341 28,064
-------- --------
Total liabilities and stockholders' equity $ 39,149 $ 35,109
======== ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- -------------------------------------
July 31, 1997 July 31, 1996 July 31, 1997 July 31, 1996
$ % $ % $ % $ %
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product licensing $3,758 63.1% $1,425 37.9% $ 7,273 65.6% $2,438 34.4%
Engineering services and
maintenance 2,201 36.9 2,332 62.1 3,814 34.4 4,650 65.6
------ ----- ------ ----- ------- ----- ------ -----
Total revenues 5,959 100.0 3,757 100.0 11,087 100.0 7,088 100.0
------ ----- ------ ----- ------- ----- ------ -----
Cost of revenues:
Product licensing 35 0.6 32 0.9 70 0.6 65 0.9
Engineering services and
maintenance 1,932 32.4 1,681 44.7 3,392 30.6 3,296 46.5
------ ----- ------ ----- ------- ----- ------ -----
Total cost of revenues 1,967 33.0 1,713 45.6 3,462 31.2 3,361 47.4
------ ----- ------ ----- ------- ----- ------ -----
Gross margin 3,992 67.0 2,044 54.4 7,625 68.8 3,727 52.6
------ ----- ------ ----- ------- ----- ------ -----
Operating expenses:
Research and development 1,042 17.5 616 16.4 2,112 19.1 1,038 14.7
Sales and marketing 892 15.0 567 15.1 1,777 16.0 1,164 16.4
General and administrative 703 11.8 586 15.6 1,419 12.8 1,086 15.3
------ ----- ------ ----- ------- ----- ------ -----
Total operating expenses 2,637 44.3 1,769 47.1 5,308 47.9 3,288 46.4
------ ----- ------ ----- ------- ----- ------ -----
Income from operations 1,355 22.7 275 7.3 2,317 20.9 439 6.2
Interest (income) expense, net (332) (5.6) 96 2.5 (653) (5.9) 167 2.4
------ ----- ------ ----- ------- ----- ------ -----
Income before income taxes 1,687 28.3 179 4.8 2,970 26.8 272 3.8
Provision for income taxes 641 10.7 32 0.9 1,129 10.2 50 0.7
------ ----- ------ ----- ------- ----- ------ -----
Net income $1,046 17.6% $ 147 3.9% $ 1,841 16.6% $ 222 3.1%
====== ===== ====== ===== ======= ===== ====== =====
Net income per share $ 0.09 $ 0.03 $ 0.16 $ 0.05
====== ====== ======= ======
Weighted average number
of common and common
equivalent shares outstanding 11,674 6,600 11,682 5,990
====== ====== ======= ======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 31, 1997 July 31, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 1,841 $ 222
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 317 205
Amortization of deferred compensation 60 27
Changes in operating assets and liabilities:
Trade accounts receivable (233) 5
Unbilled receivables (770) (139)
Prepaid expenses and other current assets (348) (81)
Other assets (27) (27)
Accounts payable (101) 224
Accrued expenses (74) (66)
Accrued compensated absences 160 80
Other current liabilities 143 (87)
Income taxes payable 943 --
Deferred rent 183 (39)
Deferred revenue 509 (1,226)
-------- --------
Net cash provided by (used in) operating activities 2,603 (902)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (440) (50)
Purchases of held-to-maturity securities (18,738) --
Sales of held-to-maturity securities 1,000 --
-------- --------
Net cash used for investing activities (18,178) (50)
-------- --------
Cash flows from financing activities:
Net borrowings on line of credit 500
Payments on obligations under capital leases (121)
Proceeds from exercise of common stock options 179 45
Net proceeds from issuance of common stock 197
-------- --------
Net cash provided by financing activities 376 424
-------- --------
Net decrease in cash and cash equivalents (15,199) (528)
Cash and cash equivalents at beginning of period 24,162 722
-------- --------
Cash and equivalents at end of period $ 8,963 $ 194
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 59 $ 63
======== ========
Interest $ -- $ 174
======== ========
Supplemental schedule of noncash investing and
financing activities:
Increase in redemption value of
Series A and Series B Preferred Stock $ -- $ 6
======== ========
Deferred compensation related to grant of stock
options $ -- $ 452
======== ========
Software and equipment acquired under capital lease
obligations $ -- $ 360
======== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited financial statements of Peerless Systems
Corporation (the "Company") have been prepared pursuant to the rules of the
Securities and Exchange Commission (the "SEC") for quarterly reports on Form 10-
Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements and notes
herein are unaudited, but in the opinion of management, include all the
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows of
the Company. These statements should be read in conjunction with the audited
financial statements and notes thereto for the years ended December 31, 1994,
and 1995, and the year ended January 31, 1997, included in the Company's annual
report filed on Form 10-K with the SEC on April 28, 1997. The results of
operations for the interim periods shown herein are not necessarily indicative
of the results to be expected for any future interim period or for the entire
year.
2. Significant Accounting Policies:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. SFAS 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997. Earlier application is not
permitted. Management has not yet assessed the impact that the adoption of SFAS
128 will have on the Company's earnings per share calculation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
An enterprise that has no items of other comprehensive income in any period
presented is not required to report comprehensive income. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. Management does not believe
that the adoption of SFAS 130 will have a material impact on the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for fiscal
6
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
years beginning after December 15, 1997. Management plans to adopt this
accounting standard in fiscal 1999. Management has not yet assessed the impact
that the adoption of SFAS 131 will have on the Company's financial statements.
3. Net Income Per Common Share:
Primary net income per share has been computed by dividing the net income
applicable to common stock by the weighted average numbers of common and
dilutive common equivalent shares outstanding during the period. Common stock
equivalents consist of stock options using the treasury stock method.
Primary and fully diluted net income per share do not differ for the
periods presented.
4. Investments:
The Company's investments at July 31, 1997 consisted of $17,809 of
securities classified as held-to-maturity and $2,000 of securities classified as
available-for-sale. Investments at January 31, 1997 consisted entirely of
securities classified as available-for-sale.
Held-to-maturity securities are carried at amortized cost and consisted
primarily of corporate and government debt securities with remaining contractual
maturities ranging from one month to twenty eight months at July 31, 1997.
Amortization of the purchase discounts and premiums is included in interest
income. The fair value of the held-to-maturity securities at July 31, 1997
approximated the amortized cost.
Available-for-sale securities are carried at fair value and consisted of
debt securities with contractual maturities in excess of 10 years at both July
31, 1997 and January 31, 1997. Unrealized gains and losses, if material, are
reported as a separate component of stockholders'equity. Realized gains and
losses and declines in value judged to be other than temporary are included in
interest income. There were no unrealized gains or losses on available-for-sale
securities for the six months ended July 31, 1997 and 1996.
5. Stockholders' Equity:
On September 30, 1996, the Company converted all of the outstanding shares
of Class A Convertible Redeemable Preferred Stock, Class B Convertible
Redeemable Preferred Stock, Convertible Notes Payable and Warrants into new
shares of Common Stock simultaneously with the closing of the Company's initial
public offering.
7
<PAGE>
PEERLESS SYSTEMS CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, this quarterly
Report on Form10-Q may contain forward-looking statements. Investors are
cautioned that forward-looking statements are inherently uncertain. Actual
performance and results of operations may differ materially from those projected
or suggested in the forward-looking statements due to certain risks and
uncertainties. Information concerning certain risks and uncertainties is
contained in the Company's annual report filed on Form 10-K, with the SEC on
April 28, 1997, in the section entitled "Risk Factors," and in "Certain Business
Risks" below. The forward-looking statements contained herein represent the
Company's judgment as of the date of this release, and the Company cautions
readers not to place undue reliance on such statements.
OVERVIEW
The Company, founded in April 1982, provides software-based embedded
imaging systems to original equipment manufacturers ("OEMs") of digital document
products located primarily in the United States and Japan. The Peerless family
of products and engineering services provides advanced embedded imaging
technologies that enable the Company's OEM customers to develop digital
printers, copiers and multifunction products ("MFPs") quickly and cost
effectively. The Company's revenues are comprised of both recurring and one-time
product licensing fees as well as engineering services and maintenance fees
related to the Company's embedded imaging software and supporting electronics
technologies.
The Company changed its fiscal year-end from December 31 to January 31,
commencing February 1, 1996, in order to better align the timing of the
Company's financial reporting with the timing of receipt of royalty information
by the Company from its OEMs.
In July 1997, the Company established Peerless Systems Corporation,
Ltd. in Japan in order to facilitate relationships with Japanese customers.
The Company's customers currently include, among others, Adobe and OEM
customers, Canon and IBM. A significant portion of the Company's revenues in
recent years has been concentrated with a limited number of OEM customers, and
the Company anticipates that its revenues in the future may be similarly
concentrated.
The Company's product licensing revenues are comprised of both
recurring licensing revenues and one-time licensing fees for source code.
Recurring licensing revenues are derived from per unit fees paid quarterly by
the Company's OEMs upon shipment or manufacture of products incorporating the
Company's technology. Recurring licensing revenues are derived to a lesser
extent from arrangements in which the Company enables its products to be used
with third-party technology such as certain arrangements with Adobe. The
Company's one-time licensing fees for source code are paid by OEMs for access to
the Company's software, which in turn generates recurring licensing revenues if
the software is incorporated into OEM products that are subsequently developed
and shipped.
8
<PAGE>
The Company's engineering services revenues are derived primarily from
adapting the Company's software and supporting electronics to specific OEM
requirements. The Company provides its engineering services to OEMs seeking an
embedded imaging solution for their digital document products. The Company's
maintenance revenues are derived from software maintenance agreements.
Maintenance revenues constitute a very small portion of engineering services and
maintenance revenues.
The Company recognizes its recurring product licensing revenues on a
royalty basis generally when the Company's OEM customers ship products that
incorporate the Company's technology. In certain cases, the non-refundable
portion of guaranteed royalties is reported as royalty revenues upon receipt by
the Company. Generally, the Company recognizes its one-time licensing revenues
for software licenses upon shipment to the Company's OEMs. The Company
recognizes engineering services revenues over the course of the development work
on a percentage-of-completion basis. Maintenance revenues are recognized ratably
over the term of the maintenance contract, which generally is twelve months.
Licensing revenues are recognized in accordance with Statement of Position 91-1
"Software Revenue Recognition."
RESULTS OF OPERATIONS
Three Months Ended July 31, 1997 and 1996
Revenues for the quarter ended July 31, 1997, increased 58.6% to $6.0
million from the $3.8 million for the three months ended July 31, 1996. The
increase in revenue was primarily due to the 163.7% increase in product
licensing fee revenues for the three months ended July 31, 1997 over the
comparable quarter in the prior year. Increases in product license fees were
generated by the increase in the shipments and number of products incorporating
Peerless imaging technology, as well as high one-time licensing fees for source
code. Engineering services and maintenance revenues for the three months ended
July 31, 1997, decreased 5.6% to $2.2 million from $2.3 million in the three
months ended July 31, 1996.
The Company's gross profit for the three months ended July 31, 1997
increased 95.3% to $4.0 million from $2.0 million for the three months ended
July 31 1996. Gross margin as a percentage of total revenues increased to 67.0%
for the three months ended July 31, 1997, compared to 54.4% in the three months
ended July 31, 1996. These increases are primarily attributable to the shift in
revenue mix towards product licensing revenues, which have relatively low costs
associated with the revenues being recognized. Licensing revenues increased from
37.9% of total revenues in the quarter ended July 31, 1996 to 63.1% of total
revenue in the quarter ended July 31, 1997. The increase in gross margin related
to product licensing fees was partially offset by a decrease in the gross margin
on engineering services and maintenance, which declined from 27.9% in the
quarter ended July 31, 1996 to 12.2% in the quarter ended July 31, 1997.
The Company's research and development expenses are comprised primarily
of employee salaries and benefits, an allocation of engineering management and
administrative staff expenses and an allocation of the corporate facilities
overhead. Research and development expenses in the three months ended July 31,
1997 increased 69.2% to $1.0 million from $616,000 in the three
9
<PAGE>
months ended July 31, 1996. Research and development expenses for the three
months ended July 31, 1997 represented 17.5% of total revenues, compared to
16.4% for the three months ended July 31, 1996. These expenses increased due to
an increased focus on the development of the Company's color technologies and
application specific integrated circuit ("ASIC") designs.
The Company's sales and marketing expenses are comprised primarily of
employee salaries and benefits, commissions and bonuses, advertising and
promotional expenses, the cost of operating the Japan sales office and an
allocation of the corporate facilities overhead. Sales and marketing expenses in
the three months ended July 31, 1997, increased 57.3% to $892,000 from the
$567,000 recorded in the comparable quarter last year. These increases are the
result of an increase in the number of sales and marketing personnel, expenses
associated with Peerless Systems Corporation, Ltd. in Japan, as well as
additional emphasis on industry trade shows and other opportunities to promote
the Company's embedded imaging solution.
The Company's general and administrative expenses are comprised
primarily of salaries, benefits and bonuses paid to its executive and
administrative staff, fees paid to the Company's external auditors, counsel and
other corporate consultants, an allocation of the corporate facilities overhead,
and expenses required of a public company. General and administrative expenses
in the three months ended July 31, 1997 increased 20.0% to $703,000 from
$586,000 in the three months ended July 31, 1996. General and administrative
expenses increased primarily due to the addition of personnel in order to
support the growth in the Company's operations and an increase in professional
and other fees associated with operating a public company. General and
administrative expenses were 11.8% of total revenues in the three months ended
July 31, 1997 as compared to 15.6% of total revenues in the three months ended
July 31, 1996.
The Company earned interest income of $332,000 for the three months
ended July 31, 1997, and incurred interest expense of $69,000 for the three
months ended July 31, 1996. Interest income earned for the three months ended
July 31, 1997 was attributable to interest and investment income earned on cash
equivalents and investments. Interest charges for the three months ended July
31, 1996 related to interest attributable to borrowings under the Company's line
of credit and interest associated with the convertible notes payable, which
converted to shares of common stock in September 1996 upon the closing of the
Company's initial public offering.
The provisions for income taxes for all periods presented are based on
the estimated annual effective tax rate and include current federal, state and
foreign income taxes. The effective tax rates for the periods differ from the
federal statutory rate, primarily as a result of the utilization of net
operating loss carry forwards, offset by certain foreign taxes. The higher tax
rate in fiscal 1998 is primarily attributable to alternative minimum tax.
Six Months Ended July 31, 1997 and 1996
Revenues for the six months ended July 31, 1997 increased 56.4% to
$11.1 million from $7.1 million for the six months ended July 31, 1996. The
increase in revenue was attributable to a growth in product license revenue
generated by an increase of products that incorporate Peerless imaging
technology.
Gross margin for the six months ended July 31, 1997 increased 104.6% to
$7.6 million from $3.7 million for the six months ended July 31, 1996. Gross
margin as a percentage of total
10
<PAGE>
revenues increased to 68.6% in the six months ended July 31, 1997 from 52.6% in
the six months ended July 31, 1996. These improvements are attributable to the
increase in product licensing revenues, which have higher margins.
The Company's research and development expenses in the six months ended
July 31, 1997 increased 103.5% to $2.1 million from $1.0 million in the six
months ended July 31, 1996. The Company's focus on color technology development
and an increase in personnel contributed to this increase.
The Company's sales and marketing expenses in the six months ended July
31, 1997 increased 52.7% to $1.8 million from $1.2 million in the six months
ended July 31, 1996. This increase was attributable to the addition of new sales
personnel and increased compensation associated with sales growth.
The Company's general and administrative expenses in the six months
ended July 31, 1997 increased 30.7% to $1.4 million from $1.1 million in the six
months ended July 31, 1996 as a result of the growth in operations and
additional expenses associated with the operation of a public company.
The Company earned interest income of $653,000 for the six months ended
July 31, 1997 and incurred interest expense of $167,000 for the six months ended
July 31, 1996. Interest income earned for the six months ended July 31, 1997 was
attributable to interest and investment income earned on cash equivalents and
investments. Interest charges for the six months ended July 31, 1996 related to
interest attributable to borrowings under the Company's line of credit and
interest associated with the convertible notes payable, which converted to
shares of common stock in September 1996 upon the closing of the Company's
initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had cash, cash equivalents and
investments of $28.8 million compared to $26.2 million at January 31, 1997. The
$2.6 million increase in cash, cash equivalents and investments was primarily
attributable to cash generated by operations.
Net cash provided from (used by) operations was $2.6 million and
($902,000) for the six months ended July 31, 1997 and 1996, respectively. Cash
provided in the six months ended July 31, 1997 was primarily attributable to net
income of $1.8 million and a $1.8 million net increase in operating liabilities
offset by a $1.4 million net icrease in operating assets. Cash used by
operations in the six months ended July 31, 1996 was primarily attributable to a
$1.2 million decrease in deferred revenue offset by net income of $222,000.
Net cash used for investing activities was $18.2 million and $50,000
for the six months ended July 31, 1997 and 1996, respectively. Cash used for
investing in the six months ended July 31, 1997 was primarily attributable to
purchases of short-term and long-term held-to-maturity securities.
Net cash provided by financing activities in the six months ended July
31, 1997 and 1996 was $376,000 and $424,000, respectively. Cash provided by
investing activities in the six months ended July 31, 1997 was attributable to
the issuance of shares of common stock and the exercise
11
<PAGE>
of common stock options. Cash from investing activities in the six months ended
July 31, 1996 was provided primarily from borrowings on the Company's line of
credit.
At present, the Company has available a $2.0 million revolving line of
credit with a bank, which is collateralized by substantially all assets of the
Company. The line of credit, which terminates in May 1998, requires the Company
to maintain compliance with certain financial covenants.
CERTAIN BUSINESS RISKS
The Company in the past has reported net losses and has only recently
reported net income. The Company has accumulated aggregate net losses from
inception through July 31, 1997, of approximately $7.0 million. Although the
Company has reported net income for the past seven quarters ended July 31, 1997,
there can be no assurance that the Company will maintain profitability on a
quarterly basis or achieve profitability on an annual basis in the future. The
success of the Company and its business strategy is dependent upon, among other
things, the ability and willingness of the Company's OEM customers to timely
develop and promote digital document products that incorporate the Company's
technology. The Company believes that future revenues may be similarly
concentrated with a limited number of OEM customers. Consequently, any
significant decrease in product sales or reduction in licensing or engineering
services with a large OEM customer would have a material adverse effect on the
Company's operating results.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and needs, frequent new product
introductions and diminishing time frames within which to develop new products.
The failure of the Company and its OEM customers to meet these needs on a timely
basis or to anticipate or respond to rapidly changing technology could result in
a loss of competitiveness or revenues, which would have a material adverse
effect on the Company's operating results.
The recurring product licensing revenues reported by the Company are
dependent on the timing and accuracy of product sales reports received from the
Company's OEM customers. These reports are provided only on a calendar quarter
basis and, in any event, are subject to delay and potential revision by the OEM.
Therefore, the Company is required to estimate all of its quarterly revenues
from an OEM when the report from such OEM is not received in a timely manner. As
a result, the Company may be unable to estimate such revenue accurately prior to
public announcement of the Company's quarterly results. In such event, the
Company subsequently may be required to restate its recognized revenues or
adjust revenues for subsequent periods, which could have a material adverse
effect on the Company's operating results.
Also inherent in the Company's business are additional risks, which
include: competition in the market of embedded imaging systems for digital
document products, including internal development by OEMs; the risk of delays in
the development of products, whether such delays are within the control of the
Company or not; risks associated in developing products for new and rapidly
developing markets, in which the Company has directed a substantial portion of
its recent development efforts; dependence on sole source providers;
uncertainties regarding protection of intellectual property rights, including
the potential for trademark and patent infringement
12
<PAGE>
litigation; dependence on key personnel; and risks associated with the Company's
international business activities, which account for a substantial portion of
its revenues.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual stockholders meeting on June 12, 1997. A copy
of the certified list of stockholders was presented at the meeting.
The Inspector of Election reported that 6,874,892 shares out of a total of
10,516,338 issued and outstanding shares of Common Stock were represented in
person or by proxy at the meeting. Each share of Common Stock was entitled to
one vote.
The stockholders voted on the following matters:
1) Election of directors: Edward A. Gavaldon, Robert G. Barrett,
Paul D. Levy, and Robert L. North were nominated and elected as
directors, representing the Board of Directors in its entirety.
The votes were counted as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Edward A. Gavaldon 6,874,492 400
Robert G. Barrett 6,757,111 117,781
Paul D. Levy 6,872,992 1,900
Robert L. North 6,873,259 1,633
</TABLE>
2) Ratification of independent accountants: Coopers & Lybrand was
ratified as the Company's auditors for the fiscal year ending
January 31, 1998, by a vote of 6,871,928 votes for and 200 votes
against with 2,764 votes abstaining.
Item 5. Other Information
None
Item 6. Exhibits And Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
PEERLESS SYSTEMS CORPORATION
By: /s/ Edward Gavaldon Date: August 29, 1997
----------------------------------------------
Edward Gavaldon
Chairman of the Board, President and Chief Executive Officer
By: /s/ Hoshi Printer Date: August 29, 1997
-----------------------------------------------
Hoshi Printer
Chief Financial Officer
and Vice President, Finance and Administration
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR PERIOD ENDED JULY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 8,963
<SECURITIES> 19,809
<RECEIVABLES> 3,647
<ALLOWANCES> (100)
<INVENTORY> 0
<CURRENT-ASSETS> 27,737
<PP&E> 3,455
<DEPRECIATION> (1,667)
<TOTAL-ASSETS> 39,149
<CURRENT-LIABILITIES> 8,308
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 30,331
<TOTAL-LIABILITY-AND-EQUITY> 39,149
<SALES> 11,087
<TOTAL-REVENUES> 11,087
<CGS> 3,462
<TOTAL-COSTS> 3,462
<OTHER-EXPENSES> 5,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (653)
<INCOME-PRETAX> 2,970
<INCOME-TAX> 1,129
<INCOME-CONTINUING> 1,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,841
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
