<PAGE>
===============================================================================
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 OCTOBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________
COMMISSION FILE NUMBER: 0-21287
- - --------------------------------------------------------------------------------
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 OCTOBER 31, 1997 WAS
10,663,905.
================================================================================
1
<PAGE>
PEERLESS SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
=========================================================================================================
PART I - FINANCIAL INFORMATION Page No.
- - ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
Item 1: FINANCIAL STATEMENTS
--------------------
Balance Sheets
October 31, 1997 and January 31, 1997............................................ 3
Statements of Operations
Three Months Ended October 31, 1997 and 1996, and
Nine Months Ended October 31, 1997 and 1996...................................... 4
Statements of Cash Flows
Nine Months Ended October 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.................................................................. 12
-----------------
Item 2: CHANGES IN SECURITIES.............................................................. 12
---------------------
Item 3: DEFAULTS UPON SENIOR SECURITIES.................................................... 12
-------------------------------
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................ 12
---------------------------------------------------
Item 5: OTHER INFORMATION.................................................................. 12
-----------------
Item 6: EXHIBITS AND REPORTS ON FORM 8-K................................................... 12
--------------------------------
Signatures ................................................................................... 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
- - --------------------------------------------------------------------------------
Item 1: FINANCIAL STATEMENTS
--------------------
PEERLESS SYSTEMS CORPORATION
BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,442 $ 24,162
Short term investments 15,430 2,000
Trade accounts receivable, net 4,675 3,314
Unbilled receivables 1,518 363
Deferred tax asset 1,692 1,692
Prepaid expenses and other current assets 1,053 253
----------- ----------
Total current assets 29,810 31,784
Investments 7,006 -
Property and equipment, net 2,030 1,665
Other assets 374 453
Deferred tax asset 1,207 1,207
----------- ----------
Total assets $ 40,427 $ 35,109
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 396 $ 568
Accrued wages 680 711
Accrued compensated absences 572 345
Other current liabilities 762 337
Income taxes payable 1,483 100
Deferred rent, current portion 76 76
Deferred revenue, current portion 4,117 4,591
----------- ----------
Total current liabilities 8,086 6,728
Deferred rent 382 217
Deferred revenue 100 100
----------- ----------
Total liabilities 8,568 7,045
----------- ----------
Stockholders' equity:
Common stock 10 10
Additional paid-in capital 37,943 37,225
Deferred compensation (255) (346)
Accumulated deficit (5,839) (8,825)
----------- ----------
Total stockholders' equity 31,859 28,064
----------- ----------
Total liabilities and stockholders' equity $ 40,427 $ 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 Nine Months Ended
October 31, October 31,
------------------------------------------ ---------------------------------------------
1997 1996 1997 1996
$ % $ % $ % $ %
------- ------- ------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product licensing $ 3,713 57.8% $ 2,363 54.0% $ 10,986 62.7% $ 4,801 41.9%
Engineering services and
maintenance 2,710 42.2 2,014 46.0 6,524 37.3 6,664 58.1
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Total revenues 6,423 100.0 4,377 100.0 17,510 100.0 11,465 100.0
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Cost of revenues:
Product licensing 35 0.5 64 1.5 105 0.6 129 1.1
Engineering services and
maintenance 2,151 33.5 1,576 36.0 5,543 31.7 4,872 42.5
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Total cost of revenues 2,186 34.0 1,640 37.5 5,648 32.3 5,001 43.6
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Gross margin 4,237 66.0 2,737 62.5 11,862 67.7 6,464 56.4
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Operating expenses:
Research and development 1,106 17.2 674 15.4 3,218 18.3 1,712 14.9
Sales and marketing 936 14.6 845 19.3 2,713 15.5 2,009 17.5
General and administrative 735 11.5 673 15.4 2,154 12.3 1,759 15.4
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Total operating expenses 2,777 43.3 2,192 50.1 8,085 46.1 5,480 47.8
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Income from operations 1,460 22.7 545 12.4 3,777 21.6 984 8.6
Interest (income) expense, net (387) (6.0) (42) (1.0) (1,040) (5.9) 125 1.1
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Income before income taxes 1,847 28.7 587 13.4 4,817 27.5 859 7.5
Provision for income taxes 702 10.9 156 3.6 1,831 10.4 206 1.8
---------- --------- ---------- -------- ---------- --------- ----------- ---------
Net income $ 1,145 17.8% $ 431 9.8% $ 2,986 17.1% $ 653 5.7%
========= ======== ========= ======== ========== ======== ========== ========
Net income per share:
Primary $ 0.10 $ 0.05 $ 0.26 $ 0.10
========= ========= ========== ==========
Fully diluted $ 0.10 $ 0.04 $ 0.26 $ 0.07
========= ========= ========== ==========
Weighted average number
of common and common
equivalent shares outstanding:
Primary 11,707 8,044 11,704 6,832
========= ========= ========== ==========
Fully diluted 11,707 9,809 11,704 9,185
========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PEERLESS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,986 $ 653
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 415 341
Amortization of deferred compensation 91 76
Changes in operating assets and liabilities:
Trade accounts receivable (1,361) (2,725)
Unbilled receivables (1,155) (727)
Prepaid expenses and other current assets (800) (172)
Other assets (27) -
Accounts payable (172) 830
Accrued wages (31) 193
Accrued compensated absences 227 (204)
Other current liabilities 425 466
Income taxes payable 1,383 -
Deferred rent 165 (56)
Deferred revenue (474) 860
----------- -----------
Net cash provided by (used in) operating activities 1,672 (465)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (866) (1,022)
Purchases of held-to-maturity securities (24,244) -
Sales of held-to-maturity securities 4,000 -
----------- -----------
Net cash used for investing activities (21,110) (1,022)
----------- -----------
Cash flows from financing activities:
Payments on obligations under capital leases - (655)
Proceeds from exercise of common stock options 329 110
Net proceeds from issuance of common stock 389 26,357
----------- -----------
Net cash provided by financing activities 718 25,812
----------- -----------
Net decrease in cash and cash equivalents (18,720) 24,325
Cash and cash equivalents at beginning of period 24,162 722
----------- -----------
Cash and cash equivalents at end of period $ 5,442 $ 25,047
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 151 $ 161
========== ==========
Interest $ - $ 250
========== ==========
Supplemental schedule of noncash investing
and financing activities:
Increase in redemption value of preferred stock $ - $ 8
========== ==========
Deferred compensation related to grant of stock options $ - $ 452
========== ==========
Software and equipment acquired under capital lease obligations $ - $ 360
========== ==========
Conversion of convertible notes to common stock $ - $ 3,070
========== ==========
Conversion of preferred stock to common stock $ - $ 5,940
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PEERLESS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
Note 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.
Note 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 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.
6
<PAGE>
Note 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.
Note 4 INVESTMENTS
- - ------
The Company's investments at October 31, 1997 consisted of $20,436 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-five months at October 31, 1997.
Amortization of the purchase discounts and premiums is included in interest
income. The fair value of the held-to-maturity securities at October 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
October 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 nine months ended October 31, 1997 and
1996.
Note 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
GENERAL 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 strengthen relationships within the Asian marketplace.
CUSTOMERS The Company's customers currently include, among others, OEM
---------
customers, Canon, IBM and Minolta. 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.
PRODUCT LICENSING REVENUES 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>
ENGINEERING SERVICES AND MAINTENANCE REVENUES 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 this revenue category.
REVENUE RECOGNITION 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 and Nine Months Ended October 31, 1997 and 1996
REVENUES Revenues for the quarter ended October 31, 1997 increased 47% to
--------
$6.4 million from the $4.4 million reported for the quarter ended October 31,
1996. Revenues for the nine month period ended October 31, 1997 increased 53%
to $17.5 million from the $11.5 million reported for the same period last year.
The increase in revenues for both the three and nine month periods was driven by
an increase in product licensing revenues of 57% and 129%, respectively. These
increases were generated by an increase in the shipments and number of products
incorporating Peerless imaging technology, as well as high, one-time licensing
fees for source code. Most of the growth in the current fiscal year can be
attributed to new color laser printers introduced by the Company's OEMs in early
fiscal 1998 and an increase in the market penetration of existing products. A
growth in engineering services and maintenance revenues also contributed to the
increase in total revenues during the current quarter with an increase of 35% to
$2.7 million from the $2.0 million reported for the quarter ended October 31,
1996. The growth was generated by increased outsourcing of digital document
products by OEMs during the current period.
GROSS MARGIN The Company's gross margin as a percentage of total revenues
------------
increased to 66% for the quarter ended October 31, 1997 from 63% for the quarter
ended October 31, 1996. Gross margin as a percentage of total revenues for the
nine months ended October 31, 1997 and 1996 was 68% and 56%, respectively. The
improvements in gross margin noted in the current year are primarily
attributable to a shift in the revenue mix toward product licensing revenues,
which have relatively low costs associated with the revenues being recognized.
This shift toward product licensing revenue was more pronounced in the current
nine month period when product licensing as a percentage of total revenues
increased from 42% for the nine months ended October 31, 1996 to 63% for the
nine months ended October 31, 1997.
RESEARCH AND DEVELOPMENT EXPENSES Peerless continues to invest heavily in
---------------------------------
the future by funding the research and development of new technology solutions.
Research and development expenses increased 64% between the quarters ended
October 31, 1997 and 1996 and 88% between the nine month periods ended October
31, 1997 and 1996. The expense increases resulted primarily from a growth in the
development staff headcount. The increased funding was used to, among other
things,
9
<PAGE>
continue the development programs associated with the Company's color
technology, multi-function technology and application specific integrated
circuit ("ASIC") designs.
SALES AND MARKETING EXPENSES Sales and marketing expenses increased 11%
----------------------------
between the quarters ended October 31, 1997 and 1996 and 35% between the nine
month periods ended October 31, 1997 and 1996. These increases reflected a
growth in the sales and marketing headcount and an expanded emphasis on industry
trade shows and other opportunities to promote the Company's embedded imaging
solution. The establishment of a subsidiary in Japan during fiscal 1998 also
contributed to the expense growth.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
-----------------------------------
for the three month and nine month periods ended October 31, 1997 increased 9%
and 23%, respectively, from the comparable periods last year. The expense growth
related primarily to an increase in personnel and expenses necessary to support
the growth in the Company's operations. General and administrative expenses were
11% and 12% of total revenues for the three and nine month periods ended October
31, 1997, respectively, as compared to 15% for both the three and nine month
periods ended October 31, 1996.
INTEREST INCOME The Company earned interest income of $387,000 in the
---------------
third quarter of fiscal 1998 and $1.0 million in the first nine months of fiscal
1998. Interest income was related to interest and investment income earned on
cash equivalents and investments. Interest charges of $925,000 for the nine
months ended October 31, 1996 were the result of interest payable on borrowings
under the Company's line of credit and the convertible notes payable, which
converted to shares of common stock in September 1996 upon the closing of the
Company's initial public offering.
INCOME TAX PROVISIONS 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. The Company currently has a $2.4 million valuation
allowance against the existing deferred tax assets, substantially all of which
is expected to be reversed in the fourth quarter for fiscal 1998, assuming
continued profitability.
LIQUIDITY AND CAPITAL RESOURCES
Compared to January 31, 1997, total assets grew 15% to $40.4 million and
stockholders' equity grew 14% to $31.9 million. The Company's cash and short-
term investment portfolio totaled $20.9 million at October 31, 1997 and the
current ratio was 3.7. Cash generated by operations during the nine months ended
October 31, 1997 was $1.7 million compared to the $465,000 used by operations in
the comparable period last year.
Net cash used for investing activities during the nine months ended October
31, 1997 was $21.1 million and was comprised primarily of purchases and sales of
short-term and long-term held-to-maturity securities. Additions to property and
equipment during the nine months ended October 31, 1997 totaled $866,000 and
related primarily to fixed asset purchases associated with a growth in
headcount. The additions also included $150,000 in leasehold improvements made
to the Company's existing operating facilities. The Company expects to incur an
additional $900,000, associated with further improvements to the facilites, in
the fourth quarter of fiscal 1998.
10
<PAGE>
Net cash provided by financing activities in the nine months ended October
31, 1997 was $718,000. This cash resulted from the issuance of shares of common
stock under the Company's employee stock purchase plan and the exercise of
common stock options. Cash provided by financing activities during the nine
months ended October 31, 1996 was $25.8 million which related primarily to net
proceeds from the Company's initial public offering in September 1996.
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, unless extended,
requires the Company to maintain compliance with certain financial covenants.
CERTAIN BUSINESS RISKS
In the past, the Company has reported net losses and has only recently
reported net income. The Company has accumulated aggregate net losses from
inception through October 31, 1997, of approximately $5.8 million. Although the
Company has reported net income for the past eight quarters ended October 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 litigation; dependence on
key personnel;
11
<PAGE>
and risks associated with the Company's international business activities, which
account for a substantial portion of its revenues.
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
---------------------------------------------------
None
Item 5: OTHER INFORMATION
-----------------
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<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: December 8, 1997
-------------------------
Edward Gavaldon
Chairman of the Board, President and Chief Executive Officer
By: /s/ Hoshi Printer Date: December 8, 1997
-------------------------
Hoshi Printer
Chief Financial Officer
and Vice President, Finance and Administration
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR PERIOD ENDED OCTOBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 5,442
<SECURITIES> 22,436
<RECEIVABLES> 4,675
<ALLOWANCES> (100)
<INVENTORY> 0
<CURRENT-ASSETS> 29,810
<PP&E> 3,883
<DEPRECIATION> (1,853)
<TOTAL-ASSETS> 40,427
<CURRENT-LIABILITIES> 8,086
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 31,849
<TOTAL-LIABILITY-AND-EQUITY> 40,427
<SALES> 17,510
<TOTAL-REVENUES> 17,510
<CGS> 5,648
<TOTAL-COSTS> 5,648
<OTHER-EXPENSES> 8,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,040)
<INCOME-PRETAX> 4,817
<INCOME-TAX> 1,831
<INCOME-CONTINUING> 2,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,986
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
