<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
 
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                            EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                      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 0-21399
 
                             PEERLESS GROUP, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                                                  
              DELAWARE                                  75-2275966
   (STATE OR OTHER JURISDICTION OF                   (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)
 
                            1212 EAST ARAPAHO ROAD
                            RICHARDSON, TEXAS 75081
                                (972) 497-5500
         (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
            AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
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 check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]  No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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.  [_]
 
  On February 28, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $22,694,890 (based on the average of the
reported high and low sales prices on such date as reported by NASDAQ). For
purposes of determination of the above stated amount, only directors,
executive officers and 10% or greater stockholders have been deemed
affiliates.
 
  As of February 28, 1997, there were 4,694,982 outstanding shares of Common
Stock, $0.01 par value per share.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders of Peerless Group, Inc. to be held during 1997 are incorporated
by reference into Part III of this Form 10-K.
<PAGE>
 
PART  I
 
ITEM 1. BUSINESS
 
 General
 
  Peerless Group, Inc. (the "Company") designs, develops, installs and
supports integrated information systems, including proprietary computer
software and third-party software and hardware, for community banks and credit
unions. The Company was incorporated in 1989 when a group of management
executives from Electronic Data Systems Corporation ("EDS") purchased EDS's
turnkey community bank data processing systems division, which EDS had
acquired in 1980. In 1992, the Company acquired and began offering a credit
union information software system. In 1994, the Company began marketing a
check and statement imaging system that is fully integrated with
Peerless21(R), the Company's flagship banking product. In September 1996, the
Company began an outsourcing service bureau. On October 3, 1996, the Company
completed an initial public offering of its Common Stock, resulting in the
issuance of 2,440,000 shares and net proceeds to the Company of approximately
$10.1 million.
 
  The Company was incorporated under the laws of the State of Texas in 1989
and was reincorporated under the laws of the State of Delaware in 1996.
 
 Market
 
  According to industry sources, total spending on technology by U.S. banks
was approximately $16 billion in 1994 and spending is projected to increase to
over $21 billion in 1998. This growth is driven by banks investing in
technology to improve their efficiency and competitiveness in an environment
where competition is generally increasing among banks and between banks and
non-bank financial service companies. While the costs of acquiring and
maintaining in-house computer systems have historically been prohibitively
high for many community banks and credit unions, in recent years such costs
have declined to an affordable level which allows these financial institutions
to purchase integrated software/hardware solutions from third party vendors
such as the Company.
 
  The Company's target bank market is comprised of community banks with assets
ranging from $50 million to $1 billion. However, most of the Company's
community bank customers have total assets ranging from $100 million to $500
million, and the number of community banks in this size range increased
slightly between 1994 and 1995 to approximately 2,550 banks. Most of the
Company's credit union customers have total assets ranging from $5 million to
$200 million. As of December 31, 1996, the Company had 226 bank and 104 credit
union customers in 39 U.S. states. In 1996, approximately 90% of the Company's
total revenue was from community bank customers, and no customer accounted for
10% or more of the Company's total revenue.
 
  Because the Company's existing customer base is a significant source of
recurring revenues for the Company, an increase in the level of bank merger
and acquisition activity may cause the Company to lose customers or the number
of potential customers in the Company's target market to decline.
 
 Strategy
 
  The Company's objective is to continue to be a leading provider of
information systems for community banks and credit unions and to expand its
offerings into other complementary products and services. In addition to
leveraging its existing customer base, the Company's strategy to achieve this
objective involves continuing to enhance its Peerless21 and PeerlessCU(TM)
software systems; continuing to develop and offer new technology, products and
services; differentiating itself from competitors through outstanding customer
service and support; and pursuing new delivery methods for its products
through means such as the Company's new outsourcing service bureau.
 
 
                                       2
<PAGE>
 
 Products and Services
 
  The Company's revenues are derived primarily from license and installation
fees, hardware and equipment sales, and maintenance and service fees. License
and installation fee revenues include both license fees from the sale of the
Company's own software products and the sale of third-party software products,
and the installation of such software products. Hardware and equipment sales
relate to the hardware and equipment on which the Company's, as well as other
vendors', software products operate. Maintenance and service fees relate
primarily to the processing fees of the outsourcing service bureau operations
and revenues derived from maintenance contracts with its customers, under
which the Company provides customers with telephone support 24 hours a day, 7
days a week, and modifications and enhancements to its software products. The
following table presents the revenue composition of the Company for the three
years ending December 31, 1996:
 
<TABLE>
<CAPTION>
                                                            1994   1995   1996
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Software license and installation fees..................  30.9%  36.5%  37.7%
   Hardware and equipment sales............................  34.1   34.2   38.8
   Maintenance and service fees............................  32.3   27.3   21.9
   Other operating revenues................................   2.7    2.0    1.6
                                                            -----  -----  -----
     Total revenues........................................ 100.0% 100.0% 100.0%
                                                            =====  =====  =====
</TABLE>
 
  The Company's two core software products are Peerless21, its proprietary
information system for community banks, and PeerlessCU, its proprietary
information system for credit unions. Peerless21 and PeerlessCU provide
software solutions for substantially all areas of financial institution data
processing, customer relationship management, management decision making and
product creation and sales. The Company also offers its customers an automated
teller machine transaction processing system and telephone banking using an
interactive voice response system that are fully integrated with Peerless21
and PeerlessCU. As a part of its service offerings, the Company provides its
customers with comprehensive training and education programs for its systems
and continuing customer maintenance and support as well as disaster recovery
services.
 
  The Company's software products run on International Business Machines
("IBM") computing platforms, which are the leading hardware platforms in the
Company's target market. According to industry sources, approximately 46% of
community banks with in-house information systems utilized IBM computing
platforms in 1995, an increase from approximately 41% in 1990. The Company is
an authorized IBM reseller and an IBM Premier Business Partner, a designation
received by less than 5% of resellers of IBM's mid-range computers.
 
  Company customers that purchase Peerless21 or PeerlessCU information systems
typically enter into three to five-year maintenance and service agreements
with the Company at the time of installation. As part of the maintenance and
service agreements, customers automatically receive two to three product
updates each year.
 
  In 1994, the Company began marketing a check and statement imaging system
that is fully integrated with Peerless21. According to industry sources, bank
spending for imaging technology is projected to increase from $260 million in
1995 to $425 million in 1998. The Company's check and statement imaging system
enables banks to reduce costs by scanning digital images of checks into a
bank's computer system, which can then be printed on checking account
statements, thereby eliminating the need to return checks to customers and
improving check processing speeds. During 1996, revenues from the shipment and
installation of check and statement imaging systems accounted for
approximately 22% of the Company's total revenues, compared to 17% in 1995.
Currently, approximately 8% of the Company's existing bank customers have
check and statement imaging systems, and the Company believes it has a
significant opportunity to leverage its installed base of bank customers by
continuing to sell imaging systems to existing and new customers.
 
  In addition, the Company believes that it can further leverage its installed
customer base by providing additional products, services and upgrades to these
customers. For instance, the Company is developing object-oriented programming
tools that will enable customers to operate in a client/server environment and
is extending its current product offerings in electronic banking. The Company
believes its success at leveraging its customer base is reflected in its
compound average annual growth in total revenues of 26% between 1991 and 1996.
 
                                       3
<PAGE>
 
  According to industry sources, approximately 42% of community banks with
assets of under $500 million and approximately 33% of credit unions outsourced
their information systems requirements in 1995. The Company has recently
established an outsourcing service bureau to serve those community banks and
credit unions that choose to use a service bureau for their information
processing and check and statement imaging requirements, a market previously
unserved by the Company. In June 1996, the Company entered into its first
outsourcing contract to provide check and statement imaging services to a
community bank for three years. The Company's outsourcing service bureau
became operational in early September and utilizes the Company's existing
technology. The Company currently has five outsourcing customer contracts, two
of which are both check imaging and data processing and three of which are
check imaging only. The Company has no significant prior experience in
operating an outsourcing business, and there can be no assurance that the
Company will be successful in this business.
 
  The Company offers disaster recovery services. These services are intended
to allow its customers to be back online after a disaster in as little as 24
hours and to satisfy U.S. financial institution regulatory obligations to
maintain and annually test a disaster recovery plan.
 
  The market for the Company's products is characterized by technological
advances, evolving industry standards, changes in end-user requirements and
frequent new product introductions and enhancements. The Company's future
success will depend upon its ability to enhance its current products and to
develop and introduce new products that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers.
 
  See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Outlook."
 
 Seasonality and Cyclicality
 
  The Company recognizes a significant portion of its revenues upon the
installation of its software. Since its customers generally do not want to
have systems installed at or near the end of the calendar year, revenues have
generally been lower during the months of December and January than in the
remainder of the year. An economic downturn in the Company's target market
could have a materially adverse effect on the Company's operating results.
 
 Principal Suppliers
 
  Since 1989, the Company has been a value-added remarketer of IBM products
pursuant to standard IBM remarketer agreements. These products include non-IBM
software that IBM authorizes the Company to sell. The Company does not
maintain an inventory of IBM products but purchases such products only upon
receipt of a customer order. IBM has sole discretion with respect to pricing
the products offered by the Company pursuant to this agreement.
 
  The Company's current remarketing agreement with IBM expires February 28,
1999. Both IBM and the Company may terminate the agreement, with or without
cause, upon three months' written notice. The Company has no reason to believe
that IBM will discontinue these remarketing arrangements. The Company is an
IBM Premier Business Partner, which is the highest preferred customer level
that IBM currently offers. IBM gives this recognition to its top resellers of
mid-range computers based on business results, management of key processes and
customer satisfaction levels. According to IBM, less than 5% of resellers of
IBM's mid-range computers receive this designation.
 
  Since 1993, the Company has been a value-added remarketer of NCR products
pursuant to an NCR value-added remarketer agreement. These products include
the hardware on which the Company's check and statement imaging and processing
systems operate. Under its agreement with NCR, the Company markets and resells
or licenses such NCR products, which it purchases from NCR at a volume-based
discount. The Company does not
 
                                       4
<PAGE>
 
maintain an inventory of NCR products, but purchases such products only upon
receipt of a customer order. NCR may add new products or discontinue or change
the design of any products subject to the agreement at any time. The agreement
has no term, but either party may terminate it upon 90 days' written notice.
 
  The Company purchases hardware and licenses software for its check and
statement imaging and processing systems from Document Solutions, Inc. ("DSI")
pursuant to a system integrator agreement. The Company provides all normal
customer support for the Company's customers, and DSI provides software
releases as necessary. The Company does not maintain an inventory of DSI
products, but purchases such products only upon receipt of a customer order.
 
  The Company's agreement with DSI automatically renews for one year each
January 1, unless terminated upon written notice 120 days prior to the
expiration of the then-current year. During the term of the agreement and for
two years following its termination, the Company may not develop, sell or
otherwise distribute products competitive with those of DSI, so long as DSI's
products offer competitive features and are competitively priced. If
competitive products have additional features or are priced lower than DSI's,
the Company may advise DSI in writing and allow DSI 180 days to enhance the
features or reduce the price of DSI's products. If DSI cannot suitably enhance
its products or reduce its prices within 180 days, the Company may then
purchase the competing products.
 
  The Company has in the past experienced delays in the delivery of hardware
products that are in high demand. The Company believes a prolonged
interruption or delay in the supply of computer hardware or the Company's
inability to purchase hardware at competitive prices could have a materially
adverse effect on the Company's results of operations. In addition, the
Company's results of operations could be materially and adversely affected if
a principal supplier decided to terminate its agreement to supply products to
the Company or if such a supplier decided to develop or acquire a product that
would compete with the Company's financial institution software applications
products.
 
 Intellectual Property
 
  The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws. The Company presently has no patents or patent applications pending.
There can be no assurance that the mechanisms used by the Company to protect
its software will be adequate or that the Company's competitors will not
independently develop software products that are substantially equivalent or
superior to the Company's software products. Although the Company does not
believe that its intellectual property rights infringe on the existing rights
of third parties, there can be no assurance that third parties will not assert
infringement claims against the Company.
 
 Backlog
 
  The Company's backlog of license and installation fees and hardware and
equipment sales was approximately $4.7 million at December 31, 1996, compared
to approximately $5.1 million at December 31, 1995. This backlog amount
excludes revenues to be derived from long-term customer contracts for
maintenance and outsourcing activities, which are typically three to five-year
contract commitments. The Company's backlog can fluctuate significantly due to
many reasons, including, but not limited to, the sales cycle length of varying
products, product availability, the duration of the installation period, and
customer requested installation date.
 
 Competition
 
  The financial institution management information systems market is intensely
competitive and subject to rapid change. Competitors vary in size and in the
scope and breadth of the products and services offered. The Company believes
that the primary competitive factors in system selection are features and
functions, flexibility and ease of use, software enhancements and maintenance,
technological advantages and customer support and
 
                                       5
<PAGE>
 
training. The price of the software and related services is also a significant
competitive factor which may be determinative, particularly for smaller
institutions. The Company competes with several firms that offer software
products that compete with the Company's products, as well as competing with
firms that provide data processing services to financial institutions that
desire to outsource that function. These competitors vary in size from large
to small and in geographical coverage from national to regional and local
operations.
 
  There are a number of larger companies, including major computer hardware
manufacturers, computer software companies and outsourcing service providers
that have substantially greater financial and management resources than the
Company and the technological ability to develop products similar to those
offered by the Company. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements or to
devote greater resources to the development, promotion and sale of their
products than the Company.
 
  The Company's principal competitors in its target market for community
banking information management systems are Jack Henry & Associates and Fiserv,
Inc. The Company also competes in this market against EDS, ALLTEL Information
Systems, Inc. and others.
 
  The credit union market is highly fragmented, and no one firm has a dominant
market share. The Company's competitors in its target market for credit union
information management systems are EDS, Fiserv, Inc., ULTRADATA Corporation
and others.
 
  Additionally, the Company believes that no one firm may be considered
dominant in providing outsourcing data processing services to customers in the
Company's marketplace. The Company believes that EDS, Fiserv, Inc., Bankline
Holding, Inc. and The BISYS Group, Inc. are its main outsourcing services
competitors.
 
  The Company's principal competitors in the check-imaging industry are
BancTec Financial Systems, Advanced Financial Solutions, Inc. and IBM.
 
 Sales and Marketing
 
  The Company markets its products and services throughout the United States
through a direct sales force. The Company maintains separate sales forces for
its community bank and credit union products, which allows the Company's sales
representatives to concentrate on each separate customer market.
 
  The Company markets its products and services through specific product
advertising in trade journals directed at community banks and credit unions,
its Internet home page and sales support literature. The Company also relies
on customer referrals, networking, direct mail, trade shows and contacts with
independent consultants. The sales cycle associated with the purchase of the
Company's products is typically lengthy and subject to a number of significant
risks, including customers' budgetary constraints and internal acceptance
reviews.
 
 Employees
 
  As of December 31, 1996, the Company had a total of 157 employees, none of
whom is represented by a labor union. The Company has not experienced any work
stoppages and considers its relations with its employees to be satisfactory.
The Company's success depends on the performance of its executive officers and
other key personnel, as well as its ability to attract and retain such
personnel. Competition in the recruiting of highly qualified technical and
other personnel in the information systems industry is intense, especially in
the regions in which the Company operates, and the Company anticipates that it
may become more difficult to attract, assimilate and retain qualified
personnel in the future.
 
                                       6
<PAGE>
 
 Executive Officers
 
  Set forth below is the name, age, position, term of office and a brief
account of the business experience of each person who is an executive officer
of the Company.
 
<TABLE>
<CAPTION>
        NAME             AGE                       POSITION
        ----             ---                       --------
<S>                      <C> <C>
Rodney L. Armstrong,
 Jr. ...................  52 Chairman of the Board and Chief Executive Officer
Gary J. Austin..........  52 President
Steven W. Tomson........  34 Executive Vice President and Chief Operating Officer
Kim D. Owen.............  36 Vice President--Sales
Ann L. Puddister........  36 Director of Administration and Corporate Secretary
Douglas K. Hansen.......  29 Treasurer and Controller
</TABLE>
 
  Rodney L. Armstrong, Jr. is one of the Company's founders and has been
Chairman of the Board and Chief Executive Officer since 1989. Mr. Armstrong
was the Company's President from 1994 to June 1996. Mr. Armstrong has 23 years
of experience in the information technology and financial institution
marketplace. In 1974, he joined United Virginia Bankshares (now known as
Crestar Corporation) as Corporate Planning Officer responsible for the bank
holding company's long-range strategic planning. Between 1977 and 1989, Mr.
Armstrong held various management positions with EDS, where he started and
managed its electronic ATM and point of sale networking division and was
responsible for corporate development for its Financial and Insurance Group,
before initiating the buyout of EDS's community bank division by the Company
in 1989.
 
  Gary J. Austin joined the Company in 1989 and has served in various
capacities since that time, including President and Chief Executive Officer of
the Company's banking systems and outsourcing subsidiaries and President of
the Company's credit union systems and disaster and recovery services
subsidiaries. Mr. Austin has served as a director of the Company since 1994
and has been its President since June 1996. Prior to joining the Company, Mr.
Austin held several positions with EDS, including Marketing Support Manager
for the banking group, Product Manager for the insurance group and Product
Manager for the Health Services Division, during the periods from 1986 through
1989. Prior to joining EDS, Mr. Austin was employed as a Regional Support
Manager by Shared Medical Systems. Mr. Austin has over 16 years of systems
operations, design, sales and management experience.
 
  Steven W. Tomson joined the Company in 1991 as Regional Marketing Manager,
Banking. In June 1994, Mr. Tomson left the Company to work for Bermac
Communications, Inc., a telecommunications company, as an Account Manager. Mr.
Tomson returned to the Company in February 1995 and has served as President of
the Company's credit union systems subsidiary since June 1995 and as Executive
Vice President and Chief Operating Officer of the Company's banking systems
subsidiary since February 1996. Prior to joining the Company, Mr. Tomson was
employed as an Account Sales Representative by IBM.
 
  Kim D. Owen joined the Company in 1996 as Vice President responsible for
sales. Prior to joining the Company, Mr. Owen served as Vice President of
Strategic Alliances for Syntellect, Inc., a voice processing solutions
provider, from 1995 to 1996, as Director of Strategic Alliances for Lawson
Software, Associates, a management information software company, from 1993 to
1994 and as Business Unit Executive for IBM from 1990 to 1992.
 
  Ann L. Puddister joined the Company in 1989. Ms. Puddister has served as
Director of Administration since 1992 and Corporate Secretary since 1994.
Prior to joining the Company, Ms. Puddister worked at EDS for 10 years.
 
  Douglas K. Hansen joined the Company in 1994 as Controller and has served as
Treasurer of the Company since May 1996. From 1989 to 1994, Mr. Hansen was
employed by Ernst & Young LLP, most recently as an Audit Manager. Mr. Hansen
is a certified public accountant.
 
                                       7
<PAGE>
 
 Government Regulation
 
  As a provider of in-house software application systems and hardware, the
Company is not directly subject to Federal or state regulations specifically
applicable to financial institutions. As a provider of products to these
entities, however, the Company must take into account such regulations in
order to provide products that help its customers comply with such
regulations. The implementation of the Company's products by its customers is
reviewed from time to time by government regulators in connection with
compliance audits of the customers' operations. The Company must continually
update its products to reflect changes in applicable regulations or the
adoption of new regulations. Any such changes or new regulations could have a
materially adverse effect on the Company's business, financial condition and
results of operations. To the extent the Company provides information services
to financial institutions that desire to outsource that function, the Company
is subject to examinations by various Federal and state regulatory agencies.
 
ITEM 2. PROPERTIES
 
  The Company's community banking subsidiary and credit union subsidiary are
located in three facilities in Richardson, Texas with a total of approximately
31,000 square feet. These facilities are leased pursuant to agreements which
expire beginning November 30, 1998 through June 30, 2001 and provide for a
monthly rental of approximately $22,000. The Company's check and statement
imaging and disaster recovery operations are located in a facility of 5,525
square feet in Plano, Texas. This facility is leased pursuant to an agreement
that expires on January 31, 1999 and provides for a monthly rental of
approximately $3,160. The Company believes that it can obtain suitable
additional or alternative space as needed at commercially reasonable rates.
 
ITEM 3. LEGAL PROCEEDINGS
 
  From time to time, the Company has been involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
the date of this Form 10-K, the Company is not a party to any legal
proceeding, the adverse outcome of which would, in management's opinion, have
a materially adverse effect on the Company's results of operations or
financial position.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  None.
 
PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  The Company's Common Stock, $.01 par value, is traded on the Nasdaq National
Market under the symbol "PLSS." Prior to the Company's initial public offering
of its Common Stock on October 3, 1996, there was no market for its Common
Stock. The reported high and low sales prices for the Company's common stock
for the period October 3, 1996, through December 31, 1996 were $8.50 and
$5.875, respectively.
 
  As of February 28, 1997, there were 172 holders of record of the Company's
Common Stock.
 
  The Company has not since its inception paid cash dividends on its Common
Stock and intends to retain all earnings, if any, for use in the Company's
business and does not anticipate paying cash dividends in the foreseeable
future. Further, certain covenants in the Company's credit agreement prohibit
the payment of cash dividends by the Company.
 
                                       8
<PAGE>
 
  During 1996, the Company sold shares of Common Stock to its employees for
nominal per share cash consideration as bonuses in lieu of cash compensation.
These issuances were made in the following amounts and on the following dates
for the consideration described:
 
<TABLE>
<CAPTION>
                                               NUMBER OF NUMBER OF   AGGREGATE
   DATE OF SALE                                 SHARES   EMPLOYEES CONSIDERATION
   ------------                                --------- --------- -------------
   <S>                                         <C>       <C>       <C>
   January 1, 1996............................   2,820       28       $117.50
   February 22, 1996..........................  16,800        1       $700.00
</TABLE>
 
  The sales of such Common Stock described in the preceding table were made
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933 (the "Securities Act") or are not considered sales of
securities under Section 5 of the Securities Act.
 
  On June 17, 1996, the Company sold an aggregate of 505,710 shares of Common
Stock to Allied Investment Corporation ("AIC"), Allied Venture Partnership
("AVP") and Allied Capital Corporation II ("ACCII") for an aggregate of
$12,643 upon exercise of warrants issued by the Company to AIC, AVP and ACCII.
The sale of the Common Stock to AIC, AVP and ACCII was made pursuant to the
exemption from registration under Section 4(2) of the Securities Act.
 
  On September 11, 1996, the Company issued 7,200 shares of its Common Stock
upon the exercise of a stock option by Allen D. Fleener, a director of the
Company. The aggregate exercise price paid by Mr. Fleener was $3,000. The
issuance of stock to Mr. Fleener was made pursuant to the exemption from
registration under Section 4(2) of the Securities Act.
 
  Simultaneously with the consummation of the Company's initial public
offering in October 1996, the Company sold 597,360 shares of Common Stock to
the underwriters of the offering for an aggregate of $14,934 upon the exercise
of warrants issued by the Company to AIC and AVP and transferred by AIC and
AVP to the underwriters. The sale of Common Stock to such underwriters was
made pursuant to the exemption from registration under Section 4(2) of the
Securities Act.
 
  Simultaneously with the consummation of the Company's initial public
offering in October 1996, the Company sold 72,000 shares of Common Stock to
Harrell J. Stringer for an aggregate of $77,000 upon exercise by Mr. Stringer
of stock options granted to him while he was an executive officer of the
Company. The sale of Common Stock to Mr. Stringer was made pursuant to the
exemption from registration under Section 4(2) of the Securities Act.
 
  On November 15, 1996, the Company issued 25,000 shares of Common Stock to
Jerry L. Thomas in exchange for the outstanding capital stock of Forms
Imaging, Inc. held by him. The issuance of Common Stock to Mr. Thomas was made
pursuant to the exemption from registration under Section 4(2) of the
Securities Act.
 
 
                                       9
<PAGE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                ---------------------------------------------
                                 1992     1993     1994     1995       1996
                                -------  -------  -------  -------    -------
                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                             <C>      <C>      <C>      <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
  Software license and instal-
   lation fees................  $ 4,164  $ 4,789  $ 4,558  $ 7,181    $ 9,987
  Hardware and equipment
   sales......................    6,021    7,118    5,019    6,727     10,303
  Maintenance and service
   fees.......................    3,428    4,104    4,757    5,382      5,811
  Other operating revenues....      258      278      408      400        424
                                -------  -------  -------  -------    -------
    Total revenues............   13,871   16,289   14,742   19,690     26,525
Cost of revenues:
  Cost of software license and
   installation fees..........    1,949    2,441    2,173    2,617      3,719
  Cost of hardware and equip-
   ment sales.................    4,601    5,380    3,892    5,258      7,754
  Cost of maintenance and
   service fees and other op-
   erating revenues...........    3,672    3,865    3,682    4,255      5,163
                                -------  -------  -------  -------    -------
    Total cost of revenues....   10,222   11,686    9,747   12,130     16,636
                                -------  -------  -------  -------    -------
Gross margin..................    3,649    4,603    4,995    7,560      9,889
Operating costs and expenses:
  Research and development....      989    1,404    1,365    1,398      1,696
  Selling and marketing.......    1,795    2,610    2,301    2,502      3,477
  General and administrative..      946      853    1,181    1,222      1,512
  Severance charge(1).........       --       --       --       --        341
                                -------  -------  -------  -------    -------
    Total operating costs and
     expenses.................    3,730    4,867    4,847    5,122      7,026
                                -------  -------  -------  -------    -------
Income (loss) from opera-
 tions........................      (81)    (264)     148    2,438      2,863
Other income (expense):
  Interest expense............     (542)    (494)    (776)    (612)      (548)
  Interest income.............       29       15       63       68        133
                                -------  -------  -------  -------    -------
    Total other income (ex-
     pense)...................     (513)    (479)    (713)    (544)      (415)
                                -------  -------  -------  -------    -------
Income (loss) before income
 taxes........................     (594)    (743)    (565)   1,894      2,448
Provision for income taxes....       --       --       --       64(2)     155(2)
                                -------  -------  -------  -------    -------
Net income (loss).............  $  (594) $  (743) $  (565) $ 1,830    $ 2,293
                                =======  =======  =======  =======    =======
Net income (loss) per common
 and common equivalent
 share(3).....................  $ (0.30) $ (0.36) $ (0.32) $  0.49    $  0.55
                                =======  =======  =======  =======    =======
Shares used in computing net
 income (loss) per common and
 common equivalent share......    1,992    2,054    1,949    3,648      4,055
<CAPTION>
                                          AS OF DECEMBER 31,
                                ---------------------------------------------
                                 1992     1993     1994     1995       1996
                                -------  -------  -------  -------    -------
                                            (IN THOUSANDS)
<S>                             <C>      <C>      <C>      <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.....  $   964  $ 1,554  $ 1,081  $ 1,394    $ 8,378
Total assets..................    7,342    6,555    6,346    7,130     17,359
Unearned software and hardware
 revenues.....................      130      890    3,660    3,096      2,006
Unearned maintenance reve-
 nues.........................    3,879    4,156    4,571    5,048      5,567
Current and long-term debt due
 to related parties...........    5,142    7,479    5,469    3,627         --
Stockholders' equity (defi-
 cit).........................   (4,050)  (7,807)  (9,586)  (7,729)     6,312
</TABLE>
--------
(1) During the year ended December 31, 1996, the Company incurred a severance
    charge related to the resignation of a former officer. Excluding such
    severance charge, income from operations would have been $3,204,000, net
    income would have been $2,634,000 and net income per common and common
    equivalent share would have been $0.64.
(2) The Company's effective income tax rate was positively impacted by the
    utilization of previously unbenefitted net operating loss carryforwards.
(3) For a description of the calculation of net income (loss) per common and
    common equivalent share, see Note 2 of Notes to Consolidated Financial
    Statements.
                                      10
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
GENERAL
 
  The Company was formed in 1989 when a group of management executives from
EDS purchased EDS's turnkey bank data processing systems division, which EDS
had acquired in 1980. In 1992, the Company acquired and began offering a
credit union information software system. In 1994, the Company began marketing
a check and statement imaging system that is fully integrated with Peerless21,
the Company's flagship banking product. In September 1996, the Company began
an outsourcing service bureau. On October 3, 1996, the Company commenced an
initial public offering of its Common Stock (the "Offering"), resulting in the
issuance of 2,440,000 shares and net proceeds of approximately $10.1 million.
 
  The Company's total revenues are derived primarily from software license and
installation fees, hardware and equipment sales, maintenance and service fees
and, to a lesser extent, other revenues. Approximately 90% of the Company's
total revenues for 1996 are from its banking customers and, historically, a
large part of the Company's total revenues and growth have been derived from
its installed customer base.
 
  Software license and installation fees consist of revenue recorded by the
Company on the installation of its software products, which in the case of
most of the Company's contracts, involves the use of the percentage-of-
completion method of accounting for revenues, as installation services are
performed over several months. Revenues from sales of software licenses not
involving installation are recognized upon delivery of the software to the
customer. Revenues from hardware and equipment sales are recognized upon
shipment by the manufacturer to the customer. Revenues from maintenance and
service fees are recognized ratably over the periods of the respective
contracts, which typically have terms of three to five years.
 
  In the case of software license and installation fees, and hardware and
equipment sales, the Company generally requires significant deposits and
prepayments. Maintenance and service agreements are administered on a calendar
year basis with fees generally received in December or January. Deposits
received and amounts billed for software licenses, installation and hardware
in advance of installation or delivery, and for annual software maintenance
prior to performance of related services, are reflected as unearned until such
amounts are recognized in accordance with the Company's revenue recognition
policy. See Note 2 of Notes to Consolidated Financial Statements.
 
  The Company expenses all software development costs as incurred until
technological feasibility has been established for the product, at which time
the costs are capitalized until the product is available for general release
to customers. The Company has expensed substantially all software development
costs since 1994.
 
RESULTS OF OPERATIONS
 
 YEARS ENDED DECEMBER 31, 1996 AND 1995
 
  Revenues. Revenues for the year ended December 31, 1996 increased $6.8
million, or 34.7%, over the prior year. Revenues from software license and
installation fees increased $2.8 million, or 39.1%, over the prior year, and
revenues from hardware and equipment sales increased $3.6 million, or 53.2%,
over the prior year. These increases were due primarily to increases in
revenue from installations of Peerless21 and shipments and installations of
check and statement imaging systems. Installations of Peerless21 contributed
$4.7 million in software license and installation fees, as well as additional
software license fees and hardware revenues associated with the sales of
ancillary products, representing an increase of $1.6 million, or 52.2%, over
the prior year. Shipments and installations of check and statement imaging
systems contributed $2.3 million in software license and installation fees,
representing an increase of $1.0 million, or 71.3%, over the prior year, and
$3.6 million in hardware and equipment sales, representing an increase of $1.6
million, or 78.0%, over the prior year.
 
  Gross Margin. Gross margin for the year ended December 31, 1996 declined
slightly to 37.3% of total revenues from 38.4% for the prior year. This
decrease was attributable to declines in gross margin as a percent
 
                                      11
<PAGE>
 
of revenues for software license and installation fees as well as maintenance
and service fees, which resulted primarily from the Company hiring and
training additional employees to support revenue growth. These margin declines
were partially offset by an improvement in the gross margin percentage from
hardware and equipment sales, which increased to 24.7% for the year from 21.8%
for the prior year, which is primarily attributable to an increase in the
margins on check and statement imaging hardware.
 
  Shifts in the mix of the sources of the Company's revenues, including
software license and installation fees and check and statement imaging and
processing sales, may cause significant fluctuations in total revenue and
gross margin. In addition, the Company manages its expenses based on
anticipated revenue levels, and a high percentage of these expenses are
relatively fixed. Therefore, variations in the amount and timing of revenue
may cause significant variations in operating results from period to period.
Further, in response to a changing competitive environment, the Company may
elect to make certain pricing, product or marketing decisions that could have
a material adverse effect on the Company's results of operations.
 
  Research and Development. Research and development expenses for the year
ended December 31, 1996 increased $298,000, or 21.3%, over the prior year.
This increase primarily resulted from hiring additional research and
development employees to support development of new client/server products and
other modifications and enhancements to existing products. As a percentage of
total revenues, research and development expenses decreased slightly to 6.4%
for the year from 7.1% for the prior year.
 
  Selling and Marketing. Selling and marketing expenses for the year ended
December 31, 1996 increased by $975,000, or 39.0%, over the comparable prior
year period. This increase primarily resulted from an increase in the number
of employees in sales and marketing to support increased revenues and
increased compensation levels for existing employees due to increased
production. As a percentage of total revenues, selling and marketing expenses
increased slightly to 13.1% for the year from 12.7% for the prior year.
 
  General and Administrative. General and administrative expenses for the year
ended December 31, 1996 increased $290,000, or 23.7%, over the prior year.
This increase primarily resulted from placement agency fees and other costs
associated with the hiring of additional employees, as well as additional
insurance and legal costs associated with being a publicly reporting entity.
As a percentage of total revenues, general and administrative expenses
decreased slightly to 5.7% for the year from 6.2% for the prior year.
 
  Severance Charge. During 1996 the Company incurred a severance charge of
$341,000 related to the resignation of a former officer ($289,000 of which
were non-cash compensation charges related to the extension of the exercise
period of certain stock options and the acceleration of vesting of restricted
stock awards).
 
  Interest Expense. Interest expense for the year ended December 31, 1996
decreased $64,000 from the prior year. This decrease primarily resulted from
the repayment of all outstanding debt subsequent to the initial public
offering on October 3, 1996, and was slightly offset by amortization of
deferred debt costs associated with the Company's line of credit, which the
Company obtained in October 1995.
 
  Net Income per Common and Common Equivalent Share. Net income per common and
common equivalent share for the year ended December 31, 1996, was negatively
impacted by an increase in the shares used in computing net income per common
and common equivalent share, resulting from the additional shares issued in
the Offering.
 
 YEARS ENDED DECEMBER 31, 1995 AND 1994
 
  Revenues. Revenues for 1995 increased $4.9 million, or 33.6%, over 1994.
This increase resulted from increases in all major product categories. The
increase in software license and installation fees was primarily due to $1.2
million from increased installations of check and statement imaging systems
and $1.1 million from increased installations of Peerless21. The increase in
hardware and equipment sales was primarily due to increased shipments of check
and statement imaging systems. The increase in maintenance and service fees
was primarily due to increased revenues from existing customers as well as new
customers.
 
                                      12
<PAGE>
 
  Gross Margin. Gross margin for 1995 increased to 38.4% of total revenues
from 33.9% for 1994. Decreases in gross margin as a percentage of revenues for
hardware and equipment sales and maintenance and service fees and other
operating revenues were more than offset by an increase in the gross margin
percentage associated with software license and installation fees as well as a
shift in revenue mix as software license and installation fees (the Company's
product category with the highest gross margin percentage) increased to 36.5%
of total revenues for 1995 from 30.9% for 1994. The software license and
installation fee margin increase is due to full amortization in 1994 of the
software purchased in connection with the organization of the Company in 1989.
Amortization of this acquired software in 1994 was approximately $598,000, or
4.1% of total revenues.
 
  Research and Development. Research and development expenses for 1995
increased $33,000, or 2.4%, over 1994. However, as a percent of total
revenues, research and development expenses decreased to 7.1% for 1995 from
9.3% for 1994. This decrease reflects the Company's ability to spread its
research and development expenses over increased revenue.
 
  Selling and Marketing. Selling and marketing expenses for 1995 increased by
$201,000, or 8.7%, over 1994. However, as a percent of total revenues, selling
and marketing expenses decreased to 12.7% for 1995 from 15.6% for 1994. This
decrease resulted from the Company's ability to leverage its sales and
marketing expenses over increased revenues.
 
  General and Administrative. General and administrative expenses decreased to
6.2% of total revenues in 1995 from 8.0% in 1994. This decrease resulted
primarily from the Company achieving economies of scale in general and
administrative expenses relative to increased revenues.
 
  Interest Expense. Interest expense for 1995 decreased $164,000, or 21.1%,
from 1994. This decrease was primarily a result of reduced long-term debt.
 
 PROVISION FOR INCOME TAXES
 
  The Company's provision for income taxes for the years ended December 31,
1996 and 1995 included the Alternative Minimum Tax under the Internal Revenue
Code of 1986, as amended, and state income taxes. In the fourth quarter of
1996, the Company eliminated the valuation allowance against its deferred tax
assets, resulting in the recording of a federal deferred tax benefit of
approximately $250,000. At December 31, 1996, the Company had net operating
loss carryforwards for Federal income tax purposes of approximately $190,000.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's cash and cash equivalents at December 31, 1996 increased to
$8.4 million from $1.4 million at December 31, 1995. The Company received net
proceeds from the Offering of approximately $10.1 million, and immediately
utilized $3.1 million to repay the outstanding long-term debt due to related
parties.
 
  The Company historically financed its growth primarily through cash flow
from operations, private placements of debt and equity securities and
borrowings. Net cash provided by operations was approximately $1.7 million,
$2.7 million and $1.9 million for the years ended December 31, 1996, 1995, and
1994, respectively. Net cash provided by operations in 1996 was primarily the
result of net income adjusted for depreciation, amortization and compensation
expense, partially offset by an increase in trade accounts receivable. Net
cash provided by operations in 1995 was primarily the result of net income
adjusted for depreciation and amortization and an increase in accounts payable
and accrued liabilities. Net cash provided by operations in 1994 was primarily
the result of an increase in the unearned software and hardware revenues
balance over 1993.
 
  The Company generally requires its customers to make significant deposits
and prepayments on contracts to purchase software and hardware, and the
Company's maintenance and service agreements are administered on a calendar
year basis with fees generally received in December and January. The amounts
that are received in advance of performing the related services and in advance
of hardware shipment are reflected as unearned revenues until such amounts are
recognized in accordance with the Company's revenue recognition policy. See
Note 2 of Notes to Consolidated Financial Statements.
 
 
                                      13
<PAGE>
 
  During 1996 the Company invested $1.4 million in capital expenditures,
compared to $381,000 in 1995 and $76,000 in 1994. Approximately $700,000 of
the 1996 capital expenditures were for equipment used in the operations of the
outsourcing service bureau, which began operations in September 1996. The
majority of the remainder of the capital expenditures in 1996 were made to
purchase hardware for product development purposes. If the Company's
outsourcing service bureau business continues to grow, the Company may need to
make additional capital expenditures to purchase the necessary equipment.
 
  The Company has a $2.5 million line of credit (the "Credit Agreement") with
State Street Bank and Trust ("State Street") that expires on February 1, 1999.
Borrowings under the Credit Agreement bear interest at State Street's prime
rate (8.25% at December 31, 1996) plus 1/2% and are secured by the assets and
stock of the Company's wholly owned subsidiaries. Amounts available under the
Credit Agreement are reduced by the value of outstanding letters of credit
issued by State Street on behalf of the Company. As of December 31, 1996, no
amounts were outstanding under the Credit Agreement, and State Street had
issued a letter of credit with a value of $600,000 on behalf of the Company.
The Credit Agreement imposes certain requirements on the Company, including
minimum annual net income, and quarterly cash flow and liquidity levels. The
Credit Agreement prohibits the Company from incurring or otherwise becoming
liable for any indebtedness for liens on any property owned by the Company,
except for certain trade and other indebtedness. The Credit Agreement also
contains other restrictive covenants, including limitations on dispositions of
material amounts of assets, capital expenditures, guarantees, mergers,
consolidations, related party transactions, alterations in the nature of the
Company's business, employee compensation, the making of any loans,
investments in other entities, entering into any guarantees and the payment of
cash dividends. See Note 3 of Notes to Consolidated Financial Statements.
 
  The Company believes that its cash and cash equivalents at December 31,
1996, amounts available under the Credit Agreement and operating cash flows
will be sufficient to meet its anticipated capital expenditure requirements at
least through the next twelve months.
 
OUTLOOK
 
  Forward-Looking Statements. This Annual Report on Form 10-K contains
forward-looking statements relating to such matters as anticipated financial
performance and business prospects. When used in this Annual Report, the words
"anticipate," "estimate," "expect," "may," "project," "believes," and "will"
and similar expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of
factors, including those discussed in this Form 10-K, could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements.
 
  Revenues. The Company has historically grown its revenues primarily from its
installed base of customers. For example, the banking customers that have
utilized the Company's software products since 1990 contributed approximately
$6.7 million to total revenues in 1991. These same customers contributed
approximately $13.2 million to total revenues in 1996, or a compound annual
growth rate of 14.5%. In addition, revenue per bank customer has increased
from approximately $40,000 in 1991 to approximately $105,000 in 1996. The
Company believes the growth from its existing customer base is not only
attributable to the quality and growth of its customers and the importance its
customers place on technology, but also due to the Company's customer support
which it believes is superior in the industry. Once the Company's installed
customer base has migrated to the Company's primary software products,
Peerless21 and PeerlessCU, the Company will increasingly have to sell check
and statement imaging systems or ancillary products to its customer base or
sell its existing and new products and services to new customers in order to
maintain historical growth rates.
 
  Check and Statement Imaging. The Company installed its first check and
statement imaging system in the fourth quarter of 1994. Revenues from the
shipment and installation of check and statement imaging systems
 
                                      14
<PAGE>
 
have increased to $5.9 million in 1996, representing a 75.4% growth rate over
the 1995 level. As of December 31, 1996, only approximately 8% of the
Company's bank customers utilized a check and statement imaging system. The
Company expects many of its customers will implement check and statement
imaging services to its customers, whether in a turnkey or outsourcing
solution, over the next several years. However, given the significant
expenditure and commitment amount associated with check and statement imaging
solutions, the Company is unable to determine how many and when its customers
may purchase such a system. Therefore, any revenue growth from these systems
may be at a rate less than those historically experienced. In addition, given
that the Company has only been marketing these systems for slightly more than
two years, the future growth is difficult to determine.
 
  Outsourcing Service Bureau. According to industry sources, approximately 42%
of community banks with assets of less than $500 million and 33% of credit
unions outsourced their information systems requirements in 1995. As a result,
in September 1996 when the Company began offering an outsourcing service
bureau alternative to its customers and new customers, the Company's target
market increased. As of February 28, 1997, the Company had entered into five
outsourcing contracts: two of which are both data processing and check imaging
and three of which are check imaging only. The Company will not begin
processing the two data processing and check imaging contracts until the
second quarter of 1997. For the first three and a half months of operation,
the outsourcing service bureau was slightly profitable. The Company expects to
continue to leverage its experience in both the banking and credit union
processing industries, as well as its Peerless21 and PeerlessCU products, in
order to continue to grow the outsourcing operations. Any future profitability
of these operations will depend to a significant extent on any capital and
other expenditures the Company makes to expand this aspect of its business.
 
 
                                      15
<PAGE>
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Report of Ernst & Young LLP, Independent Auditors........................  17
Consolidated Balance Sheets as of December 31, 1995 and 1996.............  18
Consolidated Statements of Operations for the years ended December 31,
 1994, 1995 and 1996.....................................................  19
Consolidated Statements of Stockholders' Equity (Deficit) for the years
 ended December 31, 1994, 1995 and 1996..................................  20
Consolidated Statements of Cash Flows for the years ended December 31,
 1994, 1995 and 1996.....................................................  21
Notes to Consolidated Financial Statements...............................  22
</TABLE>
 
                                       16
<PAGE>
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors
Peerless Group, Inc.
 
  We have audited the accompanying consolidated balance sheets of Peerless
Group, Inc. (the Company), as of December 31, 1995 and 1996, and the related
consolidated statements of operations, cash flows, and stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1996.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peerless
Group, Inc., at December 31, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
 
                                          Ernst & Young LLP
 
Dallas, Texas
January 17, 1997
 
                                      17
<PAGE>
 
                              PEERLESS GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                                   ----------------
                                                    1995     1996
                                                   -------  -------
<S>                                                <C>      <C>      
                         ASSETS (NOTE 3)
Current assets:
  Cash and cash equivalents....................... $ 1,394  $ 8,378
  Trade accounts receivable.......................   4,206    5,712
  Prepaid expenses and other current assets.......      90      541
  Note receivable from officer (Note 9)...........     271       --
                                                   -------  -------
      Total current assets........................   5,961   14,631
Computer and other equipment, at cost.............     995    2,335
Less accumulated depreciation.....................     413      589
                                                   -------  -------
                                                       582    1,746
Computer software, maintenance contracts, and
 other assets, net of accumulated amortization of
 $1,079 and $1,482 at December 31, 1995 and 1996,
 respectively.....................................     587      982
                                                   -------  -------
      Total assets................................ $ 7,130  $17,359
                                                   =======  =======
          LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Current portion of long-term debt due to related
   parties (Note 3)............................... $   494  $    --
  Accounts payable................................     859    1,865
  Accrued liabilities.............................     892    1,041
  Sales tax payable...............................     370      568
  Unearned software and hardware revenues.........   3,096    2,006
  Unearned maintenance revenues...................   5,048    5,567
                                                   -------  -------
      Total current liabilities...................  10,759   11,047
Long-term debt due to related parties (Note 3)....   3,133       --
Redeemable common stock (Note 7)..................     967       --
Commitments (Notes 5 and 7)
Stockholders' equity (deficit) (Notes 3 and 7):
  Preferred stock, $.01 par value:
    Authorized shares--5,000
    Issued shares--none
  Common stock, $.01 par value:
    Authorized shares--10,000
    Issued shares--2,242 and 4,598 at December 31,
     1995 and 1996, respectively..................      22       46
  Additional paid-in capital......................  (3,574)   7,720
  Accumulated deficit.............................  (3,547)  (1,254)
  Treasury stock, at cost--304 and 1 at December
   31, 1995 and 1996, respectively................    (435)      (1)
  Unearned compensation...........................    (195)    (199)
                                                   -------  -------
      Total stockholders' equity (deficit)........  (7,729)   6,312
                                                   -------  -------
      Total liabilities and stockholders' equity
       (deficit).................................. $ 7,130  $17,359
                                                   =======  =======
</TABLE>
 
                            See accompanying notes.
 
                                       18
<PAGE>
 
                              PEERLESS GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                     1994     1995     1996
                                                    -------  -------  -------
<S>                                                 <C>      <C>      <C>
Revenues:
  Software license and installation fees........... $ 4,558  $ 7,181  $ 9,987
  Hardware and equipment sales.....................   5,019    6,727   10,303
  Maintenance and service fees.....................   4,757    5,382    5,811
  Other operating revenues.........................     408      400      424
                                                    -------  -------  -------
    Total revenues.................................  14,742   19,690   26,525
Cost of revenues:
  Cost of software license and installation fees...   2,173    2,617    3,719
  Cost of hardware and equipment sales.............   3,892    5,258    7,754
  Cost of maintenance and service fees and other
   operating revenues..............................   3,682    4,255    5,163
                                                    -------  -------  -------
    Total cost of revenues.........................   9,747   12,130   16,636
                                                    -------  -------  -------
Gross margin.......................................   4,995    7,560    9,889
Operating costs and expenses:
  Research and development.........................   1,365    1,398    1,696
  Selling and marketing............................   2,301    2,502    3,477
  General and administrative.......................   1,181    1,222    1,512
  Severance charge (Note 11).......................      --       --      341
                                                    -------  -------  -------
    Total operating costs and expenses.............   4,847    5,122    7,026
                                                    -------  -------  -------
Income from operations.............................     148    2,438    2,863
Other income (expense):
  Interest expense.................................    (776)    (612)    (548)
  Interest income..................................      63       68      133
                                                    -------  -------  -------
    Total other income (expense)...................    (713)    (544)    (415)
                                                    -------  -------  -------
Income (loss) before income taxes..................    (565)   1,894    2,448
Provision for income taxes.........................      --       64      155
                                                    -------  -------  -------
Net income (loss).................................. $  (565) $ 1,830  $ 2,293
                                                    =======  =======  =======
Net income (loss) per common and common equivalent
 share............................................. $ (0.32) $  0.49  $  0.55
                                                    =======  =======  =======
Shares used in computing net income (loss) per
 common and common equivalent share................   1,949    3,648    4,055
</TABLE>
 
                            See accompanying notes.
 
                                       19
<PAGE>
 
                              PEERLESS GROUP, INC.
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                           COMMON STOCK                           TREASURY STOCK
                         ---------------- ADDITIONAL             ----------------
                         NUMBER OF         PAID-IN   ACCUMULATED NUMBER OF          UNEARNED
                          SHARES   AMOUNT  CAPITAL     DEFICIT    SHARES   AMOUNT COMPENSATION
                         --------- ------ ---------- ----------- --------- ------ ------------
<S>                      <C>       <C>    <C>        <C>         <C>       <C>    <C>
Balance at December 31,
 1993...................   2,057    $ 20   $ (3,010)  $ (4,812)     126     $ (6)    $   --
 Net loss...............      --      --         --       (565)      --       --         --
 Common stock issued....      23      --          1         --       --       --         --
 Issuance of redemption
  right on common stock
  (Note 7)..............      --      --     (1,250)        --       --       --         --
 Common stock
  repurchased...........      --      --        251         --      111     (275)        --
 Accretion of redeemable
  common stock..........      --      --        (51)        --       --       --         --
 Compensation expense on
  options...............      --      --        111         --       --       --         --
                           -----    ----   --------   --------     ----     ----     ------
Balance at December 31,
 1994...................   2,080      20     (3,948)    (5,377)     237     (281)        --
 Net income.............      --      --         --      1,830       --       --         --
 Common stock issued,
  net of unearned
  compensation (Note
  7)....................     162       2        291         --       --       --       (195)
 Common stock
  repurchased...........      --      --        141         --       67     (154)        --
 Accretion of redeemable
  common stock..........      --      --        (58)        --       --       --         --
                           -----    ----   --------   --------     ----     ----     ------
Balance at December 31,
 1995...................   2,242      22     (3,574)    (3,547)     304     (435)      (195)
 Net income.............      --      --         --      2,293       --       --         --
 Common stock issued
  upon exercise of
  warrants..............     506       5          8         --       --       --         --
 Common stock issued
  upon exercise of
  options...............      79       1         79         --       --       --         --
 Common stock issued,
  net of unearned
  compensation..........      45       1        295         --       --       --         (4)
 Common stock
  repurchased...........      --      --         --         --        8       (9)        --
 Cancellation of
  treasury stock upon
  change-of-domicile
  merger................    (311)     (3)      (440)        --     (311)     443         --
 Common stock issued
  upon initial public
  offering..............   2,037      20     10,117         --       --       --         --
 Accretion of redeemable
  common stock..........      --      --        (44)        --       --       --         --
 Compensation expense on
  options...............      --      --        268         --       --       --         --
 Reclassification of
  redeemable common
  stock upon exercise of
  underlying options
  (Note 7)..............      --      --      1,011         --       --       --         --
                           -----    ----   --------   --------     ----     ----     ------
Balance at December 31,
 1996...................   4,598    $ 46   $  7,720   $ (1,254)       1     $ (1)    $ (199)
                           =====    ====   ========   ========     ====     ====     ======
</TABLE>
 
 
                            See accompanying notes.
 
 
                                       20
<PAGE>
 
                              PEERLESS GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                     1994     1995     1996
                                                    -------  -------  -------
<S>                                                 <C>      <C>      <C>
OPERATING ACTIVITIES
Net income (loss).................................. $  (565) $ 1,830  $ 2,293
Adjustments to reconcile net income (loss) to net
 cash provided by operating activities:
  Depreciation and amortization....................   1,452      523      757
  Compensation expense.............................     111       54      366
  Changes in operating assets and liabilities:
    Trade accounts receivable......................  (1,607)    (584)  (1,506)
    Prepaid expenses and other current assets......     (64)      34     (451)
    Accounts payable and accrued liabilities.......    (655)     939      812
    Unearned software and hardware revenues........   2,770     (564)  (1,113)
    Unearned maintenance revenues..................     415      477      519
                                                    -------  -------  -------
Net cash provided by operating activities..........   1,857    2,709    1,677
INVESTING ACTIVITIES
Additions to computer and other equipment..........     (76)    (381)  (1,419)
Other..............................................      --       --     (160)
                                                    -------  -------  -------
Net cash used in investing activities..............     (76)    (381)  (1,579)
FINANCING ACTIVITIES
Note receivable from officer.......................      31       --      271
Proceeds from borrowings...........................   1,000    4,111       --
Payments on borrowings.............................  (1,010)  (5,953)  (3,627)
Proceeds from exercise of options and warrants.....       1       30       94
Purchase of treasury stock.........................    (276)    (140)      (9)
Net proceeds from initial public offering..........      --       --   10,137
Principal payments on stock warrant notes..........  (2,000)      --       --
Other..............................................      --      (63)      20
                                                    -------  -------  -------
Net cash provided by (used in) financing activi-
 ties..............................................  (2,254)  (2,015)   6,886
                                                    -------  -------  -------
Net increase (decrease) in cash and cash equiva-
 lents.............................................    (473)     313    6,984
Cash and cash equivalents at beginning of period...   1,554    1,081    1,394
                                                    -------  -------  -------
Cash and cash equivalents at end of period......... $ 1,081  $ 1,394  $ 8,378
                                                    =======  =======  =======
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest............................. $   556  $   737  $   542
                                                    =======  =======  =======
Cash paid for income taxes......................... $    --  $    38  $   265
                                                    =======  =======  =======
</TABLE>
 
                            See accompanying notes.
 
                                       21
<PAGE>
 
                             PEERLESS GROUP, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
DESCRIPTION OF THE COMPANY
 
  Peerless Group, Inc., formerly known as TPG Holdings, Inc. (the "Company"),
is a computer software company which develops and provides banking and credit
union software systems and services. The Company markets these systems along
with the computer equipment (hardware) to financial institutions primarily
located in the United States and provides conversion, support and maintenance
services to customers using the systems. In conjunction with the initial
public offering of its common stock on October 3, 1996 (the "Offering"), TPG
Holdings, Inc. formed a new wholly owned Delaware subsidiary, Peerless Group,
Inc., and TPG Holdings, Inc. was merged into this new corporation. The
financial statements included herein reflect the merger and resulting change
in capitalization as all share and per share amounts have been retroactively
restated to reflect the merger. In conjunction with this change in
capitalization, all treasury shares outstanding were cancelled.
 
  The consolidated financial statements of the Company include the accounts of
the Company and all its subsidiaries. All significant intercompany
transactions and balances are eliminated.
 
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
CASH AND CASH EQUIVALENTS
 
  Cash and cash equivalents consist of money market funds and certificates of
deposit and Treasury Bills with original purchased maturities of three months
or less.
 
DEPRECIATION
 
  Depreciation is provided on computer and other equipment using the straight-
line method over a five- to ten-year estimated useful life.
 
COMPUTER SOFTWARE AND MAINTENANCE CONTRACTS
 
  Computer software and maintenance contracts consist of fair values assigned
to acquired software and maintenance contracts. The amounts are being
amortized over the estimated economic benefit period of five years. The
amounts amortized and charged to cost of sales were approximately $1,116,000,
$308,000 and $403,000 in 1994, 1995 and 1996, respectively.
 
CAPITALIZED SOFTWARE
 
  The Company expenses all software development costs as incurred until
technological feasibility has been established for the product, at which time
the costs are capitalized until the product is available for general release
to customers.
 
REVENUE RECOGNITION
 
  The Company's sources of revenue and the methods of revenue recognition are
as follows:
 
    Software license and installation fees--Revenues from software
    contracts involving installation are recognized when the installation
    is performed according to contractual terms, which, in the case of
    long-term contracts, involves the use of the percentage-of-completion
    method of accounting. Progress towards completion is measured based
    upon the percentage relationship that costs incurred to date bear to
    total estimated costs to complete the installation. Revenues from
    license fees not involving installation are recognized upon delivery of
    the software and acceptance by the customer when no significant vendor
    obligations remain.
 
                                      22
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
    Hardware and equipment sales--Commissions and revenues from hardware
    and equipment sales are recognized upon shipment by the manufacturer.
 
    Maintenance and service fees--Revenues from maintenance and service
    contracts are recognized ratably over the periods of the respective
    contracts.
 
UNEARNED REVENUES
 
  Deposits received and amounts billed for software licenses, installation and
hardware in advance of installation or delivery, and for annual software
maintenance prior to performance of related services, are reflected as
unearned until such amounts are recognized in accordance with the Company's
revenue recognition policy.
 
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
 
  Cash and cash equivalents, trade accounts receivable, accounts payable,
accrued liabilities and unearned revenues are stated at expected settlement
values which approximate fair value.
 
  Trade accounts receivable potentially subject the Company to concentrations
of credit risk as the Company markets its products and services primarily to
financial institutions throughout the United States. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral; however, deposits for future services
or products are frequently required.
 
STOCK OPTIONS
 
  The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 8, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options.
 
USE OF ESTIMATES
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
 
  Net income (loss) per common and common equivalent share amounts are
computed using net income (loss) available for common stockholders, which is
calculated as net income (loss) less accretion of redeemable common stock, and
the weighted average number of shares of common stock and common equivalent
shares (if dilutive) using the treasury stock method. Common stock equivalents
consist of stock options and warrants. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued by the Company at prices below the initial public offering price during
the twelve-month period prior to the offering have been included in the
calculation as if they were outstanding for all periods presented.
 
 
                                      23
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3.DEBT AND CREDIT AGREEMENTS
 
LINE OF CREDIT
 
  In January 1997, the Company amended its line of credit agreement with a
bank that provides for borrowings up to $2,500,000, reduced by the value of
outstanding letters of credit issued by the bank on behalf of the Company.
Borrowings using this line of credit bear interest at the bank's prime rate
(8.25% at December 31, 1996) plus 1/2% and are collateralized by the assets of
the Company's wholly owned subsidiaries. The facility will expire on February
1, 1999. No amounts were outstanding on the line of credit at December 31,
1996, and a letter of credit in the amount of $600,000 was issued by the bank
on behalf of the Company at December 31, 1996.
 
  The line of credit agreement contains restrictive covenants, the most
significant of which relate to minimum defined annual net income, quarterly
cash flow and the restriction on the payment of cash dividends. At December
31, 1996, the Company was in compliance with such covenants.
 
  Under the terms of the line of credit agreement, the bank was issued a
warrant to purchase at any time on or before October 1, 2002, 115,680 shares
of the Company's common stock at a purchase price of $5.42 per share. Included
in the warrant agreement is a provision allowing the bank to put the warrant
back to the Company at any time after October 1, 1999, at a price equal to the
then-current market price of the Company's common stock. No value was assigned
to the warrant at the date of issuance and no accretion has been recorded
through December 31, 1995, as the Company determined that there is no
significant value separately assignable to the warrant and put option. In June
1996, the line of credit agreement was amended such that the provision
allowing the bank to put the warrant back to the Company was terminated.
 
LONG-TERM DEBT DUE TO RELATED PARTIES
 
  The Company repaid all of its debt upon completion of the Offering. Long-
term debt payable to principal stockholders consisted of the following at
December 31, 1995 (in thousands):
 
<TABLE>
      <S>                                                                <C>
      1989 Subordinated Debentures...................................... $  433
      1993 Subordinated Debentures......................................  2,500
      Acquisition notes.................................................    694
                                                                         ------
                                                                          3,627
      Less current portion..............................................    494
                                                                         ------
                                                                         $3,133
                                                                         ======
</TABLE>
 
  The 1989 and 1993 Subordinated Debentures bore interest at 13% and 12%,
respectively, per annum, payable monthly. The Acquisition notes consisted of
two separate notes. One of the notes was for $494,000, bore interest at 8% per
annum, payable quarterly, and was repaid in March 1996. The note for the
balance of $200,000 bore interest at 6% per annum, payable quarterly.
 
  Under the terms of the Subordinated Debentures and the Acquisition notes,
the holders of the Subordinated Debentures (the "Holders") were originally
issued warrants to purchase up to 65% of the Company's common stock. After
giving effect to several transactions, including the repurchase of warrants
for $3,776,000 in cash and notes in prior years, which were recorded as
reductions to additional paid-in-capital, the Holders had warrants to purchase
37.5% of the outstanding common stock of the Company at December 31, 1995. In
June 1996, the Holders exercised warrants to purchase 505,710 shares of the
Company's common stock, and in October 1996, in conjunction with the Offering,
they sold warrants to the underwriters to purchase 597,360 shares of the
Company's common stock. Therefore, at December 31, 1996, the Holders owned
warrants to purchase 363,308
 
                                      24
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3.DEBT AND CREDIT AGREEMENTS (CONTINUED)
 
shares of the Company's common stock. The warrants are exercisable at a price
of $0.025 per share and expire four years from the date of the final payment
on the Subordinated Debentures.
 
4.INCOME TAXES
 
  The Company uses the liability method in accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". The components of the provision for income taxes are as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   ------------
                                                                   1995   1996
                                                                   ------------
   <S>                                                             <C>   <C>
   Current:
     Federal...................................................... $  38 $   51
     State........................................................    26    362
                                                                   ----- ------
       Total current..............................................    64    413
   Deferred:
     Federal......................................................    --   (245)
     State........................................................    --    (13)
                                                                   ----- ------
       Total deferred.............................................    --   (258)
                                                                   ----- ------
       Total provision for income taxes........................... $  64 $  155
                                                                   ===== ======
</TABLE>
 
  The effective income tax rate on pretax income (loss) differed from the
Federal income tax statutory rate for the following reasons (in thousands):
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                   --------------------------
                                                     1994     1995     1996
                                                   --------  -------  -------
   <S>                                             <C>       <C>      <C>
   Income tax charge:
     At Federal statutory rate.................... $   (192) $   644  $   832
     Unbenefitted (utilized) net operating loss-
      es..........................................      192     (644)    (832)
     Federal alternative minimum tax..............       --       38       48
     Deferred federal benefit relating to the
      elimination of the valuation allowance......       --       --     (245)
     State income tax.............................       --       26      352
                                                   --------  -------  -------
                                                   $     --  $    64  $   155
                                                   ========  =======  =======
</TABLE>
 
  At December 31, 1996, the Company had net operating loss carryforwards of
approximately $190,000 which expire in 2009. Given the historical trends in
generating taxable income and the expected future earnings, in the fourth
quarter of 1996 the Company determined that it was more likely than not that
its net deferred tax assets would be realized. As a result of the Company's
judgment, the valuation allowance was eliminated and a deferred tax benefit of
approximately $250,000 was recorded.
 
                                      25
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4.INCOME TAXES (CONTINUED)
 
  The significant components of the Company's deferred tax assets and
liabilities consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                                 -------------
                                                                  1995   1996
                                                                 ------  -----
   <S>                                                           <C>     <C>
   Deferred tax assets:
     Alternative minimum tax credit carryforward................ $   38  $  85
     Net operating loss carryforwards...........................    896     65
     Compensation expense on options............................     37    103
     Other......................................................     32     24
                                                                 ------  -----
       Total deferred tax assets................................  1,003    277
   Deferred tax liabilities:
     Other......................................................      7     19
                                                                 ------  -----
       Total deferred tax liabilities...........................      7     19
                                                                 ------  -----
   Deferred income tax assets, net of deferred income tax lia-
    bilities....................................................    996    258
   Valuation allowance..........................................   (996)    --
                                                                 ------  -----
                                                                 $   --  $ 258
                                                                 ======  =====
</TABLE>
 
5.LEASE COMMITMENTS
 
  Minimum noncancelable lease payments required under operating leases for the
years subsequent to December 31, 1996, are as follows (in thousands):
 
<TABLE>
      <S>                                                                   <C>
      1997................................................................. $303
      1998.................................................................  301
      1999.................................................................  253
      2000.................................................................  249
      2001.................................................................   96
</TABLE>
 
  Rental expense totaled approximately $235,000, $247,000 and $269,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
 
6.EMPLOYEE 401(K) PLAN
 
  The Company has a plan which provides retirement benefits under the
provisions of Section 401(k) of the Internal Revenue Code (the "Plan") for
substantially all employees who have completed a specified term of service.
The Company's contributions equal 50% of employee contributions, up to a
maximum of 6% of eligible employee compensation, as defined. Benefits under
the Plan are limited to the assets of the Plan.
 
  Contributions by the Company charged to expense during the years ended
December 31, 1994, 1995 and 1996, were approximately $74,000, $90,000 and
$122,000, respectively.
 
 
7.COMMON STOCK
 
  On March 7, 1994, the Company's president, a significant stockholder,
resigned his position with the Company. Under the terms of his resignation
agreement, the Company modified the terms of the stockholder's options to
purchase 72,000 shares of the Company's common stock, resulting in
compensation expense of $111,000. In addition, the stockholder obtained a put
option which required the Company to purchase up to 96,000 shares of his
holdings of the Company's common stock on April 4, 1994, and up to 50,666
shares of his holdings of the Company's common stock on June 1 in each of the
nine years thereafter, at a price per share
 
                                      26
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7.COMMON STOCK (CONTINUED)
 
equal to $2.60 for shares sold during 1994, with the price per share to
increase by 6% each year thereafter. The 1994 and 1995 options for 96,000 and
50,666 shares, respectively, were exercised by the stockholder. The present
value of the total amount that may be payable under the put option was
recorded as redeemable common stock and as a reduction of additional paid-in-
capital on the balance sheet. The difference between the carrying value and
redemption amount of the common stock was accreted as a charge to
stockholders' equity (deficit) over the term of the put option. Upon
consummation of the Offering, the options underlying the put feature were
exercised, thereby eliminating the payable under the put option and the
redeemable common stock.
 
  In July 1996, the Company adopted an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended. Under the
employee stock purchase plan, employees may make annual purchases of the
Company's common stock at a price equal to 85% of the market value of the
common stock on certain specified dates. The Company has reserved 250,000
shares of its common stock for issuance under the employee stock purchase
plan.
 
  During 1995 and 1996, the Company issued 102,480 and 19,620 shares,
respectively, of restricted stock to employees. The Company recorded
approximately $249,000 and $102,000, respectively, of unearned compensation
for the excess of the deemed value for accounting purposes of the common stock
issued over the proceeds received upon issuance. The unearned compensation is
charged to expense ratably over the vesting period of the common stock. During
1995 and 1996, approximately $54,000 and $98,000 were charged to operations.
 
8.STOCK OPTIONS
 
  The Board of Directors and the stockholders of the Company approved the
Company's Amended and Restated Stock Option Plan (the "1990 Plan") effective
as of October 1, 1990. In February, 1997, the Board of Directors of the
Company approved the Peerless Group, Inc. 1997 Stock Option Plan (the "1997
Plan"), subject to stockholder approval. The 1997 Plan will amend and restate
the 1990 Plan. The Company will reserve 450,000 shares of common stock for
future issuances under the 1997 Plan. Options under the 1997 Plan will be
granted at prices not less than the fair value of the common stock as
determined by the Compensation Committee of the Company's Board of Directors
(the "Committee") on the date of grant. Each option to be granted under the
1997 Plan will vest as determined by the Committee, but in no case can the
option term exceed ten years from the date of the option's grant.
Historically, options awarded under the 1990 Plan have generally vested 20% on
the date of grant and 20% each year thereafter, with an exercise period of
five years from the date of grant.
 
  A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
 
<TABLE>
<CAPTION>
                                     1995                      1996
                           ------------------------- -------------------------
                                        WEIGHTED-                 WEIGHTED-
                           NUMBER OF     AVERAGE     NUMBER OF     AVERAGE
                            OPTIONS   EXERCISE PRICE  OPTIONS   EXERCISE PRICE
                           ---------  -------------- ---------  --------------
<S>                        <C>        <C>            <C>        <C>
Outstanding at beginning
 of year..................  298,800       $1.09       348,000       $1.76
Granted...................  118,800        2.77       164,300        7.67
Exercised.................  (60,000)       0.44       (79,200)       1.01
Forfeited.................   (9,600)       1.93            --          --
                           --------                  --------
Outstanding at end of
 year.....................  348,000        1.76       433,100        4.14
                           ========                  ========
Exercisable at end of
 year.....................  147,600       $1.48       241,420       $2.53
Weighted-average fair
 value of options granted
 during the year..........    $0.97                     $2.21
</TABLE>
 
                                      27
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8.STOCK OPTIONS (CONTINUED)
 
  The total options outstanding at December 31, 1996, included 264,000 options
with exercise prices ranging from $1.25 to $2.87 and a weighted-average
remaining contractual life of 1.5 years; and 169,100 options with exercise
prices ranging from $5.42 to $8.80 and a weighted-average remaining
contractual life of 4.7 years. Exercisable options at December 31, 1996,
included 207,600 options with exercise prices ranging from $1.25 to $2.87 and
a weighted-average exercise price of $1.71; and 33,820 options with exercise
prices ranging from $5.42 to $8.80 and a weighted-average exercise price of
$7.61. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
 
  Pro forma information regarding net income and net income per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1995 and 1996, respectively: risk-free interest rates of 7.37% and 5.79%;
volatility factors of the expected market price of the Company's common stock
of .447 and .347; and no dividend yields. In addition, the fair value of these
options was estimated based on an expected life of one year from the vesting
date using the multiple option method.
 
  The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
 
  For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands except for net income
per share information):
 
<TABLE>
<CAPTION>
                                                                   1995   1996
                                                                  ------ ------
      <S>                                                         <C>    <C>
      Pro forma net income....................................... $1,789 $2,170
      Pro forma net income per share............................. $ 0.48 $ 0.53
</TABLE>
 
  The pro forma disclosures only include the effect of options granted
subsequent to December 31, 1994. Accordingly, the pro forma information does
not reflect the pro forma effect of all previous stock option grants of the
Company, and thus is not indicative of future amounts until SFAS 123 is
applied to all outstanding stock options.
 
9.NOTE RECEIVABLE FROM OFFICER
 
  During 1993, the Company made a loan to an officer in the amount of
$300,000. Amounts outstanding under this loan accrue interest monthly at 12%
per annum, with principal and interest due in 1996. During 1995, interest
payments on this loan totaled approximately $34,000. In June 1996, all
principal and interest amounts outstanding were repaid by the officer.
 
10.OPERATIONS
 
  The Company is dependent upon International Business Machines Corporation
("IBM") as its principal computer hardware vendor for its financial
institution applications systems. Additionally, operating systems on
 
                                      28
<PAGE>
 
                             PEERLESS GROUP, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10.OPERATIONS (CONTINUED)
 
which the Company's products function have been developed by IBM. Since its
inception in 1989, the Company has been a value-added remarketer of IBM
products pursuant to standard IBM Remarketer Agreements. The Company's current
remarketing agreement with IBM expires on February 28, 1999. Both IBM and the
Company may, with or without cause, upon three months' written notice,
terminate the agreement. The Company has no reason to believe that IBM will
discontinue the remarketing agreement. The Company believes that its
relationship with IBM is good.
 
11.SEVERANCE CHARGE
 
  During the year ended December 31, 1996, the Company incurred a severance
charge of $341,000 related to the resignation of a former officer ($289,000 of
which were non-cash compensation charges related to the extension of the
exercise period of certain stock options and the acceleration of vesting of
restricted stock awards).
 
 
                                      29
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  None.
 
PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The information required by this item regarding Directors of the Company is
set forth in the Proxy Statement (the "Proxy Statement") to be delivered to
the Company's stockholders in connection with the Company's 1997 Annual
Meeting of Stockholders under the heading "Election of Directors," which
information is incorporated herein by reference. The name, age and position of
each executive officer of the Company is set forth under the heading
"Executive Officers" in Part I of this Form 10-K, which information is
incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The information under the caption "Executive Compensation" in the Proxy
Statement is incorporated herein by reference. Information contained in the
Proxy Statement under the captions "Report on Executive Compensation" and
"Stock Performance Graph" is not incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement is incorporated herein
by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information under the caption "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
 
PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) The following documents are filed as a part of this Report:
 
  1. Financial Statements:
 
  The following Consolidated Financial Statements of the Company and its
  subsidiaries and the Reports of Independent Auditors thereon appear under
  Item 8 of this Report:
 
  --Report of Ernst & Young LLP, Independent Auditors.
 
  --Consolidated Balance Sheets as of December 31, 1995 and 1996.
 
  --Consolidated Statements of Operations for the years ended December 31,
    1994, 1995 and 1996.
 
  --Consolidated Statements of Stockholders' Equity (Deficit) for the years
    ended December 31, 1994, 1995 and 1996.
 
  --Consolidated Statements of Cash Flows for the years ended December 31,
    1994, 1995 and 1996.
 
  --Notes to Consolidated Financial Statements.
 
  2. Financial Statement Schedules:
 
  All schedules for which provision is made in the applicable accounting
  regulation of the Securities and Exchange Commission are not required under
  the related instructions or are inapplicable and therefore have been
  omitted.
 
                                      30
<PAGE>
 
  3. List of Exhibits:
 
  Except as otherwise specifically noted, the following documents are
  incorporated by reference as exhibits hereto pursuant to Rule 12b-32:
 
  (2.2)   Plan of Merger dated as of June 17, 1996 by and between Peerless
          Group, Inc. (the "Company") and TPG Holdings, Inc. filed as Exhibit
          2.2 to the Company's Registration Statement on Form SB-2, filed
          October 3, 1996 (the "Registration Statement").
 
  (3.1)   Certificate of Incorporation of the Company filed as Exhibit 3.1 to
          the Registration Statement.
 
  (3.2)   Bylaws of the Company filed as Exhibit 3.2 to the Registration
          Statement.
 
  (10.1)  Investment Agreement ("Investment Agreement") dated November 27,
          1989 by and among the Company, Rodney L. Armstrong, Jr., Harrell J.
          Stringer, Kevin W. Marsh, Allied Investment Corporation, Allied
          Venture Partnership and Allied Investment Corporation II filed as
          Exhibit 10.1 to the Registration Statement.
 
  (10.2)  Amendment to Investment Agreement dated April 26, 1991 by and among
          the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer, Allied
          Investment Corporation, Allied Venture Partnership and Allied
          Investment Corporation II filed as Exhibit 10.2 to the Registration
          Statement.
 
  (10.3)  Second Amendment to Investment Agreement dated March 6, 1992 by and
          among the Company, Allied Investment Corporation, Allied Venture
          Partnership and Allied Investment Corporation II filed as Exhibit
          10.3 to the Registration Statement.
 
  (10.4)  Third Amendment to Investment Agreement dated September 30, 1992 by
          and among the Company, Rodney L. Armstrong, Jr., Harrell J.
          Stringer, Allied Investment Corporation and Allied Investment
          Corporation II filed as Exhibit 10.4 to the Registration Statement.
 
  (10.5)  Fourth Amendment to Investment Agreement dated March 3, 1993 by and
          among the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer,
          Allied Investment Corporation and Allied Capital Corporation II
          filed as Exhibit 10.5 to the Registration Statement.
 
  (10.6)  Fifth Amendment to Investment Agreement dated September 9, 1993 by
          and among the Company, Rodney L. Armstrong, Jr., Harrell J.
          Stringer, Allied Investment Corporation, Allied Investment
          Corporation II and Allied Venture Partnership filed as Exhibit 10.6
          to the Registration Statement.
 
  (10.7)  Warrant Sale Agreement and Sixth Amendment to Investment Agreement
          dated November 3, 1993 by and among the Company, Rodney L.
          Armstrong, Jr., Harrell J. Stringer, Allied Investment Corporation,
          Allied Capital Corporation II and Allied Venture Partnership filed
          as Exhibit 10.7 to the Registration Statement.
 
  (10.8)  Seventh Amendment to Investment Agreement dated September 26, 1994
          by and among the Company, Rodney L. Armstrong, Jr., Allied
          Investment Corporation and Allied Capital Corporation II filed as
          Exhibit 10.8 to the Registration Statement.
 
  (10.9)  Eighth Amendment to Investment Agreement dated December 20, 1994 by
          and among the Company, Rodney L. Armstrong, Jr., Allied Investment
          Corporation, Allied Capital Corporation II and Allied Venture
          Partnership filed as Exhibit 10.9 to the Registration Statement.
 
  (10.10) Ninth Amendment to Investment Agreement dated on or about May 15,
          1995 by and among the Company, Rodney L. Armstrong, Jr., Allied
          Investment Corporation, Allied Capital Corporation and Allied
          Capital Corporation II filed as Exhibit 10.10 to the Registration
          Statement.
 
  (10.11) Tenth Amendment to Investment Agreement dated October 12, 1995 by
          an among the Company, Rodney L. Armstrong, Jr., Allied Investment
          Corporation, Allied Capital Corporation and Allied Capital
          Corporation II filed as Exhibit 10.11 to the Registration
          Statement.
 
                                      31
<PAGE>
 
  (10.12) Eleventh Amendment to Investment Agreement dated October 13, 1995
          by and among the Company, Allied Investment Corporation, Allied
          Capital Corporation and Allied Capital Corporation II filed as
          Exhibit 10.12 to the Registration Statement.
 
  (10.13) Amended and Restated Consent and Agreement dated July 12, 1996 by
          and among the Company, Rodney L. Armstrong, Jr., Allied Investment
          Corporation, Allied Capital Corporation, Allied Capital Corporation
          II and Allied Venture Partnership filed as Exhibit 10.13 to the
          Registration Statement.
 
  (10.14) Credit Agreement dated as of October 12, 1995 by and among the
          Company, Peerless Systems, Inc., Peerless Systems CU Services,
          Inc., Peerless Recovery Services, Inc. and State Street Bank and
          Trust Company filed as Exhibit 10.14 to the Registration Statement.
 
  (10.15) Consent and Agreement dated as of June 17, 1996 by and among the
          Company, Peerless Systems, Inc., Peerless Systems CU Services,
          Inc., Peerless Recovery Services, Inc., Peerless Data Services,
          Inc., Rodney L. Armstrong, Jr., Kathleen M. Armstrong and State
          Street Bank and Trust Company filed as Exhibit 10.15 to the
          Registration Statement.
 
  (10.16) Warrant Agreement dated October 12, 1995 by and between the Company
          and State Street Bank and Trust Company filed as Exhibit 10.16 to
          the Registration Statement.
 
  (10.17) Common Stock Purchase Warrant, dated October 12, 1995 executed by
          the Company in favor of State Street Bank and Trust Company filed
          as Exhibit 10.17 to the Registration Statement.
 
  (10.18) Loan Agreement dated November 28, 1989 by and between the Company
          and Electronic Data Systems Corporation filed as Exhibit 10.18 to
          the Registration Statement.
 
  (10.19) First Amendment to Loan Agreement effective May 1, 1990 by and
          between the Company and Electronic Data Systems Corporation filed
          as Exhibit 10.19 to the Registration Statement.
 
  (10.20) Amended and Restated Stock Option Plan of the Company effective
          October 1, 1990 filed as Exhibit 10.20 to the Registration
          Statement.
 
  (10.21) Form of Associate Agreement of the Company filed as Exhibit 10.21
          to the Registration Statement.
 
  (10.22) Promissory Note dated October 1, 1993 executed by Rodney L.
          Armstrong, Jr., in favor of the Company filed as Exhibit 10.22 to
          the Registration Statement.
 
  (10.23) Security Agreement dated October 1, 1993 by and between the Company
          and Rodney L. Armstrong, Jr. filed as Exhibit 10.23 to the
          Registration Statement.
 
  (10.24) Office Lease Agreement (the "1212 Arapaho Lease") dated September
          21, 1992 by and between the Company and Aetna Life Insurance
          Company filed as Exhibit 10.24 to the Registration Statement.
 
  (10.25) First Amendment to the 1212 Arapaho Lease dated March 5, 1995 by
          and between Peerless Systems, Inc. and Aetna Life Insurance Company
          filed as Exhibit 10.25 to the Registration Statement.
 
  (10.26) Second Amendment to the 1212 Arapaho Lease dated April 5, 1996 by
          and between Peerless Systems, Inc. and Aetna Life Insurance Company
          filed as Exhibit 10.26 to the Registration Statement.
 
  (10.27) Office/Showroom/Warehouse Lease Agreement dated April 5, 1996 by
          and between Peerless Systems, Inc. and Aetna Life Insurance Company
          filed as Exhibit 10.27 to the Registration Statement.
 
  (10.28) Lease Agreement (the "Plano Lease") dated August 17, 1994 by and
          between Peerless Systems, Inc. and Collin Creek Business Center
          Associates, Ltd. filed as Exhibit 10.28 to the Registration
          Statement.
 
                                      32
<PAGE>
 
  (10.29) First Amendment to the Plano Lease dated November 27, 1995 by and
          between Peerless Systems, Inc. and Collin Creek One Joint Venture
          filed as Exhibit 10.29 to the Registration Statement.
 
  (10.30) Value Added Reseller Agreement (the "VAR Agreement") dated March
          29, 1993 by and between the Company and NCR Corporation filed as
          Exhibit 10.30 to the Registration Statement.
 
  (10.31) CMD Addendum to VAR Agreement dated March 23, 1993 by and between
          the Company and NCR Corporation filed as Exhibit 10.31 to the
          Registration Statement.
 
  (10.32) Marketing & Sales Assistance Agreement dated November 2, 1995 by
          and between International Business Machines Corporation and
          Peerless Systems, Inc. filed as Exhibit 10.32 to the Registration
          Statement.
 
  (10.33) Business Partner Agreement dated February 15, 1995 by and between
          Peerless Systems, Inc. and International Business Machines
          Corporation filed as Exhibit 10.33 to the Registration Statement.
 
  (10.34) System Integrator Agreement effective January 1, 1994 by and
          between Peerless Systems, Inc. and Document Solutions Inc. filed as
          Exhibit 10.34 to the Registration Statement.
 
  (10.35) Resignation Agreement dated March 7, 1994 by and between Peerless
          Systems, Inc. and Harrell J. Stringer filed as Exhibit 10.35 to the
          Registration Statement.
 
  (10.36) Agreement Relating to Loan and Stock Pledge dated June 28, 1996 by
          and among the Company, North Dallas Bank & Trust Co. and Rodney L.
          Armstrong, Jr. filed as Exhibit 10.36 to the Registration
          Statement.
 
  (10.37) Resignation Agreement dated May 14, 1996 by and among the Company,
          Peerless Systems, Inc. and Michael S. Jones filed as Exhibit 10.37
          to the Registration Statement.
 
  (10.38) Consent and Agreement dated July 8, 1996 by and among the Company,
          Harrell J. Stringer, Harrell J. Stringer Individual Retirement
          Account, Betty Stringer and Betty Stringer Individual Retirement
          Account filed as Exhibit 10.38 to the Registration Statement.
 
  (10.39) Letter of Credit effective October 18, 1995 established in favor of
          IBM Credit Corporation for the account of Peerless Systems, Inc. by
          State Street Bank and Trust Company filed as Exhibit 10.39 to the
          Registration Statement.
 
  (10.40) Employee Stock Purchase Plan filed as Exhibit 10.40 to the
          Registration Statement.
 
  (10.41) Amendment Number One to Consent and Agreement dated as of June 17,
          1996 by and among the Company, Peerless Systems, Inc., Peerless
          Systems CU Services, Inc., Peerless Recovery Services, Inc.,
          Peerless Data Services, Inc., Rodney L. Armstrong, Jr., Kathleen M.
          Armstrong and State Street Bank and Trust Company filed as Exhibit
          10.41 to the Registration Statement.
 
  (10.42) First Amendment to Credit Agreement dated as of August 20, 1996 by
          and among the Company, Peerless Data Services, Inc., Peerless
          Systems, Inc., Peerless Systems CU Services, Inc., Peerless
          Recovery Services, Inc. and State Street Bank and Trust Company
          filed as Exhibit 10.42 to the Registration Statement.
 
  (10.43) Amendment Number One to Consent and Agreement dated July 18, 1996
          by and among the Company, Harrell J. Stringer, Harrell J. Stringer
          Individual Retirement Account, Betty Stringer and Betty Stringer
          Individual Retirement Account filed as Exhibit 10.43 to the
          Registration Statement.
 
  (10.44) First Amendment to Agreement Relating to Loan and Stock Pledge
          dated September 4, 1996 by and among the Company, North Dallas Bank
          & Trust Co. and Rodney L. Armstrong, Jr. filed as Exhibit 10.44 to
          the Registration Statement.
 
  (10.45) Second Amendment to Credit Agreement dated as of January 15, 1997
          by and among the Company, Peerless Data Services, Inc., Peerless
          Systems, Inc., Peerless Systems CU Services, Inc., Peerless
          Recovery Services, Inc. and State Street Bank and Trust Company
          (filed herewith).
 
                                      33
<PAGE>
 
  (10.46) First Amendment to Lease Agreement dated as of September 3, 1996 by
          and between Aetna Life Insurance Company and Peerless Systems, Inc.
          (filed herewith).
 
  (10.47) Peerless Group, Inc. 1997 Stock Option Plan (filed herewith).
 
  (10.48) Business Partner Agreement dated February 21, 1997 by and between
          Peerless Systems, Inc. and International Business Machines
          Corporation (filed herewith).
 
  (11.1)  Statement re computation of per share earnings (filed herewith).
 
  (21.1)  Subsidiaries of the Company filed as Exhibit 21.1 to the
          Registration Statement.
 
  (27.1)  Financial Data Schedule (filed herewith).
 
(b) Reports on Form 8-K:
 
  None.
 
 
                                      34
<PAGE>
 
                                  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.
 
                                          Peerless Group, Inc.
 
                                                                           
                                          By:  /s/ Rodney L. Armstrong, Jr.
                                              ---------------------------------
                                                   RODNEY L. ARMSTRONG, JR. 
                                                  Chairman of the Board and 
                                                   Chief Executive Officer
 
                                          Date:        March 24, 1997
                                                -------------------------------
 
  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/ Rodney L. Armstrong, Jr.       Chairman of the          March 24, 1997
-------------------------------------   Board and Chief
      RODNEY L. ARMSTRONG, JR.          Executive Officer
 
         /s/ Gary J. Austin            President and            March 24, 1997
-------------------------------------   Director
           GARY J. AUSTIN
 
        /s/ Allen D. Fleener           Director                 March 24, 1997
-------------------------------------
          ALLEN D. FLEENER
 
        s/ William F. Dunbar           Director                 March 24, 1997
-------------------------------------
          WILLIAM F. DUNBAR
 
        /s/ David A. O'Connor          Director                 March 24, 1997
-------------------------------------
          DAVID A. O'CONNOR
 
          /s/ Jane C. Walsh            Director                 March 24, 1997
-------------------------------------
            JANE C. WALSH
 
        /s/ Douglas K. Hansen          Treasurer and            March 24, 1997
-------------------------------------  Controller
          DOUGLAS K. HANSEN            (Principal
                                       Accounting Officer)
 
                                      35
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                   EXHIBIT
 -------                                 -------
 <C>     <S>
  (2.2)  Plan of Merger dated as of June 17, 1996 by and between Peerless
         Group, Inc. (the "Company") and TPG Holdings, Inc. filed as Exhibit
         2.2 to the Company's Registration Statement on Form SB-2, filed
         October 3, 1996 (the "Registration Statement").
  (3.1)  Certificate of Incorporation of the Company filed as Exhibit 3.1 to
         the Registration Statement.
  (3.2)  Bylaws of the Company filed as Exhibit 3.2 to the Registration
         Statement.
 (10.1)  Investment Agreement ("Investment Agreement") dated November 27, 1989
         by and among the Company, Rodney L. Armstrong, Jr., Harrell J.
         Stringer, Kevin W. Marsh, Allied Investment Corporation, Allied
         Venture Partnership and Allied Investment Corporation II filed as
         Exhibit 10.1 to the Registration Statement.
 (10.2)  Amendment to Investment Agreement dated April 26, 1991 by and among
         the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer, Allied
         Investment Corporation, Allied Venture Partnership and Allied
         Investment Corporation II filed as Exhibit 10.2 to the Registration
         Statement.
 (10.3)  Second Amendment to Investment Agreement dated March 6, 1992 by and
         among the Company, Allied Investment Corporation, Allied Venture
         Partnership and Allied Investment Corporation II filed as Exhibit 10.3
         to the Registration Statement.
 (10.4)  Third Amendment to Investment Agreement dated September 30, 1992 by
         and among the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer,
         Allied Investment Corporation and Allied Investment Corporation II
         filed as Exhibit 10.4 to the Registration Statement.
 (10.5)  Fourth Amendment to Investment Agreement dated March 3, 1993 by and
         among the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer,
         Allied Investment Corporation and Allied Capital Corporation II filed
         as Exhibit 10.5 to the Registration Statement.
 (10.6)  Fifth Amendment to Investment Agreement dated September 9, 1993 by and
         among the Company, Rodney L. Armstrong, Jr., Harrell J. Stringer,
         Allied Investment Corporation, Allied Investment Corporation II and
         Allied Venture Partnership filed as Exhibit 10.6 to the Registration
         Statement.
 (10.7)  Warrant Sale Agreement and Sixth Amendment to Investment Agreement
         dated November 3, 1993 by and among the Company, Rodney L. Armstrong,
         Jr., Harrell J. Stringer, Allied Investment Corporation, Allied
         Capital Corporation II and Allied Venture Partnership filed as Exhibit
         10.7 to the Registration Statement.
 (10.8)  Seventh Amendment to Investment Agreement dated September 26, 1994 by
         and among the Company, Rodney L. Armstrong, Jr., Allied Investment
         Corporation and Allied Capital Corporation II filed as Exhibit 10.8 to
         the Registration Statement.
 (10.9)  Eighth Amendment to Investment Agreement dated December 20, 1994 by
         and among the Company, Rodney L. Armstrong, Jr., Allied Investment
         Corporation, Allied Capital Corporation II and Allied Venture
         Partnership filed as Exhibit 10.9 to the Registration Statement.
 (10.10) Ninth Amendment to Investment Agreement dated on or about May 15, 1995
         by and among the Company, Rodney L. Armstrong, Jr., Allied Investment
         Corporation, Allied Capital Corporation and Allied Capital Corporation
         II filed as Exhibit 10.10 to the Registration Statement.
 (10.11) Tenth Amendment to Investment Agreement dated October 12, 1995 by and
         among the Company, Rodney L. Armstrong, Jr., Allied Investment
         Corporation, Allied Capital Corporation and Allied Capital Corporation
         II filed as Exhibit 10.11 to the Registration Statement.
</TABLE>
 
                                       36
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                   EXHIBIT
 -------                                 -------
 <C>     <S>
 (10.12) Eleventh Amendment to Investment Agreement dated October 13, 1995 by
         and among the Company, Allied Investment Corporation, Allied Capital
         Corporation and Allied Capital Corporation II filed as Exhibit 10.12
         to the Registration Statement.
 (10.13) Amended and Restated Consent and Agreement dated July 12, 1996 by and
         among the Company, Rodney L. Armstrong, Jr., Allied Investment
         Corporation, Allied Capital Corporation, Allied Capital Corporation II
         and Allied Venture Partnership filed as Exhibit 10.13 to the
         Registration Statement.
 (10.14) Credit Agreement dated as of October 12, 1995 by and among the
         Company, Peerless Systems, Inc., Peerless Systems CU Services, Inc.,
         Peerless Recovery Services, Inc. and State Street Bank and Trust
         Company filed as Exhibit 10.14 to the Registration Statement.
 (10.15) Consent and Agreement dated as of June 17, 1996 by and among the
         Company, Peerless Systems, Inc., Peerless Systems CU Services, Inc.,
         Peerless Recovery Services, Inc., Peerless Data Services, Inc., Rodney
         L. Armstrong, Jr., Kathleen M. Armstrong and State Street Bank and
         Trust Company filed as Exhibit 10.15 to the Registration Statement.
 (10.16) Warrant Agreement dated October 12, 1995 by and between the Company
         and State Street Bank and Trust Company filed as Exhibit 10.16 to the
         Registration Statement.
 (10.17) Common Stock Purchase Warrant, dated October 12, 1995 executed by the
         Company in favor of State Street Bank and Trust Company filed as
         Exhibit 10.17 to the Registration Statement.
 (10.18) Loan Agreement dated November 28, 1989 by and between the Company and
         Electronic Data Systems Corporation filed as Exhibit 10.18 to the
         Registration Statement.
 (10.19) First Amendment to Loan Agreement effective May 1, 1990 by and between
         the Company and Electronic Data Systems Corporation filed as Exhibit
         10.19 to the Registration Statement.
 (10.20) Amended and Restated Stock Option Plan of the Company effective
         October 1, 1990 filed as Exhibit 10.20 to the Registration Statement.
 (10.21) Form of Associate Agreement of the Company filed as Exhibit 10.21 to
         the Registration Statement.
 (10.22) Promissory Note dated October 1, 1993 executed by Rodney L. Armstrong,
         Jr., in favor of the Company filed as Exhibit 10.22 to the
         Registration Statement.
 (10.23) Security Agreement dated October 1, 1993 by and between the Company
         and Rodney L. Armstrong, Jr. filed as Exhibit 10.23 to the
         Registration Statement.
 (10.24) Office Lease Agreement (the "1212 Arapaho Lease") dated September 21,
         1992 by and between the Company and Aetna Life Insurance Company filed
         as Exhibit 10.24 to the Registration Statement.
 (10.25) First Amendment to the 1212 Arapaho Lease dated March 5, 1995 by and
         between Peerless Systems, Inc. and Aetna Life Insurance Company filed
         as Exhibit 10.25 to the Registration Statement.
 (10.26) Second Amendment to the 1212 Arapaho Lease dated April 5, 1996 by and
         between Peerless Systems, Inc. and Aetna Life Insurance Company filed
         as Exhibit 10.26 to the Registration Statement.
 (10.27) Office/Showroom/Warehouse Lease Agreement dated April 5, 1996 by and
         between Peerless Systems, Inc. and Aetna Life Insurance Company filed
         as Exhibit 10.27 to the Registration Statement.
 (10.28) Lease Agreement (the "Plano Lease") dated August 17, 1994 by and
         between Peerless Systems, Inc. and Collin Creek Business Center
         Associates, Ltd. filed as Exhibit 10.28 to the Registration Statement.
 (10.29) First Amendment to the Plano Lease dated November 27, 1995 by and
         between Peerless Systems, Inc. and Collin Creek One Joint Venture
         filed as Exhibit 10.29 to the Registration Statement.
</TABLE>
 
                                       37
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                   EXHIBIT
 -------                                 -------
 <C>     <S>
 (10.30) Value Added Reseller Agreement (the "VAR Agreement") dated March 29,
         1993 by and between the Company and NCR Corporation filed as Exhibit
         10.30 to the Registration Statement.
 (10.31) CMD Addendum to VAR Agreement dated March 23, 1993 by and between the
         Company and NCR Corporation filed as Exhibit 10.31 to the Registration
         Statement.
 (10.32) Marketing & Sales Assistance Agreement dated November 2, 1995 by and
         between International Business Machines Corporation and Peerless
         Systems, Inc. filed as Exhibit 10.32 to the Registration Statement.
 (10.33) Business Partner Agreement dated February 15, 1995 by and between
         Peerless Systems, Inc. and International Business Machines Corporation
         filed as Exhibit 10.33 to the Registration Statement.
 (10.34) System Integrator Agreement effective January 1, 1994 by and between
         Peerless Systems, Inc. and Document Solutions Inc. filed as Exhibit
         10.34 to the Registration Statement.
 (10.35) Resignation Agreement dated March 7, 1994 by and between Peerless
         Systems, Inc. and Harrell J. Stringer filed as Exhibit 10.35 to the
         Registration Statement.
 (10.36) Agreement Relating to Loan and Stock Pledge dated June 28, 1996 by and
         among the Company, North Dallas Bank & Trust Co. and Rodney L.
         Armstrong, Jr. filed as Exhibit 10.36 to the Registration
 (10.37) Resignation Agreement dated May 14, 1996 by and among the Company,
         Peerless Systems, Inc. and Michael S. Jones filed as Exhibit 10.37 to
         the Registration Statement.
 (10.38) Consent and Agreement dated July 8, 1996 by and among the Company,
         Harrell J. Stringer, Harrell J. Stringer Individual Retirement
         Account, Betty Stringer and Betty Stringer Individual Retirement
         Account filed as Exhibit 10.38 to the Registration Statement.
 (10.39) Letter of Credit effective October 18, 1995 established in favor of
         IBM Credit Corporation for the account of Peerless Systems, Inc. by
         State Street Bank and Trust Company filed as Exhibit 10.39 to the
         Registration Statement.
 (10.40) Employee Stock Purchase Plan filed as Exhibit 10.40 to the
         Registration Statement.
 (10.41) Amendment Number One to Consent and Agreement dated as of June 17,
         1996 by and among the Company, Peerless Systems, Inc., Peerless
         Systems CU Services, Inc., Peerless Recovery Services, Inc., Peerless
         Data Services, Inc., Rodney L. Armstrong, Jr., Kathleen M. Armstrong
         and State Street Bank and Trust Company filed as Exhibit 10.41 to the
         Registration Statement.
 (10.42) First Amendment to Credit Agreement dated as of August 20, 1996 by and
         among the Company, Peerless Data Services, Inc., Peerless Systems,
         Inc., Peerless Systems CU Services, Inc., Peerless Recovery Services,
         Inc. and State Street Bank and Trust Company filed as Exhibit 10.42 to
         the Registration Statement.
 (10.43) Amendment Number One to Consent and Agreement dated July 18, 1996 by
         and among the Company, Harrell J. Stringer, Harrell J. Stringer
         Individual Retirement Account, Betty Stringer and Betty Stringer
         Individual Retirement Account filed as Exhibit 10.43 to the
         Registration Statement.
 (10.44) First Amendment to Agreement Relating to Loan and Stock Pledge dated
         September 4, 1996 by and among the Company, North Dallas Bank & Trust
         Co. and Rodney L. Armstrong, Jr. filed as Exhibit 10.44 to the
         Registration Statement.
 (10.45) Second Amendment to Credit Agreement dated as of January 15, 1997 by
         and among the Company, Peerless Data Services, Inc., Peerless Systems,
         Inc., Peerless Systems CU Services, Inc., Peerless Recovery Services,
         Inc. and State Street Bank and Trust Company (filed herewith).
 (10.46) First Amendment to Lease Agreement dated as of September 3, 1996 by
         and between Aetna Life Insurance Company and Peerless Systems, Inc.
         (filed herewith).
</TABLE>
 
 
                                       38
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                   EXHIBIT
 -------                                 -------
 <C>     <S>
 (10.47) Peerless Group, Inc. 1997 Stock Option Plan (filed herewith).
 (10.48) Business Partner Agreement dated February 21, 1997 by and between
         Peerless Systems, Inc. and International Business Machines Corporation
         (filed herewith).
 (11.1)  Statement re computation of per share earnings (filed herewith).
 (21.1)  Subsidiaries of the Company filed as Exhibit 21.1 to the Registration
         Statement.
 (27.1)  Financial Data Schedule (filed herewith).
</TABLE>
 
                                       39