<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       OR

  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934

      FOR THE TRANSITION PERIOD FROM ________________ TO ________________

                         COMMISSION FILE NUMBER 0-21399

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

                              PEERLESS GROUP, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                    <C>
      DELAWARE                     75-2275966
      (State of         (IRS Employer Identification No.)
   incorporation)
</TABLE>

                             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. /X/

    On February 28, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $14,909,899 (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, 1998, there were 4,880,126 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 1998 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
located in the United States and Canada. 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-Registered Trademark-, 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 1995
and 1996 to approximately 2,580 banks. Most of the Company's credit union
customers have total assets ranging from $5 million to $200 million. As of
December 31, 1997, the Company had more than 350 bank and credit union customers
in 38 U.S. states and in Canada. In 1997, approximately 91% 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-Registered Trademark- software systems; continuing to expand sales of
check and statement imaging systems; continuing to develop and offer new
technology, products and services; differentiating itself from competitors
through outstanding customer service and support; and continuing to pursue
delivery of its products through the Company's outsourcing service bureau
operations.

                                       2
<PAGE>
PRODUCTS AND SERVICES

    The Company's revenues are derived primarily from software license and
installation, hardware and equipment sales, and maintenance and services.
Software license and installation revenues include 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 revenues 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, 1997:

<TABLE>
<CAPTION>
                                                                             1997         1996         1995
                                                                          -----------  -----------  -----------
<S>                                                                       <C>          <C>          <C>
Software license and installation.......................................       34.3%        37.7%        36.5%
Hardware and equipment..................................................       37.1         38.8         34.2
Maintenance and services................................................       28.6         23.5         29.3
                                                                              -----        -----        -----
  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 business 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 44% of
community banks with in-house information systems utilized IBM computing
platforms in 1996. The Company is an authorized IBM reseller.

    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.

    The Company markets 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 1997, revenues from the shipment and installation of
check and statement imaging systems accounted for approximately 25% of the
Company's total revenues, compared to 22% in 1996. Currently, approximately 15%
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, including product offerings in electronic

                                       3
<PAGE>
banking. The Company believes its success at leveraging its customer base is
reflected in a compounded annual growth in total revenues of 20% between 1991
and 1997.

    According to industry sources, approximately 36% of community banks with
assets of under $500 million and approximately 26% of credit unions outsourced
their information systems requirements in 1996. In 1996 the Company 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 not served by the
Company. During 1997, revenues from outsourcing operations accounted for
approximately 4% of the Company's total revenues, compared to less than 1% in
1996. The Company currently has sixteen outsourcing customer contracts, eight of
which are both check and statement imaging and data processing, two of which are
data processing only and six of which are check imaging or item processing only.
Currently, all data processing services are performed at the Company's facility
in Richardson, Texas, and at the Company's processing center in Port Arthur,
Texas, and no additional data processing centers are currently expected to be
established. Due to the nature of item processing services, the Company has
established four item capture centers in close proximity to the customers
serviced and expects to open additional item processing centers as contracts
necessary to support such centers are executed. The Company's outsourcing
business is still in the early stages of growth and investment. While management
believes this business will reach profitability in 1998, there can be no
assurance that the Company will be successful in this business.

    The Company offers business 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 business 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. As a developer of computer
software, the Company will be required to modify its software products so that
the software will function properly in the year 2000. The Company has developed
a Year 2000 compliance plan which was certified by the Information Technology
Association of America in December 1997. This external certification is part of
the Federal Financial Institutions Examination Council Safety and Soundness
approval process. 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-- Year 2000."

    This item should be read in conjunction with "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.

                                       4
<PAGE>
    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 indication that IBM
will discontinue these remarketing arrangements.

    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 may from time to time purchase NCR products in advance of
an order, based on forecasted demand. 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 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 a significant inventory of DSI products, but generally
purchases such products 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 $4.5 million at December 31, 1997, compared to
approximately $4.7 million at December 31, 1996. 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

                                       5
<PAGE>
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 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 services, 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 service to customers in the
Company's marketplace. The Company believes that EDS, Fiserv, 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 Greenway
Corporation.

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, credit union, and outsourcing products and services, 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.

                                       6
<PAGE>
EMPLOYEES

    As of December 31, 1997, the Company had a total of 184 employees, compared
to 157 at December 31, 1996. The increase in the number of employees was due
primarily to hiring additional service bureau personnel during the year. None of
the Company's employees are 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 and retention 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.

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..............          53   Chairman of the Board and Chief Executive Officer
Steven W. Tomson.....................          35   President
Kevin W. Marsh.......................          45   Executive Vice President--Sales
Ann L. Puddister.....................          37   Director of Administration and Corporate Secretary
Douglas K. Hansen....................          30   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 24 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' turnkey community bank data processing systems division by the Company
in 1989.

    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 software development 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 and as Executive Vice President
and Chief Operating Officer of the Company. Mr. Tomson has served as President
of the Company since April 1997. Prior to joining the Company, Mr. Tomson was
employed as an Account Sales Representative by IBM.

    KEVIN W. MARSH joined the Company in 1989 and has served in various
capacities since that time, including Vice President of Sales of the Company's
banking systems subsidiary and Vice President of sales of the Company's
outsourcing subsidiary. Mr. Marsh has served as Executive Vice President-Sales
of the Company since July 1997.

    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.

                                       7
<PAGE>
    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.

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, credit union and outsourcing subsidiaries
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 monthly rental payments of approximately $22,000. The Company's
check and statement imaging and business 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 payment of approximately $3,160. The Company leases three additional
facilities totaling 8,719 square feet which serve as item processing centers and
require total monthly rental payments of $8,337. In May 1997 the Company entered
into an agreement to lease a 82,600 square foot building and certain real
property in Allen, Texas. The lease is expected to commence in the third quarter
of 1998. The Company intends to sublease certain of its existing facilities upon
moving to the Allen location.

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.

                                       8
<PAGE>
                                    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 following were the reported high and low sales prices for the
Company's common stock for the period October 3, 1996, through December 31,
1997:

<TABLE>
<CAPTION>
                                                                                      HIGH          LOW
                                                                                      -----         ---
<S>                                                                                <C>          <C>
1996:
  Fourth Quarter.................................................................       8 1/2        5 7/8

1997:
  First Quarter..................................................................       7 1/8            5
  Second Quarter.................................................................       7 1/2        5 1/8
  Third Quarter..................................................................       7 3/8        4 3/8
  Fourth Quarter.................................................................       5 1/4        4 1/4
</TABLE>

    As of February 28, 1998, there were 267 holders of record, although the
Company believes that the number of beneficial owners is significantly greater
than that number because a large number of shares are held of record by
brokerage firms on behalf of their customers.

    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.

                                       9
<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------
                                                       1993       1994       1995       1996       1997
                                                      -------    -------    -------    -------    -------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
  Software license and installation...............    $ 4,789    $ 4,558    $ 7,181    $ 9,987    $10,339
  Hardware and equipment..........................      7,118      5,019      6,727     10,303     11,171
  Maintenance and services........................      4,382      5,165      5,782      6,235      8,621
                                                      -------    -------    -------    -------    -------
    Total revenues................................     16,289     14,742     19,690     26,525     30,131
Cost of revenues:
  Hardware and equipment..........................      5,380      3,892      5,258      7,754      8,528
  Software license and installation, maintenance
    and services..................................      6,306      5,855      6,872      8,882     11,794
                                                      -------    -------    -------    -------    -------
    Total cost of revenues........................     11,686      9,747     12,130     16,636     20,322
                                                      -------    -------    -------    -------    -------
Gross margin......................................      4,603      4,995      7,560      9,889      9,809
Operating costs and expenses:
  Research and development........................      1,404      1,365      1,398      1,696      2,004
  Selling and marketing...........................      2,610      2,301      2,502      3,477      3,412
  General and administrative......................        853      1,181      1,222      1,512      2,216
  Severance charge(1).............................         --         --         --        341         --
                                                      -------    -------    -------    -------    -------
    Total operating costs and expenses............      4,867      4,847      5,122      7,026      7,632
                                                      -------    -------    -------    -------    -------
Income (loss) from operations.....................       (264)       148      2,438      2,863      2,177
Other income (expense):
  Interest expense................................       (494)      (776)      (612)      (548)       (20)
  Interest income.................................         15         63         68        133        280
                                                      -------    -------    -------    -------    -------
    Total other income (expense)..................       (479)      (713)      (544)      (415)       260
                                                      -------    -------    -------    -------    -------
Income (loss) before income taxes.................       (743)      (565)     1,894      2,448      2,437
Provision for income taxes........................         --         --         64(2)     155(2)     534(3)
                                                      -------    -------    -------    -------    -------
Net income (loss).................................    $  (743)   $  (565)   $ 1,830    $ 2,293    $ 1,903
                                                      -------    -------    -------    -------    -------
                                                      -------    -------    -------    -------    -------
Basic earnings (loss) per share(4)................    $ (0.36)   $ (0.29)   $  0.90    $  0.82    $  0.40
                                                      -------    -------    -------    -------    -------
                                                      -------    -------    -------    -------    -------
Diluted earnings (loss) per share(4)..............    $ (0.36)   $ (0.32)   $  0.49    $  0.55    $  0.37
                                                      -------    -------    -------    -------    -------
                                                      -------    -------    -------    -------    -------
Shares used in computing basic earnings (loss) per
  share...........................................      2,054      1,949      1,976      2,745      4,712(6)
Shares used in computing diluted earnings (loss)
  per share.......................................      2,054(5)   1,949(5)   3,648      4,055      5,130(6)
</TABLE>

<TABLE>
<CAPTION>
                                                                      AS OF DECEMBER 31,
                                                      ---------------------------------------------------
                                                       1993       1994       1995       1996       1997
                                                      -------    -------    -------    -------    -------
                                                                        (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.........................    $ 1,554    $ 1,081    $ 1,394    $ 8,378    $ 2,845
Total assets......................................      6,555      6,346      7,130     17,359     19,942
Unearned revenues.................................      5,046      8,231      8,144      7,573      7,121
Current and long-term debt due to related
  parties.........................................      7,479      5,469      3,627         --         --
Stockholders' equity (deficit)....................     (7,807)    (9,586)    (7,729)     6,312      8,159
</TABLE>

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

(1) During the year ended December 31, 1996, the Company incurred a severance
    charge related to the resignation of a former officer.

(2) The Company's effective income tax rate was positively impacted by the
    utilization of previously unbenefitted net operating loss carryforwards.

(3) The Company's effective income tax rate was positively impacted by the
    utilization of research and development tax credits.

(4) For a description of the calculation of basic and diluted earnings (loss)
    per share, see Note 12 of Notes to Consolidated Financial Statements. All
    earnings (loss) per share amounts have been presented, and where
    appropriate, restated to conform to the requirements of Financial Accounting
    Standards Board Statement No. 128, EARNINGS PER SHARE.

(5) The exercise of options and warrants is not assumed in the calculation of
    diluted loss per share as the result would be antidilutive.

(6) The increase in share basis in 1997 as compared to 1996 is due primarily to
    the additional shares issued in the Company's October 3, 1996 initial public
    offering.

                                       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' 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, hardware and equipment and maintenance and services. Approximately
91% of the Company's total revenues for 1997 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. See "Outlook--Revenues" below.

    Software license and installation consists 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 contracts are recognized
ratably over the periods of the respective contracts, which typically have terms
of three to five years. Revenues from services, including processing fees, are
recognized in the period in which the services are performed.

    In the case of revenues from software license and installation and hardware
and equipment, 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, as primarily all software development efforts have been related to
enhancing the Company's existing products.

YEARS ENDED DECEMBER 31, 1997 AND 1996

    REVENUES.  Revenues for the year ended December 31, 1997 increased $3.6
million, or 13.6%, over the prior year. Revenues from software license and
installation increased $0.4 million, or 3.5%, over the prior year, and revenues
from hardware and equipment increased $0.9 million, or 8.4%, over the prior
year. Increases in revenues from installations of check and statement imaging
systems as well as additional software license and hardware revenues associated
with the sales of ancillary products were offset by decreases in revenues from
implementations of Peerless21. Shipments and installations of check and
statement imaging systems contributed $7.6 million in software license and
installation and in hardware and equipment revenues, as compared to $5.9 million
in 1996. Revenues from installations of Peerless21 decreased $0.7 million, or
14.5%, from the prior year. This decrease occurred primarily because the Company
made a greater number of Peerless21 installations in 1997 to smaller financial
institutions than in 1996. The Company typically recognizes lower revenues from
a Peerless21 implementation for a smaller

                                       11
<PAGE>
financial institution than for a larger financial institution. In response to
the decrease in Peerless21 revenues, the Company made certain management changes
to better focus its Peerless21 sales strategy. Revenues from maintenance and
services increased $2.4 million, or 38.3% over the prior year, due primarily to
data and item processing fees earned during 1997, which was the first full year
of operations for the Company's outsourcing service bureau. Data and item
processing revenues from the Company's outsourcing service bureau were $1.1
million in 1997, compared to $0.1 million in 1996.

    GROSS MARGIN.  Gross margin for the year ended December 31, 1997 declined to
32.6% of total revenues from 37.3% for the prior year. Increased shipments of
check and statement imaging systems and continuing investment in the Company's
service bureau contributed to the lower margins for the year. Check and
statement imaging systems generally have lower margins than other software and
hardware products, and investments in service bureau operations may continue to
contribute to lower margins in the future (See "Outlook--Outsourcing Service
Bureau"). Excluding the service bureau component, gross margin for the year
ended December 31, 1997 was 35.3% of total revenues.

    Shifts in the mix of the sources of the Company's revenues, including
revenues from software license and installation fees, check and statement
imaging systems and processing fees, 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, 1997 increased $308,000, or 18.2%, from the prior year. This
increase primarily resulted from the Company's focus on product upgrades that
will complete the Year 2000 solution and provide its customers with the most
current technology. As a percentage of total revenues, research and development
expenses increased slightly to 6.7% for the year from 6.4% for the prior year.
See "Outlook--Year 2000" below.

    SELLING AND MARKETING.  Selling and marketing expenses for the year ended
December 31, 1997 decreased $65,000, or 1.9%, from the prior year. As a
percentage of total revenues, selling and marketing expenses decreased to 11.3%
for the year from 13.1% for the prior year. This decrease was due to cost
control initiatives undertaken by management during the year.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
year ended December 31, 1997 increased $704,000, or 46.6%, from the prior year.
This increase primarily resulted from additional insurance, professional fees
and administrative costs associated with being a public company. As a percentage
of total revenues, general and administrative expenses increased to 7.4% for the
year from 5.7% for the prior year.

    INTEREST EXPENSE.  Interest expense for the year ended December 31, 1997
decreased $528,000, or 96.4% from the prior year. This decrease primarily
resulted from the repayment of all outstanding debt subsequent to the Offering.

    INTEREST INCOME.  Interest income for the year ended December 31, 1997
increased $147,000 from the prior year. This increase was a result of the
investment of cash obtained from the Offering.

    BASIC AND DILUTED EARNINGS PER SHARE.  Basic and diluted earnings per share
for the year ended December 31, 1997, were negatively impacted by an increase in
the Company's tax rate and an increase in the shares used in computing earnings
per share, which resulted from the additional shares issued in the Offering and
the exercise of outstanding warrants to purchase the Company's common stock.

                                       12
<PAGE>
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 $5.9 million in revenues, representing an increase of $2.5 million,
or 74.5%, 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 primarily to 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.

    RESEARCH AND DEVELOPMENT.  Research and development expenses for the year
ended December 31, 1996 increased $298,000, or 21.3%, from the prior year. This
increase primarily resulted from hiring additional research and development
employees to modify and enhance 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%, from the prior year. 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%, from 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 public company. 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, or 10.5%, from the prior year. This decrease primarily
resulted from the repayment of all outstanding debt subsequent to the Offering,
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.

    BASIC AND DILUTED EARNINGS PER SHARE.  Basic and diluted earnings per share
for the year ended December 31, 1996, were negatively impacted by an increase in
the shares used in computing earnings per share, resulting from the additional
shares issued in the Offering.

                                       13
<PAGE>
PROVISION FOR INCOME TAXES

    The Company's provision for income taxes for the year ended December 31,
1996 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. The majority of the Company's net operating loss carryforwards for
Federal income tax purposes were utilized in late 1996. The Company's 1997
effective tax rate was favorably impacted by the utilization of research and
development tax credits totaling $459,000. The effective tax rate for the year
ended December 31, 1997 was 21.9%, up from 6.3% in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's cash and cash equivalents at December 31, 1997 decreased to
$2.8 million from $8.4 million at December 31, 1996. During 1997, the Company
invested $2.2 million in capital expenditures, compared to $1.4 million in 1996
and $381,000 in 1995. Approximately $1.6 million of the 1997 capital
expenditures were for investments made in the Company's service bureau
operations, including the addition of a processing center in Southeast Texas.
Additionally, the Company invested $2.5 million in the preferred stock of Online
Resources & Communications Corporation ("Online"), a private electronic
financial services company. See "Outlook--Investment in Online" below. Cash used
in operating activities was $520,000 in 1997, primarily due to a significant
increase in trade accounts receivable. The increase in trade accounts receivable
was primarily due to an increase in the volume of billings in December as a
result of the timing of imaging system shipments as well as a lower amount of
collections on annual maintenance contracts in December as compared to December
of the prior year.

    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.

    The Company expects to relocate its headquarters in the third quarter of
1998. The capital expenditures associated with this relocation, including those
for computer equipment, furniture and fixtures and other related costs, are
expected to approximate $1.5 million. See Note 6 of Notes to Consolidated
Financial Statements for a schedule of the future lease payments associated with
the new facility. Initially, the additional monthly cash outlays for rent on the
new facility will increase the amount currently paid by approximately $84,000.
The lease provides for escalating base rental payments after every five years of
the lease term. In accordance with generally accepted accounting principles,
rental expense will be recognized in the financial statements on a straight-line
basis over the term of the lease. The Company intends to sublease certain of its
existing leased facilities upon relocating to the new facility.

    The Company expects that capital expenditures associated with service bureau
operations in 1998 could reach $1.5 million, depending upon the growth of this
business. The Company anticipates that new item processing centers will only be
opened as contracts necessary to support such centers are executed.

    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
(8.5% at December 31, 1997) 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, 1997, 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

                                       14
<PAGE>
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, 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. At September 30, 1997, the Company was not in compliance with certain
covenants in the Credit Agreement regarding limitations on capital spending and
maintenance by the Company of minimum quarterly cash flow levels. State Street
waived non-compliance with those covenants for certain periods in 1997. These
covenants are measured on a quarterly and annual basis, and the Company has now
returned to compliance with all covenants in the Credit Agreement. There can be
no assurance that the Company will not require additional waivers in the future
or, if required, that State Street will grant them. See Note 4 of Notes to
Consolidated Financial Statements.

    The Company believes that its cash and cash equivalents at December 31,
1997, 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.

RECENTLY ISSUED ACCOUNTING STANDARDS

    STATEMENT OF POSITION 97-2.  In October 1997, the Accounting Standards
Executive Committee of the American Institute of Public Accountants issued
Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION, which supersedes
SOP 91-1. The Company will be required to adopt SOP 97-2 for software
transactions entered into beginning January 1, 1998, and retroactive application
to years prior to adoption is prohibited. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, postcontract customer support, installation,
training, etc.) to be allocated to each element based on the relative fair
values of the elements. The fair value of an element must be based on evidence
which is specific to the vendor. The revenue allocated to software products
(including specified upgrades/enhancements) generally is recognized upon
delivery of the products. The revenue allocated to postcontract customer support
generally is recognized ratably over the term of the support and revenue
allocated to service elements (such as training and installation) generally is
recognized as the services are performed. If a vendor does not have evidence of
the fair value for all elements in a multiple-element arrangement, all revenue
from the arrangement is deferred until such evidence exists or until all
elements are delivered. The Company's management anticipates that the adoption
of SOP 97-2 will not have a material impact on the Company's results of
operations.

    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131.  In June 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which is effective for years beginning after December 15, 1997.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company will adopt the new requirements retroactively in 1998. Management
has not completed its review of Statement 131, but does not anticipate that the
adoption of this statement will affect results of operations or financial
position, but will affect the disclosure of segment information.

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.

                                       15
<PAGE>
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 existing customers. For example, revenue per bank customer has increased
from approximately $40,000 in 1991 to approximately $117,000 in 1997. The
Company believes the growth from its existing customer base is attributable to
the quality and growth of its customers and the importance its customers place
on technology. The Company anticipates that substantially all of its current
banking customers will be utilizing the Peerless21 information processing system
by the end of 1998; therefore, the Company will increasingly have to sell its
products and services to new customers as well as continue to sell ancillary
products, including check and statement imaging systems, to its existing
customers in order to maintain historical growth rates. Due to the intense
competition in the industry and the relative size of the Company to its
competitors, there can be no assurance that the Company will be successful in
obtaining a sufficient amount of new customers to maintain historical growth
rates. The Company has initiated several measures to focus on new customer
opportunities, including changes in key sales personnel, sales territories,
compensation strategies, and the hiring of additional sales resources.

    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 increased to
$7.6 million in 1997, representing a 26.7% growth rate over the 1996 level. As
of December 31, 1997, approximately 15% 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, whether in a turnkey or
outsourcing solution, in the future. However, given the significant expenditure
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 order to address the issue of the significant costs
of check and statement imaging solutions to customers, the Company has
substantially broadened its check and statement imaging solutions by adding
entry and mid-level products to complement the high-end products it offers.

    OUTSOURCING SERVICE BUREAU.  According to industry sources, approximately
36% of community banks with assets of less than $500 million and 26% of credit
unions outsourced their information systems requirements in 1996. 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 27, 1998, the Company had entered into sixteen
outsourcing contracts: eight of which are both check and statement imaging and
data processing, two of which are data processing only and six of which are
check imaging or item processing only. The Company expects to continue to
leverage its experience in both the banking and credit union processing
industry, as well as its Peerless21 and PeerlessCU products, in order to
continue to grow the outsourcing operations. Any future expansion of these
operations will depend to a significant extent on any capital and other
expenditures the Company is able to make to expand this aspect of its business.
The future profitability of these operations is primarily dependent on obtaining
additional customers and processing volumes to cover operating expenses, which
are primarily fixed in nature.

    INVESTMENT IN ONLINE.  In May 1997, the Company purchased 25,000 shares of
the preferred stock of Online for $2.5 million. This preferred stock is
convertible into approximately 833,000 shares of Online's common stock. The
Company also received warrants to purchase approximately 333,000 shares of
Online's common stock at $3.00 per share. The Company understands that Online is
seeking additional financing. If

                                       16
<PAGE>
Online is not able to obtain additional financing, the Company may be required
to write off some or all of this investment.

    YEAR 2000.  The Company has adopted a plan to modify its software products
to make them Year 2000 compliant. This plan has been certified by the
Information Technology Association of America. Management believes that
principally all of the software modifications necessary to make its products
Year 2000 compliant will be substantially completed by December 31, 1998. Based
on currently available information, management estimates that the total costs to
implement the plan will range from $1.0 to $2.0 million. The Company could
experience delays in the modification of its software or cost overruns as a
result of various factors, including but not limited to, difficulties in hiring
and retaining appropriate personnel.

    The Company also purchases software and hardware from certain vendors, which
the Company resells to its customers. See "Item 1. Business--Principal
Suppliers". The Company is currently evaluating the hardware and software
provided by its vendors to identify any systems that need to be made Year 2000
compliant. The Company's primary vendors have assured the Company that the
systems they provide will be made Year 2000 compliant in a timely fashion,
although there can be no assurances made as to these representations. The
failure of the Company's vendors to make their systems Year 2000 compliant could
pose a material financial risk to the Company.

    The Company believes that the Year 2000 issue may create additional
opportunities in both its turnkey and outsourcing markets. Many financial
institutions have been notified by their software or service vendors that their
systems will not be made Year 2000 compliant. Therefore, the Company believes
that these institutions will need to change their systems, creating additional
potential customers for the Company's software and services.

                                       17
<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..........................................................          19
Consolidated Balance Sheets as of December 31, 1997 and 1996...............................................          20
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995.....................          21
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1996, and
  1995.....................................................................................................          22
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995................          23
Notes to Consolidated Financial Statements.................................................................          24
</TABLE>

                                       18
<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, 1997 and 1996, and the related
consolidated statements of income, cash flows, and stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1997.
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, 1997 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, 1997, in conformity with generally accepted accounting principles.

                                          ERNST & YOUNG LLP

Dallas, Texas
January 20, 1998

                                       19
<PAGE>
                              PEERLESS GROUP, INC.
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                ASSETS (NOTE 4)

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                              --------------------
                                                                                                1997       1996
                                                                                              ---------  ---------
<S>                                                                                           <C>        <C>
Current assets:
  Cash and cash equivalents.................................................................  $   2,845  $   8,378
  Trade accounts receivable.................................................................      9,346      5,712
  Prepaid expenses and other current assets.................................................      1,152        541
                                                                                              ---------  ---------
    Total current assets....................................................................     13,343     14,631
Computer and other equipment, at cost.......................................................      4,337      2,335
Less accumulated depreciation...............................................................      1,135        589
                                                                                              ---------  ---------
                                                                                                  3,202      1,746
Computer software, maintenance contracts, and other assets, net of accumulated amortization
  of $396 and $1,482 at December 31, 1997 and 1996, respectively............................        897        982
Investment in preferred stock, at cost......................................................      2,500         --
                                                                                              ---------  ---------
    Total assets............................................................................  $  19,942  $  17,359
                                                                                              ---------  ---------
                                                                                              ---------  ---------

                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................................................  $   3,014  $   1,865
  Accrued liabilities.......................................................................      1,002      1,041
  Sales tax payable.........................................................................        646        568
  Unearned revenues.........................................................................      7,121      7,573
                                                                                              ---------  ---------
    Total current liabilities...............................................................     11,783     11,047

Commitments (NOTE 6)

Stockholders' equity (NOTES 4 AND 8):
  Preferred stock, $.01 par value:
    Authorized shares--5,000
    Issued shares--none
  Common stock, $.01 par value:
    Authorized shares--10,000
    Issued shares--4,948 and 4,598 at December 31, 1997 and 1996, respectively..............         49         46
  Additional paid-in capital................................................................      7,958      7,720
  Retained earnings (deficit)...............................................................        649     (1,254)
  Treasury stock, at cost (73 and 1 at December 31, 1997 and 1996, respectively)............       (379)        (1)
  Unearned compensation.....................................................................       (118)      (199)
                                                                                              ---------  ---------
    Total stockholders' equity..............................................................      8,159      6,312
                                                                                              ---------  ---------
    Total liabilities and stockholders' equity..............................................  $  19,942  $  17,359
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>

                             SEE ACCOMPANYING NOTES

                                       20
<PAGE>
                              PEERLESS GROUP, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Revenues:
  Software license and installation..............................................  $  10,339  $   9,987  $   7,181
  Hardware and equipment.........................................................     11,171     10,303      6,727
  Maintenance and services.......................................................      8,621      6,235      5,782
                                                                                   ---------  ---------  ---------
    Total revenues...............................................................     30,131     26,525     19,690
Cost of revenues:
  Hardware and equipment.........................................................      8,528      7,754      5,258
  Software license and installation, maintenance and services....................     11,794      8,882      6,872
                                                                                   ---------  ---------  ---------
    Total cost of revenues.......................................................     20,322     16,636     12,130
                                                                                   ---------  ---------  ---------
Gross margin.....................................................................      9,809      9,889      7,560
Operating costs and expenses:
  Research and development.......................................................      2,004      1,696      1,398
  Selling and marketing..........................................................      3,412      3,477      2,502
  General and administrative.....................................................      2,216      1,512      1,222
  Severance charge (NOTE 11).....................................................         --        341         --
                                                                                   ---------  ---------  ---------
    Total operating costs and expenses...........................................      7,632      7,026      5,122
                                                                                   ---------  ---------  ---------
Income from operations...........................................................      2,177      2,863      2,438
Other income (expense):
  Interest expense...............................................................        (20)      (548)      (612)
  Interest income................................................................        280        133         68
                                                                                   ---------  ---------  ---------
    Total other income (expense).................................................        260       (415)      (544)
                                                                                   ---------  ---------  ---------
Income before income taxes.......................................................      2,437      2,448      1,894
Provision for income taxes.......................................................        534        155         64
                                                                                   ---------  ---------  ---------
Net income.......................................................................  $   1,903  $   2,293  $   1,830
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Basic earnings per share.........................................................  $    0.40  $    0.82  $    0.90
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Diluted earnings per share.......................................................  $    0.37  $    0.55  $    0.49
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Shares used in computing basic earnings per share................................      4,712      2,745      1,976
Shares used in computing diluted earnings per share..............................      5,130      4,055      3,648
</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       21
<PAGE>
                              PEERLESS GROUP, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       COMMON STOCK                                TREASURY STOCK
                                                    ------------------   ADDITIONAL   RETAINED   ------------------
                                                    NUMBER OF             PAID-IN     EARNINGS   NUMBER OF              UNEARNED
                                                     SHARES     AMOUNT    CAPITAL     (DEFICIT)   SHARES     AMOUNT   COMPENSATION
                                                    ---------   ------   ----------   --------   ---------   ------   ------------
<S>                                                 <C>         <C>      <C>          <C>        <C>         <C>      <C>
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..................................      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................       --       --        1,011          --        --         --          --
                                                    ---------   ------   ----------   --------      ---      ------      -----
Balance at December 31, 1996......................    4,598       46        7,720      (1,254)        1         (1)       (199)
  Net income......................................       --       --           --       1,903        --         --          --
  Common stock issued upon exercise of warrants...      182        2            3          --        --         --          --
  Common stock issued upon exercise of options....      168        1          247          --        --         --          --
  Common stock issued, net of unearned
    compensation..................................       --       --            1          --        (2)        10          72
  Common stock issued, employee stock purchase
    plan..........................................       --       --          (13)         --       (30)       202          --
  Common stock repurchased........................       --       --           --          --       104       (590)          9
                                                    ---------   ------   ----------   --------      ---      ------      -----
Balance at December 31, 1997......................    4,948      $49      $ 7,958     $   649        73      $(379)      $(118)
                                                    ---------   ------   ----------   --------      ---      ------      -----
                                                    ---------   ------   ----------   --------      ---      ------      -----
</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       22
<PAGE>
                              PEERLESS GROUP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                      1997       1996       1995
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
OPERATING ACTIVITIES
Net income........................................................................  $   1,903  $   2,293  $   1,830
Adjustments to reconcile net income to net cash provided by (used in) operating
  activities:
  Depreciation and amortization...................................................      1,052        757        523
  Compensation expense............................................................         83        366         54
  Changes in operating assets and liabilities:
    Trade accounts receivable.....................................................     (3,634)    (1,506)      (584)
    Prepaid expenses and other current assets.....................................       (660)      (451)        34
    Accounts payable and accrued liabilities......................................      1,188        812        939
    Unearned revenues.............................................................       (452)      (594)       (87)
                                                                                    ---------  ---------  ---------
Net cash provided by (used in) operating activities...............................       (520)     1,677      2,709

INVESTING ACTIVITIES
Additions to computer and other equipment.........................................     (2,246)    (1,419)      (381)
Investment in preferred stock.....................................................     (2,500)        --         --
Other.............................................................................       (120)      (160)        --
                                                                                    ---------  ---------  ---------
Net cash used in investing activities.............................................     (4,866)    (1,579)      (381)

FINANCING ACTIVITIES
Note receivable from officer......................................................         --        271         --
Proceeds from borrowings..........................................................         --         --      4,111
Payments on borrowings............................................................         --     (3,627)    (5,953)
Issuance of common stock..........................................................        297         94         30
Purchase of treasury stock........................................................       (436)        (9)      (140)
Net proceeds from initial public offering.........................................         --     10,137         --
Other.............................................................................         (8)        20        (63)
                                                                                    ---------  ---------  ---------
Net cash provided by (used in) financing activities...............................       (147)     6,886     (2,015)
                                                                                    ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents..............................     (5,533)     6,984        313
Cash and cash equivalents at beginning of period..................................      8,378      1,394      1,081
                                                                                    ---------  ---------  ---------
Cash and cash equivalents at end of period........................................  $   2,845  $   8,378  $   1,394
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest............................................................  $      19  $     542  $     737
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
Cash paid for income taxes........................................................  $     545  $     265  $      38
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       23
<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 Canada and provides conversion, support, and
maintenance and outsourcing 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, 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
on a straight-line basis over the estimated economic benefit period of five
years. The amounts amortized and charged to cost of sales were approximately
$358,000, $403,000, and $308,000 in 1997, 1996 and 1995, 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--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

                                       24
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    bear to total estimated costs to complete the installation. Revenues from
    license fees not involving installation are recognized upon delivery of the
    software to the customer when no significant vendor obligations remain.

    Hardware and equipment--Commissions and revenues from hardware and equipment
    sales are recognized upon shipment by the manufacturer.

    Maintenance and services--Revenues from maintenance and service contracts
    are recognized ratably over the periods of the respective contracts.
    Revenues from data and check and statement imaging processing services are
    recognized in the period in which the services are performed.

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, accounts receivable, accounts payable, accrued
liabilities and unearned revenues are stated at expected settlement values which
approximate fair value.

    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 and Canada. 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 9, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (Statement 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
statement, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                                       25
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE (Statement 128).
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt the new
requirements retroactively in 1998. Management has not completed its review of
Statement 131, but does not anticipate that the adoption of this statement will
affect results of operations or financial position, but will affect the
disclosure of segment information.

    In October 1997, the Accounting Standards Executive Committee of the
American Institute of Public Accountants issued Statement of Position (SOP)
97-2, SOFTWARE REVENUE RECOGNITION, which supersedes SOP 91-1. The Company will
be required to adopt SOP 97-2 for software transactions entered into beginning
January 1, 1998. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements (i.e., software products,
upgrades/enhancements, postcontract customer support, installation, training,
etc.) to be allocated to each element based on the relative fair values of the
elements. The fair value of an element must be based on evidence which is
specific to the vendor. The revenue allocated to software products (including
specified upgrades/enhancements) generally is recognized upon delivery of the
products. The revenue allocated to postcontract customer support generally is
recognized ratably over the term of the support and revenue allocated to service
elements (such as training and installation) generally is recognized as the
services are performed. If a vendor does not have evidence of the fair value for
all elements in a multiple-element arrangement, all revenue from the arrangement
is deferred until such evidence exists or until all elements are delivered. The
Company's management anticipates that the adoption of SOP 97-2 will not have a
material impact on the Company's results of
operations.

CHANGES IN PRESENTATION

    Certain prior year amounts have been reclassified to conform to current year
presentation.

3. INVESTMENT IN PREFERRED STOCK

    In May 1997, the Company purchased 25,000 shares of the preferred stock of
Online Resources & Communications Corporation ("Online"), a private electronic
financial services company, for $2.5 million.

                                       26
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENT IN PREFERRED STOCK (CONTINUED)
This preferred stock is convertible into approximately 833,000 shares of
Online's common stock. The Company also received warrants to purchase
approximately 333,000 shares of Online's common stock at $3.00 per share. The
Company understands that Online is seeking additional financing. If Online is
not able to obtain additional financing, the Company may be required to write
off some or all of this investment.

4. 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
(8.50% at December 31, 1997) 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, 1997,
and a letter of credit in the amount of $600,000 was issued by the bank on
behalf of the Company at that date.

    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, 1997,
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 was 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 was recorded, as the
Company determined that there was 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. In prior
years, the terms of certain Subordinated Debentures and Acquisition notes
included warrants to purchase up to 65% of the Company's common stock by the
holders of the Subordinated Debentures (the "Holders"). After giving effect to
several transactions, including the repurchase of warrants for $3,776,000 in
cash and notes, 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. In December 1997, the
Holders exercised warrants to purchase an additional 181,654 shares of the
Company's common stock. Therefore, at December 31, 1997, the Holders own
warrants to purchase 181,654 shares of the Company's common stock. The warrants
are exercisable at a price of $0.025 per share and expire in October, 2000.

                                       27
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. 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,
                                                                                  -------------------------------
                                                                                    1997       1996       1995
                                                                                  ---------  ---------  ---------
<S>                                                                               <C>        <C>        <C>
Current:
  Federal.......................................................................  $     312  $      51  $      38
  State.........................................................................        124        362         26
                                                                                  ---------  ---------  ---------
Total current...................................................................        436        413         64
Deferred:
  Federal.......................................................................         70       (245)        --
  State.........................................................................         28        (13)        --
                                                                                  ---------  ---------  ---------
Total deferred..................................................................         98       (258)        --
                                                                                  ---------  ---------  ---------
Total provision for income taxes................................................  $     534  $     155  $      64
                                                                                  ---------  ---------  ---------
                                                                                  ---------  ---------  ---------
</TABLE>

    The effective income tax rate on income before income taxes differed from
the Federal income tax statutory rate for the following reasons (in thousands):

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                 -------------------------------
                                                                                   1997       1996       1995
                                                                                 ---------  ---------  ---------
<S>                                                                              <C>        <C>        <C>
Income tax charge:
  At Federal statutory rate....................................................  $     824  $     832  $     644
  Unbenefitted (utilized) net operating losses.................................         --       (832)      (644)
  Benefit of research and development tax credits..............................       (459)        --         --
  Federal alternative minimum tax..............................................         --         48         38
  Deferred federal benefit relating to the elimination of the valuation
    allowance..................................................................         --       (245)        --
  State income tax.............................................................         96        271         26
  Other........................................................................         73         81         --
                                                                                 ---------  ---------  ---------
                                                                                 $     534  $     155  $      64
                                                                                 ---------  ---------  ---------
                                                                                 ---------  ---------  ---------
</TABLE>

    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 judgement, the valuation allowance was eliminated and
a deferred tax benefit of approximately $250,000 was recorded.

    During the three months ended September 30, 1997, the Company identified
research and development tax credits totaling $459,000. As a result, the
estimated effective tax rate for the fiscal year was lowered to 21.9%. As of
December 31, 1997, the Company had $302,000 of research and development tax
credits available for carryforward to future periods. These credits begin to
expire in 2008.

                                       28
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. 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,
                                                                                          --------------------
                                                                                            1997       1996
                                                                                          ---------  ---------
<S>                                                                                       <C>        <C>
Deferred tax assets:
  Alternative minimum tax credit carryforward...........................................  $      --  $      85
  Net operating loss carryforwards......................................................         --         65
  Compensation expense on options.......................................................         --        103
  Research and development tax credits..................................................        302         --
  Allowance for bad debts...............................................................         52         --
  Other.................................................................................         43         24
                                                                                          ---------  ---------
Total deferred tax assets...............................................................        397        277
Deferred tax liabilities:
  Prepaid expenses......................................................................        185         --
  Amortization..........................................................................         51         19
                                                                                          ---------  ---------
Total deferred tax liabilities..........................................................        236         19
                                                                                          ---------  ---------
Deferred income tax assets, net of deferred income tax liabilities......................  $     161  $     258
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>

6. LEASE COMMITMENTS

    In May 1997, the Company entered into an agreement to lease a building and
certain real property for fifteen years. This operating lease requires monthly
base rent payments of approximately $84,000 plus operating expenses and taxes,
with the monthly base rent amount escalating every five years during the lease
term. The lease is expected to commence in the third quarter of 1998. The
Company intends to sublease certain of its existing facilities upon moving to
the new facility.

    Minimum noncancelable lease payments required under operating leases for the
years subsequent to December 31, 1997, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            EXISTING
YEAR                                                            NEW LEASE    LEASES       TOTAL
--------------------------------------------------------------  ---------  -----------  ---------
<S>                                                             <C>        <C>          <C>
1998..........................................................  $     505   $     396   $     901
1999..........................................................      1,009         356       1,365
2000..........................................................      1,009         320       1,329
2001..........................................................      1,009         160       1,169
2002..........................................................      1,009          65       1,074
Thereafter....................................................     12,994           6      13,000
</TABLE>

    Rental expense totaled approximately $323,000, $269,000, and $247,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.

                                       29
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. 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, 1997, 1996 and 1995, were
approximately $128,000, $122,000, and $90,000, respectively.

8. 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 1997 and 1996, the Company issued 1,675 and 19,620 shares,
respectively, of restricted stock to employees at weighted-average fair values
of $6.38 and $5.38 per share, respectively. The Company recorded approximately
$10,000 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 1997 and 1996,
approximately $83,000 and $98,000 was charged to operations.

9. STOCK OPTIONS

    The Board of Directors and the stockholders of the Company approved the
Peerless Group, Inc. 1997 Stock Option Plan (the "Plan") effective as of April
22, 1997. The Plan reserves 450,000 shares of the Company's common stock for
future issuance. Each option to be granted under the Plan will be exercisable as
provided by the terms of each option, but in no case longer than ten years from
the date of the option's grant. Historically, the Company's options have
generally vested 20% on the date of grant and 20% each year for the following
four years, with an exercise period of five years from the date of grant.

                                       30
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)
    A summary of the Company's stock option activity and related information for
the years ended December 31 follows (in thousands except for per share data):

<TABLE>
<CAPTION>
                                                    1997                          1996                          1995
                                        ----------------------------  ----------------------------  ----------------------------
                                                        WEIGHTED                      WEIGHTED                      WEIGHTED
                                         NUMBER OF       AVERAGE       NUMBER OF       AVERAGE       NUMBER OF       AVERAGE
                                          OPTIONS    EXERCISE PRICE     OPTIONS    EXERCISE PRICE     OPTIONS    EXERCISE PRICE
                                        -----------  ---------------  -----------  ---------------  -----------  ---------------
<S>                                     <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning of year......         433      $    4.14            348      $    1.76            299      $    1.09
Granted-Exercise price exceeds market
  price on date of grant..............         170           8.05             10           8.80             24           2.87
Granted-Exercise price equals market
  price on date of grant..............          10           4.50            154           7.60             95           2.74
Exercised.............................        (168)          1.48            (79)          1.01            (60)          0.44
Forfeited.............................         (39)          8.00             --             --            (10)          1.93
                                        -----------                   -----------                   -----------
Outstanding at end of year............         406           6.51            433           4.14            348           1.76
                                        -----------                   -----------                   -----------
                                        -----------                   -----------                   -----------
Exercisable at end of year............         148      $    5.67            241      $    2.53            148      $    1.48
Weighted average fair value of options
  granted-Exercise price exceeds
  market price on date of grant.......                  $    1.83                     $    1.98                     $    0.86
Weighted average fair value of options
  granted-Exercise price equals market
  price on date of grant..............                  $    1.97                     $    2.22                     $    0.99
</TABLE>

    The total options outstanding at December 31, 1997, included 96,000 options
with exercise prices ranging from $2.60 to $2.87 and a weighted-average
remaining contractual life of 2.0 years; and 310,000 options with exercise
prices ranging from $4.50 to $8.80 and a weighted-average remaining contractual
life of 4.2 years. Exercisable options at December 31, 1997, included 58,800
options with exercise prices ranging from $2.60 to $2.87 and a weighted-average
exercise price of $2.67; and 89,540 options with exercise prices ranging from
$4.50 to $8.80 and a weighted-average exercise price of $7.64. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

    Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. 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 1997, 1996 and 1995 respectively: risk-free interest rates of
5.82%, 5.79% and 7.37%; volatility factors of the expected market price of the
Company's common stock of .502, .347 and .447; 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

                                       31
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)
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 period. The Company's
pro forma information follows (in thousands, except for earnings per share
information):

<TABLE>
<CAPTION>
                                                                     1997       1996       1995
                                                                   ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>
Pro forma net income.............................................  $   1,698  $   2,170  $   1,789
Pro forma basic earnings per share...............................  $    0.36  $    0.77  $    0.88
Pro forma diluted earnings per share.............................  $    0.34  $    0.53  $    0.48
</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 Statement No. 123 is applied
to all outstanding stock options.

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 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 indication that IBM will discontinue the remarketing agreement. The
Company believes that its relationships with IBM are 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).

                                       32
<PAGE>
                              PEERLESS GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings
per share (amounts in thousands except for earnings per share amounts):

<TABLE>
<CAPTION>
                                                                                         1997       1996       1995
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Numerator:
  Net income.........................................................................  $   1,903  $   2,293  $   1,830
  Accretion on redeemable common stock...............................................         --        (44)       (58)
                                                                                       ---------  ---------  ---------
Numerator for basic and diluted earnings per share...................................  $   1,903  $   2,249  $   1,772
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
Denominator:
  Denominator for basic earnings per share-weighted average shares...................      4,712      2,745      1,976
Effect of dilutive securities:
  Stock options......................................................................         76        266        169
  Warrants...........................................................................        365      1,072      1,503
  Employee stock purchase plan.......................................................          4         --         --
  Non-vested stock...................................................................        (27)       (28)        --
                                                                                       ---------  ---------  ---------
Dilutive potential common shares.....................................................        418      1,310      1,672
Denominator for diluted earnings per share-adjusted weighted average shares and
  assumed conversions................................................................      5,130      4,055      3,648
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
Basic earnings per share.............................................................  $    0.40  $    0.82  $    0.90
Diluted earnings per share...........................................................  $    0.37  $    0.55  $    0.49
</TABLE>

    Options to purchase 251,200 shares of common stock at $8.00 per share and
20,000 shares of common stock at $8.80 per share were outstanding during 1997
but were not included in the computation of diluted earnings per share because
the options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.

                                       33
<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 1998 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 Form10-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.

                                       34
<PAGE>
                                    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:

<TABLE>
<C>        <S>
   --      Report of Ernst & Young LLP, Independent Auditors.
   --      Consolidated Balance Sheets as of December 31, 1997 and 1996.
   --      Consolidated Statements of Income for the years ended December 31, 1997, 1996, and
           1995.
   --      Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
           December 31, 1997, 1996, and 1995.
   --      Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996,
           and 1995.
   --      Notes to Consolidated Financial Statements.
</TABLE>

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.

3. LIST OF EXHIBITS:

    Except as otherwise specifically noted, the following documents are
incorporated by reference as exhibits hereto pursuant to Rule 12b-32:

<TABLE>
<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.
</TABLE>

                                       35
<PAGE>
<TABLE>
<C>        <S>
   (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.

  (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.
</TABLE>

                                       36
<PAGE>
<TABLE>
<C>        <S>
  (10.18)  Form of Associate Agreement of the Company filed as Exhibit 10.21 to the
           Registration Statement.

  (10.19)  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.

  (10.20)  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.

  (10.21)  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.

  (10.22)  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.

  (10.23)  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.

  (10.24)  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.

  (10.25)  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.

  (10.26)  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.

  (10.27)  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.

  (10.28)  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.

  (10.29)  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.

  (10.30)  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.

  (10.31)  Employee Stock Purchase Plan filed as Exhibit 10.40 to the Registration
           Statement.

  (10.32)  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.

  (10.33)  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 as Exhibit 10.45 to the Company's Annual Report on
           Form 10-K for the fiscal year ended December 31, 1996 (the "1996 Form 10-K").
</TABLE>

                                       37
<PAGE>
<TABLE>
<C>        <S>
  (10.34)  First Amendment to Lease Agreement dated as of September 3, 1996 by and between
           Aetna Life Insurance Company and Peerless Systems, Inc. filed as Exhibit 10.46
           to the 1996 Form 10-K.

  (10.35)  Peerless Group, Inc. 1997 Stock Option Plan filed as Exhibit 10.47 to the 1996
           Form 10-K.

  (10.36)  Business Partner Agreement dated February 21, 1997 by and between Peerless
           Systems, Inc. and International Business Machines Corporation filed as Exhibit
           10.48 to the 1996 Form 10-K.

  (10.37)  Commercial Lease Agreement (the "Allen Lease") dated May 23, 1997 by and between
           Dallas/Fort Worth Real Estate Investments #1 Limited Partnership and Peerless
           Group, Inc. (filed herewith).

  (10.38)  Amendment to the Allen Lease dated December 11, 1997 (filed herewith).

  (10.39)  Amendment to the Peerless Group, Inc. Employee Stock Purchase Plan dated
           December 17, 1997 (filed herewith).

   (23.1)  Consent of Independent Auditors (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>

    (b) Reports on Form 8-K:

        None.

                                       38
<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.

<TABLE>
<S>                             <C>  <C>
                                PEERLESS GROUP, INC.

                                By:         /s/ RODNEY L. ARMSTRONG, JR.
                                     -----------------------------------------
                                              Rodney L. Armstrong, Jr.
                                       CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
                                                      OFFICER
                                          AND PRINCIPAL FINANCIAL OFFICER
</TABLE>

                                          Date: March 30, 1998

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

    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 Board and     March 30, 1998
   Rodney L. Armstrong, Jr.       Chief Executive Officer

     /s/ ALLEN D. FLEENER
------------------------------  Director                      March 30, 1998
       Allen D. Fleener

    /s/ WILLIAM F. DUNBAR
------------------------------  Director                      March 30, 1998
      William F. Dunbar

    /s/ DAVID A. O'CONNOR
------------------------------  Director                      March 30, 1998
      David A. O'Connor

      /s/ JANE C. WALSH
------------------------------  Director                      March 30, 1998
        Jane C. Walsh

    /s/ DOUGLAS K. HANSEN       Treasurer and Controller
------------------------------    (Principal Accounting       March 30, 1998
      Douglas K. Hansen           Officer)

                                       39
<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 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.
</TABLE>
<PAGE>
<TABLE>
<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)  Form of Associate Agreement of the Company filed as Exhibit 10.21 to the Registration Statement.

    (10.19)  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.

    (10.20)  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.

    (10.21)  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.

    (10.22)  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.

    (10.23)  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.

    (10.24)  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.

    (10.25)  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.

    (10.26)  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.

    (10.27)  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.
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    (10.28)  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.

    (10.29)  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.

    (10.30)  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.

    (10.31)  Employee Stock Purchase Plan filed as Exhibit 10.40 to the Registration Statement.

    (10.32)  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.

    (10.33)  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 as Exhibit 10.45 to the
             Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "1996 Form
             10-K").

    (10.34)  First Amendment to Lease Agreement dated as of September 3, 1996 by and between Aetna Life
             Insurance Company and Peerless Systems, Inc. filed as Exhibit 10.46 to the 1996 Form 10-K.

    (10.35)  Peerless Group, Inc. 1997 Stock Option Plan filed as Exhibit 10.46 to the 1996 Form 10-K.

    (10.36)  Business Partner Agreement dated February 21, 1997 by and between Peerless Systems, Inc. and
             International Business Machines Corporation filed as Exhibit 10.48 to the 1996 Form 10-K.

    (10.37)  Commercial Lease Agreement (the "Allen Lease") dated May 23, 1997 by and between Dallas/Fort Worth
             Real Estate Investments #1 Limited Partnership and Peerless Group, Inc. (filed herewith).

    (10.38)  Amendment to the Allen Lease dated December 11, 1997 (filed herewith).

    (10.39)  Amendment to the Peerless Group, Inc. Employee Stock Purchase Plan dated December 17, 1997 (filed
             herewith).

    (23.1)   Consent of Independent Auditors (filed herewith).

    (21.1)   Subsidiaries of the Company filed as Exhibit 21.1 to the Registration Statement.

    (27.1)   Financial Data Schedule (filed herewith).
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