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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended January 31, 2005                                                  
|          
|OR        
|          
|o          |  | 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: 000-21287


Peerless Systems Corporation


(Exact Name of Registrant as Specified in Its Charter)


|                                                                              |  |                                         
|----------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                      |  | 95-3732595                              
|(State or Other Jurisdiction of
    Incorporation or Organization)            |  | (I.R.S. Employer
    Identification No.)
|                                                                             
|2381 Rosecrans Avenue, El Segundo, CA(Address of Principal Executive Offices) |  | 90245(Zip Code)                         

Registrants telephone number, including area code


(310) 536-0908


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $.001 Par Value Per Share




þ o


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS






Peerless Sierra Technologies Peerless
Sierra Technologies




2



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PEERLESS SYSTEMS CORPORATION


ANNUAL REPORT ON FORM 10-K


For the Year Ended January 31, 2005


TABLE OF CONTENTS


|              |  |                                                                                                                      |  |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|              |  |                                                                                                                      |  | Page |   
|              |  |                                                                                                                      |  |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |  |      | 5  | 
|Item 2.       |  | Properties                                                                                                           |  |      | 25 | 
|Item 3.       |  | Legal Proceedings                                                                                                    |  |      | 25 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 25 | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 26 | 
|Item 6.       |  | Selected Financial Data                                                                                              |  |      | 26 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 27 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 35 | 
|Item 8.       |  | Consolidated Financial Statements and
    Supplementary Data                                                         |  |      | 36 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 36 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |  |      | 36 | 
|Item 9B.      |  | Other Information                                                                                                    |  |      | 36 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 37 | 
|Item 11.      |  | Executive Compensation                                                                                               |  |      | 37 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 37 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 37 | 
|Item 14.      |  | Principal Accounting Fees and Services                                                                               |  |      | 37 | 
|             
|PART IV      
|Item 15.      |  | Exhibits, Financial Statement Schedules                                                                              |  |      | 38 | 
|EXHIBIT 10.86
|EXHIBIT 10.87
|EXHIBIT 10.88
|EXHIBIT 10.89
|EXHIBIT 10.90
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   



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TRADEMARKS


tm tm tm tm tm tm tm


4



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PART I







|        |         
|------- | --------
|Item 1. | Business







Peerless Sierra Technologies. Peerless Sierra Technologies Peerless Sierra
Technologies Peerless Sierra Technologies Peerless Sierra Technologies


5



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(www.peerless.com)


Digital Document Products  Industry Background








| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | embedded, where it resides completely inside the imaging device,                               
|
| |  | attached, where it resides outside the imaging device but is
    physically attached to it, and
|
| |  | stand-alone, where it resides completely outside the imaging
    device.                       



6



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Developments in the Digital Document Products Market




Demand for higher performance at lower prices.


Demand for color imaging. Peerless Sierra Technologies


Emergence of multifunction products.  Peerless Sierra Technologies


Increased role of networking. Peerless Software Print Server software development kit




7



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Growing need for device and document management.


Change in market patterns of OEM demand.


Technology




Peerless Sierra Technologies convenience color


Object-based image processing. Peerless Sierra Technologies lossless compression




8



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Systems architecture. Peerless Sierra
Technologies. Peerless
Sierra Technologies Peerless Sierra Technologies


Peerless Sierra Technologies Open Workflow Architecture Peerless Sierra Technologies


Technology partners. VersaPage






Strategy for Business




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Aggressive development of new technologies.


Increased packaging of Company technologies for licensing as
SDKs. Peerless Sierra Technologies


Develop and expand relationships with key industry
participants.


Leverage technical expertise to expand products and
markets.


Develop and enhance strategic relationships in the digital
document market.


Expand sales channels.


Expand geographical presence and market reach.


Develop sales of new hardware products. Peerless Sierra Technologies


Products and Solutions




10



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tm tm




Architecture.


Page Descriptor Languages (PDL).


PDL printer drivers.


11



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ASICs.


Job management software.


Color management software. rendering intents


Engineering services.


Networking technology.


Certification services.


Complete controllers. Peerless Sierra
Technologies tm


Customers and Markets




| |          
| | ---------
| | Customers



12



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| |        
| | -------
| | Markets

Segments.


Geography.




Sales and Marketing




13



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Product Development and Engineering Services






Intellectual Property and Proprietary Rights









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Competition




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Employees




Certain Factors and Trends Affecting Peerless and Its
Business




| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Kyocera Mita Corporation and the Company do not enter into
    definitive agreements in support or replacement of the
    Memorandum of Understanding (MOU) between the companies, it
    may harm the Companys financial results.





| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under new regulations required by the Sarbanes-Oxley Act of
    2002 (SOX), an adverse opinion on internal controls over
    financial reporting could be issued by our independent
    registered public accounting firm, and this could have a
    negative impact on our stock price.



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Recent and proposed regulations related to equity incentives
    could adversely affect our ability to attract and retain key
    personnel.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The impact of Microsofts Longhorn operating
    system could have an adverse impact on the Companys future
    licensing revenues.

rd




| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys near term revenue may drop as a result of
    the timing of licensing revenues and the reduced demand for its
    existing monochrome technologies.

Peerless Sierra Technologies Peerless Sierra
Technologies




| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the Company is unable to achieve its expected level of
    sales of Peerless Sierra Technologies on a timely basis, the
    Companys future revenue and operating results may be
    harmed.

Peerless Sierra Technologies. Peerless Sierra Technologies. Peerless Sierra Technologies


17



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| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the marketplace does not accept Peerless new
    Peerless Sierra Technologies, the Companys future revenue
    and operating results may be harmed.

Peerless Sierra Technologies Peerless Sierra Technologies Peerless Sierra Technologies




| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys forecasts for its Everest controller may
    not be realized, and losses for the disposition of excess
    inventories may result.





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys existing capital resources may not be
    sufficient and if Peerless is unable to raise additional
    capital, the Companys business may suffer.







| |                                  
| | ---------------------------------
| | Peerless has a history of losses.







| |                                                                       
| | ----------------------------------------------------------------------
| | The future demand for the Companys current products is
    uncertain.



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| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Peerless relies on relationships with certain customers and
    any adverse change in those relationships will harm the
    Companys business.







| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Peerless relies on relationships with Adobe Systems
    Incorporated and Novell Inc., and any adverse change in those
    relationships will harm the Companys business.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The Company, as a sublicensor of third party intellectual
    property, is subject to audits of the Companys licensing
    fee costs.





| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has negotiated with Adobe Systems Incorporated
    and Canon Inc. to remedy a contract dispute, which, if not
    remedied, could result in the loss of the Adobe agreement and
    harm to the Companys business.



19



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| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Peerless may be unable to develop additional new and enhanced
    products that achieve market acceptance.





| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Peerless is not in compliance with the Companys
    licensing agreements, Peerless may lose the Companys
    rights to sublicense technology; the Companys competitors
    are aggressively pursuing the sale of licensed third party
    technology.





| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The industry for imaging systems for digital document
    products involves intense competition and rapid technological
    changes, and the Companys business may suffer if its
    competitors develop superior technology.





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| |                                                                        
| | -----------------------------------------------------------------------
| | The Companys reserves for accounts receivable may not
    be adequate.





| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Peerless fails to adequately protect the Companys
    intellectual property or faces a claim of intellectual property
    infringement by a third party, Peerless could lose the
    Companys intellectual property rights or be liable for
    damages.









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| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The Companys international activities may expose the
    Company to risks associated with international business.





| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disruptions by terrorists of normal channels of distribution;                                                                                                              
|
| |  | disruptions by terrorists of normal communications lines;                                                                                                                  
|
| |  | major currency rate fluctuations;                                                                                                                                          
|
| |  | changes in the economic condition of foreign countries;                                                                                                                    
|
| |  | the imposition of government controls;                                                                                                                                     
|
| |  | tailoring of products to local requirements;                                                                                                                               
|
| |  | trade restrictions;                                                                                                                                                        
|
| |  | changes in tariffs and taxes; and                                                                                                                                          
|
| |  | the burdens of complying with a wide variety of foreign laws and
    regulations, any of which could have a material adverse effect
    on the Companys operating results.



22



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| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Demand from Pacific Rim customers has continued to and may
    continue to decline.





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | The Companys stock price may experience extreme price
    and volume fluctuations.





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | macroeconomic conditions;                                                                                    
|
| |  | actual or anticipated fluctuations in quarterly results of
    operations;                                   
|
| |  | announcements of new products or significant technological
    innovations by the Company or its competitors;
|
| |  | developments or disputes with respect to proprietary rights;                                                 
|
| |  | losses of major OEM customers;                                                                               
|
| |  | general trends in the industry; and                                                                          
|
| |  | overall market conditions and other factors.                                                                 





| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | The Companys common stock was moved to the Nasdaq
    SmallCap Market and may not provide adequate liquidity.





23



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| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys business may suffer if the Companys
    third party distributors are unable to distribute the
    Companys products and address customer needs
    effectively.





| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Peerless relies on certain third party providers for
    applications to develop the Companys ASICs. As a result,
    Peerless is vulnerable to any problems experienced by these
    providers, which may delay product shipments to the
    Companys customers.





| |                                                                        
| | -----------------------------------------------------------------------
| | Peerless licensing revenue is subject to significant
    fluctuations.





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | The Companys revenue from engineering services is
    subject to significant fluctuations.





| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | product development delays;                                                 
|
| |  | potential non-recurring engineering reduction for product
    customization;
|
| |  | third party delays; and                                                     
|
| |  | loss of new engineering services contracts.                                 





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Peerless may be unable to deploy the Companys employees
    effectively in connection with changing demands from the
    Companys OEM customers.



24



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| |                                                                       
| | ----------------------------------------------------------------------
| | Peerless may be unable to implement its business plan
    effectively.








|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



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PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities



|        |  |                               |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|------- |  | ----------------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|        |  | Fiscal Year Ended January 31, |     
|        |  |                               |     
|        |  | 2005                          |      |  | 2004 |  
|        |  |                               |      |  |      |  
|Quarter |  | High                          |      |  | Low  |   |      | High |  |   | Low  | 
|        |  |                               |      |  |      |   |      |      |  |   |      | 
|First   |  | $                             | 2.65 |  |      | $ | 1.55 |      |  | $ | 2.12 |  |  | $ | 1.36 | 
|Second  |  | $                             | 2.03 |  |      | $ | 0.90 |      |  | $ | 3.33 |  |  | $ | 1.43 | 
|Third   |  | $                             | 1.60 |  |      | $ | 0.75 |      |  | $ | 4.00 |  |  | $ | 2.75 | 
|Fourth  |  | $                             | 1.75 |  |      | $ | 1.00 |      |  | $ | 3.70 |  |  | $ | 1.91 | 



Dividend Policy









|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                  |  |                         |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|--------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------- | - |  | - | ------- | -
|                                  |  | Years Ended January 31, |       
|                                  |  |                         |       
|                                  |  | 2005                    |        |   | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |        
|                                  |  |                         |        |   |      |   |        |      |  |   |        |  |  |      |        
|Statement of Operations Data:     |  |                         |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|Net sales                         |  | $                       | 23,078 |   |      | $ | 25,254 |      |  | $ | 31,757 |  |  | $    | 29,767  |   |  | $ | 27,407  |  
|Income (loss) from operations     |  |                         | (5,677 | ) |      |   | (5,793 | )    |  |   | 240    |  |  |      | (9,948  | ) |  |   | (17,228 | )
|Net income (loss)                 |  |                         | (5,805 | ) |      |   | (4,861 | )    |  |   | 124    |  |  |      | (10,997 | ) |  |   | (17,649 | )
|Basic earnings (loss) per share   |  |                         | (0.37  | ) |      |   | (0.31  | )    |  |   | 0.01   |  |  |      | (0.73   | ) |  |   | (1.19   | )
|Diluted earnings (loss) per share |  |                         | (0.37  | ) |      |   | (0.31  | )    |  |   | 0.01   |  |  |      | (0.73   | ) |  |   | (1.19   | )

|                      |  |                         |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|--------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                      |  | Years Ended January 31, |       
|                      |  |                         |       
|                      |  | 2005                    |        |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                      |  |                         |        |  |      |   |        |      |  |   |        |  |  |      |       
|Balance Sheet Data:   |  |                         |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Total assets          |  | $                       | 12,647 |  |      | $ | 19,307 |      |  | $ | 24,107 |  |  | $    | 24,934 |  |  | $ | 37,108 | 
|Long-term obligations |  |                         | 418    |  |      |   | 366    |      |  |   | 1,384  |  |  |      | 2,181  |  |  |   | 2,357  | 

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Selected Quarterly Financial Data (Unaudited):


|                                  |  |                             |       |   |                             |   |        |        |  |   |        |   |  |        |        |   |       |   |       |         |  |   |        |   |  |   |        |   |  |   |        |  
|--------------------------------- |  | --------------------------- | ----- | - | --------------------------- | - | ------ | ------ |  | - | ------ | - |  | ------ | ------ | - | ----- | - | ----- | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                  |  | Year Ended January 31, 2005 |       |   | Year Ended January 31, 2004 |  
|                                  |  |                             |       |   |                             |  
|Quarter                           |  | Fourth                      |       |   | Third                       |   |        | Second |  |   | First  |   |  | Fourth |        |   | Third |   |       | Second* |  |   | First* |  
|                                  |  |                             |       |   |                             |   |        |        |  |   |        |   |  |        |        |   |       |   |       |         |  |   |        |  
|Revenues                          |  | $                           | 8,281 |   |                             | $ | 5,001  |        |  | $ | 6,303  |   |  | $      | 3,493  |   |       | $ | 7,653 |         |  | $ | 5,762  |   |  | $ | 6,152  |   |  | $ | 5,687  |  
|Gross margin                      |  |                             | 5,710 |   |                             |   | 2,881  |        |  |   | 3,920  |   |  |        | 1,754  |   |       |   | 5,751 |         |  |   | 3,004  |   |  |   | 3,126  |   |  |   | 3,037  |  
|Gross margin %                    |  |                             | 68.95 | % |                             |   | 57.61  | %      |  |   | 62.19  | % |  |        | 50.21  | % |       |   | 75.15 | %       |  |   | 52.13  | % |  |   | 50.81  | % |  |   | 53.40  | %
|Income (loss) from operations     |  | $                           | 1,131 |   |                             | $ | (1,330 | )      |  | $ | (1,469 | ) |  | $      | (4,009 | ) |       | $ | 800   |         |  | $ | (2,648 | ) |  | $ | (2,522 | ) |  | $ | (1,423 | )
|Net income (loss)                 |  |                             | 1,120 |   |                             |   | (1,346 | )      |  |   | (1,467 | ) |  |        | (4,112 | ) |       |   | 643   |         |  |   | (2,527 | ) |  |   | (2,797 | ) |  |   | (180   | )
|Basic earnings (loss) per share   |  |                             | 0.07  |   |                             |   | (0.08  | )      |  |   | (0.09  | ) |  |        | (0.26  | ) |       |   | 0.04  |         |  |   | (0.16  | ) |  |   | (0.18  | ) |  |   | (0.01  | )
|Diluted earnings (loss) per share |  |                             | 0.07  |   |                             |   | (0.08  | )      |  |   | (0.09  | ) |  |        | (0.26  | ) |       |   | 0.04  |         |  |   | (0.16  | ) |  |   | (0.18  | ) |  |   | (0.01  | )






|  |                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The Company has reclassified the amounts of $138 and $23 in the
    second and first quarter, respectively, from cost of revenues to
    operating expenses  research and development.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations





Highlights


Peerless Sierra Technologies Peerless Sierra Technologies.


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 Peerless Sierra
Technologies. tm Peerless Sierra Technologies


General












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Peerless Sierra Technologies. Peerless Sierra
Technologies Peerless Sierra
Technologies


Peerless Sierra
Technologies Peerless Sierra Technologies Peerless Sierra Technologies Peerless Sierra Technologies


29



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Critical Accounting Policies












30



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Peerless Sierra Technologies


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Results of Operations




|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |     |     |     |     |    |      |     |     |     |  
|------------------------------ | --------------------------------- | ------------------------------------ | ------------------------ | ----------------- | ----------- | --- | -- | -------- | -- | --- | ---- | - | -- | ---- | --- | --- | --- | --- | -- | ---- | --- | --- | --- | -
|                               |                                   |                                      |                          | Percentage Change |            
|                               |                                   | Percentage of Total                  |                          |                   | Years Ended |    
|                               |                                   | Revenues Years Ended                 |                          |                   | January 31, |    
|                               |                                   | January 31,                          |                          |                   |             |    
|                               |                                   |                                      |                          |                   | 2005 vs.    |     |    | 2004 vs. |   
|                               |                                   | 2005                                 |                          |                   | 2004        |     |    | 2003     |    |     | 2004 |   |    | 2003 |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|Statements of Operations Data: |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |     |     |     |     |    |     
|                               | Revenues:                         |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |     |     |     |     |    |      |    
|                               |                                   | Product licensing                    |                          |                   | 79          | %   |    |          | 79 | %   |      |   | 78 | %    |     |     | (9  | )%  |    |      | (20 | )% 
|                               |                                   | Engineering services and maintenance |                          |                   | 11          |     |    |          | 13 |     |      |   | 16 |      |     |     | (16 | )   |    |      | (37 | )  
|                               |                                   | Other                                |                          |                   | 10          |     |    |          | 8  |     |      |   | 6  |      |     |     | 5   |     |    |      | 16  |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               |                                   |                                      | Total revenues           |                   |             | 100 |    |          |    | 100 |      |   |    | 100  |     |     |     | (9  | )  |      |     | (20 | )  
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Cost of revenues:                 |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |     |     |     |     |    |      |    
|                               |                                   | Product licensing                    |                          |                   | 19          |     |    |          | 25 |     |      |   | 26 |      |     |     | (32 | )   |    |      | (23 | )  
|                               |                                   | Engineering services and maintenance |                          |                   | 14          |     |    |          | 12 |     |      |   | 9  |      |     |     | 9   |     |    |      | 8   |    
|                               |                                   | Other                                |                          |                   | 5           |     |    |          | 4  |     |      |   | 3  |      |     |     | 22  |     |    |      | (4  | )  
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               |                                   |                                      | Total cost of revenues   |                   |             | 38  |    |          |    | 41  |      |   |    | 38   |     |     |     | (15 | )  |      |     | (14 | )  
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               |                                   |                                      |                          | Gross margin      |             |     | 62 |          |    |     | 59   |   |    |      | 62  |     |     |     | (4 | )    |     |     | (24 | )
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Operating expenses:               |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |     |     |     |     |    |      |    
|                               |                                   | Research and development             |                          |                   | 51          |     |    |          | 47 |     |      |   | 31 |      |     |     |    |     |    |      | 21  |    
|                               |                                   | Sales and marketing                  |                          |                   | 16          |     |    |          | 18 |     |      |   | 14 |      |     |     | (19 | )   |    |      |    |    
|                               |                                   | General and administrative           |                          |                   | 20          |     |    |          | 17 |     |      |   | 16 |      |     |     | 3   |     |    |      | (14 | )  
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               |                                   |                                      | Total operating expenses |                   |             | 87  |    |          |    | 82  |      |   |    | 61   |     |     |     | (4  | )  |      |     | 7   |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Income (loss) from operations     |                                      |                          | (25               | )           |     |    | (23      | )  |     |      | 1 |    |      |     | (2  | )   |     |    | *    |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Interest income, net              |                                      |                          |                  |             |     |    | 1        |    |     |      | 1 |    |      |     | (83 | )   |     |    | (63  | )  
|                               | Other income                      |                                      |                          |                  |             |     |    | 6        |    |     |      |  |    |      |     | *   |     |     |    | *    |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               |                                   |                                      |                         |                   |             |     | 7  |          |    |     | 1    |   |    |      | (99 | )   |     |     | *  |     
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Income (loss) before income taxes |                                      |                          | (25               | )           |     |    | (16      | )  |     |      | 2 |    |      |     | 36  |     |     |    | (778 | )  
|                               | Provision for income taxes        |                                      |                          |                  |             |     |    | 3        |    |     |      | 2 |    |      |     | (78 | )   |     |    | 42   |    
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    
|                               | Net income (loss)                 |                                      |                          | (25               | )%          |     |    | (19      | )% |     |      | 0 | %  |      |     | 19  | %   |     |    | *    | %  
|                               |                                   |                                      |                          |                   |             |     |    |          |    |     |      |   |    |      |    






|  |                                               
|- | ----------------------------------------------
|* | Percentage change calculations not meaningful.



| |           
| | ----------
| | Net Income





| |         
| | --------
| | Revenues



32



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##### Table of Contents





Peerless Sierra
Technologies.




| |                 
| | ----------------
| | Cost of Revenues





| |             
| | ------------
| | Gross Margin





| |                   
| | ------------------
| | Operating Expenses





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Research and development expenses were $11.7 million in
    fiscal year 2005, compared to $11.8 million in fiscal year
    2004, and $9.8 million in fiscal year 2003. In fiscal year
    2005, expenditures increased early in the fiscal year, as
    development of the Companys Peerless Sierra
    Technologiescontinued. However, as the development effort
    neared its completion, research and development expenditures
    decreased in the ensuing quarters as compared to the comparable
    prior years quarters, resulting in a small decrease from
    fiscal year 2004. The increase in fiscal year 2004 was primarily
    due to higher staffing and consulting costs associated with the
    development of the Companys Peerless Sierra
    Technologies.
|
| |  | Sales and marketing expenses were $3.7 million in fiscal
    year 2005, compared to $4.5 million in fiscal year 2004,
    and $4.6 million in fiscal year 2003. The decrease in
    fiscal year 2005 from fiscal year 2004 was the result of a
    reduction in staffing levels. The Company continued to focus on
    the launch of Peerless Sierra Technologiesand on
    developing new OEM customers, attending industry trade shows,
    and evaluating other opportunities to promote the Companys
    core and new color imaging and network solutions.                                                                                                                                                                                                                  
|
| |  | General and administrative expenses were $4.6 million in
    fiscal year 2005, compared to $4.4 million in fiscal year
    2004, and $5.1 million in fiscal year 2003. The increase in
    fiscal year 2005 was due primarily                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

33



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##### Table of Contents



| |  |                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to increased consulting costs. The decrease in fiscal year 2004
    was primarily due to the reduction of consulting costs. In
    addition, during fiscal year 2004, the Company received a
    $0.2 million insurance refund for costs associated with
    completed legal proceedings.



| |                                                      
| | -----------------------------------------------------
| | Interest Income, Other Income and Expenses, and Taxes







Contractual Obligations




|                            |       |                        |       |           |        |   |       |           |           |   |           |       |  |         |     |     |  |   |    |    | 
|--------------------------- | ----- | ---------------------- | ----- | --------- | ------ | - | ----- | --------- | --------- | - | --------- | ----- |  | ------- | --- | --- |  | - | -- | -- | 
|                            |       | Payments Due by Period |      
|                            |       |                        |      
|                            |       |                        |       | Less than |        |   |       |           | More than |  
|                            |       | Total                  |       |           | 1 Year |   |       | 1-3 Years |           |   | 3-5 Years |       |  | 5 Years |    
|                            |       |                        |       |           |        |   |       |           |           |   |           |       |  |         |    
|                            |       | (In thousands)         |      
|Operating lease obligations |       | $                      | 4,276 |           |        | $ | 1,243 |           |           | $ | 2,706     |       |  | $       | 278 |     |  | $ | 49 |   
|Outstanding purchase orders |       |                        | 155   |           |        |   | 155   |           |           |   |          |       |  |         |    |     |  |   |   |   
|                            |       |                        |       |           |        |   |       |           |           |   |           |       |  |         |    
|                            | Total |                        | $     | 4,431     |        |   | $     | 1,398     |           |   | $         | 2,706 |  |         | $   | 278 |  |   | $  | 49 | 
|                            |       |                        |       |           |        |   |       |           |           |   |           |       |  |         |    

Liquidity and Capital Resources


Peerless Sierra
Technologies




34



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##### Table of Contents













Peerless Sierra Technologies Peerless Sierra Technologies Peerless Sierra Technologies Peerless Sierra Technologies







|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk







35



---



##### Table of Contents










|        |                                                         
|------- | --------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on Accounting
    and Financial Disclosure








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.












|         |                  
|-------- | -----------------
|Item 9B. | Other Information



36



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##### Table of Contents






PART III







|         |                                 
|-------- | --------------------------------
|Item 10. | Directors and Executive Officers








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services



37



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##### Table of Contents






PART IV




|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules

Documents filed as a part of this Annual Report on
Form 10-K:




| |                          
| | -------------------------
| | (1) Financial Statements:

|                                                        |  |      |     | 
|------------------------------------------------------- |  | ---- | --- | 
|                                                        |  | Page |    
|                                                        |  |      |    
|Report of Independent Registered Public Accounting Firm |  |      | F-2 | 
|Consolidated Statements of Operations                   |  |      | F-3 | 
|Consolidated Balance Sheets                             |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity         |  |      | F-5 | 
|Consolidated Statements of Cash Flows                   |  |      | F-6 | 
|Notes to Consolidated Financial Statements              |  |      | F-7 | 



| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedule:



|                                     |  |      |     | 
|------------------------------------ |  | ---- | --- | 
|Schedule                             |  | Page |    
|                                     |  |      |    
|II Valuation and Qualifying Accounts |  |      | S-1 | 



Exhibits:


Form 10-K:


|        |    |           |  |                                                                                                                                                                                                                              
|------- | -- | --------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |          
|Number  |    |          
|        |    |          
|        | 3  | .1(1)     |  | Certificate of Incorporation of the Company.                                                                                                                                                                                 
|       
|        | 3  | .2(9)     |  | Amended and Restated Bylaws of the Company.                                                                                                                                                                                  
|       
|        | 4  | .1        |  | Instruments defining the rights of security holders. Reference
    is made to Exhibits 3.1 and 3.2.                                                                                                                          
|       
|        | 4  | .2(4)     |  | Rights Agreement, dated October 7, 1998, between the
    Company and Wells Fargo Shareowner Services, a division of Wells
    Fargo Bank Minnesota, N.A., formerly known as Norwest Shareowner
    Services, as Rights Agent.
|       
|        | 10 | .1(10)(2) |  | 1996 Equity Incentive Plan, as amended and form of stock option
    agreements thereunder.                                                                                                                                   
|       
|        | 10 | .2(11)(2) |  | 1996 Employee Stock Purchase Plan, as amended.                                                                                                                                                                               
|       
|        | 10 | .3(1)(3)  |  | Reference Post Appendix No. 2 to the Adobe Third Party
    License dated February 11, 1993.                                                                                                                                  
|       
|        | 10 | .4(1)     |  | Amendment No. 1 to the Adobe Third Party License dated
    November 29, 1993.                                                                                                                                                
|       
|        | 10 | .5(1)(3)  |  | PCL Development and License Agreement (the PCL
    License) dated June 14, 1993, between the Registrant
    and Adobe.                                                                                                     
|       
|        | 10 | .6(1)(3)  |  | Amendment No. 1 to the PCL License dated October 31,
    1993.                                                                                                                                                               
|       
|        | 10 | .7(1)(3)  |  | Letter Modification to the PCL License dated August 5, 1994.                                                                                                                                                                 
|       
|        | 10 | .8(1)(3)  |  | Addendum No. 1 to the PCL License dated March 31, 1995.                                                                                                                                                                      
|       
|        | 10 | .9(1)(3)  |  | Letter Modification to the PCL License dated August 30,
    1995.                                                                                                                                                            
|       
|        | 10 | .10(1)    |  | Lease Agreement between the Company and Continental Development
    Corporation dated February 6, 1992, and Addendum, dated
    February 6, 1992.                                                                            

38



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|        |    |            |  |                                                                                                                                                                                                                             
|------- | -- | ---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .11(1)     |  | First Amendment to Office Lease dated December 1, 1995,
    between the Company and Continental Development Corporation.                                                                                                    
|       
|        | 10 | .12(5)     |  | Second Amendment to Office Lease dated April 8, 1997,
    between the Company and Continental Development Corporation.                                                                                                      
|       
|        | 10 | .13(5)     |  | Third Amendment to Office Lease dated December 16, 1997,
    between the Company and Continental Development Corporation.                                                                                                   
|       
|        | 10 | .14(6)     |  | Fourth Amendment to Office Lease dated April 22, 1998,
    between the Company and Continental Development Corporation.                                                                                                     
|       
|        | 10 | .15(7)     |  | Agreement and Plan of reorganization and Merger by and among
    Peerless Systems Corporation, Auco Merger and Auco, Inc. dated
    as of April 6, 1999.                                                                    
|       
|        | 10 | .16(8)     |  | Marubun Supplier/Distribution Agreement dated December 14,
    1999.                                                                                                                                                        
|       
|        | 10 | .17(8)     |  | Lease PSN McKelvy Family Trust (386 Main Street) Standard
    Industrial/Commercial Single-Tenant dated March 14, 1997.                                                                                                     
|       
|        | 10 | .18(8)     |  | Lease PSIP Kent Centennial Limited Partnership dated
    January 31, 1996.                                                                                                                                                  
|       
|        | 10 | .19(2)(12) |  | Form of Indemnification Agreement, effective as of
    March 12, 2001.                                                                                                                                                      
|       
|        | 10 | .20(13)    |  | Settlement Agreement and Mutual Release dated April 11,
    2001 between Peerless Systems Corporation and Gordon L. Hanson.                                                                                                 
|       
|        | 10 | .21(9)     |  | Settlement Agreement and Mutual Release, effective as of
    April 27, 2001, by and among the State of Wisconsin
    Investment Board, Peerless Systems Corporation and Edward A.
    Gavaldon.                             
|       
|        | 10 | .22(14)    |  | Series A Preferred Stock Purchase Agreement dated
    January 29, 2002 by and among Netreon, Inc., a Delaware
    corporation, Netreon, Inc., a California corporation and each of
    the several purchasers named therein.
|       
|        | 10 | .23(14)    |  | Series A Preferred Stock Contribution Agreement dated
    January 29, 2002 by and between Netreon, Inc., a Delaware
    corporation and Peerless Systems Corporation.                                                       
|       
|        | 10 | .24(3)(15) |  | Postscript Software Development License and Sublicense Agreement
    between Adobe Systems Incorporated and the Company effective as
    of July 23, 1999.                                                                  
|       
|        | 10 | .25(3)(15) |  | Custom Sales Agreement between the Company and International
    Business Machines effective as of April 23, 2001.                                                                                                          
|       
|        | 10 | .26(3)(15) |  | Master Technology License Agreement dated January 16, 2000
    between Konica Corporation and Peerless Systems Corporation.                                                                                                 
|       
|        | 10 | .27(3)(15) |  | License Software Addendum #1 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 16, 2000.                                                             
|       
|        | 10 | .28(3)(15) |  | License Software Addendum #2 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 19, 2000.                                                             
|       
|        | 10 | .29(3)(15) |  | License Software Addendum #3 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of July 21, 2000.                                                                
|       
|        | 10 | .30(3)(15) |  | License Software Addendum #4 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of March 1, 2001.                                                                
|       
|        | 10 | .31(3)(15) |  | License Software Addendum #5 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of July 1, 2001.                                                                 
|       
|        | 10 | .32(3)(15) |  | License Software Addendum #7 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                                                              
|       
|        | 10 | .33(3)(15) |  | License Software Addendum #8 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                                                              
|       
|        | 10 | .34(3)(15) |  | License Software Addendum #9 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                                                              
|       
|        | 10 | .35(15)    |  | Master Technology License Agreement dated April 1, 1997
    between Kyocera Corporation and Peerless Systems Corporation.                                                                                                   

39



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|        |    |            |  |                                                                                                                                                                                                    
|------- | -- | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .36(3)(15) |  | Licensed Software Addendum #1 to Master Technology License
    Agreement by and between Kyocera Corporation and the Company
    effective as of December 28, 1999.                                 
|       
|        | 10 | .37(3)(15) |  | Amendment #3 to Licensed Software Addendum #1 to
    Master Technology License Agreement by and between Kyocera
    Corporation and the Company effective as of September 28,
    2001.            
|       
|        | 10 | .38(3)(15) |  | Licensed Software Addendum #3 to Master Technology License
    Agreement by and between Kyocera Mita Corporation and the
    Company effective as of May 1, 2002.                                  
|       
|        | 10 | .39(3)(15) |  | Master Technology License Agreement between Oki Data Corporation
    and Peerless Systems Imaging Products, Inc.                                                                                   
|       
|        | 10 | .40(3)(15) |  | Licensed System Addendum No. 1 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc.                                             
|       
|        | 10 | .41(3)(15) |  | Licensed System Addendum No. 2 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc.                                             
|       
|        | 10 | .42(3)(15) |  | Licensed System Addendum No. 3 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc. effective as of August 25, 2000.            
|       
|        | 10 | .43(3)(15) |  | Attachment #1 to Licensed System Addendum #3 by and
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated March 1, 2001.                                          
|       
|        | 10 | .44(3)(15) |  | Attachment #2 to Licensed System Addendum #3 by and
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated July 1, 2001.                                           
|       
|        | 10 | .45(3)(15) |  | Licensed System Addendum No. 4 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc. effective as of February 1, 2002.           
|       
|        | 10 | .46(15)    |  | Master Technology License Agreement dated April 1, 2000
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc.                                                        
|       
|        | 10 | .47(3)(15) |  | Licensed System Addendum #1 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. dated April 1, 2000.                 
|       
|        | 10 | .48(3)(15) |  | Licensed System Addendum #2 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc.                                      
|       
|        | 10 | .49(3)(15) |  | Licensed System Addendum #3 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc.                                      
|       
|        | 10 | .50(3)(15) |  | Attachment #1 to Licensed System Addendum #3 by and
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc. dated May 1, 2001.                                         
|       
|        | 10 | .51(3)(15) |  | Attachment #2 to Licensed System Addendum #3 by and
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc. dated July 23, 2001.                                       
|       
|        | 10 | .52(3)(15) |  | Licensed System Addendum #4 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of October 19,
    2001.
|       
|        | 10 | .53(3)(15) |  | Licensed System Addendum #5 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of December 1,
    2001.
|       
|        | 10 | .54(3)(15) |  | Licensed System Addendum #6 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of April 30,
    2002.  
|       
|        | 10 | .55(3)(15) |  | Nest Office SDK Development and Reseller Agreement Statement of
    Work 8 to BDA No. N-A-1 between and Novell, Inc. and Peerless
    Systems Networking effective as of August 17, 1999.          

40



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|        |    |            |  |                                                                                                                                                                                                                                                               
|------- | -- | ---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .56(3)(15) |  | Amendment No. 1 to Nest Office SDK Development and Reseller
    Agreement Statement of Work 8 to BDA No. N-A-1 between and
    Novell, Inc. and Peerless Systems Networking effective as of
    August 17, 1999.                                              
|       
|        | 10 | .57(15)    |  | Business Development Agreement by and between Novell and Auco,
    Inc effective as of September 6, 1996.                                                                                                                                                     
|       
|        | 10 | .58(16)    |  | Amendment No. 4 to Licensed System Addendum No. 4
    dated February 1, 2002 by and between Oki Data Corporation
    and Peerless Systems Imaging Products, Inc. dated
    September 1, 2002.(15)                                                             
|       
|        | 10 | .59(16)    |  | Amendment No. 3 to Postscript Software Development
    Agreement by and between Adobe Systems Incorporated and the
    Company dated October 25, 2002.                                                                                                        
|       
|        | 10 | .60(3)(17) |  | Amendment No. 1 to Licensed System Agreement No. 7
    dated November 1, 2001 by and between Konica Corporation
    and Peerless Systems Corporation dated January 1, 2003.                                                                                   
|       
|        | 10 | .61(3)(17) |  | Licensed System Agreement Addendum No. 10 to Master
    Technology License Agreement dated January 16, 2000 by and
    between Konica Corporation and Peerless Systems Corporation
    dated January 17, 2003.                                                
|       
|        | 10 | .62(3)(17) |  | Licensed System Addendum #8 to Master Technology License
    Agreement dated April 1, 2000 by and between Seiko Epson
    Corporation and Peerless Systems Imaging Products, Inc.
    effective as of January 6, 2003.                                        
|       
|        | 10 | .63(3)(18) |  | Amendment No. 4 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2003.                                                       
|       
|        | 10 | .64(3)(18) |  | Amendment No. 10 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2003.                                                      
|       
|        | 10 | .65(3)(19) |  | Amendment No. 5 to Licensed System Addendum No. 4
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated February 1, 2002.                                                                                                    
|       
|        | 10 | .66(3)(19) |  | Amendment No. 8 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 30, 2003.                                                  
|       
|        | 10 | .67(3)(19) |  | Amendment No. 9 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 15, 2003.                                                  
|       
|        | 10 | .68(3)(19) |  | Amendment No. 12 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 22, 2003.                                                 
|       
|        | 10 | .69(20)    |  | Licensed Software Addendum No. 14 to Master Technology
    License Agreements dated January 16, 2000 and June 12,
    1997 by and between KonicaMinolta Business Technologies, Inc.
    and Peerless Systems Corporation, effective as of
    October 31, 2003
|       
|        | 10 | .70(20)    |  | Amendment #2 to the LSA #9 by and between
    KonicaMinolta Business Technologies, Inc. and Peerless Systems
    Corporation, effective as of November 1, 2003                                                                                                
|       
|        | 10 | .71(20)    |  | Amendment No. 5 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    December 16, 2003.                                                   
|       
|        | 10 | .72(20)    |  | Amendment No. 6 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2002.                                                       
|       
|        | 10 | .73(20)    |  | Amendment No. 7 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    May 22, 2003.                                                        

41



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|        |    |            |  |                                                                                                                                                                                                             
|------- | -- | ---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .74(20)    |  | Amendment No. 11 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    February 9, 2004. 
|       
|        | 10 | .75(20)    |  | Amendment No. 14 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    December 16, 2003.
|       
|        | 10 | .76(20)    |  | Amendment No. 15 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 6, 2004.  
|       
|        | 10 | .77(2)(20) |  | Change in Control Agreement of Chief Executive Officer.                                                                                                                                                     
|       
|        | 10 | .78(2)(20) |  | Form of Change in Control Agreement of certain members of senior
    management.                                                                                                                            
|       
|        | 10 | .79(2)(20) |  | Form of Transaction Incentive Plan of certain members of senior
    management.                                                                                                                             
|       
|        | 10 | .80(21)    |  | Amendment No. 16 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 6, 2004.  
|       
|        | 10 | .81(21)    |  | Licensed Software Addendum #5 to Master Technology License
    Agreement dated April 1, 1997, entered into as of
    February 17, 2004.                                                                     
|       
|        | 10 | .82(21)    |  | Amendment No. 19 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    April 1, 2004.    
|       
|        | 10 | .83(22)    |  | Amendment to Lease between BIT Holdings Forty-Eight, Inc. and
    Peerless Systems Imaging Products, Inc. as of October 1,
    2004.                                                                        
|       
|        | 10 | .84(22)    |  | Amendment No. 17 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, Effective as of
    15 October, 2004. 
|       
|        | 10 | .85(22)    |  | Silicon Valley Bank Loan and Security Agreement between Silicon
    Valley Bank and Peerless Systems Corporation dated
    October 27, 2004.                                                                
|       
|        | 10 | .86(23)    |  | Memorandum of Understanding by and between Kyocera Mita
    Corporation and Peerless Systems Corporation, effective as of
    February 1, 2005.                                                             
|       
|        | 10 | .87(23)    |  | Amendment No. 21 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 1, 2005.  
|       
|        | 10 | .88        |  | Confidential Separation Agreement and Mutual Release by and
    between Denis Retoske and Peerless Systems Corporation dated
    June 4, 2004.                                                              
|       
|        | 10 | .89        |  | Peerless/Consultant Consulting Agreement by and between Denis
    Retoske and Peerless Systems Corporation dated June 4, 2004.                                                                              
|       
|        | 10 | .90        |  | Notice of Termination of Consulting Relationship Letter from
    Peerless Systems Corporation to Denis Retoske dated
    March 28, 2005.                                                                    
|       
|        | 21 |            |  | Registrants Wholly-Owned Subsidiaries.                                                                                                                                                                     
|       
|        | 23 | .1         |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                   
|       
|        | 24 | .1         |  | Power of Attorney. Reference is made to the signature page to
    this Annual Report on Form 10-K.                                                                                                          
|       
|        | 31 | .1         |  | Certification of Principal Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|       
|        | 31 | .2         |  | Certification of Principal Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|       
|        | 32 |            |  | Certifications of Principal Executive Officer and Principal
    Financial Officer Pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                            

42



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##### Table of Contents








|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed in the Companys Registration Statement on
    Form S-1 (File No. 333-09357), as amended and
    incorporated herein by reference.
|   
|(2) | Management contract or compensatory plan or arrangement.                                                                                           
|   
|(3) | Subject to a Confidential Treatment Order.                                                                                                         
|   
|(4) | Previously filed in the Companys Current Report on
    Form 8-K, filed October 13, 1999, and incorporated
    herein by reference.                
|   
|(5) | Previously filed in the Companys 1998 Annual Report filed
    on Form 10-K, filed April 24, 1998, and incorporated
    herein by reference.       
|   
|(6) | Previously filed in the Companys 1999 Annual Report filed
    on Form 10-K, filed April 26, 1999, and incorporated
    herein by reference.       
|   
|(7) | Previously filed in the Companys Registration Statement on
    Form S-4 (File No. 333-77049) as amended and
    incorporated herein by reference. 
|   
|(8) | Previously filed in the Companys 2000 Annual Report filed
    on Form 10-K, filed April 28, 2000, and incorporated
    herein by reference.       
|   
|(9) | Previously filed in the Companys Current Report on
    Form 8-K, filed July 2, 2001, and incorporated herein
    by reference.                    



|     |                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed in the Companys Registration Statement on
    Form S-8 (File No. 333-73562), filed November 16,
    2001, and incorporated herein by reference.                             
|    
|(11) | Previously filed in the Companys Registration Statement on
    Form S-8 (File No. 333-57362), filed March 21,
    2001, and incorporated herein by reference.                                
|    
|(12) | Previously filed in the Companys Amendment No. 4 to
    its Registration Statement on Form S-3 (File
    No. 333-60284), filed July 27, 2001, and incorporated
    herein by reference.      
|    
|(13) | Previously filed in the Companys 2001 Annual Report filed
    on Form 10-K, filed May 1, 2001, and incorporated
    herein by reference.                                                     
|    
|(14) | Previously filed in the Companys 2002 Annual Report on
    Form 10-K, filed May 1, 2002, and incorporated herein
    by reference.                                                           
|    
|(15) | Previously filed in the Companys Quarterly Report for the
    period ended July 31, 2002, filed September 16, 2002,
    and incorporated herein by reference.                                
|    
|(16) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2002, filed December 16,
    2002, and incorporated herein by reference.                              
|    
|(17) | Previously filed in the Companys 2003 Annual Report on
    Form 10-K filed May 1, 2003, and incorporated herein
    by reference.                                                            
|    
|(18) | Previously filed in the Companys Quarterly Report for the
    period ended July 31, 2003, filed September 15, 2003,
    and incorporated herein by reference.                                
|    
|(19) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2003, filed December 15,
    2003, and incorporated herein by reference.                              
|    
|(20) | Previously filed in the Companys 2004 Annual Report on
    Form 10-K filed April 30, 2004, and incorporated
    herein by reference.                                                         
|    
|(21) | Previously filed in the Companys Quarterly Report for the
    period ended April 30, 2004, filed June 14, 2004, and
    incorporated herein by reference.                                    
|    
|(22) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2004, filed December 15,
    2004, and incorporated herein by reference.                              
|    
|(23) | Confidential treatment has been requested with respect to the
    omitted portions of this Exhibit, which portions have been filed
    separately with the Securities and Exchange Commission.

43



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##### Table of Contents






SIGNATURES






| |                                 
| | --------------------------------
| | Peerless Systems
    Corporation



| |     |                    
| | --- | -------------------
| | By: | /s/ William R. Neil

| |                              
| | -----------------------------
| |                              
| | William R. Neil              
| | Vice President of Finance and
| | Chief Financial Officer      





|                                               |  |                                                                                                        |  |             |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ----------- |  | 
|Signature                                      |  | Title                                                                                                  |  | Date       
|                                               |  |                                                                                                        |  |            
|                                              
|/s/ Howard J. NellorHoward
    J. Nellor       |  | Chief Executive Officer, President & Director
    (Principal Executive Officer)                        |  | May 2, 2005
|                                              
|/s/ Robert G. BarrettRobert
    G. Barrett     |  | Director                                                                                               |  | May 2, 2005
|                                              
|/s/ Louis C. ColeLouis
    C. Cole             |  | Director                                                                                               |  | May 2, 2005
|                                              
|/s/ Thomas G. RotherhamThomas
    G. Rotherham |  | Director                                                                                               |  | May 2, 2005
|                                              
|/s/ William R. NeilWilliam
    R. Neil         |  | Vice President of Finance and Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | May 2, 2005

44



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                            |  |      |     | 
|----------------------------------------------------------- |  | ---- | --- | 
|                                                            |  | Page |    
|                                                            |  |      |    
|Report of Independent Registered Public
    Accounting Firm |  |      | F-2 | 
|Consolidated Statements of Operations                       |  |      | F-3 | 
|Consolidated Balance Sheets                                 |  |      | F-4 | 
|Consolidated Statements of
    Stockholders Equity         |  |      | F-5 | 
|Consolidated Statements of Cash Flows                       |  |      | F-6 | 
|Notes to Consolidated Financial
    Statements              |  |      | F-7 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






.






| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





F-2



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                     |                                      |                                          |        |        |        |   |        |        |        |   |        |        |        | 
|---------------------------------------------------- | ------------------------------------ | ---------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                     |                                      | Years Ended January 31,                  |       
|                                                     |                                      |                                          |       
|                                                     |                                      | 2005                                     |        |        | 2004   |   |        | 2003   |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | (In thousands, except per share amounts) |       
|Revenues:                                            |                                      |                                          |        |        |        |   |        |        |        |   |        |       
|                                                     | Product licensing                    |                                          | $      | 18,163 |        |   | $      | 19,931 |        |   | $      | 24,856 |       
|                                                     | Engineering services and maintenance |                                          |        | 2,664  |        |   |        | 3,178  |        |   |        | 5,047  |       
|                                                     | Other                                |                                          |        | 2,251  |        |   |        | 2,145  |        |   |        | 1,854  |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Total revenues                           |        |        | 23,078 |   |        |        | 25,254 |   |        |        | 31,757 | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Cost of revenues:                                    |                                      |                                          |        |        |        |   |        |        |        |   |        |       
|                                                     | Product licensing                    |                                          |        | 4,318  |        |   |        | 6,333  |        |   |        | 8,251  |       
|                                                     | Engineering services and maintenance |                                          |        | 3,353  |        |   |        | 3,066  |        |   |        | 2,850  |       
|                                                     | Other                                |                                          |        | 1,142  |        |   |        | 937    |        |   |        | 971    |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Total cost of revenues                   |        |        | 8,813  |   |        |        | 10,336 |   |        |        | 12,072 | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Gross margin                             |        |        | 14,265 |   |        |        | 14,918 |   |        |        | 19,685 | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Operating expenses:                                  |                                      |                                          |        |        |        |   |        |        |        |   |        |       
|                                                     | Research and development             |                                          |        | 11,723 |        |   |        | 11,771 |        |   |        | 9,766  |       
|                                                     | Sales and marketing                  |                                          |        | 3,668  |        |   |        | 4,540  |        |   |        | 4,552  |       
|                                                     | General and administrative           |                                          |        | 4,551  |        |   |        | 4,400  |        |   |        | 5,127  |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Total operating expenses                 |        |        | 19,942 |   |        |        | 20,711 |   |        |        | 19,445 | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Income (loss) from operations                        |                                      |                                          | (5,677 | )      |        |   | (5,793 | )      |        |   | 240    |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Interest income, net                                 |                                      |                                          | 23     |        |        |   | 138    |        |        |   | 374    |       
|Other income                                         |                                      |                                          |       |        |        |   | 1,490  |        |        |   |       |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Total other income                       |        |        | 23     |   |        |        | 1,628  |   |        |        | 374    | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Income (loss) before provision for income taxes      |                                      |                                          | (5,654 | )      |        |   | (4,165 | )      |        |   | 614    |       
|Provision for income taxes                           |                                      |                                          | 151    |        |        |   | 696    |        |        |   | 490    |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|                                                     |                                      | Net income (loss)                        |        | $      | (5,805 | ) |        | $      | (4,861 | ) |        | $      | 124    | 
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Basic earnings (loss) per share                      |                                      | $                                        | (0.37  | )      |        | $ | (0.31  | )      |        | $ | 0.01   |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Diluted earnings (loss) per share                    |                                      | $                                        | (0.37  | )      |        | $ | (0.31  | )      |        | $ | 0.01   |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Weighted average common shares outstanding  basic   |                                      |                                          | 15,891 |        |        |   | 15,575 |        |        |   | 15,282 |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       
|Weighted average common shares outstanding  diluted |                                      |                                          | 15,891 |        |        |   | 15,575 |        |        |   | 15,722 |       
|                                                     |                                      |                                          |        |        |        |   |        |        |       



F-3



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION





CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                 |                                            |       |         |        |  |       |         |        | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                     |                                                                                                                                                 | January 31,                                |      
|                                     |                                                                                                                                                 |                                            |      
|                                     |                                                                                                                                                 | 2005                                       |       |         | 2004   | 
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | (In thousands)                             |      
|ASSETS                              
|Current assets:                      |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                     | Cash and cash equivalents                                                                                                                       |                                            | $     | 5,099   |        |  | $     | 5,069   |       
|                                     | Short-term investments                                                                                                                          |                                            |       | 1,397   |        |  |       | 4,341   |       
|                                     | Trade accounts receivable, less allowance for doubtful accounts
    of $125 and $141 in 2005 and 2004, respectively                             |                                            |       | 2,037   |        |  |       | 6,146   |       
|                                     | Unbilled receivables                                                                                                                            |                                            |       | 952     |        |  |       |        |       
|                                     | Inventory                                                                                                                                       |                                            |       | 688     |        |  |       | 2       |       
|                                     | Prepaid expenses and other current assets                                                                                                       |                                            |       | 397     |        |  |       | 620     |       
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total current assets                       |       |         | 10,570 |  |       |         | 16,178 | 
|Property and equipment, net          |                                                                                                                                                 |                                            | 1,382 |         |        |  | 1,981 |        
|Other assets                         |                                                                                                                                                 |                                            | 695   |         |        |  | 1,148 |        
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total assets                               |       | $       | 12,647 |  |       | $       | 19,307 | 
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                     | Accounts payable                                                                                                                                |                                            | $     | 870     |        |  | $     | 897     |       
|                                     | Accrued wages                                                                                                                                   |                                            |       | 410     |        |  |       | 384     |       
|                                     | Accrued compensated absences                                                                                                                    |                                            |       | 754     |        |  |       | 805     |       
|                                     | Accrued product licensing costs                                                                                                                 |                                            |       | 2,364   |        |  |       | 2,834   |       
|                                     | Income taxes payable                                                                                                                            |                                            |       | 8       |        |  |       | 469     |       
|                                     | Other current liabilities                                                                                                                       |                                            |       | 462     |        |  |       | 428     |       
|                                     | Deferred revenue                                                                                                                                |                                            |       | 897     |        |  |       | 1,323   |       
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total current liabilities                  |       |         | 5,765  |  |       |         | 7,140  | 
|Other liabilities                    |                                                                                                                                                 |                                            | 418   |         |        |  | 366   |        
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total liabilities                          |       |         | 6,183  |  |       |         | 7,506  | 
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|Commitments                          |                                                                                                                                                 |                                            |       |         |        |  |       |        
|Stockholders equity:                |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                     | Common stock, $.001 par value, 30,000 shares
    authorized, 16,172 and 15,866 shares issued and outstanding
    in 2005 and 2004, respectively |                                            |       | 16      |        |  |       | 15      |       
|                                     | Additional paid-in capital                                                                                                                      |                                            |       | 49,761  |        |  |       | 49,295  |       
|                                     | Accumulated deficit                                                                                                                             |                                            |       | (43,239 | )      |  |       | (37,434 | )     
|                                     | Accumulated other comprehensive income                                                                                                          |                                            |       | 39      |        |  |       | 38      |       
|                                     | Treasury stock, 150 shares in 2005 and 2004                                                                                                     |                                            |       | (113    | )      |  |       | (113    | )     
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total stockholders equity                 |       |         | 6,464  |  |       |         | 11,801 | 
|                                     |                                                                                                                                                 |                                            |       |         |        | 
|                                     |                                                                                                                                                 | Total liabilities and stockholders equity |       | $       | 12,647 |  |       | $       | 19,307 | 
|                                     |                                                                                                                                                 |                                            |       |         |        | 



F-4



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |     |        |   |    |   |    |   |        |        |        |  
|-------------------------- | -------------------------------------------------- | --------------------------------------- | ------ | --- | -------------- | - | -- | ---------- | - | ----------- | ----------- | - | ----- | ------------- | ---- | ----- | ------------- | - | ------ | ------ | - | - | ------- | --- | ------ | - | -- | - | -- | - | ------ | ------ | ------ | -
|                           |                                                    |                                         |        |     |                |   |    |            |   | Accumulated |             |   |      
|                           |                                                    | Common Stock                            |        |     | Treasury Stock |   |    | Additional |   |             |             |   | Other |               |      | Total |              
|                           |                                                    |                                         |        |     |                |   |    | Paid-In    |   |             | Accumulated |   |       | Comprehensive |      |       | Stockholders |  
|                           |                                                    | Shares                                  |        |     | Amount         |   |    | Shares     |   |             | Amount      |   |       | Capital       |      |       | Deficit       |   |        | Income |   |   | Equity  |    
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|                           |                                                    | (In thousands)                          |       
|Balances, January 31, 2002 |                                                    |                                         | 15,377 |     |                | $ | 15 |            |   |             | 150         |   |       | $             | (113 | )     |               | $ | 48,789 |        |   | $ | (32,697 | )   |        | $ |   |   |    | $ | 15,994 |       
|                           | Issuance of common stock                           |                                         |        |    |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 30     |   |   |         |    |        |   |    |  |    |   |        | 30     |       
|                           | Exercise of stock options                          |                                         |        | 73  |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 63     |   |   |         |    |        |   |    |  |    |   |        | 63     |       
|                           | Net income                                         |                                         |        |    |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        |       |   |   |         | 124 |        |   |    |  |    |   |        | 124    |       
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|Balances, January 31, 2003 |                                                    |                                         | 15,450 |     |                |   | 15 |            |   |             | 150         |   |       |               | (113 | )     |               |   | 48,882 |        |   |   | (32,573 | )   |        |   |   |   |    |   | 16,211 |       
|                           | Issuance of common stock                           |                                         |        | 294 |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 317    |   |   |         |    |        |   |    |  |    |   |        | 317    |       
|                           | Exercise of stock options                          |                                         |        | 122 |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 96     |   |   |         |    |        |   |    |  |    |   |        | 96     |       
|                           | Comprehensive loss:                                |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |     |        |   |    |   |    |   |        |        |       
|                           |                                                    | Net loss                                |        |     |               |   |    |            |  |             |             |   |      |               |      |       |              |   |        |        |  |   |         |     | (4,861 | ) |    |   |   |   |        |        | (4,861 | )
|                           |                                                    | Foreign currency translation adjustment |        |     |               |   |    |            |  |             |             |   |      |               |      |       |              |   |        |        |  |   |         |     |       |   |    |   | 38 |   |        |        | 38     |  
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|                           | Total comprehensive loss                           |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |     |        |   |    |   |    |   |        | (4,823 | )     
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|Balances, January 31, 2004 |                                                    |                                         | 15,866 |     |                |   | 15 |            |   |             | 150         |   |       |               | (113 | )     |               |   | 49,295 |        |   |   | (37,434 | )   |        |   | 38 |   |    |   | 11,801 |       
|                           | Issuance of common stock                           |                                         |        | 251 |                |   |    | 1          |   |             |             |  |       |               |      |      |               |   |        | 337    |   |   |         |    |        |   |    |  |    |   |        | 338    |       
|                           | Exercise of stock options                          |                                         |        | 55  |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 39     |   |   |         |    |        |   |    |  |    |   |        | 39     |       
|                           | Non-employee stock option grants and modifications |                                         |        |    |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 66     |   |   |         |    |        |   |    |  |    |   |        | 66     |       
|                           | Issuance of common stock warrants                  |                                         |        |    |                |   |    |           |   |             |             |  |       |               |      |      |               |   |        | 24     |   |   |         |    |        |   |    |  |    |   |        | 24     |       
|                           | Comprehensive loss:                                |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |     |        |   |    |   |    |   |        |        |       
|                           |                                                    | Net loss                                |        |     |               |   |    |            |  |             |             |   |      |               |      |       |              |   |        |        |  |   |         |     | (5,805 | ) |    |   |   |   |        |        | (5,805 | )
|                           |                                                    | Foreign currency translation adjustment |        |     |               |   |    |            |  |             |             |   |      |               |      |       |              |   |        |        |  |   |         |     |       |   |    |   | 1  |   |        |        | 1      |  
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|                           | Total comprehensive loss                           |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |     |        |   |    |   |    |   |        | (5,804 | )     
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    
|Balances, January 31, 2005 |                                                    |                                         | 16,172 |     |                | $ | 16 |            |   |             | 150         |   |       | $             | (113 | )     |               | $ | 49,761 |        |   | $ | (43,239 | )   |        | $ | 39 |   |    | $ | 6,464  |       
|                           |                                                    |                                         |        |     |                |   |    |            |   |             |             |   |       |               |      |       |               |   |        |        |   |   |         |    



F-5



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |        |        |        |        |        |       |  
|------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------------- | ---------------------------------------------------- | ------ | ----- | ------ | ------ | ------- | ------ | ------ | ------ | ------ | ------ | ----- | -
|                                                  |                                                                                                    | Years Ended January 31,            |                                                     
|                                                  |                                                                                                    |                                    |                                                     
|                                                  |                                                                                                    | 2005                               |                                                      |        | 2004  |        |        | 2003    |       
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|                                                  |                                                                                                    | (In thousands)                     |                                                     
|Cash flows from operating activities:             |                                                                                                    |                                    |                                                      |        |       |        |        |         |        |        |        |       
|                                                  | Net income (loss)                                                                                  |                                    | $                                                    | (5,805 | )     |        | $      | (4,861  | )      |        | $      | 124    |       
|                                                  | Adjustments to reconcile net income (loss) to net cash provided
    (used) by operating activities |                                    |                                                      |        |       |        |        |         |        |        |        |        |       
|                                                  |                                                                                                    | Depreciation and amortization      |                                                      |        | 1,567 |        |        |         | 1,375  |        |        |        | 1,510  |      
|                                                  |                                                                                                    | Net gain from sublease termination |                                                      |        |      |        |        |         | (938   | )      |        |        |       |      
|                                                  |                                                                                                    | Gain from Netreon sale             |                                                      |        |      |        |        |         | (971   | )      |        |        |       |      
|                                                  |                                                                                                    | Loss from lease amendment          |                                                      |        |      |        |        |         |       |        |        |        | 725    |      
|                                                  |                                                                                                    | Other                              |                                                      |        | 67    |        |        |         | (54    | )      |        |        | 31     |      
|                                                  | Changes in operating assets and liabilities:                                                       |                                    |                                                      |        |       |        |        |         |        |        |        |        |       
|                                                  |                                                                                                    | Trade accounts receivable          |                                                      |        | 4,109 |        |        |         | (4,043 | )      |        |        | 3,215  |      
|                                                  |                                                                                                    | Unbilled receivables               |                                                      |        | (952  | )      |        |         |       |        |        |        |       |      
|                                                  |                                                                                                    | Inventory                          |                                                      |        | (686  | )      |        |         |       |        |        |        |       |      
|                                                  |                                                                                                    | Prepaid expenses and other assets  |                                                      |        | 268   |        |        |         | 245    |        |        |        | (885   | )    
|                                                  |                                                                                                    | Accounts payable                   |                                                      |        | (27   | )      |        |         | 209    |        |        |        | (54    | )    
|                                                  |                                                                                                    | Accrued product licensing costs    |                                                      |        | (470  | )      |        |         | 613    |        |        |        | 1,337  |      
|                                                  |                                                                                                    | Deferred revenue                   |                                                      |        | (426  | )      |        |         | 242    |        |        |        | (746   | )    
|                                                  |                                                                                                    | Other liabilities                  |                                                      |        | (376  | )      |        |         | (1,479 | )      |        |        | (1,581 | )    
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|                                                  |                                                                                                    |                                    | Net cash provided (used) by operating activities     |        |       | (2,731 | )      |         |        | (9,662 | )      |        |        | 3,676 |  
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|Cash flows from investing activities:             |                                                                                                    |                                    |                                                      |        |       |        |        |         |        |        |        |       
|                                                  | Purchases of property and equipment                                                                |                                    |                                                      | (230   | )     |        |        | (388    | )      |        |        | (215   | )     
|                                                  | Purchases of available-for-sale securities                                                         |                                    |                                                      | (400   | )     |        |        | (16,819 | )      |        |        | (2,488 | )     
|                                                  | Proceeds from sales of available-for-sale securities                                               |                                    |                                                      | 3,344  |       |        |        | 16,162  |        |        |        | 2,407  |       
|                                                  | Purchases of software licenses                                                                     |                                    |                                                      | (285   | )     |        |        | (602    | )      |        |        | (128   | )     
|                                                  | Proceeds from sale of Netreon                                                                      |                                    |                                                      |       |       |        |        | 971     |        |        |        |       |       
|                                                  | Proceeds from sublease termination                                                                 |                                    |                                                      |       |       |        |        | 639     |        |        |        |       |       
|                                                  | Restricted cash                                                                                    |                                    |                                                      |       |       |        |        |        |        |        |        | (20    | )     
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|                                                  |                                                                                                    |                                    | Net cash provided (used) by investing activities     |        |       | 2,429  |        |         |        | (37    | )      |        |        | (444  | )
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|Cash flows from financing activities:             |                                                                                                    |                                    |                                                      |        |       |        |        |         |        |        |        |       
|                                                  | Proceeds from issuance of common stock                                                             |                                    |                                                      | 338    |       |        |        | 317     |        |        |        | 30     |       
|                                                  | Proceeds from exercise of common stock options                                                     |                                    |                                                      | 39     |       |        |        | 96      |        |        |        | 63     |       
|                                                  | Payments for deferred costs for financing arrangement                                              |                                    |                                                      | (45    | )     |        |        |        |        |        |        |       |       
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|                                                  |                                                                                                    |                                    | Net cash provided by financing activities            |        |       | 332    |        |         |        | 413    |        |        |        | 93    |  
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|                                                  |                                                                                                    |                                    | Net increase (decrease) in cash and cash equivalents |        |       | 30     |        |         |        | (9,286 | )      |        |        | 3,325 |  
|Cash and cash equivalents, beginning of period    |                                                                                                    |                                    | 5,069                                                |        |       |        | 14,355 |         |        |        | 11,030 |       
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|Cash and cash equivalents, end of period          |                                                                                                    | $                                  | 5,099                                                |        |       | $      | 5,069  |         |        | $      | 14,355 |       
|                                                  |                                                                                                    |                                    |                                                      |        |       |        |        |         |       
|Supplemental disclosure of cash flow information: |                                                                                                    |                                    |                                                      |        |       |        |        |         |        |        |        |       
|                                                  | Cash paid during the year for:                                                                     |                                    |                                                      |        |       |        |        |         |        |        |        |        |       
|                                                  |                                                                                                    | Income taxes                       |                                                      | $      | 613   |        |        | $       | 1,325  |        |        | $      | 1,805  |      
|                                                  |                                                                                                    | Interest                           |                                                      | $      |      |        |        | $       |       |        |        | $      |       |      



F-6



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(in thousands, except per share amounts)




|   |                                                                           
|-- | --------------------------------------------------------------------------
|1. | Organization, Business and Summary of Significant Accounting
    Policies:

Organization and Business:


Liquidity:






Principles of Consolidation and Basis of Presentation:


Use of Estimates:


F-7



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)








Peerless Sierra Technologies


Cash and Cash Equivalents:


Investments:


Fair Value of Financial Investments:


Inventory:


F-8



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)


Property and Equipment:


|                              |  |  |                                      | 
|----------------------------- |  |  | ------------------------------------ | 
|Computers and other equipment |  |  | 3 to 5 years                         | 
|Furniture                     |  |  | 10 years                             | 
|Leasehold improvements        |  |  | Shorter of useful life or lease term | 



Long-Lived Assets:


Capitalization of Software Development Costs:


Employee Stock-Based Compensation:


|                                         |         |                        |        |       |      |   |        |       |   |   |        |       |  
|---------------------------------------- | ------- | ---------------------- | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                         |         | Year Ended January 31, |       
|                                         |         |                        |       
|                                         |         | 2005                   |        |       | 2004 |   |        | 2003  |  
|                                         |         |                        |        |       |      |   |        |       |  
|Net income (loss) as reported            |         | $                      | (5,805 | )     |      | $ | (4,861 | )     |   | $ | 124    |      
|Stock-based compensation, net of tax     |         |                        | (465   | )     |      |   | (1,506 | )     |   |   | (3,275 | )    
|                                         |         |                        |        |       |      |   |        |       |  
|Proforma net loss                        |         | $                      | (6,270 | )     |      | $ | (6,367 | )     |   | $ | (3,151 | )    
|                                         |         |                        |        |       |      |   |        |       |  
|Net income (loss) per share as reported: |         |                        |        |       |      |   |        |       |   |   |        |      
|                                         | Basic   |                        | $      | (0.37 | )    |   | $      | (0.31 | ) |   | $      | 0.01  |  
|                                         |         |                        |        |       |      |   |        |       |  
|                                         | Diluted |                        | $      | (0.37 | )    |   | $      | (0.31 | ) |   | $      | 0.01  |  
|                                         |         |                        |        |       |      |   |        |       |  
|Proforma net loss per share:             |         |                        |        |       |      |   |        |       |   |   |        |      
|                                         | Basic   |                        | $      | (0.39 | )    |   | $      | (0.41 | ) |   | $      | (0.21 | )
|                                         |         |                        |        |       |      |   |        |       |  
|                                         | Diluted |                        | $      | (0.39 | )    |   | $      | (0.41 | ) |   | $      | (0.21 | )
|                                         |         |                        |        |       |      |   |        |       |  



F-9



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




Revenue Recognition:














F-10



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




Research and Development Costs:


Advertising Costs:


Income Taxes:


Comprehensive Loss:


Earnings Per Share:


Reclassifications:


Foreign Currency Translation:


Recent Accounting Pronouncements:


F-11



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)














|   |                      
|-- | ---------------------
|2. | Divestiture and Sale:



| |                              
| | -----------------------------
| | Netreon Divestiture and Sale:





F-12



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|   |             
|-- | ------------
|3. | Investments:



|                               |                                               |                                            |       |   |       |   |       |   |       | 
|------------------------------ | --------------------------------------------- | ------------------------------------------ | ----- | - | ----- | - | ----- | - | ----- | 
|                               |                                               | 2005                                       |       |   | 2004  |  
|                               |                                               |                                            |       |   |       |  
|Available-for-sale securities: |                                               |                                            |       |   |       |   |       |  
|                               | Maturities within one year:                   |                                            |       |   |       |   |       |   |      
|                               |                                               | Corporate debt securities                  |       | $ | 1,397 |   |       | $ | 499   | 
|                               |                                               | State and local government debt securities |       |   |      |   |       |   | 403   | 
|                               |                                               |                                            |       |   |       |  
|                               |                                               |                                            | 1,397 |   |       |   | 902   |  
|                               |                                               |                                            |       |   |       |  
|                               | Maturities after one year through five years: |                                            |       |   |       |   |       |   |      
|                               |                                               | Corporate debt securities                  |       |   |      |   |       |   | 2,218 | 
|                               |                                               | State and local government debt securities |       |   |      |   |       |   | 421   | 
|                               |                                               | U.S. government debt securities            |       |   |      |   |       |   | 400   | 
|                               |                                               |                                            |       |   |       |  
|                               |                                               |                                            |      |   |       |   | 3,039 |  
|                               |                                               |                                            |       |   |       |  
|                               | Maturities after ten years:                   |                                            |       |   |       |   |       |   |      
|                               |                                               | U.S. government debt securities            |       |   |      |   |       |   | 400   | 
|                               |                                               |                                            |       |   |       |  
|Total investments              |                                               | $                                          | 1,397 |   |       | $ | 4,341 |  
|                               |                                               |                                            |       |   |       |  







|   |          
|-- | ---------
|4. | Inventory



|               |                 |      |     |     |      |   |   |   | 
|-------------- | --------------- | ---- | --- | --- | ---- | - | - | - | 
|               |                 | 2005 |     |     | 2004 |  
|               |                 |      |     |     |      |  
|Raw material   |                 | $    | 37  |     |      | $ |  |  
|Finished goods |                 |      | 651 |     |      |   | 2 |  
|               |                 |      |     |     |      |  
|               | Total inventory |      | $   | 688 |      |   | $ | 2 | 
|               |                 |      |     |     |      |  



F-13



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|   |                        
|-- | -----------------------
|5. | Property and Equipment:



|                                                |  |      |        |   |      |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                |  | 2005 |        |   | 2004 |  
|                                                |  |      |        |   |      |  
|Computers and other equipment                   |  | $    | 8,251  |   |      | $ | 8,036  |  
|Furniture                                       |  |      | 494    |   |      |   | 479    |  
|Leasehold improvements                          |  |      | 2,378  |   |      |   | 2,378  |  
|                                                |  |      |        |   |      |  
|                                                |  |      | 11,123 |   |      |   | 10,893 |  
|Less, accumulated depreciation and amortization |  |      | (9,741 | ) |      |   | (8,912 | )
|                                                |  |      |        |   |      |  
|                                                |  | $    | 1,382  |   |      | $ | 1,981  |  
|                                                |  |      |        |   |      |  









|   |              
|-- | -------------
|6. | Other Assets:





|   |                  
|-- | -----------------
|7. | Deferred Revenues



F-14



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|                                     |  |      |     |  |      |   |       | 
|------------------------------------ |  | ---- | --- |  | ---- | - | ----- | 
|                                     |  | 2005 |     |  | 2004 |  
|                                     |  |      |     |  |      |  
|Product licensing                    |  | $    | 25  |  |      | $ | 63    | 
|Engineering services and maintenance |  |      | 767 |  |      |   | 1,260 | 
|Other                                |  |      | 105 |  |      |   |      | 
|                                     |  |      |     |  |      |  
|                                     |  | $    | 897 |  |      | $ | 1,323 | 
|                                     |  |      |     |  |      |  



|   |              
|-- | -------------
|8. | Income Taxes:



|         |         |      |     |     |      |   |     |       |   |   |     |        |  
|-------- | ------- | ---- | --- | --- | ---- | - | --- | ----- | - | - | --- | ------ | -
|         |         | 2005 |     |     | 2004 |   |     | 2003  |  
|         |         |      |     |     |      |   |     |       |  
|Current: |         |      |     |     |      |   |     |       |   |   |     |       
|         | Federal |      | $   |    |      |   | $   | (980  | ) |   | $   | (1,621 | )
|         | State   |      |     | 1   |      |   |     | 1     |   |   |     | 1      |  
|         | Foreign |      |     | 150 |      |   |     | 1,675 |   |   |     | 2,110  |  
|         |         |      |     |     |      |   |     |       |  
|         |         | $    | 151 |     |      | $ | 696 |       |   | $ | 490 |       
|         |         |      |     |     |      |   |     |       |  







|                          |                                  |                               |         |       |        |  |         |       |        | 
|------------------------- | -------------------------------- | ----------------------------- | ------- | ----- | ------ |  | ------- | ----- | ------ | 
|                          |                                  | 2005                          |         |       | 2004   | 
|                          |                                  |                               |         |       |        | 
|Deferred tax assets:      |                                  |                               |         |       |        |  |         |      
|                          | Net operating loss carryforwards |                               | $       | 5,130 |        |  | $       | 2,735 |       
|                          | Accrued liabilities              |                               |         | 308   |        |  |         | 326   |       
|                          | Allowance for doubtful accounts  |                               |         | 48    |        |  |         | 56    |       
|                          | Property and equipment           |                               |         | 560   |        |  |         | 119   |       
|                          | Inventory                        |                               |         | 83    |        |  |         |      |       
|                          | Deferred expenses                |                               |         | 197   |        |  |         | 171   |       
|                          | Tax credit carryforwards         |                               |         | 9,353 |        |  |         | 6,862 |       
|                          | Other                            |                               |         | 2     |        |  |         | 20    |       
|                          |                                  |                               |         |       |        | 
|                          |                                  | Total deferred tax assets     |         |       | 15,681 |  |         |       | 10,289 | 
|Deferred tax liabilities: |                                  |                               |         |       |        |  |         |      
|                          | State income taxes               |                               |         | (1    | )      |  |         | (1    | )     
|                          |                                  |                               |         |       |        | 
|                          |                                  | Subtotal                      |         |       | 15,680 |  |         |       | 10,288 | 
|Valuation allowance       |                                  |                               | (15,680 | )     |        |  | (10,288 | )    
|                          |                                  |                               |         |       |        | 
|                          |                                  | Net deferred income tax asset |         | $     |       |  |         | $     |       | 
|                          |                                  |                               |         |       |        | 

F-15



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)








|                                  |                            |      |       |     |      |  |       |      |   |  |        |      |  
|--------------------------------- | -------------------------- | ---- | ----- | --- | ---- |  | ----- | ---- | - |  | ------ | ---- | -
|                                  |                            | 2005 |       |     | 2004 |  |       | 2003 |  
|                                  |                            |      |       |     |      |  |       |      |  
|Statutory federal income tax rate |                            |      | (34.0 | )%  |      |  | (34.0 | )%   |   |  | 34.0   | %   
|Foreign provision                 |                            |      | 2.7   |     |      |  | 40.2  |      |   |  | 353.9  |     
|Other nondeductible expenses      |                            |      | 0.3   |     |      |  | 0.5   |      |   |  | 2.5    |     
|State tax                         |                            |      | (5.8  | )   |      |  | (4.2  | )    |   |  | 5.8    |     
|Change in valuation allowance     |                            |      | 50.9  |     |      |  | 25.5  |      |   |  | (137.4 | )   
|Other                             |                            |      | (11.4 | )   |      |  | (11.3 | )    |   |  | (176.9 | )   
|                                  |                            |      |       |     |      |  |       |      |  
|                                  | Provision for income taxes |      |       | 2.7 | %    |  |       | 16.7 | % |  |        | 81.9 | %
|                                  |                            |      |       |     |      |  |       |      |  





|   |                           
|-- | --------------------------
|9. | Earnings (Loss) Per Share:



|                                                                              |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |     |  |  |  |        |  |  |   |      | 
|----------------------------------------------------------------------------- |  | ---- | ------ | --- | ------ |  | ------ | ------ | --- | --- | ----- | - |  | ------ | ------ | - | ------ | --- | ------ | ------ |  | - | ------ | - |  | ------ | --- |  |  |  | ------ |  |  | - | ---- | 
|                                                                              |  | 2005 |        |     | 2004   |  |        | 2003   |    
|                                                                              |  |      |        |     |        |  |        |        |    
|                                                                              |  |      |        | Per |        |  |        |        | Per |     |       |   |  | Per    |       
|                                                                              |  | Net  |        |     |        |  | Share  |        |     | Net |       |   |  |        | Share  |   |        | Net |        |        |  |   | Share  |  
|                                                                              |  | Loss |        |     | Shares |  |        | Amount |     |     | Loss  |   |  | Shares |        |   | Amount |     |        | Income |  |   | Shares |   |  | Amount |    
|                                                                              |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |    
|Basic EPS                                                                     |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |     |  |  |  |        |  |  |   |      | 
|Earnings (loss) available to common stock holders                             |  | $    | (5,805 | )   |        |  | 15,891 |        |     | $   | (0.37 | ) |  | $      | (4,861 | ) |        |     | 15,575 |        |  | $ | (0.31  | ) |  | $      | 124 |  |  |  | 15,282 |  |  | $ | 0.01 | 
|                                                                              |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |    
|Effect of Dilutive Securities                                                 |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |     |  |  |  |        |  |  |   |      | 
|Options                                                                       |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |    |  |  |  | 440    |  |  |   |      | 
|                                                                              |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |    
|Diluted EPS                                                                   |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |     |  |  |  |        |  |  |   |      | 
|Earnings (loss) available to common stockholders with assumed
    conversions |  | $    | (5,805 | )   |        |  | 15,891 |        |     | $   | (0.37 | ) |  | $      | (4,861 | ) |        |     | 15,575 |        |  | $ | (0.31  | ) |  | $      | 124 |  |  |  | 15,722 |  |  | $ | 0.01 | 
|                                                                              |  |      |        |     |        |  |        |        |     |     |       |   |  |        |        |   |        |     |        |        |  |   |        |   |  |        |    



F-16



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|    |                                 
|--- | --------------------------------
|10. | Stock Option and Purchase Plans:

1992 Stock Option Plan:




|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |    |   |  |   |      | 
|-------------------------------------------------------------------------- |  | --------- | ------------ | --------- | -------- | - | ---- | --------- | --------- |  | -------- | - |  | --------- | ---- |  | -------- |  | -- | - |  | - | ---- | 
|                                                                           |  | 2005      |              |           | 2004     |   |      | 2003      |          
|                                                                           |  |           |              |           |          |   |      |           |          
|                                                                           |  |           |              | Weighted  |          |   |      |           | Weighted  |  |          |   |  | Weighted  |     
|                                                                           |  |           |              | Average   |          |   |      |           | Average   |  |          |   |  | Average   |     
|                                                                           |  |           |              | Per Share |          |   |      |           | Per Share |  |          |   |  | Per Share |     
|                                                                           |  | Number of |              |           | Exercise |   |      | Number of |           |  | Exercise |   |  | Number of |      |  | Exercise | 
|                                                                           |  | Options   |              |           | Price    |   |      | Options   |           |  | Price    |   |  | Options   |      |  | Price    | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options outstanding at beginning of year                                   |  |           | 21           |           |          | $ | 1.56 |           |           |  | 22       |   |  | $         | 1.51 |  |          |  | 29 |   |  | $ | 1.29 | 
|Options granted                                                            |  |           |             |           |          |   |      |           |           |  |         |   |  |           |      |  |          |  |   |   |  |   |      | 
|Options exercised                                                          |  |           |             |           |          |   |      |           |           |  | (1       | ) |  | $         | 0.53 |  |          |  | (7 | ) |  | $ | 0.53 | 
|Options forfeited                                                          |  |           | (3           | )         |          | $ | 1.43 |           |           |  |         |   |  |           |      |  |          |  |   |   |  |   |      | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options outstanding at year-end                                            |  |           | 18           |           |          | $ | 1.59 |           |           |  | 21       |   |  | $         | 1.56 |  |          |  | 22 |   |  | $ | 1.51 | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options exercisable at year-end                                            |  |           | 18           |           |          | $ | 1.59 |           |           |  | 21       |   |  | $         | 1.56 |  |          |  | 22 |   |  | $ | 1.51 | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options available for future grant                                         |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |    |   |  |   |      | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Weighted average remaining contractual life in years                       |  |           | 1.0          |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |    |   |  |   |      | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Range of per share exercise prices for options outstanding at
    year-end |  | $         | 1.43 - $1.65 |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |    |   |  |   |      | 
|                                                                           |  |           |              |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 

Incentive Plan:






F-17



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |       |   |  |   |      | 
|-------------------------------------------------------------------------- |  | --------- | ----------- | --------- | -------- | - | ---- | --------- | --------- |  | -------- | - |  | --------- | ---- |  | -------- |  | ----- | - |  | - | ---- | 
|                                                                           |  | 2005      |             |           | 2004     |   |      | 2003      |          
|                                                                           |  |           |             |           |          |   |      |           |          
|                                                                           |  |           |             | Weighted  |          |   |      |           | Weighted  |  |          |   |  | Weighted  |     
|                                                                           |  |           |             | Average   |          |   |      |           | Average   |  |          |   |  | Average   |     
|                                                                           |  |           |             | Per Share |          |   |      |           | Per Share |  |          |   |  | Per Share |     
|                                                                           |  | Number of |             |           | Exercise |   |      | Number of |           |  | Exercise |   |  | Number of |      |  | Exercise | 
|                                                                           |  | Options   |             |           | Price    |   |      | Options   |           |  | Price    |   |  | Options   |      |  | Price    | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options outstanding at beginning of year                                   |  |           | 3,081       |           |          | $ | 2.71 |           |           |  | 3,121    |   |  | $         | 2.82 |  |          |  | 2,735 |   |  | $ | 3.68 | 
|Options granted                                                            |  |           | 963         |           |          | $ | 1.33 |           |           |  | 266      |   |  | $         | 2.34 |  |          |  | 794   |   |  | $ | 1.23 | 
|Options exercised                                                          |  |           | (55         | )         |          | $ | 0.73 |           |           |  | (121     | ) |  | $         | 0.78 |  |          |  | (66   | ) |  | $ | 0.89 | 
|Options forfeited                                                          |  |           | (234        | )         |          | $ | 3.86 |           |           |  | (185     | ) |  | $         | 1.65 |  |          |  | (342  | ) |  | $ | 3.12 | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options outstanding at year-end                                            |  |           | 3,755       |           |          | $ | 2.30 |           |           |  | 3,081    |   |  | $         | 2.70 |  |          |  | 3,121 |   |  | $ | 2.82 | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options exercisable at year-end                                            |  |           | 2,176       |           |          | $ | 2.99 |           |           |  | 1,849    |   |  | $         | 3.60 |  |          |  | 1,532 |   |  | $ | 4.32 | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Options available for future grant                                         |  |           | 284         |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |       |   |  |   |      | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Weighted average remaining contractual life in years                       |  |           | 6.7         |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |       |   |  |   |      | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Range of per share exercise prices for options outstanding at
    year-end |  | $         | 0.39-$22.38 |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |       |   |  |   |      | 
|                                                                           |  |           |             |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 



|                |       |                     |       |          |                     |  |          |           |  |   |        |          |  |           |     |       |  |   |       |  | 
|--------------- | ----- | ------------------- | ----- | -------- | ------------------- |  | -------- | --------- |  | - | ------ | -------- |  | --------- | --- | ----- |  | - | ----- |  | 
|                |       | Outstanding Options |       |          | Exercisable Options | 
|                |       |                     |       |          |                     | 
|                |       |                     |       | Weighted |                     |  | Weighted |           |  |   |        | Weighted | 
|                |       |                     |       | Average  |                     |  | Average  |           |  |   |        | Average  | 
|                |       | Shares              |       |          | Remaining           |  |          | Per Share |  |   | Shares |          |  | Per Share |    
|                |       | Under               |       |          | Life                |  |          | Exercise  |  |   | Under  |          |  | Exercise  |    
|                |       | Option              |       |          | (Years)             |  |          | Price     |  |   | Option |          |  | Price     |    
|                |       |                     |       |          |                     |  |          |           |  |   |        |          |  |           |    
|$0.00 to $1.00  |       |                     | 609   |          |                     |  | 5.8      |           |  | $ | 0.74   |          |  |           | 471 |       |  | $ | 0.73  | 
|$1.00 to $1.25  |       |                     | 477   |          |                     |  | 6.8      |           |  | $ | 1.16   |          |  |           | 313 |       |  | $ | 1.17  | 
|$1.25 to $1.50  |       |                     | 1,440 |          |                     |  | 8.6      |           |  | $ | 1.33   |          |  |           | 309 |       |  | $ | 1.37  | 
|$1.50 to $2.00  |       |                     | 482   |          |                     |  | 4.6      |           |  | $ | 1.65   |          |  |           | 458 |       |  | $ | 1.64  | 
|$2.00 to $2.25  |       |                     | 110   |          |                     |  | 8.1      |           |  | $ | 2.10   |          |  |           | 29  |       |  | $ | 2.10  | 
|$2.25 to $5.00  |       |                     | 346   |          |                     |  | 5.2      |           |  | $ | 3.68   |          |  |           | 305 |       |  | $ | 3.76  | 
|$5.00 to $22.38 |       |                     | 291   |          |                     |  | 3.6      |           |  | $ | 11.76  |          |  |           | 291 |       |  | $ | 11.76 | 
|                |       |                     |       |          |                     |  |          |           |  |   |        |          |  |           |    
|                | Total |                     |       | 3,755    |                     |  |          |           |  |   |        |          |  |           |     | 2,176 |  |   |       |  | 
|                |       |                     |       |          |                     |  |          |           |  |   |        |          |  |           |    

Other Stock Options:




F-18



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##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)


Employee Stock Purchase Plan:




Warrants:




|    |                         
|--- | ------------------------
|11. | Shareholder Rights Plan:



F-19



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|    |                       
|--- | ----------------------
|12. | Employee Savings Plan:





|    |                   
|--- | ------------------
|13. | Segment Reporting:





|              |  |                         |        |  |      |   |        |      |  |   |        | 
|------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|              |  | Years Ended January 31, |       
|              |  |                         |       
|              |  | 2005                    |        |  | 2004 |   |        | 2003 | 
|              |  |                         |        |  |      |   |        |      | 
|United States |  | $                       | 3,384  |  |      | $ | 3,255  |      |  | $ | 3,599  | 
|Japan         |  |                         | 19,673 |  |      |   | 21,912 |      |  |   | 27,584 | 
|Other         |  |                         | 21     |  |      |   | 87     |      |  |   | 574    | 
|              |  |                         |        |  |      |   |        |      | 
|              |  | $                       | 23,078 |  |      | $ | 25,254 |      |  | $ | 31,757 | 
|              |  |                         |        |  |      |   |        |      | 



|    |              
|--- | -------------
|14. | Other Income:





F-20



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)




|    |             
|--- | ------------
|15. | Commitments:

Operating Leases:


|           |  |           |       | 
|---------- |  | --------- | ----- | 
|           |  | Operating |      
|           |  | Leases    |      
|           |  |           |      
|2006       |  | $         | 1,243 | 
|2007       |  |           | 1,399 | 
|2008       |  |           | 1,307 | 
|2009       |  |           | 136   | 
|2010       |  |           | 142   | 
|Thereafter |  |           | 49    | 
|           |  |           |      
|           |  | $         | 4,276 | 
|           |  |           |      







|    |                         
|--- | ------------------------
|16. | Risks and Uncertainties:

Concentration of Credit Risk:




|           |  |      |        |  |      |  |     |      |  |   |        |  |  |  |     |  |  |   |        |  |  |  |     | 
|---------- |  | ---- | ------ |  | ---- |  | --- | ---- |  | - | ------ |  |  |  | --- |  |  | - | ------ |  |  |  | --- | 
|           |  | 2005 |        |  | 2004 |  |     | 2003 | 
|           |  |      |        |  |      |  |     |      | 
|Customer A |  | $    | 6,567  |  |      |  | 28% |      |  | $ | 7,688  |  |  |  | 30% |  |  | $ | 7,458  |  |  |  | 24% | 
|Customer B |  |      | 2,984  |  |      |  | 13% |      |  |   | 4,666  |  |  |  | 19% |  |  |   | 7,448  |  |  |  | 23% | 
|Customer C |  |      | 2,653  |  |      |  | 12% |      |  |   | 2,946  |  |  |  | 12% |  |  |   |       |  |  |  |     | 
|Customer D |  |      | 2,400  |  |      |  | 10% |      |  |   |       |  |  |  |     |  |  |   |       |  |  |  |     | 
|           |  |      |        |  |      |  |     |      |  |   |        |  |  |  |     |  |  |  
|           |  | $    | 14,604 |  |      |  | 63% |      |  | $ | 15,300 |  |  |  | 61% |  |  | $ | 14,906 |  |  |  | 47% | 
|           |  |      |        |  |      |  |     |      |  |   |        |  |  |  |     |  |  |  



Litigation:


F-21



---



##### Table of Contents



PEERLESS SYSTEMS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts)






|    |                            
|--- | ---------------------------
|17. | Related Party Transactions:





|    |                 
|--- | ----------------
|18. | Credit Facility:





|    |                  
|--- | -----------------
|19. | Subsequent Event:



F-22



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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                                   |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |     | 
|-------------------------------------------------- | ------------------------------------------------ | -------------- | - | --------- | ---------- |  | - | ------------- | - | ---------- | ------ | --- | - |  | - | --- | 
|                                                   |                                                  |                |   | Additions |            |  |   |               |  
|                                                   |                                                  | Balance at     |   |           | Charged to |  |   |               |   | Balance at |       
|                                                   |                                                  | Beginning      |   |           | Costs and  |  |   |               |   | End of     |       
|Allowances for Uncollectible Accounts Receivable:  |                                                  | of Period      |   |           | Expenses   |  |   | Deductions(a) |   |            | Period |    
|                                                   |                                                  |                |   |           |            |  |   |               |   |            |        |    
|                                                   |                                                  | (In thousands) |  
|Year Ended January 31, 2003                        |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|Reserves deducted from assets to which they apply: |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|                                                   | Allowances for uncollectible accounts receivable |                | $ | 100       |            |  | $ | 110           |   |            | $      | (8  | ) |  | $ | 202 | 
|Year Ended January 31, 2004                        |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|Reserves deducted from assets to which they apply: |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|                                                   | Allowances for uncollectible accounts receivable |                | $ | 202       |            |  | $ | (61           | ) |            | $      |    |   |  | $ | 141 | 
|Year Ended January 31, 2005                        |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|Reserves deducted from assets to which they apply: |                                                  |                |   |           |            |  |   |               |   |            |        |     |   |  |   |    
|                                                   | Allowances for uncollectible accounts receivable |                | $ | 141       |            |  | $ | 15            |   |            | $      | (31 | ) |  | $ | 125 | 






|    |                                         
|--- | ----------------------------------------
|(a) | Accounts written off, net of recoveries.

S-1



---



##### Table of Contents



EXHIBIT INDEX


|        |    |            |  |                                                                                                                                                                                                                              
|------- | -- | ---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|        | 3  | .1(1)      |  | Certificate of Incorporation of the Company.                                                                                                                                                                                 
|       
|        | 3  | .2(9)      |  | Amended and Restated Bylaws of the Company.                                                                                                                                                                                  
|       
|        | 4  | .1         |  | Instruments defining the rights of security holders. Reference
    is made to Exhibits 3.1 and 3.2.                                                                                                                          
|       
|        | 4  | .2(4)      |  | Rights Agreement, dated October 7, 1998, between the
    Company and Wells Fargo Shareowner Services, a division of Wells
    Fargo Bank Minnesota, N.A., formerly known as Norwest Shareowner
    Services, as Rights Agent.
|       
|        | 10 | .1(10)(2)  |  | 1996 Equity Incentive Plan, as amended and form of stock option
    agreements thereunder.                                                                                                                                   
|       
|        | 10 | .2(11)(2)  |  | 1996 Employee Stock Purchase Plan, as amended.                                                                                                                                                                               
|       
|        | 10 | .3(1)(3)   |  | Reference Post Appendix No. 2 to the Adobe Third Party
    License dated February 11, 1993.                                                                                                                                  
|       
|        | 10 | .4(1)      |  | Amendment No. 1 to the Adobe Third Party License dated
    November 29, 1993.                                                                                                                                                
|       
|        | 10 | .5(1)(3)   |  | PCL Development and License Agreement (the PCL
    License) dated June 14, 1993, between the Registrant
    and Adobe.                                                                                                     
|       
|        | 10 | .6(1)(3)   |  | Amendment No. 1 to the PCL License dated October 31,
    1993.                                                                                                                                                               
|       
|        | 10 | .7(1)(3)   |  | Letter Modification to the PCL License dated August 5, 1994.                                                                                                                                                                 
|       
|        | 10 | .8(1)(3)   |  | Addendum No. 1 to the PCL License dated March 31, 1995.                                                                                                                                                                      
|       
|        | 10 | .9(1)(3)   |  | Letter Modification to the PCL License dated August 30,
    1995.                                                                                                                                                            
|       
|        | 10 | .10(1)     |  | Lease Agreement between the Company and Continental Development
    Corporation dated February 6, 1992, and Addendum, dated
    February 6, 1992.                                                                            
|       
|        | 10 | .11(1)     |  | First Amendment to Office Lease dated December 1, 1995,
    between the Company and Continental Development Corporation.                                                                                                     
|       
|        | 10 | .12(5)     |  | Second Amendment to Office Lease dated April 8, 1997,
    between the Company and Continental Development Corporation.                                                                                                       
|       
|        | 10 | .13(5)     |  | Third Amendment to Office Lease dated December 16, 1997,
    between the Company and Continental Development Corporation.                                                                                                    
|       
|        | 10 | .14(6)     |  | Fourth Amendment to Office Lease dated April 22, 1998,
    between the Company and Continental Development Corporation.                                                                                                      
|       
|        | 10 | .15(7)     |  | Agreement and Plan of reorganization and Merger by and among
    Peerless Systems Corporation, Auco Merger and Auco, Inc. dated
    as of April 6, 1999.                                                                     
|       
|        | 10 | .16(8)     |  | Marubun Supplier/Distribution Agreement dated December 14,
    1999.                                                                                                                                                         
|       
|        | 10 | .17(8)     |  | Lease PSN McKelvy Family Trust (386 Main Street) Standard
    Industrial/Commercial Single-Tenant dated March 14, 1997.                                                                                                      
|       
|        | 10 | .18(8)     |  | Lease PSIP Kent Centennial Limited Partnership dated
    January 31, 1996.                                                                                                                                                   
|       
|        | 10 | .19(2)(12) |  | Form of Indemnification Agreement, effective as of
    March 12, 2001.                                                                                                                                                       
|       
|        | 10 | .20(13)    |  | Settlement Agreement and Mutual Release dated April 11,
    2001 between Peerless Systems Corporation and Gordon L. Hanson.                                                                                                  
|       
|        | 10 | .21(9)     |  | Settlement Agreement and Mutual Release, effective as of
    April 27, 2001, by and among the State of Wisconsin
    Investment Board, Peerless Systems Corporation and Edward A.
    Gavaldon.                              
|       
|        | 10 | .22(14)    |  | Series A Preferred Stock Purchase Agreement dated
    January 29, 2002 by and among Netreon, Inc., a Delaware
    corporation, Netreon, Inc., a California corporation and each of
    the several purchasers named therein. 
|       
|        | 10 | .23(14)    |  | Series A Preferred Stock Contribution Agreement dated
    January 29, 2002 by and between Netreon, Inc., a Delaware
    corporation and Peerless Systems Corporation.                                                        



---



##### Table of Contents



|        |    |            |  |                                                                                                                                                                                         
|------- | -- | ---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .24(3)(15) |  | Postscript Software Development License and Sublicense Agreement
    between Adobe Systems Incorporated and the Company effective as
    of July 23, 1999.                              
|       
|        | 10 | .25(3)(15) |  | Custom Sales Agreement between the Company and International
    Business Machines effective as of April 23, 2001.                                                                      
|       
|        | 10 | .26(3)(15) |  | Master Technology License Agreement dated January 16, 2000
    between Konica Corporation and Peerless Systems Corporation.                                                             
|       
|        | 10 | .27(3)(15) |  | License Software Addendum #1 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 16, 2000.                         
|       
|        | 10 | .28(3)(15) |  | License Software Addendum #2 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 19, 2000.                         
|       
|        | 10 | .29(3)(15) |  | License Software Addendum #3 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of July 21, 2000.                            
|       
|        | 10 | .30(3)(15) |  | License Software Addendum #4 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of March 1, 2001.                            
|       
|        | 10 | .31(3)(15) |  | License Software Addendum #5 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of July 1, 2001.                             
|       
|        | 10 | .32(3)(15) |  | License Software Addendum #7 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                          
|       
|        | 10 | .33(3)(15) |  | License Software Addendum #8 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                          
|       
|        | 10 | .34(3)(15) |  | License Software Addendum #9 to Master Technology License
    Agreement by and between Konica Corporation and the Company
    effective as of January 1, 2002.                          
|       
|        | 10 | .35(15)    |  | Master Technology License Agreement dated April 1, 1997
    between Kyocera Corporation and Peerless Systems Corporation.                                                               
|       
|        | 10 | .36(3)(15) |  | Licensed Software Addendum #1 to Master Technology License
    Agreement by and between Kyocera Corporation and the Company
    effective as of December 28, 1999.                      
|       
|        | 10 | .37(3)(15) |  | Amendment #3 to Licensed Software Addendum #1 to
    Master Technology License Agreement by and between Kyocera
    Corporation and the Company effective as of September 28,
    2001. 
|       
|        | 10 | .38(3)(15) |  | Licensed Software Addendum #3 to Master Technology License
    Agreement by and between Kyocera Mita Corporation and the
    Company effective as of May 1, 2002.                       
|       
|        | 10 | .39(3)(15) |  | Master Technology License Agreement between Oki Data Corporation
    and Peerless Systems Imaging Products, Inc.                                                                        
|       
|        | 10 | .40(3)(15) |  | Licensed System Addendum No. 1 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc.                                  
|       
|        | 10 | .41(3)(15) |  | Licensed System Addendum No. 2 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc.                                  
|       
|        | 10 | .42(3)(15) |  | Licensed System Addendum No. 3 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc. effective as of August 25, 2000. 
|       
|        | 10 | .43(3)(15) |  | Attachment #1 to Licensed System Addendum #3 by and
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated March 1, 2001.                               
|       
|        | 10 | .44(3)(15) |  | Attachment #2 to Licensed System Addendum #3 by and
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated July 1, 2001.                                
|       
|        | 10 | .45(3)(15) |  | Licensed System Addendum No. 4 to Master Technology License
    Agreement between Oki Data Corporation and Peerless Systems
    Imaging Products, Inc. effective as of February 1, 2002.
|       
|        | 10 | .46(15)    |  | Master Technology License Agreement dated April 1, 2000
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc.                                             



---



##### Table of Contents



|        |    |            |  |                                                                                                                                                                                                                       
|------- | -- | ---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .47(3)(15) |  | Licensed System Addendum #1 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. dated April 1, 2000.                                    
|       
|        | 10 | .48(3)(15) |  | Licensed System Addendum #2 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc.                                                         
|       
|        | 10 | .49(3)(15) |  | Licensed System Addendum #3 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc.                                                         
|       
|        | 10 | .50(3)(15) |  | Attachment #1 to Licensed System Addendum #3 by and
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc. dated May 1, 2001.                                                            
|       
|        | 10 | .51(3)(15) |  | Attachment #2 to Licensed System Addendum #3 by and
    between Seiko Epson Corporation and Peerless Systems Imaging
    Products, Inc. dated July 23, 2001.                                                          
|       
|        | 10 | .52(3)(15) |  | Licensed System Addendum #4 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of October 19,
    2001.                   
|       
|        | 10 | .53(3)(15) |  | Licensed System Addendum #5 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of December 1,
    2001.                   
|       
|        | 10 | .54(3)(15) |  | Licensed System Addendum #6 to Master Technology License
    Agreement by and between Seiko Epson Corporation and Peerless
    Systems Imaging Products, Inc. effective as of April 30,
    2002.                     
|       
|        | 10 | .55(3)(15) |  | Nest Office SDK Development and Reseller Agreement Statement of
    Work 8 to BDA No. N-A-1 between and Novell, Inc. and Peerless
    Systems Networking effective as of August 17, 1999.                             
|       
|        | 10 | .56(3)(15) |  | Amendment No. 1 to Nest Office SDK Development and Reseller
    Agreement Statement of Work 8 to BDA No. N-A-1 between and
    Novell, Inc. and Peerless Systems Networking effective as of
    August 17, 1999.      
|       
|        | 10 | .57(15)    |  | Business Development Agreement by and between Novell and Auco,
    Inc effective as of September 6, 1996.                                                                                                             
|       
|        | 10 | .58(16)    |  | Amendment No. 4 to Licensed System Addendum No. 4
    dated February 1, 2002 by and between Oki Data Corporation
    and Peerless Systems Imaging Products, Inc. dated
    September 1, 2002.(15)                     
|       
|        | 10 | .59(16)    |  | Amendment No. 3 to Postscript Software Development
    Agreement by and between Adobe Systems Incorporated and the
    Company dated October 25, 2002.                                                                
|       
|        | 10 | .60(3)(17) |  | Amendment No. 1 to Licensed System Agreement No. 7
    dated November 1, 2001 by and between Konica Corporation
    and Peerless Systems Corporation dated January 1, 2003.                                           
|       
|        | 10 | .61(3)(17) |  | Licensed System Agreement Addendum No. 10 to Master
    Technology License Agreement dated January 16, 2000 by and
    between Konica Corporation and Peerless Systems Corporation
    dated January 17, 2003.        
|       
|        | 10 | .62(3)(17) |  | Licensed System Addendum #8 to Master Technology License
    Agreement dated April 1, 2000 by and between Seiko Epson
    Corporation and Peerless Systems Imaging Products, Inc.
    effective as of January 6, 2003.
|       
|        | 10 | .63(3)(18) |  | Amendment No. 4 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2003.               
|       
|        | 10 | .64(3)(18) |  | Amendment No. 10 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2003.              
|       
|        | 10 | .65(3)(19) |  | Amendment No. 5 to Licensed System Addendum No. 4
    between Oki Data Corporation and Peerless Systems Imaging
    Products, Inc. dated February 1, 2002.                                                            



---



##### Table of Contents



|        |    |            |  |                                                                                                                                                                                                                                                               
|------- | -- | ---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |           
|Number  |    |           
|        |    |           
|       
|        | 10 | .66(3)(19) |  | Amendment No. 8 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 30, 2003.                                                  
|       
|        | 10 | .67(3)(19) |  | Amendment No. 9 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 15, 2003.                                                  
|       
|        | 10 | .68(3)(19) |  | Amendment No. 12 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    September 22, 2003.                                                 
|       
|        | 10 | .69(20)    |  | Licensed Software Addendum No. 14 to Master Technology
    License Agreements dated January 16, 2000 and June 12,
    1997 by and between KonicaMinolta Business Technologies, Inc.
    and Peerless Systems Corporation, effective as of
    October 31, 2003
|       
|        | 10 | .70(20)    |  | Amendment #2 to the LSA #9 by and between
    KonicaMinolta Business Technologies, Inc. and Peerless Systems
    Corporation, effective as of November 1, 2003                                                                                                
|       
|        | 10 | .71(20)    |  | Amendment No. 5 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    December 16, 2003.                                                   
|       
|        | 10 | .72(20)    |  | Amendment No. 6 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    July 31, 2002.                                                       
|       
|        | 10 | .73(20)    |  | Amendment No. 7 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    May 22, 2003.                                                        
|       
|        | 10 | .74(20)    |  | Amendment No. 11 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    February 9, 2004.                                                   
|       
|        | 10 | .75(20)    |  | Amendment No. 14 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    December 16, 2003.                                                  
|       
|        | 10 | .76(20)    |  | Amendment No. 15 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 6, 2004.                                                    
|       
|        | 10 | .77(2)(20) |  | Change in Control Agreement of Chief Executive Officer.                                                                                                                                                                                                       
|       
|        | 10 | .78(2)(20) |  | Form of Change in Control Agreement of certain members of senior
    management.                                                                                                                                                                              
|       
|        | 10 | .79(2)(20) |  | Form of Transaction Incentive Plan of certain members of senior
    management.                                                                                                                                                                               
|       
|        | 10 | .80(21)    |  | Amendment No. 16 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 6, 2004.                                                    
|       
|        | 10 | .81(21)    |  | Licensed Software Addendum #5 to Master Technology License
    Agreement dated April 1, 1997, entered into as of
    February 17, 2004.                                                                                                                       
|       
|        | 10 | .82(21)    |  | Amendment No. 19 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    April 1, 2004.                                                      
|       
|        | 10 | .83(22)    |  | Amendment to Lease between BIT Holdings Forty-Eight, Inc. and
    Peerless Systems Imaging Products, Inc. as of October 1,
    2004.                                                                                                                          
|       
|        | 10 | .84(22)    |  | Amendment No. 17 to the Postscript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, Effective as of
    15 October, 2004.                                                   
|       
|        | 10 | .85(22)    |  | Silicon Valley Bank Loan and Security Agreement between Silicon
    Valley Bank and Peerless Systems Corporation dated
    October 27, 2004.                                                                                                                  



---



##### Table of Contents



|        |    |         |  |                                                                                                                                                                                                           
|------- | -- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    |        
|        |    |        
|       
|        | 10 | .86(23) |  | Memorandum of Understanding by and between Kyocera Mita
    Corporation and Peerless Systems Corporation, effective as of
    February 1, 2005.                                                           
|       
|        | 10 | .87(23) |  | Amendment No. 21 to the PostScript Software Development
    License and Sublicense Agreement between Adobe Systems
    Incorporated and Peerless Systems Corporation, effective as of
    January 1, 2005.
|       
|        | 10 | .88     |  | Confidential Separation Agreement and Mutual Release by and
    between Denis Retoske and Peerless Systems Corporation dated
    June 4, 2004.                                                            
|       
|        | 10 | .89     |  | Peerless/Consultant Consulting Agreement by and between Denis
    Retoske and Peerless Systems Corporation dated June 4, 2004.                                                                            
|       
|        | 10 | .90     |  | Notice of Termination of Consulting Relationship Letter from
    Peerless Systems Corporation to Denis Retoske dated
    March 28, 2005.                                                                  
|       
|        | 21 |         |  | Registrants Wholly-Owned Subsidiaries.                                                                                                                                                                   
|       
|        | 23 | .1      |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                 
|       
|        | 24 | .1      |  | Power of Attorney. Reference is made to the signature page to
    this Annual Report on Form 10-K.                                                                                                        
|       
|        | 31 | .1      |  | Certification of Principal Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|       
|        | 31 | .2      |  | Certification of Principal Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|       
|        | 32 |         |  | Certifications of Principal Executive Officer and Principal
    Financial Officer Pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                          






|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed in the Companys Registration Statement on
    Form S-1 (File No. 333-09357), as amended and
    incorporated herein by reference.
|   
|(2) | Management contract or compensatory plan or arrangement.                                                                                           
|   
|(3) | Subject to a Confidential Treatment Order.                                                                                                         
|   
|(4) | Previously filed in the Companys Current Report on
    Form 8-K, filed October 13, 1999, and incorporated
    herein by reference.                
|   
|(5) | Previously filed in the Companys 1998 Annual Report filed
    on Form 10-K, filed April 24, 1998, and incorporated
    herein by reference.       
|   
|(6) | Previously filed in the Companys 1999 Annual Report filed
    on Form 10-K, filed April 26, 1999, and incorporated
    herein by reference.       
|   
|(7) | Previously filed in the Companys Registration Statement on
    Form S-4 (File No. 333-77049) as amended and
    incorporated herein by reference. 
|   
|(8) | Previously filed in the Companys 2000 Annual Report filed
    on Form 10-K, filed April 28, 2000, and incorporated
    herein by reference.       
|   
|(9) | Previously filed in the Companys Current Report on
    Form 8-K, filed July 2, 2001, and incorporated herein
    by reference.                    



|     |                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed in the Companys Registration Statement on
    Form S-8 (File No. 333-73562), filed November 16,
    2001, and incorporated herein by reference.                       
|    
|(11) | Previously filed in the Companys Registration Statement on
    Form S-8 (File No. 333-57362), filed March 21,
    2001, and incorporated herein by reference.                          
|    
|(12) | Previously filed in the Companys Amendment No. 4 to
    its Registration Statement on Form S-3 (File
    No. 333-60284), filed July 27, 2001, and incorporated
    herein by reference.
|    
|(13) | Previously filed in the Companys 2001 Annual Report filed
    on Form 10-K, filed May 1, 2001, and incorporated
    herein by reference.                                               



---



##### Table of Contents





|     |                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Previously filed in the Companys 2002 Annual Report on
    Form 10-K, filed May 1, 2002, and incorporated herein
    by reference.                                                           
|    
|(15) | Previously filed in the Companys Quarterly Report for the
    period ended July 31, 2002, filed September 16, 2002,
    and incorporated herein by reference.                                
|    
|(16) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2002, filed December 16,
    2002, and incorporated herein by reference.                              
|    
|(17) | Previously filed in the Companys 2003 Annual Report on
    Form 10-K filed May 1, 2003, and incorporated herein
    by reference.                                                            
|    
|(18) | Previously filed in the Companys Quarterly Report for the
    period ended July 31, 2003, filed September 15, 2003,
    and incorporated herein by reference.                                
|    
|(19) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2003, filed December 15,
    2003, and incorporated herein by reference.                              
|    
|(20) | Previously filed in the Companys 2004 Annual Report on
    Form 10-K filed April 30, 2004, and incorporated
    herein by reference.                                                         
|    
|(21) | Previously filed in the Companys Quarterly Report for the
    period ended April 30, 2004, filed June 14, 2004, and
    incorporated herein by reference.                                    
|    
|(22) | Previously filed in the Companys Quarterly Report for the
    period ended October 31, 2004, filed December 15,
    2004, and incorporated herein by reference.                              
|    
|(23) | Confidential treatment has been requested with respect to the
    omitted portions of this Exhibit, which portions have been filed
    separately with the Securities and Exchange Commission.