897893--4/13/2007--PEERLESS_SYSTEMS

related topics

{product, market, service}

{system, service, information}

{property, intellectual, protect}

{personnel, key, retain}

{customer, product, revenue}

{stock, price, share}

{cost, operation, labor}

{acquisition, growth, future}

{operation, international, foreign}

{product, candidate, development}

{control, financial, internal}

{stock, price, operating}

{interest, director, officer}

{investment, property, distribution}

We rely on relationships with certain customers and any adverse change in those relationships will harm our business. Our existing capital resources may not be sufficient and if we are unable to raise additional capital, our business may suffer. We rely on relationships with Adobe Systems Incorporated and Novell Inc., and any adverse change in those relationships will harm our business. Our current licensing agreement with Adobe Systems Incorporated expires in December 31, 2007, and if we do not enter into an amendment to extend the Adobe License Agreement, or enter into a new Adobe licensing agreement before such expiration date, this may have a material adverse effect on our operating results. We have 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 could harm our business. If we do not enter into definitive agreements relating to the Memorandum of Understanding, or MOU, with Kyocera-Mita Corporation, it may harm our financial results. The uncertainty as to the introduction and success of the Kyocera-Mita products could materially and adversely affect our results of operations. We may be unable to implement our business plan effectively. If we enter new markets or distribution channels this could result in higher operating expenses that may not be offset by increased revenue. While the Company intends to invest in or acquire a software solution company, there is no certainty or guarantee that the Company will be successful in finding and/or agreeing with a third party for such an investment or acquisition. The increased use of low-cost offshore engineering and test labor by our customers and competitors as well as the shift by OEMs towards in-house development poses significant risks to our competitive position. Our increased use of low-cost offshore engineering and test labor could significantly harm our business. The impact of Microsoft s Vista operating system could have an adverse impact on our future licensing revenues. If we are unable to achieve our expected level of sales of Peerless imaging and networking technologies on a timely basis, our future revenue and operating results may be harmed. Our licensing revenue is subject to significant fluctuations Our revenue from engineering services is subject to significant fluctuations. We may be unable to deploy our employees effectively in connection with changing demands from our OEM customers. The future demand for our products is uncertain. We have a history of losses. We may be unable to develop additional new and enhanced products that achieve market acceptance. If we are not in compliance with our licensing agreements, we may lose our rights to sublicense technology; our 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 our business may suffer if our competitors develop superior technology. If we fail to adequately protect our intellectual property or face a claim of intellectual property infringement by a third party, we could lose our intellectual property rights or be liable for damages. We currently face a potential claim of intellectual property infringement from Acacia Technologies Group, through one of our customers, and we may be liable for damages. Our international activities may expose us to risks associated with international business. We rely on the services of our executive officers and other key personnel, whose knowledge of our business and industry would be extremely difficult to replace. Our stock price may experience extreme price and volume fluctuations. Our common stock was moved to the Nasdaq Capital Market and may not provide adequate liquidity. Failure to maintain our Nasdaq listing would adversely affect the trading price and liquidity of our common stock We, as a sublicensor of third party intellectual property, are subject to audits of our licensing fee costs. Recent and proposed regulations related to equity incentives could adversely affect our ability to attract and retain key personnel.

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897893--4/13/2007--PEERLESS_SYSTEMS_CORP