Room 4561
April 3, 2006
Howard J. Nellor
President and Chief Executive Officer
Peerless Systems Corporation
2381 Rosecrans Avenue
El Segundo, CA 90245
Re: Peerless Systems Corporation
Form 10-K for Fiscal year Ended January 31, 2005
Forms 10-Q for Fiscal Quarters Ended April 30, 2005, July 31, 2005
and October 31, 2005
File No. 000-21287
Dear Mr. Nellor:
We have reviewed your response to our letter dated
January 23, 2006 in connection with our review of the above
referenced filings and have the following comments. Please note
that
we have limited our review to the matters addressed in the
comments
below. We may ask you to provide us with supplemental information
so
we may better understand your disclosure. Please be as detailed
as
necessary in your explanation. After reviewing this information,
we
may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended January 31, 2005
Critical Accounting Policies, page 30
Prior Comment No. 1
1. We note your response to prior comment no. 1 and the historical
analysis of licensing costs accrued, paid and related adjustments.
It is not evident from the analysis provided what the Company`s
actual expense was for each period. For example in fiscal year
2003
the Company accrued $8.2 million and made a year end adjustment of
$58 thousand. Was the $58 thousand adjustment made to true up the
$8.2 million accrual estimate (i.e. the licensing costs expensed
for
the year) to the actual licensing costs based on information
provided
by OEM`s, or was it made to reflect the appropriate liability to
third parties. If the adjustment was to record the appropriate
liability and not the appropriate expense based on actual use by
OEM`s, provide an analysis of the amounts expensed for each fiscal
year and interim period compared to the amounts that should have
been
expensed based on actual use of third party IP by your OEM`s.
Item 9A. Controls and Procedures, page 36
Prior Comment No. 3
2. We note your response to prior comment no.3 and that management
determined deficiencies in disclosure controls and procedures
existed
as of April 30, 2005 and January 31, 2005. Confirm that there
were
no unrecorded adjustments as of April 30, 2005 and January 31,
2005
relating to the deficiencies in disclosure controls and
procedures.
If there were unrecorded adjustments provide us your materiality
analysis.
3. We note your materiality analysis and that the Company
determined
adjustments for product licensing accruals and excess ESPP
purchased
were not material for the three and six months ended July 31,
2005.
Expand your analysis to include the impact of these adjustments on
cost of revenues, gross margins, gross profit percentage,
operating
expenses and earnings per share for the three and six months ended
July 31, 2005.
4. In your materiality analysis adjustments for product licensing
accruals and ESPP are netted. Considering you disclose separately
on
pages 29 and 30 of your 10-Q that each of these adjustments,
individually, are not material, tell us why these adjustments are
netted in evaluating the materiality of each adjustment, or revise
your analysis to evaluate each adjustment individually and in the
aggregate.
Note 1. Organization, Business and Summary of Significant
Accounting
Policies, page F-7
Revenue Recognition, page F-10
Prior Comment No. 4
5. We note from your response to comment no. 4 that the Company
recognizes revenue from controllers distributed through dealers
upon
sale to the end user. Tell us whether the dealers that sell
controllers allow for or have a history of, accepting returns from
end users. If so, explain why the sale through to the end user
provides you a basis for recognizing revenue considering your
response that you have been unable to establish a history
regarding
returns of products shipped to dealers. Address your
consideration
of SFAS 48.
Form 10-Q for the quarter ending October 31, 2005
Note 7. Kyocera-Mita MOU, page 11
Note 1. Revenue recognition, page F-6
Prior Comment No. 14
6. We note your response to our comment no. 14 and that you are
recognizing the arrangement fee for the service agreement with
Kyocera Mita Corporation over the term of the agreement. Tell
us/explain the following as it relates to this arrangement:
* What authoritative literature are you applying in accounting for
this arrangement;
* The accounting significance if the Company does not provide the
fixed number for hours per quarter for development and maintenance
services;
* How the fair value of the arrangement has been allocated to each
element:
* Whether you receive additional fees for target products
developed
under the arrangement;
* Clarify your accounting for maintenance services which may
extend
beyond the term of the arrangement. Include in you response the
amount of the arrangement you have allocated to maintenance
services
and the period over which you are recognizing those services.
* How you have considered SFAS 68 in accounting for this
arrangement.
We may have further comment based on your response.
******
Please respond to these comments within 10 business
days
or tell us when you will provide us with a response. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
You may contact Thomas Ferraro, Senior Staff Accountant, at
(202) 551-3225 or Craig Wilson, Senior Assistant Chief Accountant
who
supervised this review, at (202) 551-3226, if you have questions
regarding comments on the financial statements and related
matters,
or me at (202) 551-3730 with any other questions.
Sincerely,
Kathleen Collins
Accounting Branch Chief
Mr. Howard J. Nellor
Peerless Systems Corporation
April 3, 2006
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