According to the Company’s FORM 10-K for the fiscal year ended January 31, 2003, on November 12, 2002, in the United States District Court for the Southern District of California, the Court entered a stipulation of voluntary dismissal and an order dismissing the shareholder class-action suit in its entirety. The dismissal is without prejudice to the rights of individuals to pursue separate claims. Plaintiffs submitted the voluntary dismissal of the action against the Company and its former officers. No consideration was provided by the Company or its former officers, and each side is to bear its own costs.

As reported by the same SEC filing, on April 17, 2001, the Company was served with an Amended and Consolidated Complaint. A hearing on the motion filed by the Company and the two former officers to dismiss the Amended and Consolidated Complaint was held on October 9, 2001. By an order dated January 14, 2002, the Court dismissed the First Amended and Consolidated Complaint without prejudice and granted the plaintiffs sixty days to file a Second Amended and Consolidated Complaint. The plaintiff class filed a Second Amended and Consolidated Complaint on March 15, 2002. On July 16, 2002, the Court granted the plaintiff class’ request to file a Third Amended Complaint that was filed as of the date of the Court’s order.

The original lawsuit alleges that Peerless and certain of its management insiders intentionally participated in a scheme to artificially inflate the Company's stock price to allow certain critical acquisitions to proceed and preserve Defendants' share holdings. Peerless, purportedly a key provider of software-based embedded imaging systems to original equipment manufacturers (OEMs) of digital document products, (including, for example, printers, copiers, fax machines and scanners) is alleged by this action to have issued a series of false and misleading statements during the Class Period that failed to reveal that business was deteriorating and a conscious and intentional decision was made by management to replace the Company's failing business model without disclosing facts necessary for such action. In truth, as alleged in the complaint, the decision by Peerless to change its business model caused royalty recognition and, thereby revenue, to be misstated as "block royalties" and replaced the payment process previously reported for Peerless. As alleged in the complaint, this conduct disguised the decline of Peerless' business; the Company's chairman, chief executive officer and material chief financial officer have now departed.