<PAGE>


================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
                                       OR
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM ________ TO ________.

                        COMMISSION FILE NUMBER: 0-2222209

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

                             PEREGRINE SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                    DELAWARE                                95-3773312
        (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)               IDENTIFICATION NUMBER)


                            3611 VALLEY CENTRE DRIVE
                           SAN DIEGO, CALIFORNIA 92130
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)


                                 (858) 481-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.

                                  YES X  NO
                                     ---    ---

         The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of December 31, 2000, was 148,620,098.

================================================================================
<PAGE>


                             PEREGRINE SYSTEMS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I.                              FINANCIAL INFORMATION                                            PAGE NO.
<S>        <C>                                                                                        <C>

Item 1.    Condensed Consolidated Financial Statements

           Condensed Consolidated Balance Sheets as of December 31, 2000 (unaudited) and
           March 31, 2000 (audited)..................................................................          3

           Condensed Consolidated Statements of Operations for the Three and Nine Months
           Ended December 31, 2000 and 1999 (unaudited), respectively................................          4

           Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
           December 31, 2000 and 1999 (unaudited)....................................................          5

           Notes to condensed Consolidated Financial Statements (unaudited)..........................          6

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations................................................................................         10

Item 3.    Quantitative and Qualitative Disclosures About Market Risk................................         30


PART II.                               OTHER INFORMATION

Item 1.    Legal Proceedings.........................................................................         31

Item 2.    Changes in Securities.....................................................................         31

Item 4.    Submission of Matters to a Vote of Security Holders.......................................         31

Item 6.    Exhibits and Reports on Form 8-K..........................................................         31

Signature............................................................................................         32

</TABLE>


                                       2
<PAGE>


                                     PART I
               ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             PEREGRINE SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,    MARCH 31,
                                                                                          2000           2000
                                                                                       -----------    -----------
                                                                                       (UNAUDITED)     (AUDITED)
<S>                                                                                    <C>            <C>
                                     ASSETS
Current Assets:
     Cash, cash equivalents, and short-term investments ............................   $   248,871    $    33,511
     Accounts receivable, net of allowance for doubtful accounts of $11,009
     and $2,179, respectively ......................................................       165,280         69,940
     Other current assets ..........................................................        46,420         22,826
                                                                                       -----------    -----------
     Total current assets ..........................................................       460,571        126,277
Property and equipment, net ........................................................        73,453         29,537
Intangible assets, investments and other, net ......................................     1,813,694        367,616
                                                                                       -----------    -----------
                                                                                       $ 2,347,718    $   523,430
                                                                                       ===========    ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable ..............................................................   $    48,589    $    19,850
     Accrued expenses ..............................................................       159,166         49,064
     Deferred revenue ..............................................................        75,099         36,779
     Current portion of long-term debt .............................................            --             74
                                                                                       -----------    -----------
     Total current liabilities .....................................................       282,854        105,767
Long-term debt, net of current portion .............................................       262,267          1,257
Deferred revenue, net of current portion ...........................................         7,892          4,556
                                                                                       -----------    -----------
     Total liabilities .............................................................   $   553,013    $   111,580
                                                                                       -----------    -----------

Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or
     outstanding ...................................................................            --             --
Common stock, $0.001 par value, 500,000 and 200,000 shares authorized,
      respectively; 148,620 and 109,501 shares issued and outstanding,
      respectively .................................................................           149            110
Additional paid-in capital .........................................................     2,160,354        480,957
Accumulated deficit ................................................................      (326,659)       (64,863)
Unearned portion of deferred compensation ..........................................       (29,891)          (678)
Cumulative translation adjustment ..................................................          (619)          (666)
Treasury stock, at cost ............................................................        (8,629)        (3,010)
                                                                                       -----------    -----------
     Total stockholders' equity ....................................................     1,794,705        411,850
                                                                                       -----------    -----------
                                                                                       $ 2,347,718    $   523,430
                                                                                       ===========    ===========

</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS.


                                       3
<PAGE>


                             PEREGRINE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                    THREE MONTHS                 NINE MONTHS ENDED
                                                                  ENDED DECEMBER 31,                 DECEMBER 31,
                                                                  2000         1999               2000         1999
                                                                ---------------------          -----------------------
<S>                                                             <C>          <C>               <C>           <C>
Revenues:
     Licenses..........................................         $ 99,543     $ 46,524          $ 249,380     $ 115,718
     Services..........................................           57,064       21,020            144,266        61,238
                                                                --------     --------          ---------     ---------
       Total revenues..................................          156,607       67,544            393,646       176,956
                                                                --------     --------          ---------     ---------
Costs and Expenses:....................................
     Cost of licenses..................................              435          155              1,445           813
     Cost of services..................................           30,211       12,832             77,779        37,468
     Sales and marketing...............................           63,485       29,117            156,974        68,867
     Research and development..........................           16,015        7,522             43,802        20,413
     General and administrative........................           13,001        5,052             34,923        13,601
     Acquisition costs and other.......................          106,411        8,555            314,748        31,170
                                                                --------     --------          ---------     ---------
       Total costs and expenses........................          229,558       63,233            629,671       172,332
                                                                --------     --------          ---------     ---------

Income (loss) from operations before interest (net) and
income taxes...........................................          (72,951)       4,311           (236,025)        4,624
       Interest income, net............................              224            5                307            98
                                                                --------     --------          ---------     ---------
Income (loss) from operations before income taxes......          (72,727)       4,316           (235,718)        4,722
Income taxes...........................................           11,114        4,183             26,078        11,664
                                                                --------     --------          ---------     ---------
       Net income (loss)...............................         $(83,841)    $    133          $(261,796)    $  (6,942)
                                                                ========     ========          =========     =========

Net income (loss) per share--basic:
       Net income (loss) per share.....................         $  (0.58)    $     --          $   (1.95)    $   (0.07)
                                                                ========     ========          =========     =========
       Shares used in computation......................          145,590      102,472            134,111       100,450
                                                                ========     ========          =========     =========

Net income (loss) per share--diluted:
       Net income (loss) per share.....................         $  (0.58)    $     --          $   (1.95)    $   (0.07)
                                                                ========     ========          =========     =========
       Shares used in computation......................          145,590      110,872            134,111       100,450
                                                                ========     ========          =========     =========

</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS.


                                       4
<PAGE>


                             PEREGRINE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                   NINE MONTHS ENDED
                                                                                                       DECEMBER 31,
                                                                                                   2000          1999
                                                                                                -----------------------
<S>                                                                                             <C>            <C>
Cash flow from operating activities:
     Net loss..........................................................................         $(261,796)     $ (6,942)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     Depreciation and amortization....................................................            252,547        30,478
     Acquired in-process research and development costs...............................             78,741         7,046
         Increase (decrease) in cash and cash equivalents resulting from
          changes, net of business acquired, in:
            Accounts receivable........................................................           (63,749)      (19,852)
            Other current assets.......................................................           (18,876)       (1,319)
            Other assets...............................................................           (10,958)       (7,013)
            Accounts payable...........................................................             5,488         2,737
            Accrued expenses...........................................................           (22,206)       (7,648)
            Deferred revenue...........................................................            11,165         9,860
                                                                                              -----------    ----------
              Net cash provided by (used in) operating activities......................           (29,644)        7,347
                                                                                              -----------    ----------

Cash flows from investing activities:
      Acquisitions and equity investments..............................................           (11,265)      (16,694)
      Maturities of short-term investment, net of cash acquired........................                --         2,000
      Purchases of property and equipment..............................................           (37,502)      (13,947)
      Other investing activities.......................................................                --           145
                                                                                              -----------    ----------
         Net cash used in investing activities.........................................           (26,237)      (28,496)
                                                                                              -----------    ----------

Cash flows from financing activities:
      Issuance of note receivable......................................................            (1,000)          --
      Issuance (repayments) of long-term debt..........................................           260,569           (14)
      Issuance of common stock.........................................................            17,244        26,127
      Treasury stock purchased.........................................................            (5,619)       (1,285)
                                                                                              -----------    ----------
         Net cash provided by financing activities.....................................           271,194        24,828
                                                                                              -----------    ----------

Effect of exchange rate changes on cash and cash equivalents...........................                47             7
                                                                                              -----------    ----------
Net increase in cash and cash equivalents..............................................           215,360         3,686
Cash and cash equivalents, beginning of period.........................................            33,511        21,545
                                                                                              -----------    ----------
Cash and cash equivalents, end of period...............................................       $   248,871    $   25,231
                                                                                              ===========    ==========

     Cash paid during the period for:
         Interest......................................................................       $      364     $     112
         Income taxes..................................................................       $    1,547     $     595

Supplemental Disclosure of Non-Cash Investing Activities:
     Stock issued and other non-cash consideration for acquisitions and investments...        $1,601,880     $ 118,486

</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS.


                                       5
<PAGE>


                             PEREGRINE SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1. BASIS OF PRESENTATION

         The accompanying condensed consolidated balance sheet as of December
31, 2000, condensed consolidated statements of operations for the three and nine
month periods ended December 31, 2000 and 1999, respectively, and condensed
consolidated statements of cash flows for the nine month periods ended December
31, 2000 and 1999, have been prepared by Peregrine Systems, Inc. (unless
otherwise noted, "Peregrine Systems," "we," "PSI," "us," or "our" refers to
Peregrine Systems, Inc.) and have not been audited. These consolidated financial
statements, in our opinion, include all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash flows
for all periods presented. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K filed for the year ended March 31,
2000, which provides further information regarding our significant accounting
policies and other financial and operating information. Interim operating
results are not necessarily indicative of operating results for the full year or
any other future period. The condensed consolidated financial statements include
the accounts of Peregrine Systems and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.

         The preparation of our consolidated financial statements in conformity
with generally accepted accounting principles requires us to make estimates and
assumptions that may affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

         Our net loss for the nine month periods ended December 31, 2000 and
1999 approximates comprehensive loss, as defined by Statement of Financial
Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income," for both
periods.

NOTE 2. EARNINGS (LOSS) PER SHARE

         Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding. Diluted net income (loss) per share
is computed using the weighted average number of common shares and potentially
dilutive securities, if any, outstanding during the periods. Potentially
dilutive securities for the periods presented herein consist of employee stock
options using the treasury stock method. For the three and nine month periods
ended December 31, 2000 and 1999, respectively, the diluted income (loss) per
share calculation excludes the effect of certain anti-dilutive equity and debt
securities.


                                       6
<PAGE>


         The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                                     DECEMBER 31,              DECEMBER 31,
                                                                                  2000        1999           2000        1999
                                                                               ---------------------     ---------------------
                                                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
         <S>                                                                   <C>           <C>          <C>         <C>
         Numerator:
             Net income (loss).............................................    $ (83,841)    $    133     $(261,796)  $ (6,942)
                                                                               =========     ========     =========   ========

         Denominator:
             Denominator for basic net income (loss) per share, weighted
             average shares................................................      145,590     102,472       134,111     100,450
             Dilutive effect of employee stock options.....................           --       8,400            --          --
                                                                               ---------     --------     ---------   --------

         Denominator for diluted net income (loss) per share, dilutive
         potential common shares...........................................      145,590     110,872        134,111    100,450
                                                                               =========     ========     =========   ========

          Net income (loss) per share--basic.................................  $   (0.58)         --      $   (1.95)  $  (0.07)
                                                                               =========     ========     =========   ========

          Net income (loss) per share--diluted...............................  $   (0.58)         --      $   (1.95)  $  (0.07)
                                                                               =========     ========     =========   ========

</TABLE>

NOTE 3. ACQUISITIONS

         On December 29, 2000, we completed the acquisition of the Tivoli
Service Desk Suite of products ("Tivoli") and certain related assets from
Tivoli Systems, Inc. We issued approximately 3,015,000 shares of our Common
Stock and $45 million in cash for the entire Tivoli product suite for a total
purchase price, including merger related costs, of approximately $133.1 million.

         The Tivoli asset acquisition was accounted for under the purchase
method of accounting and, accordingly, the assets, including in-process research
and development, and liabilities, were recorded based on their fair values, as
determined by an independent appraisal, at the date of the acquisition. The
results of operations of Tivoli have been included in the financial statements
for the period subsequent to acquisition.

         We allocated the $133.1 million purchase price as follows: acquired
in-process research and development of $8.6 million, the fair value of tangible
assets acquired of $0.2 million, and purchase price in excess of the acquired
assets of $124.3 million.

         On September 1, 2000, we completed the acquisition of Loran Network
Holding Corporation Inc. ("Loran"), a provider of network discovery and
management solutions. We issued approximately 2,861,000 shares of our Common
Stock (excluding approximately 600,000 shares of Peregrine Common Stock issuable
upon exercise of options assumed in connection with the acquisition) in exchange
for all the outstanding shares of Loran for a total purchase price, including
merger related costs, of approximately $103.1 million.

         The Loran acquisition was accounted for under the purchase method of
accounting and, accordingly, the assets, including in-process research and
development, and liabilities, were recorded based on their fair values, as
determined by an independent appraisal, at the date of acquisition. The results
of operations of Loran have been included in the financial statements for the
period subsequent to acquisition.


                                       7
<PAGE>


         We allocated the $103.1 million purchase price of Loran as follows:
acquired in-process research and development of $6.0 million, the fair value of
the net assets acquired of $0.3 million, and purchase price in excess of the
acquired assets of $96.8 million.

         On June 16, 2000, we completed the acquisition of Harbinger Corporation
("Harbinger"), a provider of electronic business connectivity software and
services. We issued approximately 30,157,000 shares of our Common Stock
(excluding approximately 6.0 million shares of Peregrine Common Stock issuable
upon exercise of options and warrants assumed in connection with the
acquisition) in exchange for all of the outstanding shares of Harbinger for a
total purchase price, including merger related costs, of approximately $1,519.3
million.

         The Harbinger acquisition was accounted for under the purchase method
of accounting and, accordingly, the assets, including in-process research and
development, and liabilities, were recorded based on their fair values, as
determined by an independent appraisal, at the date of acquisition. The results
of operations of Harbinger have been included in the financial statements for
the period subsequent to acquisition.

         We allocated the $1,519.3 million purchase price of Harbinger as
follows: acquired in-process research and development of $64.1 million, the fair
value of the net assets acquired of $82.8 million, and purchase price in excess
of the acquired assets of $1,372.4 million.

         In accordance with Interpretation No. 44 of APB 25, we record deferred
compensation related to certain of our acquisitions where Peregrine stock
options are exchanged for the acquiree's stock options. This deferred
compensation amount will be amortized to expense over the remaining vesting
period of the options which vest up to approximately five years.

         The value of the Tivoli, Loran, and Harbinger acquisitions' acquired
in-process technology was computed using a discounted cash flow analysis on the
anticipated income stream of the related product sales. The value assigned to
acquired in-process technology was determined by estimating the costs to develop
the purchased in-process technology into commercially viable products,
estimating the resulting net cash flows from the projects and discounting the
net cash flows to their present value. With respect to the acquired in-process
technology, the calculations of value were adjusted to reflect the value
creation efforts of Tivoli, Loran, and Harbinger.

         The nature of the efforts required to develop acquired in-process
technology into commercially viable products principally relates to the
completion of all planning, designing and testing activities that are necessary
to establish that the products can be produced to meet their design
requirements, including functions, features and technical performance
requirements. If the research and development project and technologies are not
completed as planned, they will neither satisfy the technical requirements of a
changing market nor be cost effective.

         No assurance can be given, however, that the underlying assumptions
used to estimate expected product sales, development costs or profitability, or
the events associated with such projects, will transpire as estimated. Because
we do not account for expenses by product, it is not possible to determine the
actual expenses associated with any of the acquired technologies. However, we
believe that expenses incurred to date associated with the development and
integration of the acquired in-process research and development projects are
substantially consistent with our previous estimates.

         We continue to work toward the completion of these projects. Delays may
occur due to changes in technological and market requirements for our products.
The risks associated with these efforts are still considered high and no
assurance can be made that any upcoming products will meet with market
acceptance. Delays in the introduction of certain products may adversely affect
our revenues and earnings in future quarters.


                                       8
<PAGE>


         With respect to acquisition-related liabilities at December 31, 2000,
we have both approved and preliminary plans of integration and consolidation.
These plans include the steps we believe will be necessary within the year to
integrate the operations of the associated acquisitions. The plans provide for
the consolidation of duplicate facilities and infrastructure assets and the
elimination of duplicative efforts and positions within the combined company. In
connection with the integration plans, we have accrued approximately $80 million
in merger related costs, as of December 31, 2000, comprised principally of the
following components (in thousands):

<TABLE>
<CAPTION>

                                                                                              ESTIMATED LIABILITY
                                                                                              -------------------
<S>                                                                                           <C>
Estimated advisory fees.................................................................            $12,411
Employee severance and relocation.......................................................             27,787
Duplicative facilities, equipment, and efforts..........................................             22,124
Other merger related costs..............................................................             18,129
                                                                                                    -------
                                                                                                     80,451

</TABLE>

         This accrual represents our best estimate, based on information
available as of December 31, 2000, of the identifiable and quantifiable charges
that we may incur as a result of the acquisition and integration plans; however,
these estimates may change. Any changes in the estimates during the twelve month
period following the acquisition will increase or decrease goodwill as
appropriate. We believe substantially all of the above costs will be paid for
within the next twelve months.

         In addition to the costs included in the accrual for our acquisition
and integration plans, we will incur other incremental costs as a direct result
of our integration efforts. These costs will be accounted for as incurred in
future periods. To the extent these costs become significant they could have a
material adverse effect on our future operating results.

         Acquisition costs for the three and nine months period ending December
31, 2000 and 1999, respectively, consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                                                    THREE MONTHS           NINE MONTHS
                                                                                        ENDED                 ENDED
                                                                                     DECEMBER 31,         DECEMBER 31,
                                                                                    2000    1999        2000        1999
                                                                                 -------------------    -------------------
     <S>                                                                         <C>        <C>         <C>         <C>
     Amortization of intangibles and other acquisition related costs.............  97,770     8,555     236,007     24,124
     Acquired in-process research and development costs..........................   8,641        --      78,741      7,046
                                                                                  -------     -----     -------     ------
                                                                                  106,411     8,555     314,748     31,170
                                                                                  =======     =====     =======     ======

</TABLE>

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the Securities Exchange Commission ("SEC") staff
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," as
amended by SAB No. 101A and SAB No. 101B, to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements. SAB
No. 101 explains the SEC staff's general framework for revenue recognition,
stating that certain criteria be met in order to recognize revenue. SAB No. 101
also addresses gross versus net revenue presentation and financial statement and
Management's Discussion and Analysis disclosures related to revenue recognition.
We have not yet adopted SAB No. 101, but we do not anticipate that the adoption
of this bulletin will result in a material effect on our financial statements.

         In April 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 44, "Accounting for Certain Transactions
involving Stock Compensation: an interpretation of APB Opinion No. 25." FIN 44
affects certain awards and modifications made after December 15, 1998.
Management believes that their accounting policies comply with the applicable
provisions of FIN 44.


                                       9
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THIS "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

         WE COMPLETED THE ACQUISITION OF HARBINGER IN JUNE 2000, THE ACQUISITION
OF LORAN IN SEPTEMBER 2000, AND THE ACQUISITION OF CERTAIN PRODUCTS FROM TIVOLI
IN DECEMBER 2000. REFERENCES TO OUR HISTORICAL RESULTS OF OPERATIONS REFER ONLY
TO THE HISTORIC BUSINESS OF PEREGRINE. REFERENCES TO OUR RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 INCLUDE THE RESULTS OF OPERATIONS OF
HARBINGER BEGINNING JUNE 16, 2000, THE RESULTS OF OPERATIONS OF LORAN BEGINNING
SEPTEMBER 1, 2000, AND RESULTS OF OPERATIONS RELATING TO THE TIVOLI ASSET
PURCHASE BEGINNING DECEMBER 29, 2000.

OVERVIEW

         We are a leading global provider of infrastructure resource management
applications, employee self-service solutions and e-commerce technologies and
services.

         Our infrastructure management group provides software technologies and
services that permit large and medium-sized businesses to manage the
acquisition, use, maintenance and disposition of the various infrastructure
assets used by businesses and their employees. In addition, it offers employee
self-service products designed to improve employee productivity and lower costs
by providing employees direct access to corporate resources and infrastructure.
Our e-markets group provides products and services associated with the
procurement of manufacturing supplies and materials as well as commodity assets.
The objective of our e-markets group is to leverage the availability of the
Internet and our business-to-business software products and solutions to
facilitate the processes of selling and purchasing direct goods used in the
manufacture of finished products.

         Until recently, our products focused principally on problem management
for an organization's information technology infrastructure. Historically, our
principal product suite has been SERVICECENTER, an integrated, enterprise
service desk software solution that assists information technology departments
in managing and maintaining their internal computer networks and related assets.
During fiscal 1998, we determined that our customers required a more
comprehensive solution to manage their infrastructure assets, including
information technology assets but also the numerous other assets that make up
business infrastructures. Through acquisitions, we have expanded the breadth and
functionality of our products for managing information technology assets. In
addition, we have made a number of acquisitions intended to broaden our
infrastructure management product suite beyond management of network help desks.
Since 1997, we have acquired new product lines relating to asset management,
facilities management, corporate fleet management, rail management,
telecommunications management, and network discovery.

         In addition to acquiring technologies and products through
acquisitions, we have also focused substantial resources on internal product and
technology development. Our employee self-service procurement product, GET.IT!,
was developed internally and introduced in late 1999 to assist companies in
automating their internal asset procurement and employee self-service processes.

         In June 2000, we completed the acquisition of Harbinger Corporation.
Harbinger's business focused historically on providing electronic commerce
software that facilitates the exchange of electronic data between businesses.
Prior to the acquisition, however, revenues for Harbinger's legacy software
business were declining. At the time of the acquisition, Harbinger began to
focus its business on creating


                                       10
<PAGE>


and managing web-based catalogs of supplies and materials and on maintaining and
hosting vertical market exchanges for supply and commodity markets in the
automotive, energy, industrial component and retail industries. Our e-markets
group is comprised largely of Harbinger's legacy software business and newer
e-commerce businesses.

         We have also integrated substantial aspects of Harbinger's connectivity
and marketplace technologies in our infrastructure management group. In
particular, we recently integrated the connectivity, data transformation,
catalog creation and management and transaction assurance technologies acquired
from Harbinger with our infrastructure management products and solutions. We
intend to use these technologies to deliver services to suppliers of
infrastructure assets and infrastructure marketplaces and to enable electronic
exchanges for infrastructure assets.

         The acquisition of Harbinger was our most substantial to date, and
while we believe that the acquisition offers the potential for many attractive
product and business synergies, it is difficult to predict the effect of the
acquisition on our business and results of operations. Relative to Harbinger's
legacy electronic commerce software business, Harbinger's electronic procurement
and other Internet-based businesses represented a relatively small percentage of
Harbinger's total revenues. Moreover, Harbinger's revenue growth rates were
substantially lower than Peregrine's historic revenue growth rates as a result
of considerably slower growth in Harbinger's legacy software businesses. As a
result, we expect our future revenue growth rates will be less than historical
rates, and predicting our future operating results will be difficult as we
attempt to integrate and streamline Harbinger's operations and businesses. As
part of that integration process, we are in the early stages of analyzing the
strategic segmentation of our business into distinct operating units, the
infrastructure management group and the e-markets group. In addition, as part of
continuing strategic review of our businesses, we are determined to de-emphasize
and discontinue certain businesses of Harbinger that we do not believe are
strategic to the combined company. In September 2000, we completed the sale of
one of Harbinger's product lines and may determine to sell or discontinue other
Harbinger products or businesses in the future. We expect this recent
divestiture and any future discontinuations or divestitures to result in revenue
reductions that may not be offset by revenues from other sources.

         Our revenues are derived principally from product licensing and
services. License fees are generally due upon the granting of the license and
typically include a one-year warranty period as part of the license agreement.
Services revenues are comprised of fees for maintenance, professional services,
network services and training. We provide ongoing maintenance services, priced
and sold separately from our other products, which include technical support and
product enhancements, for an annual fee based upon the current price of the
product. Network fees consist of monthly access charges and transaction- based
usage charges for our e-commerce transaction processing services. We also derive
revenues from transaction fees, subscription fees, and maintenance fees
associated with vertical market exchanges that were part of the businesses
acquired from Harbinger and now represented largely by our e-markets group. We
anticipate that, as a percentage of total revenues, subscription fees associated
with sales of our applications on a hosted basis will increase in future
periods, particularly in our e-markets group and to a lesser extent in our
infrastructure management group. The hosted service provider model is relatively
new and unproven for us, and we do not know whether it will prove financially
attractive relative to our historic license revenue model. We expect that
increasing sales of our products on a hosted subscription basis will result in
slower revenue growth rates for us. Under a subscription model, we will receive
monthly payments for our services ratably over the term of a subscription,
typically three to five years. Under our current license model, we sell our
software in return for the up-front payment of a license fee.

         Revenues from license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the product has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from maintenance
services are typically recognized ratably over the term of the support


                                       11
<PAGE>


period, generally one year. Consulting revenues are primarily related to
implementation services most often performed on a time and materials basis under
separate service agreements for the installation of our products. Revenues from
consulting and training services are recognized as the respective services are
performed. Subscription fees are recognized monthly as services are provided.

         We currently derive a substantial portion of our license revenues from
the sale of our infrastructure management applications and from our business
connectivity software products in our e-markets group. We expect these products
to account for a substantial portion of our revenues for the foreseeable future.
As a result, our future operating results are dependent upon continued market
acceptance of our infrastructure resource management and business connectivity
strategies and applications, including future product enhancements, and on the
development of a market for our asset procurement products. Substantially all of
our license revenues are derived from granting a non-exclusive perpetual license
to use our products. Factors adversely affecting the pricing of, demand for or
market acceptance of our infrastructure procurement and resource management
applications, such as competition or technological change, manner of
distribution or licensing, and related methods of revenue recognition could have
a material adverse effect on our business, operating results, and financial
condition. In addition, our license revenue growth has become increasingly
dependent on the successful completion of one or more large license
transactions during a given quarter. As a result, failure to complete one or
more of these transactions by quarter-end could have a material adverse
effect on our license revenue, total revenue, and operating results.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, selected
consolidated statements of operations data as a percentage of total revenues:

<TABLE>
<CAPTION>

                                                                                THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                                   DECEMBER 31,              DECEMBER 31,
  STATEMENT OF OPERATIONS DATA:                                                 2000         1999        2000          1999
                                                                             ------------------------   ---------------------
<S>                                                                            <C>          <C>           <C>           <C>
  Revenues:
      Licenses.......................................................          63.6%        68.9%         63.4%         65.4%
      Services.......................................................          36.4         31.1          36.6          34.6
                                                                              -----        -----         -----         -----
         Total revenues..............................................         100.0        100.0         100.0         100.0
                                                                              -----        -----         -----         -----


  Costs and expenses:
         Cost of licenses............................................           0.3          0.2           0.3           0.5
         Cost of services............................................          19.3         19.0          19.8          21.2
         Sales and marketing.........................................          40.5         43.1          39.9          38.9
         Research and development....................................          10.2         11.1          11.1          11.5
         General and administrative..................................           8.3          7.5           8.9           7.7
         Acquisition costs and other.................................          67.9         12.7          80.0          17.6
                                                                              -----        -----         -----         -----
         Total costs and expenses....................................         146.5         93.6         160.0          97.4
                                                                              -----        -----         -----         -----

Income (loss) from operations before interest (net) and income
taxes................................................................         (46.5)         6.4         (60.0)          2.6
      Interest income, net...........................................           0.1           --           0.1           0.1
                                                                              -----        -----         -----         -----
      Income (loss) from operations before income taxes..............         (46.4)         6.4         (59.9)          2.7
      Income taxes...................................................           7.1          6.2           6.6           6.6
                                                                              -----        -----         -----         -----

      Net income (loss)..............................................         (53.5)%        0.2%        (66.5)%        (3.9)%
                                                                              =====        =====         =====         =====

</TABLE>


                                       12
<PAGE>


THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

REVENUES. Total revenues were $156.6 million and $67.5 million for the three
months ended December 31, 2000 and 1999, respectively, representing a
year-over-year increase of 132%. For the nine months ended December 31, 2000 and
1999, total revenues were $393.6 million and $177.0 million, respectively,
representing a year-over-year increase of 122%. The reasons for these revenue
increases are more fully discussed below.

LICENSES. License revenues were $99.5 million and $46.5 million for the three
months ended December 31, 2000 and 1999, respectively, representing 64% and 69%
of total revenues in the respective periods. License revenues were $249.4
million and $115.7 million for the nine months ended December 31, 2000 and 1999,
respectively, representing 63% and 65% of total revenues in the respective
periods. License revenues increased 114% and 116% for the three months and nine
months ended December 31, 2000, respectively, as compared to the comparable
prior-year periods.

         The increases in our license revenues are attributable in part to
acquisitions completed during the last year, including Harbinger and Telco
Research. Revenues and results of operations for these acquisitions would not
have been included in our revenues or results of operations for the three or
nine month periods ended December 31, 1999. Excluding the effect of these
acquisitions and other acquisitions of products and technologies completed
during the prior twelve months, our year-over-year license revenues grew at
rates of approximately 98% and 88% for the three and nine month periods ended
December 31, 2000, respectively. Growth in "organic" (excluding the affects of
acquisitions in the last twelve months) license revenues was attributable to an
increase in the number of large transactions completed, increased demand for new
products and additional licenses of our infrastructure management applications
from new and existing customers, increased sales of new products such as our
employee self-service applications, and expansion of our domestic and
international sales forces. We expect larger transaction sizes from a limited
number of customers to account for a large percentage of license revenues for
the foreseeable future.

SERVICES. Services revenues were $57.1 million and $21.0 million for the three
months ended December 31, 2000 and 1999, representing 36% and 31% of total
revenues in the respective periods. Service revenues were $144.3 million and
$61.2 million for the nine months ended December 31, 2000 and 1999, representing
37% and 35% of total revenues in the respective periods. Services revenues
increased 172% and 136% for the three and nine month periods ended December 31,
2000, respectively, as compared to the prior year periods. The dollar increases
are attributable to revenues associated with acquisitions completed within the
last year, the addition of network revenue, maintenance agreements from our
expanded installed base of customers, and an increase in consulting revenue
related to the implementation of our software from initial license agreements.
Service revenues increased as a percentage of total revenues for both the three
and nine months ended December 31, 2000 principally as a result of the
acquisition of Harbinger and, to a lesser extent, as a result of increasing
sales of our infrastructure management products on an application service
provider basis. As a result of the above, we expect that services revenues will
prospectively account for a larger percentage of our total revenues.

COSTS AND EXPENSES

COST OF LICENSES. Cost of licenses was $435,000 and $155,000 for the three
months ended December 31, 2000 and 1999, representing less than 1% of total
revenues in each of the respective periods. Cost of licenses was $1.4 million
and $813,000 for the nine months ended December 31, 2000 and 1999, respectively,
again representing less than 1% of our total revenues in the respective periods.


                                       13
<PAGE>


COST OF SERVICES. Cost of services was $30.2 million and $12.8 million for
the three months ended December 31, 2000 and 1999, representing 19% of total
revenues in each of the respective periods. Cost of services was $77.8
million and $37.5 million for the nine months ended December 31, 2000 and
1999, representing 20% and 21% of total revenues. The dollar increases in
cost of services are attributable to increases in the number of professional
services personnel resulting from both acquisitions and organic hiring. As a
percentage of total services revenues, cost of services decreased to 53% from
61% for the three months ended December 31, 2000 and 1999 and to 54% from 61%
for the nine months ended December 31, 2000 and 1999, respectively. The
decrease in cost of services as a percentage of services revenues is
predominantly derived from the addition of our network revenues and our
increased maintenance revenue stream as a result of our fiscal 2001
acquisitions, as well as increased utilization of third party providers and
partners.

SALES AND MARKETING. Sales and marketing expenses were $63.5 million and $29.1
million for the three months ended December 31, 2000 and 1999, representing 41%
and 43% of total revenues in the respective periods. Sales and marketing
expenses were $157 million and $68.9 million for the nine months ended December
31, 2000 and 1999, representing 40% and 39% of total revenues in the respective
periods. The dollar increase in sales and marketing expenses are attributable to
the significant expansion of our North American and international sales forces
and an increase in general and product specific marketing expenses, offset by
the effect of combining the sales and marketing operations of the acquisitions
made during fiscal 2001 and 2000. If we experience a decrease in sales force
productivity, or for any other reason a decline in revenues, it is likely that
our operating margins will decline as well.

RESEARCH AND DEVELOPMENT. Research and development expenses were $16.0 million
and $7.5 million for the three months ended December 31, 2000 and 1999,
representing 10% and 11% of total revenues in the respective periods. Research
and development expenses were $43.8 million and $20.4 million for the nine
months ended December 31, 2000 and 1999, representing 11% and 12% of total
revenues in the respective periods. The dollar increases in our research and
development expenses are due primarily to an increase in the number of personnel
conducting research, an increase in discretionary spending related to
compensation and consultancy fees, and development and quality assurance
efforts.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $13 million
and $5.1 million for the three months ended December 31, 2000 and 1999,
representing 8% of total revenues in the respective periods. General and
administrative expenses were $34.9 million and $13.6 million for the nine months
ended December 31, 2000 and 1999, representing 9% and 8% of total revenues in
the respective periods. The dollar increases are primarily attributable to costs
associated with administrative personnel additions and infrastructure expansion
to support our growth.

ACQUISITION COSTS. Acquisition costs were $106.4 million and $8.6 million for
the three months ended December 31, 2000 and 1999, representing 68% and 13% of
total revenues in the respective periods. Acquisition costs were $314.7 million
and $31.2 million for the nine months ended December 31, 2000 and 1999,
representing 80% and 18% of total revenues in the respective periods.
Acquisition costs consist of the amortization of intangibles, acquired
in-process research and development costs and other acquisition related items.
The dollar and percentage increases are principally attributable to our fiscal
2001 acquisitions.

PROVISION FOR INCOME TAXES

         Income tax expense was $11.1 million and $4.2 million for the three
months ended December 31, 2000 and 1999, respectively. This increase results
from the $20.8 million dollar increase in operating profits, before taxes and
acquisition costs in the respective periods. Excluding the effect of acquisition
costs on net income, the effective tax rates for the three months ended December
31, 2000 and 1999 were 33% and 32.5%, respectively. Income tax expense was $26.1
million and $11.7 million for the nine months ended December 31, 2000 and 1999,
respectively. This increase results from the $43.1 million increase in operating
profits, before taxes and acquisition costs, in the respective periods.
Excluding the effect of acquisition costs on net income, the effective tax rates
for the nine months ended December 31, 2000 and 1999, were 33% and 32.5%,
respectively.


                                       14
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Our cash and cash equivalents increased to $248.9 million as of
December 31, 2000 from $35.2 million as of September 30, 2000. This increase is
primarily attributable to the issuance during this quarter of our 5 1/2%
Convertible Subordinated Notes due 2007 in the aggregate principal amount of
$270 million. After deducting commissions, costs, and expenses associated with
this offering, the net proceeds of this offering totaled approximately $260.6
million. We intend to use the proceeds of these notes for general corporate
purposes, including capital expenditures, acquisition and investments. The
notes pay interest semi-annually in cash in arrears on May 15 and November 15 of
each year, beginning on May 15, 2001. The notes are convertible by the holders
at any time after initial issuance beginning 90 days after original issuance.
The initial conversion price is $25 per share, equivalent to a conversion rate
of 40 shares per $1,000 principal amount of notes. We may redeem the notes at
any time on or after November 18, 2003 at specified prices if the trading
price of our common stock exceeds $35 during a specified trading period. The
notes are unsecured and rank junior to our existing and future senior
indebtedness. The notes become due and payable, if not previously redeemed, on
November 15, 2007.

         During July 1999, we entered into a $20 million senior credit facility
for a term of three years with a syndicate of financial institutions. The
facility is available for general corporate purposes including acquisitions. As
of December 31, 2000, there were no amounts outstanding with respect to our $20
million facility.

         We believe that our current cash and cash equivalents, short-term
investments, cash flows from operations, amounts available under our credit
facility, and other financing activities, will be sufficient to meet our working
capital requirements for at least the next 12 months. However, it may be
necessary during this period to obtain additional equity or debt financing,
which may not be available on commercially reasonable terms or which may be
dilutive.

         In connection with the acquisition of Harbinger, we assumed the defense
of an outstanding shareholder class action lawsuit against Harbinger and several
of its former officers and directors. Harbinger did not maintain directors' and
officers' liability insurance to cover any liability resulting from this
lawsuit, and Peregrine's insurance did not cover any liability of Harbinger or
its former officers or directors resulting from the lawsuit. In October 2000, we
entered into an agreement in principle to settle this class action lawsuit. If
the settlement is finalized and approved by the court, we will be required to
make an aggregate cash payment of $2.25 million to a class of former
shareholders of Harbinger in exchange for dismissal of all claims against
Harbinger. Although the parties to the litigation have agreed in principle to
this settlement, final settlement is subject to further documentation, various
contingencies, and approval by the court. The court may not approve the
settlement. If the court does not approve the settlement, the plaintiffs in the
lawsuit may proceed with their claims, without prejudice. It is also possible
that if the settlement is approved by the court, claims could be pursued by
class members who opt out of the class settlement by filing appropriate notices
with the court. If the litigation were to continue to proceed, we could be
required to spend substantial sums in an effort to litigate this matter.
Continued litigation would be likely to result in a diversion of management's
time and attention away from business operations. If the litigation were decided
adversely to Harbinger, or we agree in the future to settle this litigation for
a substantial sum as a result of failure to obtain court approval of the pending
settlement or for any other reason, our financial condition and results of
operations could be materially and adversely affected. Please refer to "Factors
That May Effect Future Results" for a more detailed description of the risks
associated with this lawsuit.


                                       15
<PAGE>


FACTORS THAT MAY AFFECT FUTURE RESULTS

         THIS REPORT, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING
STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE EVENTS. THESE
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:

WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL BE PROFITABLE IN THE
FUTURE ON AN OPERATING BASIS OR OTHERWISE.

         We have incurred substantial losses in recent years, and predicting our
future operating results is difficult. If we continue to incur losses, if our
revenues decline or grow at a slower rate, or if our expenses increase without
commensurate increases in revenues, our operating results will suffer and the
price of our common stock may fall. Through December 31, 2000, we had recorded
cumulative net losses of approximately $326.6 million, including approximately
$428.1 million related to the write-off of acquired in-process research and
development and the amortization of goodwill and other intangible assets in
connection with a series of acquisitions completed since late 1997. We have
incurred, and expect to continue to incur, substantial expenses associated with
the amortization of intangible assets. In addition, we do not believe recent
revenue growth rates are sustainable in the future or indicative of future
growth rates. If our revenue growth rates slow or our revenues decline, our
operating results could be seriously impaired because many of our expenses are
fixed and cannot be easily or quickly changed.


                                       16
<PAGE>

OUR REVENUES VARY SIGNIFICANTLY FROM QUARTER-TO-QUARTER FOR NUMEROUS REASONS
BEYOND OUR CONTROL. QUARTER-TO-QUARTER VARIATIONS COULD RESULT IN A SUBSTANTIAL
DECREASE IN OUR STOCK PRICE IF OUR REVENUES OR OPERATING RESULTS ARE LESS THAN
MARKET ANALYSTS ANTICIPATE.

         Our revenues or operating results in a given quarter could be
substantially less than anticipated by market analysts, which could result in a
substantial decline in our stock price. In addition, quarter-to-quarter
variations could create uncertainty about the direction or progress of our
business, which could also result in a decline in the price of our common stock.
Our revenues and operating results will vary from quarter to quarter for many
reasons beyond our control. As a result, our quarterly revenues and operating
results are not predictable with any significant degree of accuracy. Reasons for
variability of our revenues and operating results include the following:

         -        OUR REVENUE GROWTH IS INCREASINGLY DEPENDENT ON A SMALL
                  NUMBER OF LARGE LICENSE TRANSACTIONS.

                  Our revenues in a given quarter could be adversely affected
                  if we are unable to complete one or more large license
                  agreements, if the completion of a large license agreement
                  is delayed, or if the contract terms were to prevent us
                  from recognizing revenue during that quarter.

                  Our revenue growth in recent periods has been attributable
                  in part to an increase in the number of large license
                  transactions we completed in a given period. We expect our
                  reliance on these large transactions to continue for the
                  foreseeable future. If we are unable to complete a large
                  license transaction by the end of a particular quarter, our
                  revenues and operating results could be materially below
                  the expectations of market analysts, and our stock price
                  could fall. In particular, our dependence on a few
                  relatively large license transactions could have an adverse
                  effect on our quarterly revenues or revenue growth rates to
                  the extent we are unable to complete a large license
                  transaction because a large prospective customer determines
                  to reduce its capital investments in technology in response
                  to slowing economic growth.

                  In addition, when negotiating large software licenses, many
                  customers time their negotiations until quarter-end in an
                  effort to improve their ability to negotiate more favorable
                  pricing terms. As a result, we recognize a substantial
                  portion of our revenues in the last month or weeks of a
                  quarter, and license revenues in a given quarter depend
                  substantially on orders booked during the last month or
                  weeks of a quarter.

         -        OUR REVENUE GROWTH MAY BE AFFECTED IF OUR PARTNERS ARE
                  UNSUCCESSFUL IN SELLING OUR PRODUCTS OR IF WE ARE
                  UNSUCCESSFUL IN ADDING NEW PARTNERS.

                  Many of our transactions are sourced, developed, and closed
                  through our strategic and distribution partners, including
                  resellers and system integrators. If the number or size of
                  these partner-influenced transactions were to decrease for
                  any reason, our revenues, revenue growth rates and
                  operating results could be materially and adversely
                  affected. If our sales through these indirect channels, or
                  to new distributors, resellers, or strategic partners, were
                  to decrease in a given quarter, our total revenues and
                  operating results could be harmed. Sales through indirect
                  channels, including distributors, third party resellers,
                  and system integrators, represent a significant percentage
                  of our total sales, and this percentage has increased in
                  recent periods. We expect this trend to continue in the
                  future. As a result, we could experience a shortfall in our
                  revenues, or a substantial decline in our rate of revenue
                  growth, if sales through these channels were to decrease or
                  were to increase at a slower rate than recently
                  experienced. We have less ability to manage sales through
                  indirect channels, relative to direct sales, and less
                  visibility about our channel partners' success in selling
                  our products. As a result, we could experience unforeseen
                  variability in our revenues and operating results for a
                  number of reasons, including the following: inability of
                  our partners to sell our products; a decision by our
                  partners to favor competing products; or inability of our
                  partners to manage the timing of their purchases from us
                  against their sales to end-users, resulting in inventories
                  of including resellers and system integrators:

                                       17
<PAGE>

                  unsold licenses held by channel partners.

         -        OUR QUARTERLY REVENUES AND REVENUE GROWTH RATES ARE DEPENDENT
                  ON THE BUDGETING CYCLES AND INVESTMENT CYCLES OF OUR
                  CUSTOMERS.

                  Our quarter-to-quarter revenues will depend on customer
                  budgeting cycles. If customers change their budgeting
                  cycles, or reduce their capital spending on technology, our
                  revenues could decline. Many analysts predict substantially
                  slower growth rates for, and potential reductions in,
                  information technology capital investment in 2001. To the
                  extent these projections prove accurate, we expect our
                  quarterly revenues and operating results will be adversely
                  affected.

         -        OUR QUARTERLY REVENUES AND REVENUE GROWTH RATES COULD BE
                  AFFECTED BY NEW PRODUCTS WE ANNOUNCE OR THAT OUR
                  COMPETITORS ANNOUNCE.

                  Announcements of new products or releases by us or our
                  competitors could cause customers to delay purchases
                  pending the introduction of the new product or release. In
                  addition, announcements by us or our competitors concerning
                  pricing policies could have an adverse effect on our
                  revenues in a given quarter.

         -        OUR PRODUCTS HAVE DIFFERENT MARGINS, AND CHANGES IN OUR
                  PRODUCT MIX COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING
                  RESULTS.

                  Changes in our product mix could adversely affect our
                  operating results because some products provide higher
                  margins than others. For example, margins on software
                  licenses tend to be higher than margins on maintenance and
                  services. Cancellation of licenses, subscription or
                  maintenance agreements. Cancellations of licenses,
                  subscription or maintenance contracts could reduce our
                  revenues and harm our operating results. In particular, our
                  maintenance contracts with customers terminate on an annual
                  basis. Substantial cancellations of maintenance or
                  subscription agreements, or a substantial failure to renew
                  these contracts, would reduce our revenues and harm our
                  operating results.

THE LONG SALES CYCLE FOR OUR PRODUCTS MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN OUR
REVENUES AND OPERATING RESULTS.

         Delays in customer orders could result in our revenues being
substantially below the expectations of market analysts. Our customers' planning
and purchase decisions involve a significant commitment of resources and a
lengthy evaluation and product qualification process. As a result, we may incur
substantial sales and marketing expenses during a particular period in an effort
to obtain orders. If we are unsuccessful in generating offsetting revenues
during that period, our revenues and earnings could be substantially reduced, or
we could experience a large loss. The sales cycle for our products typically
takes six to nine months to complete, and we may experience delays that further
extend this period. The length of the sales cycle may be extended beyond six or
nine months due to factors over which we have little or no control, including
the size of the transaction and the level of competition we encounter. The
average size of our transactions has increased in recent periods, and this could
have the effect of further extending our sales cycle. During the sales cycle, we
typically provide a significant level of education to prospective customers
regarding the use and benefits of our products. Any delay in the sales cycle of
a large license or a number of smaller licenses could have an adverse effect on
our operating results and financial condition.

SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY RESULT IN PERIODIC
REDUCTIONS IN OUR REVENUES AND IMPAIRMENT OF OUR OPERATING RESULTS.

         Seasonality in our business could result in our revenues in a given
period being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events,
seasonality could have an adverse impact on our results of operations.
Historically, our revenues and operating results in our December quarter have
tended to benefit, relative to our June and September quarters, from purchase
decisions made by the large concentration of our customers with calendar
year-end budgeting requirements. Our June and September quarters tend to be our
weakest. Revenues and operating results in the March quarter have tended to
benefit from the efforts of our sales force to meet fiscal year-end sales
quotas. Notwithstanding these seasonal factors, other factors, including those
identified in this section, could still result in reduced revenues or operating
results in our December and March quarters. In addition, these historical
patterns may change over time, particularly as our operations become larger and
the sources of our revenue change or become more diverse. For example, our
international operations have expanded significantly in recent years,
particularly in Europe. We also have an international presence in the Pacific
Rim and Latin America. We may experience variability in demand associated with
seasonal buying patterns in these foreign markets. As an example, our September
quarter is typically weaker in part due to the European summer holiday season.

OUR JUNE 2000 ACQUISITION OF HARBINGER CORPORATION MAY REDUCE OUR REVENUE GROWTH
RATES AND MAKE PREDICTION OF OUR FUTURE REVENUES AND OPERATING RESULTS MORE
DIFFICULT AS WE INTEGRATE OUR BUSINESSES AND ATTEMPT TO FOCUS THE STRATEGIC
MODEL OF THE COMBINED COMPANY.

         Harbinger's revenues prior to the acquisition were growing at a
substantially slower rate than our revenues, due in large part to declining
revenues for Harbinger's legacy electronic commerce software business. If our
efforts to refocus Harbinger's business and integrate it with that of Peregrine
are not successful, our future revenue growth rates could be substantially less
than our historic growth rates, and our future revenues and operating results
could be impaired. We have already determined to de-emphasize and discontinue
certain businesses of Harbinger that we do not believe are strategic to the
combined company. In September 2000, we completed the sale of one of Harbinger's
product lines and may determine to sell or discontinue other Harbinger products
or businesses in the future. We expect this recent divestiture and any future
discontinuations or divestitures to result in revenue reductions that may not be
offset by revenues from other sources.

         In October 2000, we announced that we were implementing a strategic
segmentation of our business into an infrastructure management group and an
e-markets group. Our infrastructure management group focuses principally on the
sale of our historic infrastructure management product line together with
procurement solutions and technologies acquired from Harbinger that were
complementary with or otherwise relevant to managing internal infrastructure
assets. Our e-markets group focuses on the acquisition of supplies and materials
used in the manufacture and production of finished goods. The e-markets group is
comprised substantially of Harbinger's legacy e-commerce software and data
transformation businesses as well as web-based supply catalogs and vertical
exchange markets for supply and commodity markets in the automotive, energy,
industrial component and retail industries.

         We expect the continuing strategic and operational integration of
Harbinger into Peregrine will make prediction of our future revenues and
operating results particularly difficult because our results of operations in
future periods will reflect a substantially different business than the
historical businesses of either Peregrine or Harbinger. We may not be able to
accurately predict how the combined businesses, or the individual businesses
represented by our infrastructure management and e-markets groups, will evolve.
In particular, our future revenue and operating results may be adversely
affected for a number of reasons resulting from the acquisition and subsequent
integration processes, including the following:

         -        Revenues for Harbinger's e-commerce software products may
                  continue to decline.

         -        Harbinger's web-based supply catalog and vertical supply
                  businesses are still in their early stages, and a sustainable
                  market may not develop for these services as offered by our
                  e-markets group.

         -        The businesses associated with our infrastructure management
                  and e-markets groups may be sufficiently distinct that
                  customers perceive no benefit from our combined product
                  offerings, in which case we will not realize the anticipated
                  financial and product synergies of the acquisition.

         -        We may experience substantial unanticipated integration costs.


                                       18
<PAGE>

OUR BUSINESS AND OPERATING RESULTS WILL BE HARMED IF WE CANNOT COMPETE
EFFECTIVELY AGAINST OTHER COMPANIES IN OUR MARKETS.

         The market for our products is intensely competitive and diverse, and
the technologies for our products can change rapidly. New products are
introduced frequently and existing products are continually enhanced. We face
competition from a number of sources in the markets for our infrastructure
resource management, procurement and e-business connectivity solutions.

         -        In the markets for our infrastructure resource management and
                  employee self-service software solutions, we face competition
                  from providers of internal help desk software applications for
                  managing information technology service desks, such as Remedy
                  Corporation and Computer Associates; providers of asset
                  management software, including Remedy, MainControl, and
                  Intraware (through its recent acquisition of Janus
                  Technologies); providers of facilities management software,
                  including Archibus, Facilities Information Systems, and
                  Assetworks (a division of CSI-Maximus); providers of
                  transportation management software that competes with our
                  fleet management and rail management software, including
                  Control Software (a division of CSI-Maximus) and Project
                  Software and Development Inc.; information technology and
                  systems management companies such as Tivoli Systems (a
                  division of IBM), Computer Associates, Network Associates,
                  Hewlett-Packard, and Microsoft; numerous start-up and other
                  entrepreneurial companies offering products that compete with
                  the functionality offered by one or more of our infrastructure
                  management products; and the internal information technology
                  departments of those companies with infrastructure management
                  needs.

         -        In the markets for employee self-service, including
                  procurement and e-service solutions, we have experienced
                  competition from established competitors in the
                  business-to-business Internet commerce solution market, such
                  as Ariba and CommerceOne, and established providers of
                  enterprise resource planning software that are entering the
                  market for procurement and e-procurement solutions, including
                  Oracle and SAP.

         -        In the markets served by our e-commerce enablement technology,
                  we have experienced competition from Sterling Commerce, a
                  division of SBC Communications, and General Electric Exchange
                  Solutions, each a provider of electronic commerce software;
                  Aspect Development, a provider of internet business software
                  solutions; Requisite Technology, a provider of catalog
                  management solutions; and webMethods, a provider of e-commerce
                  enablement software.

         If we cannot compete effectively in our markets by offering products
that are comparable in functionality, ease of use and price to those of our
competitors, our revenues will decrease, and our operating results will be
adversely affected. Many of our current and potential competitors have
substantially greater financial, technical, marketing and other resources than
we have. As a result, they may be able to devote greater resources than we can
to the development, promotion and sale of their products and may be able to
respond more quickly to new or emerging technologies and changes in customer
needs.

         Additional competition from new entrepreneurial companies or
established companies entering our markets could have an adverse effect on our
business, revenues and operating results. In addition, alliances among companies
that are not currently direct competitors could create new competitors with
substantial market presence. Because few barriers to entry exist in the software
industry, we anticipate additional competition from new and established
companies as well as business alliances. We expect that the software industry
will continue to consolidate. In particular, we expect that large software
companies will continue to acquire or establish alliances with our smaller
competitors, thereby increasing the resources available to these competitors.
These new competitors or alliances could rapidly acquire significant market
share at our expense.


                                       19
<PAGE>


OUR FUTURE REVENUES AND OPERATING RESULTS MAY BE ADVERSELY AFFECTED IF THE
SOFTWARE APPLICATION MARKET CONTINUES TO EVOLVE TOWARD A SUBSCRIPTION-BASED
MODEL, WHICH MAY PROVE LESS PROFITABLE FOR US.

         We expect our revenue growth rates and operating results to be
adversely affected as customers require us to offer our products under a
subscription-based application service provider model. Historically, we have
sold our infrastructure management solutions on a perpetual license basis in
exchange for an up-front license fee. Customers are increasingly attempting to
reduce their up-front capital expenditures by purchasing software applications
under a hosted subscription service model. Under the hosted model, the customer
subscribes to use an application from the software provider. The application is
generally hosted on a server managed by the service provider or a third-party
hosting service. We expect that a substantial portion of future revenues
generated by our e-markets group will be realized under a subscription model. We
also expect that an increasing portion of our infrastructure management group
revenues may be represented by subscriptions.

         Under the subscription revenue model, we generally will recognize
revenue and receive payment ratably over the term of the customer's
subscription. As a result, our rates of revenue growth under a subscription
model may be less than our historical rates under a license model. In addition,
the price of our services will be fixed at the time of entering into the
subscription agreement. If we are unable to adequately predict the costs
associated with maintaining and servicing a customer's subscription, then the
periodic expenses associated with a subscription may exceed the revenues we
recognize for the subscription in the same period, which would adversely affect
our operating results.

         In addition, if we are not successful in implementing the subscription
revenue model, or if market analysts or investors do not believe that the model
is attractive relative to our traditional license model, our business could be
impaired, and our stock price could decline dramatically.

IF WE, OR THIRD PARTIES ON WHICH WE WILL RELY, ARE UNABLE TO ADEQUATELY DELIVER
OUR INTERNET-BASED APPLICATIONS, OUR OPERATING RESULTS MAY BE ADVERSELY
AFFECTED.

         We currently use our own servers to deliver our Internet-based products
to customers. We intend, however, to engage one or more third parties to provide
a full complement of services that will enable us to outsource the delivery of
these Internet-based products to our customers. For example, our third-party
service providers will manage the application servers, maintain communications
equipment, manage the network data centers where our software and data will be
stored, and provide client support. If we are unable to adequately deliver our
Internet-based applications, we may lose customers or be unable to attract new
customers, which would adversely affect our revenues.

         In addition, the third-party service providers that we engage may not
deliver adequate support or service to our clients, which may harm our
reputation and our business. Because these third-party service providers handle
the installation of the computer and communications equipment and software
needed for the day-to-day operations of our Internet-based applications, we will
be dependent on them to manage, maintain and provide adequate security for
customer applications. If our customers experience any delays in response time
or performance problems while using our Internet applications, as hosted by a
third-party or by us, our customers may perceive the delays as defects with our
products and may stop using our applications, which will adversely affect our
revenues.

         We have limited experience outsourcing these services and may have
difficulty managing this process. We will be required to monitor our third-party
service providers to ensure that they perform these services adequately. In
addition, if we do not maintain good relations with these third-party service
providers, or if they go out of business, they may be unable to perform critical
support functions for us. If we were unable to find replacement third-party
service providers, we would be required to perform these


                                       20
<PAGE>


functions ourselves. We may not be successful in obtaining or performing these
services on a timely or cost-effective basis.

IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUALLY DEVELOP PRODUCTS THAT MEET THE COMPLEX AND EVOLVING NEEDS
OF OUR CUSTOMERS, SALES OF OUR PRODUCTS MAY DECREASE.

         As a result of rapid technological change in our industry, our
competitive position in existing markets, or in markets we may enter in the
future, can be eroded rapidly by product advances and technological changes. We
may be unable to improve the performance and features of our products as
necessary to respond to these developments. In addition, the life cycles of our
products are difficult to estimate. Our growth and future financial performance
depend in part on our ability to improve existing products and develop and
introduce new products that keep pace with technological advances, meet changing
customer needs, and respond to competitive products. Our product development
efforts will continue to require substantial investments. In addition,
competitive or technological developments may require us to make substantial,
unanticipated investments in new products and technologies, and we may not have
sufficient resources to make these investments.

IF WE CANNOT ATTRACT AND RETAIN QUALIFIED SALES PERSONNEL, SOFTWARE DEVELOPERS
AND CUSTOMER SERVICE PERSONNEL, WE WILL NOT BE ABLE TO SELL AND SUPPORT OUR
PRODUCTS.

         Competition for qualified employees is intense, particularly in the
technology industry, and we have in the past experienced difficulty recruiting
qualified employees. If we are not successful in attracting and retaining
qualified sales personnel, software developers and customer service personnel,
our revenue growth rates could decrease, or our revenues could decline, and our
operating results could be materially harmed. Our products and services require
a sophisticated selling effort targeted at several key people within a
prospective customer's organization. This process requires the efforts of
experienced sales personnel as well as specialized consulting professionals. In
addition, the complexity of our products, and issues associated with installing
and maintaining them, require highly-trained customer service and support
personnel. We intend to hire a significant number of these personnel in the
future and train them in the use of our products. We believe our success will
depend in large part on our ability to attract and retain these key employees.

OUR BUSINESS COULD BE HARMED IF WE LOST THE SERVICES OF ONE OR MORE MEMBERS OF
OUR SENIOR MANAGEMENT TEAM.

         The loss of the services of one or more of our executive officers or
key employees, or the decision of one or more of these individuals to join a
competitor, could adversely affect our business and harm our operating results
and financial condition. Our success depends to a significant extent on the
continued service of our senior management and other key sales, consulting,
technical and marketing personnel. None of our senior management is bound by an
employment or non-competition agreement. We do not maintain key man life
insurance on any of our employees.

IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, THIS WILL PLACE A SIGNIFICANT STRAIN
ON OUR MANAGEMENT AND OPERATIONAL RESOURCES.

         Our recent growth rates, together with integration of numerous
acquisitions, have placed a significant strain on our management and operational
resources. We have expanded the size and geographic scope of our operations
rapidly in recent years, both internally and through acquisitions, and intend to
continue to expand in order to pursue market opportunities that our management
believes are attractive. Our customer relationships could be strained if we are
unable to devote sufficient resources to them as a result of our growth, which
could have an adverse effect on our future revenues and operating results.


                                       21
<PAGE>


SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE INFRASTRUCTURE MANAGEMENT AND/OR HELP
DESK SOFTWARE COMPANIES AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, HARMING OUR
ABILITY TO SELL OUR PRODUCTS.

         If large system management providers close their systems to our
products, our revenues and operating results would be seriously harmed. Our
ability to sell our products depends in large part on their compatibility with
and support by providers of system management products, including Tivoli,
Computer Associates, and Hewlett-Packard. These large, established providers of
system management products and services may decide to close their systems to
competing vendors like us. They may also decide to bundle the products that
compete with our products with other products for enterprise licenses for
promotional purposes or as part of a long-term pricing strategy. If that were to
happen, our ability to sell our products could be adversely affected. Increased
competition may result from acquisitions of help desk and other infrastructure
management software vendors by system management companies. Increased
competition could result in price reductions, reductions in our gross margins,
or reductions in our market share. Any of these events would adversely affect
our business and operating results.

WE MAY BE UNABLE TO EXPAND OUR BUSINESS AND INCREASE OUR REVENUES IF WE ARE
UNABLE TO EXPAND OUR DISTRIBUTION CHANNELS.

         If we are unable to expand our distribution channels effectively, our
business, revenues and operating results could be harmed. In particular, we will
need to expand our direct sales force and establish relationships with
additional system integrators, resellers and other third party channel partners
who market and sell our products. If we cannot establish these relationships, or
if our channel partners are unable to market our products effectively or provide
cost-effective customer support and service, our revenues and operating results
will be harmed. Even where we are successful in establishing a new third- party
relationship, our agreement with the third party may not be exclusive. As a
result, our partner may carry competing product lines.

IF WE ARE UNABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS, REVENUES
AND OPERATING RESULTS COULD BE HARMED.

         In order to grow our business, increase our revenues, and improve our
operating results, we believe we must continue to expand internationally. If we
expend substantial resources pursuing an international strategy and are not
successful, our revenues will be less than our management or market analysts
anticipate, and our operating results will suffer. International revenues
represented approximately 36.0% of our business in each of fiscal 1998 and 1999
and approximately 41.0% of our business in fiscal 2000. We have several
international sales offices in Europe as well as offices in Japan, Singapore and
Australia. International expansion will require significant management attention
and financial resources, and we may not be successful expanding our
international operations. We have limited experience in developing local
language versions of our products or in marketing our products to international
customers. We may not be able to successfully translate, market, sell, and
deliver our products internationally.

CONDUCTING BUSINESS INTERNATIONALLY POSES RISKS THAT COULD AFFECT OUR FINANCIAL
RESULTS.

         Even if we are successful in expanding our operations internationally,
conducting business outside North America poses many risks that could adversely
affect our operating results. In particular, we may experience gains and losses
resulting from fluctuations in currency exchange rates, for which hedging
activities may not adequately protect us. Moreover, exchange rate risks can have
an adverse effect on our ability to sell our products in foreign markets. Where
we sell our products in U.S. dollars, our sales could be adversely affected by
declines in foreign currencies relative to the dollar, thereby making our
products more expensive in local currencies. Where we sell our products in local
currencies, we could be competitively unable to change our prices to reflect
exchange rate changes. In recent periods,


                                       22
<PAGE>


for example, our revenues in Europe have been adversely affected by the decline
in the value of the Euro and its component currencies relative to the U.S.
dollar.

         Additional risks we face in conducting business internationally include
the following:

         -        longer payment cycles;

         -        difficulties in staffing and managing international
                  operations;

         -        problems in collecting accounts receivable; and

         -        the adverse effects of tariffs, duties, price controls or
                  other restrictions that impair trade.

OUR REVENUES, OPERATING RESULTS, AND STOCK PRICE COULD BE ADVERSELY AFFECTED
IF WE WERE UNABLE TO CONDUCT OUR BUSINESS. IN PARTICULAR, OUR ADMINISTRATIVE
FACILITIES AND PRINCIPAL BUSINESS OPERATIONS ARE LOCATED IN CALIFORNIA, AND
ANY DISRUPTION IN THE AVAILABLE POWER SUPPLY IN CALIFORNIA COULD DISRUPT OUR
OPERATIONS, REDUCE OUR REVENUES, AND INCREASE OUR EXPENSES.

         Our operations, and those of third parties on which we rely, are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond our control. A substantial portion of our
operating activities and facilities, including our headquarters and principal
administrative facilities, are located in the State of California. California is
in the midst of an energy crisis that could interrupt our power supply or that
of our third-party service providers and thereby disrupt our operations and
increase our expenses. In the event of an acute power shortage, California has
implemented, and may in the future continue to implement, rolling blackouts
throughout the state. In the event these blackouts continue or increase in
severity, they could disrupt the operations of one or more of our facilities. We
currently do not have back-up generators or alternate sources of power in the
event of a blackout, and our current insurance does not provide coverage for any
damages we or our customers may suffer as a result of any interruption in our
power supply. We are, however, in the process of installing back-up generators
and developing a plan to permit us to continue to operate critical functions
based in California. If blackouts interrupt our power supply, we would be
temporarily unable to continue operations at our facilities. Any interruption in
our ability to continue operations at our facilities could damage our
reputation, harm our ability to retain existing customers and to obtain new
customers, and could result in lost revenue, any of which could substantially
harm our business and results of operations.

         In addition, the utility deregulation program instituted in 1996 by the
California government deregulated wholesale prices while continuing to regulate
the retail prices charged by the electrical utilities. While wholesale prices
have increased dramatically, retail prices have, until recently, not increased
at comparable rates. Our business is substantially dependent on the availability
and price of electricity. If retail electricity prices rise dramatically, we
expect our expenses will increase, our operating results will be harmed, and our
stock price could fall.

WE MAY EXPERIENCE INTEGRATION OR OTHER PROBLEMS WITH NEW ACQUISITIONS, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS. NEW
ACQUISITIONS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS, AND THE
ANNOUNCEMENT OF NEW ACQUISITIONS COULD RESULT IN A DECLINE IN THE PRICE OF OUR
COMMON STOCK.

         In addition to the acquisition of Harbinger, we have made a number of
acquisitions of businesses and technologies over the last three years. We are
frequently in formal or informal discussions with potential acquisition
candidates. Accordingly, we may in the future make acquisitions of, or large
investments in, businesses that offer products, services and technologies that
we believe would complement our products or services. We may also make
acquisitions of or investments in businesses that


                                       23
<PAGE>


we believe could expand our distribution channels. Even though we announce an
acquisition, however, we may not be able to complete it. Any future acquisition
or substantial investment would present numerous risks. The following are
examples of these risks:

         -        difficulty in combining the technology, operations or work
                  force of the acquired business;

         -        disruption of our on-going business;

         -        difficulty in realizing the potential financial or strategic
                  benefits of the transaction;

         -        difficulty in maintaining uniform standards, controls,
                  procedures and policies;

         -        possible impairment of relationships with employees and
                  customers as a result of any integration of new businesses and
                  management personnel;

         -        impairment of assets related to resulting goodwill, and
                  reductions in our future operating results from amortization
                  of goodwill and other intangible assets.

         We expect that future acquisitions could provide for consideration to
be paid in cash, shares of our common stock, or a combination of cash and our
common stock. If the consideration for the transaction were paid in common
stock, this would further dilute our existing stockholders. Any amortization of
goodwill or other assets resulting from the acquisition could materially impair
our operating results and financial condition. If an acquisition were to take
place, the risks described above could materially and adversely affect our
business and operating results.

HARBINGER AND SOME OF ITS FORMER OFFICERS AND DIRECTORS ARE DEFENDANTS IN
SHAREHOLDER LITIGATION FOR WHICH HARBINGER IS NOT INSURED. THE OUTCOME OF THIS
LITIGATION, IF DETERMINED ADVERSELY TO HARBINGER, COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION.

         In September 1999, a complaint was filed against Harbinger and some of
its current and former officers and directors in the United States District
Court for the Northern District of Georgia. The complaint alleges that the
defendants misrepresented or omitted material facts in violation of federal
securities laws. An amended complaint was filed in March 2000, expanding upon
the allegations of the initial complaint by, among other things, alleging
accounting improprieties. The complaints relate to actions by Harbinger during
the period from February 1998 to October 1998. Harbinger did not maintain
directors' and officers' liability insurance during this period. As a result, we
are not insured with respect to any potential liability of Harbinger or any
officer or director of Harbinger. Harbinger was, however, obligated under
agreements with each of its officers and directors to indemnify them for the
costs incurred in connection with defending themselves against this litigation
and is obligated to indemnify them to the maximum extent permitted under
applicable law if they are held liable. In connection with the acquisition, we
agreed to honor these contractual arrangements.

         In October 2000, we entered into an agreement in principle to settle
this class action lawsuit. If the settlement is finalized and approved by the
court, we will be required to make an aggregate cash payment of $2.25 million to
a class of former shareholders of Harbinger in exchange for dismissal of all
claims against Harbinger. Although the parties to the litigation have agreed in
principle to this settlement, final settlement is subject to further
documentation, various contingencies, and approval by the court. The court may
not approve the settlement. If the court does not approve the settlement, the
plaintiffs in the lawsuit may proceed with their claims, without prejudice. It
is also possible that if the settlement is approved by the court, claims could
be pursued by class members who opt out of the class settlement by filing
appropriate notices with the court. If the litigation were to continue to
proceed, we could be required to spend substantial sums in an effort to litigate
this matter. Continued litigation would be likely to result in a diversion of
management's time and attention away from business operations. If the litigation


                                       24
<PAGE>


were decided adversely to Harbinger, or we agree in the future to settle this
litigation for a substantial sum as a result of failure to obtain court approval
of the pending settlement or for any other reason, our financial condition and
results of operations could be materially and adversely affected.

OUR OUTSTANDING INDEBTEDNESS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, AND WE MAY INCUR SUBSTANTIALLY MORE DEBT.

         As of the date of this report, we have approximately $270 million of
indebtedness outstanding, consisting principally of our 5 1/2% convertible
subordinated notes due 2007. Our indebtedness could adversely affect our results
of operations and financial condition. For example, our results of operations
will be adversely affected by approximately $14.85 million in annual interest
expenses, payable semi-annually. In addition, our indebtedness could:

         -        increase our vulnerability to general adverse economic and
                  industry conditions;

         -        limit our ability to obtain additional financing;

         -        limit our flexibility in planning for, or reacting to, changes
                  in our business and the industry; and

         -        place us at a competitive disadvantage relative to our
                  competitors with less debt.

         Our indebtedness will require the dedication of a substantial portion
of our cash flow from operations to the payment of principal of, and interest
on, our indebtedness, thereby reducing the availability of the cash flow to fund
our growth strategy, working capital, capital expenditures and other general
corporate purposes.

         We may incur substantial additional debt in the future. The terms of
our existing indebtedness does not, and future indebtedness may not, prohibit us
from doing so. If new debt is added to our current levels, the related risks
described above could intensify.

WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS.

         We will be required to generate cash sufficient to pay all amounts due
on our outstanding indebtedness and to conduct our business operations. We have
incurred net losses, and we may not be able to cover our anticipated debt
service obligations. This may materially hinder our ability to make payments on
our indebtedness. Our ability to meet our future debt service obligations will
be dependent upon our future operating performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control.

IF IMMIGRATION LAWS LIMIT OUR ABILITY TO RECRUIT AND EMPLOY SKILLED TECHNICAL
PROFESSIONALS FROM OTHER COUNTRIES, OUR BUSINESS AND OPERATING RESULTS COULD BE
HARMED.

         Limitations under United States immigration laws could prevent us from
recruiting skilled technical personnel from foreign countries, which could harm
our business if we do not have sufficient personnel to develop new products and
respond to technological changes. This inability to hire technical personnel
could lead to future decreases in our revenues, or decreases in our revenue
growth rates, either of which would adversely affect our operating results.
Because of severe shortages for qualified technical personnel in the United
States, many companies, including Peregrine, have recruited engineers and other
technical personnel from foreign countries. Foreign computer professionals such
as those we have employed typically become eligible for employment in the United
States by obtaining a nonimmigrant visa. The number of nonimmigrant visas is
limited annually by federal immigration laws. In recent years, despite increases
in the number of available visas, the annual allocation has been exhausted well
before year-end.

WE HAVE MADE SUBSTANTIAL CAPITAL COMMITMENTS THAT COULD HAVE AN ADVERSE EFFECT
ON OUR OPERATING RESULTS AND FINANCIAL CONDITION IF OUR BUSINESS DOES NOT GROW.

         We have made substantial capital commitments as a result of recent
growth in our business that could seriously harm our financial condition if our
business does not grow and we do not have adequate resources to satisfy our
obligations. In June 1999, we entered into a series of leases providing us with
approximately 540,000 square feet of office space and an option to lease 118,000
square feet for our headquarters in San Diego, California. Even excluding the
exercise of the option, the leases require a minimum aggregate lease payment of
approximately $119.3 million over the twelve year term of the leases. The office
space (including the option) relates to a five building campus. We have
relocated our San Diego operations to three of these buildings and intend for
the present time to sublease the remaining two buildings. The capital
commitments, construction oversight, and movement of personnel and facilities
involved in a transaction of this type and magnitude present numerous risks,
including:

         -        failure to properly estimate the future growth of our
                  business;

         -        inability to sublease excess office space if we overestimate
                  future growth;

         -        disruption of operations; and

         -        inability to match fixed lease payments with fluctuating
                  revenues, which could impair our earnings or result in losses.

PRODUCT DEVELOPMENT DELAYS COULD HARM OUR COMPETITIVE POSITION AND REDUCE OUR
REVENUES.

         If we experience significant product development delays, our position
in the market would be harmed, and our revenues could be substantially reduced,
which would adversely affect our operating results. We have experienced product
development delays in the past and may experience delays in the future. In
particular, we may experience product development delays associated with the
integration of recently acquired products and technologies. Delays may occur for
many reasons, including an inability to hire sufficient number of developers,
discovery of software bugs and errors, or a failure of our current or future
products to conform to industry requirements.


                                       25
<PAGE>


ERRORS OR OTHER SOFTWARE BUGS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT
EXPENDITURES TO REMEDY OR CORRECT THE ERRORS OR BUGS AND COULD RESULT IN PRODUCT
LIABILITY CLAIMS.

         If we were required to expend significant amounts to correct software
bugs or errors, our revenues could be harmed as a result of an inability to
deliver the product, and our operating results could be impaired as we incur
additional costs without offsetting revenues. Errors can be detected at any
point in a product's life cycle. We have experienced errors in the past that
resulted in delays in product shipment and increased costs. Discovery of errors
could result in any of the following:

         -        loss of or delay in revenues and loss of customers or market
                  share;

         -        failure to achieve market acceptance;

         -        diversion of development resources and increased development
                  expenses;

         -        increased service and warranty costs;

         -        legal actions by our customers; and

         -        increased insurance costs.

         If we were held liable for damages incurred as a result of our
products, our operating results could be significantly impaired. Our license
agreements with our customers typically contain provisions designed to limit
exposure to potential product liability claims. These limitations may not be
effective under the laws of some jurisdictions, however. Although we have not
experienced any product liability claims to date, the sale and support of our
products entails the risks of these claims.

WE COULD BE COMPETITIVELY DISADVANTAGED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY.

         If we fail to adequately protect our proprietary rights, competitors
could offer similar products relying on technologies we developed, potentially
harming our competitive position and decreasing our revenues. We attempt to
protect our intellectual property rights by limiting access to the distribution
of our software, documentation, and other proprietary information and by relying
on a combination of patent, copyright, trademark, and trade secret laws. In
addition, we enter into confidentiality agreements with our employees and
certain customers, vendors, and strategic partners. In some circumstances,
however, we may, if required by a business relationship, provide our licensees
with access to our data model and other proprietary information underlying our
licensed applications.

         Despite precautions that we take, it may be possible for unauthorized
third parties to copy aspects of our current or future products or to obtain and
use information that we regard as proprietary. Policing unauthorized use of
software is difficult, and some foreign laws do not protect proprietary rights
to the same extent as United States laws. Litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade
secrets, or to determine the validity and scope of the proprietary rights of
others, any of which could adversely affect our revenues and operating results.

IF WE BECOME INVOLVED IN AN INTELLECTUAL PROPERTY DISPUTE, WE MAY INCUR
SIGNIFICANT EXPENSES OR MAY BE REQUIRED TO CEASE SELLING OUR PRODUCTS, WHICH
WOULD SUBSTANTIALLY IMPAIR OUR REVENUES AND OPERATING RESULTS.

         In recent years, there has been significant litigation in the United
States involving intellectual property rights, including rights of companies in
the software industry. Intellectual property claims against us, and any
resulting lawsuit, may result in our incurring significant expenses and could
subject us to significant liability for damages and invalidate what we currently
believe are our proprietary rights.


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<PAGE>


These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and could divert management's time and attention. Any
potential intellectual property litigation against us could also force us to do
one or more of the following:

         -        cease selling, incorporating or using products or services
                  that incorporate the infringed intellectual property;

         -        obtain from the holder of the infringed intellectual property
                  a license to sell or use the relevant technology, which
                  license may not be available on acceptable terms, if at all;
                  or

         -        redesign those products or services that incorporate the
                  disputed technology, which could result in substantial
                  unanticipated development expenses.

         If we are subject to a successful claim of infringement and we fail to
develop non-infringing technology or license the infringed technology on
acceptable terms and on a timely basis, our revenues could decline or our
expenses could increase.

         We may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could also result in significant expense and the diversion of
technical and management personnel's attention.

CONTROL BY OUR OFFICERS AND DIRECTORS MAY LIMIT OUR STOCKHOLDERS' ABILITY TO
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DELAY OR PREVENT A
CHANGE IN CONTROL, WHICH COULD PREVENT OUR STOCKHOLDERS FROM REALIZING A PREMIUM
IN THE MARKET PRICE OF THEIR COMMON STOCK.

         The concentration of ownership of our common stock by our officers and
directors could delay or prevent a change in control or discourage a potential
acquirer from attempting to obtain control of Peregrine. This could cause the
market price of our common stock to fall or prevent our stockholders from
realizing a premium in the market price in the event of an acquisition.

WE COULD EXPERIENCE LOSSES AS A RESULT OF OUR STRATEGIC INVESTMENTS.

         If our strategic investments in other companies are not successful, we
could incur losses. We have made and expect to continue to make minority
investments in companies with businesses or technologies that we consider to be
complementary with our business or technologies. These investments have
generally been made by issuing shares of our common stock or, to a lesser
extent, by paying cash. Many of these investments are in companies whose
operations are not yet sufficient to establish them as profitable concerns.
Adverse changes in market conditions or poor operating results of underlying
investments could result in our incurring losses or our being unable to recover
the carrying value of our investments.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR PEREGRINE AND MAY PREVENT CHANGES IN OUR MANAGEMENT THAT
STOCKHOLDERS OTHERWISE WOULD APPROVE.

         Some provisions of our charter documents eliminate the right of
stockholders to act by written consent without a meeting and impose specific
procedures for nominating directors and submitting proposals for consideration
at a stockholder meeting. These provisions are intended to increase the
likelihood of continuity and stability in the composition of our board of
directors and the policies established by the board of directors. These
provisions also discourage some types of transactions, which may involve an
actual or threatened change of control. These provisions are designed to reduce
Peregrine's vulnerability to an unsolicited acquisition proposal. As a result,
these provisions could


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<PAGE>


discourage potential acquisition proposals and could delay or prevent a change
of control transaction. These provisions are also intended to discourage common
tactics that may be used in proxy fights. As a result, they could have the
effect of discouraging third parties from making tender offers for our shares.
These provisions may prevent the market price of our common stock from
reflecting the effects of actual or rumored take-over attempts. These provisions
may also prevent changes in our management.

         Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock in one or more series. The board of directors can fix
the price, rights, preference, privileges, and restrictions of this preferred
stock without any further vote or action by our stockholders. The issuance of
preferred stock allows us to have flexibility in connection with possible
acquisitions and for other corporate purposes. The issuance of preferred stock,
however, may delay or prevent a change in control transaction. As a result, the
market price of our common stock and other rights of holders of our common stock
may be adversely affected, including the loss of voting control to others.


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<PAGE>


OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE HIGHLY VOLATILE, WHICH
MAY MAKE THE COMMON STOCK DIFFICULT TO RESELL AT ATTRACTIVE TIMES AND PRICES.

         The trading price of our common stock has been and is likely to be
highly volatile. Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:

         -        actual or anticipated variations in our quarterly operating
                  results;

         -        announcements of technological innovations;

         -        new products or services offered by us or our competitors;

         -        changes in financial estimates by securities analysts;

         -        conditions or trends in the software industry generally or
                  specifically in the markets for infrastructure management or
                  e-business connectivity solutions;

         -        changes in the economic performance and/or market valuations
                  of our competitors and the software industry in general;

         -        announcements by us or our competitors of significant
                  contracts, changes in pricing policies, acquisitions,
                  strategic partnerships, joint ventures or capital commitments;

         -        adoption of industry standards and the inclusion of our
                  technology in, or compatibility of our technology with, the
                  standards;

         -        adverse or unfavorable publicity regarding us or our products;

         -        our loss of a major customer;

         -        additions or departures of key personnel;

         -        sales of our common stock in the public market; and

         -        other events or factors that may be beyond our control.

         In addition, the stock markets in general, and in particular the
markets for securities of technology and software companies, have experienced
extreme price and volume volatility and a significant cumulative decline in
recent months. This volatility has affected many companies irrespective of or
disproportionately to the operating performance of these companies. These broad
market and industry factors can materially and adversely affect the market price
of our common stock, regardless of our actual operating performance.


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<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Other than forward-rate currency contracts described below, which are
used for hedging our foreign currency risk, we do not use derivative financial
instruments in our investment portfolio. Our financial instruments consist of
cash and cash equivalents, short-term investments, trade accounts and contracts
receivable, accounts payable, and long-term obligations. We consider investments
in highly liquid instruments purchased with a remaining maturity of 90 days or
less at the date of purchase to be cash equivalents. Our exposure to market risk
for changes in interest rates relates primarily to our short-term investments
and short-term obligations. As a result, we do not expect fluctuations in
interest rates to have a material impact on the fair value of these securities.

         We conduct business overseas in a number of foreign currencies,
principally in Europe. Declines in the value of the Euro relative to the U.S.
dollar have recently had an adverse effect on our revenues and results of
operations. Although we currently derive no material revenues from highly
inflationary economies, we are expanding our presence in international markets
outside Europe, including the Pacific Rim and Latin America. Currently, we
attempt to mitigate our transaction currency risks through our foreign currency
hedging program. The hedging program consists primarily of using forward-rate
currency contracts of approximately one month in length to minimize the
short-term impact of foreign currency fluctuations. Currency contracts are
accounted for in accordance with SFAS No. 52 and receive hedge accounting
treatment. To the extent not properly hedged by obligations denominated in local
currencies, our foreign operations remain subject to the risks of future foreign
currency fluctuations, and there can be no assurances that our hedging
activities will adequately protect us against such risk.


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<PAGE>


                                    PART II.
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         We completed the acquisition of Harbinger Corporation, a Georgia
corporation, in June 2000. In September 1999, a complaint was filed against
Harbinger and some of its then-current and former officers and directors in the
United States District Court for the Northern District of Georgia. The complaint
alleges that the defendants misrepresented or omitted material facts in
violation of federal securities laws. An amended complaint was filed in March
2000, expanding upon the allegations of the initial complaint by, among other
things, alleging accounting improprieties. This matter is still pending, but a
tentative settlement has been agreed to among the parties. Refer to "Factors
That May Affect Future Results" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the risks
associated with this lawsuit.

ITEM 2. CHANGES IN SECURITIES

         RECENT SALES OF UNREGISTERED SECURITIES

         On December 29, 2000, we issued 3,015,076 shares of our common stock in
connection with the acquisition of certain assets from Tivoli Systems, Inc. The
acquisition was affected pursuant to an Asset Purchase Agreement dated as of
December 10, 2000. The shares of our common stock issued to former shareholders
of Loran were issued in reliance on the exemption from the registration
requirements of the Securities Act of 1933 set forth in Regulations D.

         On December 13, 2000, we issued our 5 1/2% Convertible Subordinated
Notes due 2007 in the aggregate principal amount of $20 million upon exercise by
our placement agents of an option to acquire additional notes. The notes and
the shares of common stock issuable upon conversion of the notes were not
registered under the Securities Act but were offered only to qualified
institutional buyers in reliance on Rule 144A under the Securities Act.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         a)       Exhibits:

EXHIBITS   EXHIBIT TITLE
--------   -------------

3.1        Amended and Restated Certificate of Incorporation, as Amended.

         b)       Reports on Form 8-K:

         On December 11, 2000, we filed a Current Report on Form 8-K announcing
our proposed acquisition of the Tivoli Service Desk suite of products from
Tivoli Systems, Inc. The asset purchase was completed on December 29, 2000.


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<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized in the City of San Diego,
California, this 14th day of February, 2001.

                               PEREGRINE SYSTEMS, INC.


                               By:             /s/ Matthew C. Gless
                                   ---------------------------------------------
                                                   Matthew C. Gless
                                      VICE PRESIDENT AND CHIEF FINANCIAL OFFICER



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