<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 SEPTEMBER 30, 2001
                                       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: 000-22209

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

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


                DELAWARE                                 95-3773312
     (STATE OR OTHER JURISDICTION                     (I.R.S. EMPLOYER
    OF 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 September 30, 2001, was 191,377,736.

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

<Page>

                             PEREGRINE SYSTEMS, INC.

                                TABLE OF CONTENTS





<Table>
<Caption>

PART I.                                     FINANCIAL INFORMATION                                           PAGE NO.
-------                                     ---------------------                                           --------
<S>        <C>                                                                                                <C>
Item 1.    Condensed Consolidated Financial Statements...............................................          1

           Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and
           March 31, 2001 (audited)..................................................................          1

           Condensed Consolidated Statements of Operations for the Three and Six Months
           Ended September 30, 2001 and 2000 (unaudited).............................................          2

           Condensed Consolidated Statements of Cash Flows for the Six Months Ended
           September 30, 2001 and 2000 (unaudited)...................................................          3

           Notes to Condensed Consolidated Financial Statements (unaudited)..........................          4

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations   .............................................................................         12

Item 3.    Quantitative and Qualitative Disclosures About Market Risk................................         35


PART II.                                       OTHER INFORMATION
--------                                       -----------------

Item  2.   Changes in Securities and Use of Proceeds.................................................         36

Item  4.   Submission of Matters to a Vote of Security Holders.......................................         36

Item  6.   Exhibits and Reports on Form 8-K..........................................................         36

Signatures...........................................................................................         37
</Table>

                                       ii

<Page>



                                     PART I
               ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             PEREGRINE SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<Table>
<Caption>
                                                                                 SEPTEMBER 30,     MARCH 31,
                                                                                      2001           2001
                                                                                  -----------    -----------
                                                                                  (UNAUDITED)     (AUDITED)
<S>                                                                               <C>            <C>
ASSETS
Current Assets:
  Cash and cash equivalents ...................................................   $   163,553    $   286,658
  Short-term investments ......................................................       128,047           --
  Accounts receivable, net of allowance for doubtful accounts of $12,216
     and $11,511, respectively ................................................       219,887        180,372
  Other current assets ........................................................        72,828         62,811
                                                                                  -----------    -----------
     Total current assets .....................................................       584,315        529,841
Property and equipment, net of accumulated depreciation of $62,591 and
   $45,699, respectively ......................................................       104,441         82,717
Goodwill, net of accumulated amortization of $482,400 and $334,178,
  respectively ................................................................     1,465,718      1,192,855
Other intangible assets, investments and other, net of accumulated amortization
  of $40,511 and $24,015, respectively ........................................       379,958        198,353
                                                                                  -----------    -----------
                                                                                  $ 2,534,432    $ 2,003,766
                                                                                  ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable ............................................................   $    40,199    $    36,024
  Accrued expenses ............................................................       230,163        200,886
  Current portion of deferred revenue .........................................       137,325         86,653
  Current portion of long-term debt ...........................................       150,325          1,731
                                                                                  -----------    -----------
     Total current liabilities ................................................       558,012        325,294

Deferred revenue, net of current portion ......................................        15,068          8,299
Other long-term liabilities ...................................................        12,597         17,197
Long-term debt, net of current portion ........................................           402            884
Convertible subordinated notes ................................................       262,906        262,327
                                                                                  -----------    -----------
     Total liabilities ........................................................       848,985        614,001
                                                                                  -----------    -----------

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 shares authorized, 191,378 and 160,359
  shares issued and outstanding, respectively .................................           191            160
Additional paid-in capital ....................................................     3,237,124      2,342,235
Accumulated deficit ...........................................................    (1,506,761)      (917,104)
Unearned portion of deferred compensation .....................................       (31,810)       (22,151)
Cumulative translation adjustment .............................................        (2,954)        (3,950)
Treasury stock, at cost .......................................................       (10,343)        (9,425)
                                                                                  -----------    -----------
     Total stockholders' equity ...............................................     1,685,447      1,389,765
                                                                                  -----------    -----------
                                                                                  $ 2,534,432    $ 2,003,766
                                                                                  ===========    ===========
</Table>

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



                                       1
<Page>




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


<Table>
<Caption>
                                                   THREE MONTHS ENDED         SIX MONTHS ENDED
                                                       SEPTEMBER 30,            SEPTEMBER 30,
                                                    2001         2000         2001         2000
                                                 ---------    ---------    ---------    ---------
<S>                                              <C>          <C>          <C>          <C>
Revenues:
  Licenses ...................................   $  87,877    $  87,395    $ 188,076    $ 149,837
  Services ...................................      87,129       55,320      158,974       87,202
                                                 ---------    ---------    ---------    ---------
     Total revenues ..........................     175,006      142,715      347,050      237,039
                                                 ---------    ---------    ---------    ---------

Costs and Expenses:
  Cost of licenses ...........................       1,582          532        2,202        1,010
  Cost of services ...........................      43,859       30,670       79,510       47,568
  Amortization of purchased technology .......       5,616        3,143       10,636        4,541
  Sales and marketing ........................      71,633       52,265      139,136       89,964
  Research and development ...................      29,187       18,471       53,674       31,312
  General and administrative .................      14,613       13,477       29,076       21,922
  Acquisition costs and other ................     524,999       97,994      606,945      203,796
                                                 ---------    ---------    ---------    ---------
     Total costs and expenses ................     691,489      216,552      921,179      400,113
                                                 ---------    ---------    ---------    ---------

Loss from operations before interest (net) and
  income tax expense .........................    (516,483)     (73,837)    (574,129)    (163,074)
Interest income (expense), net ...............      (1,802)           8       (2,386)          83
                                                 ---------    ---------    ---------    ---------

Loss before income tax expense ...............    (518,285)     (73,829)    (576,515)    (162,991)
Income tax expense ...........................       3,946        9,001       13,142       14,964
                                                 ---------    ---------    ---------    ---------

       Net loss ..............................   $(522,231)   $ (82,830)   $(589,657)   $(177,955)
                                                 =========    =========    =========    =========

Net loss per share--basic and diluted:
       Net loss per share ....................   $   (3.06)   $   (0.58)   $   (3.57)   $   (1.39)
                                                 =========    =========    =========    =========

     Shares used in computation ..............     170,658      142,105      164,974      128,340
                                                 =========    =========    =========    =========
</Table>

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




                                       2
<Page>



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

<Table>
<Caption>
                                                                                       SIX MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                                      2001           2000
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Cash flows from operating activities:
 Net loss ......................................................................   $  (589,657)   $  (177,955)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation, amortization, acquisition costs and other ....................       634,473        201,746
      Increase (decrease) in cash resulting from changes in:
        Accounts receivable ....................................................       (14,959)       (63,269)
        Other current assets ...................................................        (4,269)       (14,712)
        Other assets ...........................................................       (42,808)        (3,150)
        Accounts payable and other liabilities .................................        (1,845)         9,914
        Accrued expenses .......................................................       (57,251)        15,865
        Deferred revenue .......................................................         7,172          7,173
                                                                                   -----------    -----------
          Net cash used in operating activities ................................       (69,144)       (24,388)
                                                                                   -----------    -----------

Cash flows from investing activities:
   Acquisitions and investments, net of cash acquired ..........................      (202,610)        55,940
   Purchases of property and equipment .........................................       (21,025)       (27,369)
                                                                                   -----------    -----------

          Net cash provided by (used in) investing activities ..................      (223,635)        28,571
                                                                                   -----------    -----------

Cash flows from financing activities:
   Issuance (repayments) of long-term debt .....................................       148,112         (1,331)
   Issuance of common stock ....................................................        21,484          4,547
   Treasury stock purchased ....................................................          (918)        (5,619)
                                                                                   -----------    -----------

          Net cash provided by financing activities ............................       168,678         (2,403)
                                                                                   -----------    -----------


Effect of exchange rate changes on cash and cash equivalents ...................           996            (57)
                                                                                   -----------    -----------
Net increase (decrease) in cash and cash equivalents ...........................      (123,105)         1,723
Cash and cash equivalents, beginning of period .................................       286,658         33,511
                                                                                   -----------    -----------
Cash and cash equivalents, end of period .......................................   $   163,553    $    35,234
                                                                                   ===========    ===========

Cash paid during the period for:
   Interest ....................................................................   $    14,880    $       173
   Income taxes ................................................................   $     4,187    $       263

Supplemental Disclosure of Noncash Investing Activities:
   Stock issued and other noncash consideration for acquisitions and investments   $   874,615    $ 1,538,318
</Table>

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




                                       3
<Page>



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


NOTE 1. BASIS OF PRESENTATION

         The accompanying condensed consolidated balance sheet as of September
30, 2001, condensed consolidated statements of operations for the three and six
month periods ended September 30, 2001 and 2000, and condensed consolidated
statements of cash flows for the six month periods ended September 30, 2001 and
2000, 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 condensed consolidated financial
statements, in our opinion, include all adjustments necessary for a fair
presentation of the consolidated financial position, results of operations, and
cash flows for all periods presented. These condensed 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, 2001, 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 PSI and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts for prior periods have been
reclassified to conform to current year presentation.

         The preparation of our condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States
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 six month periods ended September 30, 2001 and
2000 approximates comprehensive loss, as defined by Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No. 130")
for both periods.

NOTE 2. REVENUE RECOGNITION

         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.
Service revenues are comprised of fees from maintenance (post-contract support),
professional services (consulting), network services, and training. We also
derive revenues from transaction fees, subscription fees, and maintenance fees
associated with our business-to-business relationship management products.

         Revenues from direct and indirect license agreements are recognized,
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; risk of concession is deemed remote; and no other
significant vendor obligations exist. We may grant extended payment terms of
more than one year. Typically this is only done in limited circumstances where
the contract is with customers having a proven credit history; when appropriate
we discount the related receivable at the applicable market interest rate as a
reduction of revenue. Revenues from maintenance services are recognized ratably
over the term of the support period, generally one year. Maintenance revenues
which are bundled with license agreements, are unbundled using vendor specific
objective evidence. Consulting revenues are primarily related to implementation
services most often performed on a time and material basis under separate
service agreements for the


                                       4
<Page>


installation of our products. Revenues from consulting and training services are
recognized as the respective services are performed. Transaction and
subscription fees are recognized monthly as services are provided.

         Cost of licenses consists primarily of amounts paid to third-party
vendors, product media, manuals, packaging materials, personnel, and related
shipping costs. Cost of services consists primarily of salaries, benefits, and
allocated overhead costs incurred in providing telephone support, professional
services, training to customers, and other maintenance. Deferred revenues
primarily relate to maintenance fees, which have been paid by our customers in
advance of the performance of these services.

         On occasion, we purchase goods or services for our operations from
certain limited vendors at or about the same time we license our software to
these organizations. These transactions are separately negotiated and recorded
at terms we consider to be arms length.

NOTE 3. COMPUTATION OF NET LOSS PER SHARE

         Our computation of net loss per share is performed in accordance with
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
per Share," ("SFAS No. 128"). SFAS No. 128 requires companies to compute net
income (loss) per share under two different methods, basic and diluted per share
data for all periods for which an income statement is presented. Basic earnings
per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Potentially dilutive
securities represent incremental shares issuable upon exercise of our equity and
debt securities. For the three and six month periods ended September 30, 2001
and 2000, the diluted loss per share calculation excludes the effect of certain
equity and debt securities as inclusion would be anti-dilutive.

NOTE 4. ACQUISITIONS

         On August 27, 2001, we completed the acquisition of Remedy Corporation
("Remedy"), a supplier of information technology service management and customer
relationship management solutions. We issued approximately 28 million shares of
our common stock (excluding assumed options) and paid approximately $280.8
million in cash in exchange for all of the outstanding shares of Remedy for a
total purchase price, including merger related costs, of approximately $1.2
billion.

         The Remedy 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 at the
date of acquisition. The results of operations of Remedy have been included in
the accompanying condensed consolidated financial statements since the date of
acquisition. The dollar amount assigned to the issued shares was based on the
market price of the securities over the five days before and after the terms of
the acquisition were agreed to and announced. Other less significant
acquisitions made during the quarter were accounted for in a similar manner.

         We have preliminarily allocated the $1.2 billion purchase price of
Remedy as follows: acquired in-process research and development of $86.0
million, deferred compensation of $20.8 million, acquired developed technology
of $53.0 million, acquired customer base of $125.0 million, fair value of the
net assets acquired of $215.7 million, and goodwill of $714.1 million. In
accordance with Statement of Financial Accounting Standard No. 141, "Business
Combinations," ("SFAS No. 141"), and Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets, " ("SFAS No. 142"), the acquired
customer base and goodwill are not being amortized. The acquired developed
technology is being amortized on a straight-line basis over its estimated useful
life of five years.

         The value of the Remedy acquired in-process research and development
was computed using a discounted cash flow analysis on the anticipated income
stream of the related product sales. The value



                                       5
<Page>


assigned to the acquired in-process research and development was determined by
estimating the costs to develop the purchased in-process research and
development 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 research and development, the
calculation of value was adjusted to reflect the value creation efforts of
Remedy prior to the close of the acquisition.

         The nature of the efforts required to develop acquired in-process
research and development 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 projects 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. The
projects are on schedule, but 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.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

         At the acquisition date, Remedy was completing research and development
("R&D") efforts on its Action Request System ("ARS") 5.0 release. In addition,
the Information Technology Service Management ("ITSM") and Customer Relationship
Management ("CRM") development groups were working on the development,
engineering and testing activities associated with the completion of release 5.0
of the ITSM and CRM applications.

         We estimated that the ARS 5.0 release and the ITSM/CRM joint project
were 85% and 45% complete, respectively, at the time of the acquisition. It was
estimated that the ARS 5.0 release will be completed during our third quarter of
fiscal 2002, and the ITSM/CRM joint project will be completed during our fourth
quarter of fiscal 2002. At the date of acquisition, approximately $33 million
had been spent on the ARS 5.0 release and the ITSM/CRM joint project combined.

         At the time of this acquisition, the engineers were completing testing
activities related to the ARS 5.0 release. R&D efforts related to release 5.0 of
the ITSM and CRM applications included completion of development work. In order
for the R&D to be technologically or commercially viable, certain components of
the R&D projects needed to be fully architected, coded, developed, and tested to
create a seamless, workable product. Revenues attributed to the in-process
technologies were estimated based on forecasted sales and anticipated timing of
new product introductions. Expenses as a percentage of revenue for Remedy were
expected to decrease over the projected period due primarily to cost
efficiencies gained from a larger revenue base. We used a 20% discount rate in
our calculations based on independent studies that analyze market returns for
similar companies.

         We believe that the foregoing assumptions used in the in-process R&D
analysis were reasonable at the time of the acquisition. No assurance can be
given, however, that the underlying assumptions used will transpire as
estimated. We currently believe that actual revenues and expenses will be
materially consistent with previous estimates.

                                       6

<Page>


PRO FORMA FINANCIAL INFORMATION

         The following table presents the unaudited pro forma results assuming
we had acquired each of Harbinger and Remedy at the beginning of fiscal 2002 and
2001, as applicable. This information may not necessarily be indicative of our
future combined results.

         The unaudited pro forma results of operations exclude the results of
operations of certain other acquisitions consummated during fiscal 2002 and
fiscal 2001. The inclusion of the results associated with these acquisitions
would not materially affect the pro forma financial information presented below.

<Table>
<Caption>
                                                     Pro Forma Results For the
                                                      Six Month Periods Ended
                                                            September 30,
                                                     -------------------------
                                                        2001             2000
                                                     (in thousands, except per
                                                             share data)
                                                     -------------------------
                                                             (unaudited)
<S>                                                  <C>              <C>
Revenues .....................................       $ 440,567        $ 414,546
Net loss .....................................       $(604,641)       $(219,200)
Basic and diluted loss per share .............       $   (3.20)       $   (1.30)
</Table>


ACQUISITION-RELATED LIABILITIES

         With respect to acquisition-related liabilities at September 30, 2001,
we have both approved and preliminary plans of integration and consolidation.
These plans include the steps we believe will be necessary within the next
twelve months to integrate the operations of these 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 for
acquisition-related costs comprised principally of the following components (in
thousands):

<Table>
<Caption>
                                                               ESTIMATED LIABILITY
<S>                                                                 <C>
Estimated advisory fees.......................................      $ 11,010
Employee severance and relocation.............................        27,290
Duplicative facilities, equipment and efforts.................        11,450
Other merger related costs....................................        26,390
                                                                      ------
                                                                    $ 76,140
                                                                    ========
</Table>

         This accrual represents our best estimate, based on information
available as of September 30, 2001, 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.



                                       7
<Page>




The following represents a detail, by acquisition, of our acquisition-related
liabilities (in thousands):

<Table>
<Caption>

                   MARCH 31,                               MARCH 31,                              SEPTEMBER 30,
                     2000      ADDITIONS       USES          2001       ADDITIONS     USES             2001
                  ---------    ---------    ---------     ---------     ---------   ---------        --------
<S>               <C>          <C>          <C>           <C>           <C>         <C>              <C>
   F.Print        $   2,500    $      --    $  (2,500)    $      --     $      --   $       --       $     --
   Knowlix            1,100           --       (1,100)           --            --           --             --
   Telco             11,500           --       (7,500)        4,000            --      (4,000)             --
   Harbinger             --       73,600      (39,850)       33,750            --     (27,750)(1)       6,000
   Loran                 --        8,500         (500)        8,000            --      (1,000)          7,000
   Tivoli                --       13,500       (3,500)       10,000            --      (4,000)          6,000
   Extricity             --       18,000            --       18,000            --     (11,000)          7,000
   Remedy                --           --            --           --        79,570     (29,430)         50,140
                  ---------    ---------    ---------     ---------     ---------   ---------        --------
                  $  15,100    $ 113,600    $ (54,950)    $  73,750     $  79,570   $ (77,180)       $ 76,140
                  =========    =========    =========     =========     =========   =========        ========
</Table>


         (1)      Included is an $18 million reversal against goodwill.

         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.

NOTE 5. SEGMENT AND GEOGRAPHIC OPERATIONS

         We have adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
No. 131"). SFAS No. 131 requires disclosure of segment information in a manner
consistent with the "management approach." The management approach is based on
the way the chief operating decision-maker organizes segments within a company
for making operating decisions and assessing performance. Prior to the
acquisition of Harbinger in June 2000, we operated exclusively in the
infrastructure management industry. Effective April 2001 through September 2001,
we operated in four segments that met the criteria of being a reportable segment
in accordance with the provisions of SFAS No. 131. These reportable segments
were the infrastructure management group, the e-markets group, the integrated
solutions group, and the shared-services group. Effective October 2001, we
reorganized into three distinct business groups designed to restructure our
business with a functional, rather than product, orientation. These groups are
the solutions group, the customer relationships group, and the Xanadu business
group. Because this reorganization did not take effect until after the end of
our second quarter of fiscal 2002, the below segment information relates to the
organizational structure on September 30, 2001. Transactions between the
reportable segments were made at terms which approximated arms length
transactions and were in accordance with accounting principles generally
accepted in the United States. There were no significant differences between the
measurement of the reportable segment's profits and losses disclosed below and
the measurement of profits and losses in our consolidated statements of
operations. Certain management allocations were made between these segments.
Prior periods have not been restated, as it would be impracticable to do so.
Required reported segment information for the three and six months ended
September 30, 2001, respectively, inclusive of management allocations, is as
follows (in thousands):


                                       8
<Page>

<Table>
<Caption>
                                             Infrastructure             Integrated
                                               Management    E-Markets   Solutions     Shared
                                                 Group        Group        Group      Services   Consolidated
                                               ---------    ---------    ---------    ---------  ------------
Three month period ended September 30, 2001:
<S>                                            <C>          <C>          <C>          <C>          <C>
Revenues ...................................   $ 135,661    $  39,345    $    --      $    --      $ 175,006
Loss before income tax expense .............   $(141,076)   $(324,774)   $ (13,045)   $ (39,390)   $(518,285)

Six month period ended September 30, 2001:

Revenues ...................................   $ 259,797    $  87,253    $    --      $    --      $ 347,050
Loss before income tax expense .............   $(123,508)   $(368,882)   $ (29,961)   $ (54,164)   $(576,515)
</Table>


A summary of our operations by geographic area is as follows (in thousands):

<Table>
<Caption>
                                   North
                                  America             EMEA          APLA            Consolidated
                                 ---------          --------       -------            --------
<S>                              <C>                <C>            <C>                <C>
Three month periods ended:

September  30, 2001
Revenues.................        $ 125,050          $ 44,020      $  5,936            $ 175,006


September 30, 2000
Revenues.................        $ 100,139          $ 40,013      $  2,563            $ 142,715

Six month periods ended:

September  30, 2001
Revenues................         $ 246,531          $ 88,530      $ 11,989            $ 347,050

September 30, 2000
Revenues................         $ 159,613          $ 72,724      $  4,702            $ 237,039
</Table>


NOTE 6. LONG-LIVED ASSETS

         We evaluate potential impairment of long-lived assets and long-lived
assets to be disposed of in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," ("SFAS No. 121"). SFAS No. 121 establishes procedures for review
of recoverability, and measurement of impairment, if necessary, of long-lived
assets and certain identifiable intangibles held and used by an entity. SFAS No.
121 requires that those assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully


                                       9
<Page>


recoverable based on expected undiscounted cash flows attributable to that
asset.

         In the fall of 2000, the technology driven Nasdaq Stock Market began a
steep decline in stock prices, particularly in the e-commerce sectors. In early
2001 it became apparent to us that the downturn was other than temporary. In
addition, it became apparent that technology spending, particularly in the
e-commerce and enterprise resource planning environments, would drop sharply in
2001. Accordingly, during fiscal 2001 we determined a SFAS No. 121 triggering
event had occurred related to certain of our tangible and intangible assets. At
that time, we wrote-off $490 million of impaired intangibles, investments and
other assets related primarily to an acquisition made in what was then our
e-markets group and investments made in what used to be our infrastructure
management group.

         The macroeconomic environment has not only remained weak throughout
our major markets, but also was further intensified by the events of
September 11. Thus, during the second quarter of fiscal 2002, we determined
another SFAS No. 121 triggering event had occurred related to certain of our
tangible and intangible assets. We prepared analyses (such as cash flow
projections) related to these tangible and intangible assets and as a result
determined that certain assets had been impaired. We wrote these assets,
along with any allocated goodwill, down to fair value based on the related
discounted cash flows. We wrote-off $359 million of impaired intangibles,
investments and other assets related primarily to an acquisition made in what
was then our e-markets group and investments made in what used to be our
infrastructure management group. We will continue to monitor the value of
such assets and may have further such impairment charges in the future.

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS

         During July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141, "Business
Combinations," ("SFAS No. 141") and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). SFAS No. 141
addresses the accounting for acquisitions of businesses and is effective for
acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the
method of identifying and measuring goodwill and other intangible assets
acquired in a business combination and requires periodic evaluations of
impairment of goodwill and intangible balances. SFAS No. 142 will be adopted
April 1, 2002. The impacts of the adoption of SFAS No. 141 and SFAS No. 142 are
still being assessed, but amongst the immediate impacts is that goodwill and
certain other intangible assets acquired on or after July 1, 2001 will no longer
be amortized to income in the consolidated statement of operations. Furthermore,
upon adoption, goodwill and certain other intangible assets acquired before July
1, 2001 will no longer be amortized to income in the consolidated statements of
operations.

         During August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No.
143"). SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to all entities and legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation of a long-lived
assets, except for certain obligations of lessees. SFAS No. 143 amends FASB
statement No. 19, "Financial Accounting and Reporting by Oil and Gas Producing
Companies," and will be adopted April 1, 2003. We have not yet determined the
impact of its adoption on our consolidated results of operations, financial
position, or cash flows.

         During August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and the accounting and reporting
provision of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and


                                       10
<Page>


Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business (as previously defined in that Opinion).
SFAS No. 144 will be adopted April 1, 2002. We have not yet determined the
impact of its adoption on our consolidated results of operations, financial
position, or cash flows.

NOTE 8. SUBSEQUENT EVENT

         During August 2001, we entered into a $150 million short-term bridge
credit facility with a syndicate of financial institutions. As of September 30,
2001, $150 million was outstanding on this facility. In October 2001, we
replaced this bridge credit facility with a $150 million three-year revolving
credit facility, also with a syndicate of financial institutions. This facility
is available for general corporate development and capital purposes, including
acquisitions.



                                       11
<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 STATEMENTS INCLUDE, AMONG OTHER THINGS, STATEMENTS
CONCERNING OUR FUTURE OPERATIONS, FINANCIAL CONDITION AND PROSPECTS, AND
BUSINESS STRATEGIES. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," AND OTHER
SIMILAR EXPRESSIONS GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES
THAT COULD CAUSE OUR FUTURE BUSINESS, FINANCIAL CONDITION, OR RESULTS OF
OPERATIONS TO DIFFER MATERIALLY FROM OUR HISTORICAL RESULTS OR CURRENTLY
ANTICIPATED RESULTS. INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED
UNDER THE CAPTION "FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION,
AND FUTURE OPERATING RESULTS," BEGINNING ON PAGE 20 OF THIS REPORT.

OVERVIEW

         We are a leading provider of software and services that are designed to
reduce the frictional cost of doing business for our clients' organizations. Our
infrastructure resource management, employee relationship management, and
business-to-business relationship management products and services permit
businesses to eliminate points of friction in their business processes and
improve their returns on capital with respect to investments in infrastructure
and electronic business assets. Our solutions are intended to make our customers
more competitive in their markets by removing the friction points associated
with three primary business processes:

         -        life cycle management of infrastructure assets, from the point
                  of procurement through deployment, use, maintenance, change,
                  and ultimately disposition;

         -        employee procurement of the infrastructure required to do
                  their jobs, including e-procurement, employee self-service,
                  knowledge access, and reservation of shared assets, such as
                  conference rooms and office space in remote locations; and

         -        e-transaction management, which eliminates friction points
                  among buyers, suppliers, and market places as our customers
                  attempt to transact business through a global web of connected
                  trading partners.

         Until October 2001, we were organized into distinct business units
based on the products and services we offer. One unit focused on sales and
marketing of our infrastructure management solutions, while another focused on
our e-markets solutions. A third group, referred to as our integrated solutions
group, focused on integrating our sales efforts for both our product families to
large enterprise customers.

         In October 2001, we announced that we would immediately integrate these
divisions and restructure our business with a functional, rather than product,
orientation. Through this organization, we intend to combine our product
development teams and sales forces, which were previously focused on specific
product lines, in an effort to improve operational efficiencies and cross-sell
our products. The infrastructure management and e-markets product development
groups will be combined into one solutions group, responsible for all our
product development and marketing activities. Our separate infrastructure
management and e-markets sales forces will be combined into a new customer
relationships group, responsible for customer sales and service. The customer
relationships group will also manage our strategic relationships with alliance
partners and other distributors.

         We also announced in October 2001 the introduction of Xanadu, an
information technology asset management appliance. Xanadu will be targeted at
small to medium-sized enterprises and will offer asset discovery and tracking,
employee self-service, and help desk functionality. We will provide the software
for Xanadu, which will be installed on network servers marketed and sold by
distribution partners. We are currently negotiating agreements with potential
distribution partners in the United States and Europe.


                                       12
<Page>


A third business group, called the Xanadu business group, will be formed to take
the new product offering to market and cultivate and merge strategic
relationships designed to distribute Xanadu.

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         SIX MONTHS
                                                                    ENDED                ENDED
                                                                 SEPTEMBER 30,       SEPTEMBER 30,
                                                                ---------------     ---------------
STATEMENT OF OPERATIONS DATA:                                   2001      2000      2001       2000
                                                                -----     -----     -----      ----
<S>                                                              <C>       <C>       <C>       <C>
Revenues:
  Licenses ................................................      50.2%     61.2%     54.2%     63.2%
  Services ................................................      49.8      38.8      45.8      36.8
                                                                -----     -----     -----      ----
     Total revenues .......................................     100.0     100.0     100.0     100.0
                                                                -----     -----     -----      ----

Costs and expenses:
  Cost of licenses ........................................       0.9       0.4       0.6       0.4
  Cost of services ........................................      25.1      21.5      22.9      20.1
  Amortization of purchased technology ....................       3.2       2.2       3.0       1.9
  Sales and marketing .....................................      40.9      36.6      40.1      37.9
  Research and development ................................      16.7      12.9      15.5      13.2
  General and administrative ..............................       8.3       9.4       8.4       9.3
  Acquisition costs and other .............................     300.0      68.7     174.9      86.0
                                                                -----     -----     -----      ----

     Total costs and expenses .............................     395.1     151.7     265.4     168.8
                                                                -----     -----     -----      ----

Loss from operations before interest (net) and income tax
  expense .................................................    (295.1)    (51.7)   (165.4)    (68.8)
Interest income (expense), net ............................      (1.0)      --       (0.7)      --
                                                                -----     -----     -----      ----

Loss before income tax expense ............................    (296.1)    (51.7)   (166.1)    (68.8)
Income tax expense ........................................       2.3       6.3       3.8       6.3
                                                                -----     -----     -----      ----

Net loss ..................................................    (298.4)%   (58.0)%  (169.9)%   (75.1)%
                                                               ======     =====    ======     =====
</Table>


COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

REVENUES

         REVENUES. Total revenues were $175.0 million and $142.7 million for the
three months ended September 30, 2001 and 2000, respectively, representing a
period-to-period increase of 23%. The reasons for the revenue increase are more
fully discussed below.

         LICENSES. License revenues were $87.9 million and $87.4 million for the
three months ended September 30, 2001 and 2000, respectively, representing 50%
and 61% of total revenues in the respective periods. License revenues as a
percentage of total revenues decreased as our services revenues increased
primarily due to a larger installed customer base resulting from our fiscal 2001
and fiscal 2002 acquisitions. Our license revenues for the three months ended
September 30, 2001 were less than originally anticipated by market analysts, in
large part due to reluctance by our large enterprise customers to complete large
license transactions in the wake of business uncertainty following the September
11, 2001 terrorist attacks. We cannot predict what continuing effects these
events, in conjunction with a weakening economic environment, may have on our
revenues in future quarters.


                                       13
<Page>


         We believe license revenues will fluctuate period-to-period in absolute
dollars and as a percentage of total revenues. In recent periods, our revenues
and revenue growth rates have become increasingly dependent on our ability to
complete one or more particularly large license transactions with a major
enterprise customer. We expect larger transaction sizes from a limited number of
customers to account for a large percentage of license revenues in the
foreseeable future.

         Our products are distributed through our direct sales organization and
indirect sales channels and alliance partners, including value added resellers
and systems integrators. We believe that our alliance partners are particularly
important in influencing the purchase decisions of our largest enterprise
customers. We have substantially less ability to manage our sales through
indirect channels and less visibility about our alliance partners' success in
selling the products that they have purchased from us. To the extent indirect
sales continue to increase as a percentage of total revenues, we could
experience unforeseen variability in our future revenues and operating results
if our alliance partners are unable to sell our products.

         SERVICES. Services revenues consist of support, consulting, and
training services. Services revenues were $87.1 million and $55.3 million for
the three months ended September 30, 2001 and 2000, respectively, representing
50% and 39% of total revenues in the respective periods. The dollar increases
are primarily attributable to expansion due to the acquisitions we made during
fiscal 2001 and fiscal 2002. While service revenues are increasing in absolute
dollars, we expect services revenues to fluctuate as a percentage of total
revenues, given the variability of license revenues.

COSTS AND EXPENSES

          COST OF LICENSES. Cost of licenses primarily consists of third-party
software royalties, product packaging, documentation, and production. Cost of
licenses was $1.6 million and $0.5 million for the three months ended September
30, 2001 and 2000, respectively, each representing less than 1% of total
revenues in the respective periods. These costs are expected to remain
consistent as a percentage of total revenues.

         COST OF SERVICES. Cost of services primarily consists of personnel,
facilities, and system costs in providing support, consulting, and training
services. Cost of services was $43.9 million and $30.7 million for the three
months ended September 30, 2001 and 2000, respectively, representing 25% and 22%
of total revenues in the respective periods. The dollar increases are primarily
attributable to the acquisitions we made during fiscal 2001 and 2002. Cost of
services as a percentage of total revenues increased, principally because
service revenues grew at a faster rate than license revenues.

         AMORTIZATION OF PURCHASED TECHNOLOGY. Amortization of purchased
technology was $5.6 million and $3.1 million for the three months ended
September 30, 2001 and 2000, respectively, representing 3% and 2% of total
revenues in the respective periods. This increase is due to the acquisitions we
made during fiscal 2001 and fiscal 2002.

         SALES AND MARKETING. Sales and marketing expenses primarily consist of
personnel-related costs, facilities and system costs, advertising costs, and
travel and entertainment. Sales and marketing expenses were $71.6 million and
$52.3 million for the three months ended September 30, 2001 and 2000,
respectively, representing 41% and 37% of total revenues in the respective
periods. The dollar increases are primarily attributable to the significant
expansion of both the North American and international sales and marketing
forces due to the acquisitions we made during fiscal 2001 and fiscal 2002. We
expect that sales and marketing expenses will continue to increase in absolute
dollars as we continue to expand our sales and marketing efforts and establish
additional sales offices around the world. 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.


                                       14
<Page>


         RESEARCH AND DEVELOPMENT. Research and development expenses primarily
consist of personnel-related costs. Research and development expenses were $29.2
million and $18.5 million for the three months ended September 30, 2001 and
2000, respectively, representing 17% and 13% of total revenues in the respective
periods. The dollar increases in research and development are primarily
attributable to an increase in the number of personnel conducting research and
development associated with new product initiatives, and the integration of
applications acquired during fiscal 2001 and fiscal 2002.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
primarily consist of employee salaries and overhead for administrative
personnel. General and administrative expenses were $14.6 million and $13.5
million for the three months ended September 30, 2001 and 2000, respectively,
representing 8% and 9% of total revenues in the respective periods. The dollar
increases in general and administrative expenses are primarily attributable to
an increase in the number of personnel to support our growth, due to the
acquisitions we made during fiscal 2001 and fiscal 2002.

         ACQUISITION COSTS AND OTHER. Acquisition costs and other consist
principally of amortization of intangibles, acquired in-process research and
development costs and other items. Acquisition costs and other were $525.0
million and $98.0 million for the three months ended September 30, 2001 and
2000, respectively, representing 300% and 69% of total revenues in the
respective periods. The increases are primarily attributable to approximately
$359 million of impaired intangibles, investments and other assets written off
in the second quarter of fiscal 2002, and $86.0 million of acquired in-process
research and development costs recognized in the second quarter of fiscal 2002
associated with the Remedy acquisition.

         INCOME TAX EXPENSE Income tax expense was $3.9 million and $9.0 million
for the three months ended September 30, 2001 and 2000, respectively. This
decrease in absolute dollars is attributable to a decrease in taxable income.
Excluding the effect on net income of acquisition costs and other, our effective
tax rates were 32.0% and 33.0% for the three months ended September 30, 2001 and
2000, respectively. Income tax expense is expected to remain consistent as a
percentage of operating revenues.

COMPARISON OF SIX MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

REVENUES

         REVENUES. Total revenues were $347.1 million and $237.0 million for the
six months ended September 30, 2001 and 2000, respectively, representing a
period-to-period increase of 46%. The reasons for the revenue increase are more
fully discussed below.

         LICENSES. License revenues were $188.1 million and $149.8 million
for the six months ended September 30, 2001 and 2000, respectively,
representing 54% and 63% of total revenues in the respective periods. License
revenues increased 26% for the six months ended September 30, 2001 as
compared to the six months ended September 30, 2000. This increase is
primarily attributable to increased demand for new and additional licenses of
our infrastructure resource management applications in the first quarter of
fiscal 2002, offset by relatively weaker demand in the second quarter of
fiscal 2002. Relative weakness in our license revenues in the second quarter
of fiscal 2002 was principally responsible for the decrease in license
revenues as a percentage of total revenues.

         SERVICES. Services revenues consist of support, consulting, and
training services. Services revenues were $159.0 million and $87.2 million for
the six months ended September 30, 2001 and 2000, respectively, representing 46%
and 37% of total revenues in the respective periods. The dollar increases are
primarily attributable to the acquisitions we made during fiscal 2001 and fiscal
2002.


                                       15
<Page>


COSTS AND EXPENSES

          COST OF LICENSES. Cost of licenses primarily consists of third-party
software royalties, product packaging, documentation, and production. Cost of
licenses was $2.2 million and $1.0 million for the six months ended September
30, 2001 and 2000, respectively, each representing less than 1% of total
revenues in the respective periods. These costs are expected to remain
consistent as a percentage of total revenues.

         COST OF SERVICES. Cost of services primarily consists of personnel,
facilities, and system costs in providing support, consulting, and training
services. Cost of services was $79.5 million and $47.6 million for the six
months ended September 30, 2001 and 2000, respectively, representing 23% and 20%
of total revenues in the respective periods. The dollar increases are primarily
attributable to the acquisitions we made during fiscal 2001 and fiscal 2002.
Cost of services as a percentage of total revenues increased slightly,
principally because services revenues grew at a faster rate than license
revenues, particularly during the second quarter of fiscal 2002.

         AMORTIZATION OF PURCHASED TECHNOLOGY. Amortization of purchased
technology was $10.6 million and $4.5 million for the six months ended September
30, 2001 and 2000, respectively, representing 3% and 2% of total revenues in the
respective periods. This increase is due to the acquisitions we made during
fiscal 2001 and fiscal 2002.

         SALES AND MARKETING. Sales and marketing expenses primarily consist of
personnel-related costs, facilities and system costs, advertising costs, and
travel and entertainment. Sales and marketing expenses were $139.1 million and
$90.0 million for the six months ended September 30, 2001 and 2000,
respectively, representing 40% and 38% of total revenues in the respective
periods. The dollar increases are primarily attributable to the significant
expansion of both the North American and international sales and marketing
forces due to the acquisitions we made during fiscal 2001 and fiscal 2002.

         RESEARCH AND DEVELOPMENT. Research and development expenses primarily
consist of personnel-related costs. Research and development expenses were $53.7
million and $31.3 million for the six months ended September 30, 2001 and 2000,
respectively, representing 16% and 13% of total revenues in the respective
periods. The dollar increases in research and development are primarily
attributable to an increase in the number of personnel conducting research and
development associated with new product initiatives, and the integration of
applications acquired during fiscal 2001 and fiscal 2002.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
primarily consist of employee salaries and overhead for administrative
personnel. General and administrative expenses were $29.1 million and $21.9
million for the six months ended September 30, 2001 and 2000, respectively,
representing 8% and 9% of total revenues in the respective periods. The dollar
increases in general and administrative expenses are primarily attributable to
an increase in the number of personnel to support our growth, due to the
acquisitions we made during fiscal 2001 and fiscal 2002.

         ACQUISITION COSTS AND OTHER. Acquisition costs and other consist
principally of amortization of intangibles, acquired in-process research and
development costs and other items. Acquisition costs and other were $606.9
million and $203.8 million for the six months ended September 30, 2001 and 2000,
respectively, representing 175% and 86% of total revenues in the respective
periods. The increases are primarily attributable to approximately $359 million
of impaired intangibles, investments and other assets written off in the second
quarter of fiscal 2002, and $86.0 million of acquired in-process research and
development costs recognized in the second quarter of fiscal 2002 associated
with the Remedy acquisition.

         INCOME TAX EXPENSE Income tax expense was $13.1 million and $15.0
million for the six months ended September 30, 2001 and 2000, respectively. This
decrease in absolute dollars is attributable to a decrease in taxable income.
Excluding the effect on net income of acquisition costs and other, our


                                       16
<Page>


effective tax rates were 32.0% and 33.0% for the six months ended September 30,
2001 and 2000, respectively. Income tax expense is expected to remain consistent
as a percentage of operating revenues.

LIQUIDITY AND CAPITAL RESOURCES

         On September 30, 2001, we had a cash and cash equivalents, and
short-term investments balance of $141.6 million, net of $150.0 million in
short-term financing associated with the acquisition of Remedy in August 2001,
discussed below. On March 31, 2001, we had $286.7 million in cash and cash
equivalents. The decrease is attributable to the funding of the cash component
of the Remedy acquisition, other acquisitions, and investments and related
costs, as well as other capital expenditures.

         During August 2001, we entered into a $150 million short-term bridge
credit facility with a syndicate of financial institutions. As of September 30,
2001, $150 million was outstanding on this facility. In October 2001, we
replaced this bridge credit facility with a $150 million three-year revolving
credit facility, also with a syndicate of financial institutions. This facility
is available for general corporate development and capital purposes, including
acquisitions.

          During November and December of 2000, we issued $270 million
principal amount of 5 1/2% Convertible Subordinated Notes due 2007. The notes
provide for annual aggregate interest payments of $14,850,000, payable
semi-annually in arrears.

         We expect our cash and cash equivalents, and short-term investments,
together with cash generated from operations and amounts available under our
credit facility, to be sufficient to satisfy our working capital requirements
for the next twelve months. We may, however, consider additional financing in
the future in the form of issuances of our common stock or the issuance of
debt securities, including debt securities convertible into shares of our
common stock. On November 13, 2001, we filed a registration statement with
the Securities and Exchange Commission ("SEC") allowing us to issue up to
$250 million of our equity and/or debt securities. If the SEC declares the
registration statement effective, we may from time to time issue securities
under this registration statement. Additional financing may not be available
to us on commercially reasonable terms when and as required, if at all. In
addition, the issuance of additional equity securities, including securities
convertible into our equity securities, would dilute the interests of our
existing stockholders. Issuance of additional debt securities could impair
our financial condition as we become increasingly leveraged, and interest
payments could have an adverse effect on our results of operations.

         In connection with our 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 will not cover any liability of Harbinger or
its former officers or directors resulting from the lawsuit. In July 2001, we
received preliminary court approval of a proposed settlement of this class
action lawsuit. During our second quarter of fiscal 2002, the settlement was
finalized and approved by the court, and we made 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.

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 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.


                                       17
<Page>


         We conduct business overseas in a number of foreign currencies,
principally in Europe. 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, whose
currencies have fluctuated in value relative to the U.S. dollar more than
European currencies. There can be no assurance that future fluctuations in the
value of foreign currencies relative to the U.S. dollar will not have a material
adverse effect on our business, financial condition, or results of operations.

         Currently, we attempt to mitigate our transaction currency risks
through our foreign exchange 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. 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.

         In the fall of 2000, the technology driven Nasdaq Stock Market began a
steep decline in stock prices, particularly in the e-commerce sectors. In early
2001 it became apparent to us that the downturn was other than temporary. In
addition, it became apparent that technology spending, particularly in the
e-commerce and enterprise resource planning environments, would drop sharply in
2001. Accordingly, during fiscal 2001 we determined a SFAS No. 121 triggering
event had occurred related to certain of our tangible and intangible assets. At
that time, we wrote-off $490 million of impaired intangibles, investments, and
other assets related primarily to an acquisition made in what was then our
e-markets group and investments made in what used to be our infrastructure
management group. The macroeconomic environment has not only remained weak
throughout our major markets, but also was further intensified by the events of
September 11. Thus, during the second quarter of fiscal 2002, we determined
another SFAS No. 121 triggering event had occurred related to certain of our
tangible and intangible assets. We prepared analyses (such as cash flow
projections) related to these tangible and intangible assets and as a result
determined that certain assets had been impaired. We wrote these assets, along
with any allocated goodwill, down to fair value based on the related discounted
cash flows and similar evidence. We wrote-off $359 million of impaired
intangibles, investments and other assets related primarily to an acquisition
made in what was then our e-markets group and investments made in what used to
be our infrastructure management group. We will continue to monitor the value of
such assets in the future and may have future such impairment charges.

RECENT ACCOUNTING PRONOUNCEMENTS

         During July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141, "Business
Combinations," ("SFAS No. 141") and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). SFAS No. 141
addresses the accounting for acquisitions of businesses and is effective for
acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the
method of identifying and measuring goodwill and other intangible assets
acquired in a business combination and requires periodic evaluations of
impairment of goodwill and intangible balances. SFAS No. 142 will be adopted
April 1, 2002. The impacts of the adoption of SFAS No. 141 and SFAS No. 142 are
still being assessed, but amongst the immediate impacts is that goodwill and
certain other intangible assets acquired on or after July 1, 2001 will no longer
be amortized to income in the consolidated statement of operations. Furthermore,
upon adoption, goodwill and certain other intangible assets acquired before July
1, 2001 will no longer be amortized to income in the consolidated statements of
operations.

         During August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No.
143"). SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to all entities and legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal


                                       18
<Page>


operation of a long-lived assets, except for certain obligations of lessees.
SFAS No. 143 amends FASB statement No. 19, "Financial Accounting and Reporting
by Oil and Gas Producing Companies," and will be adopted April 1, 2003. We have
not yet determined the impact of its adoption on our consolidated results of
operations, financial position, or cash flows.

         During August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and the accounting and reporting
provision of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions," for the disposal
of a segment of a business (as previously defined in that Opinion). SFAS No. 144
will be adopted April 1, 2002. We have not yet determined the impact of its
adoption on our consolidated results of operations, financial position, or cash
flows




                                       19
<Page>




FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND FUTURE OPERATING
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 RISKS AND
UNCERTAINTIES THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR
HISTORICAL RESULTS OR CURRENTLY ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:

         WE HAVE A HISTORY OF LOSSES, EXPECT TO CONTINUE TO INCUR LOSSES FOR THE
FORESEEABLE FUTURE, 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 September 30, 2001, we had recorded
cumulative net losses of approximately $1.5 billion, principally as a result of
acquisition costs related to acquisitions completed since late 1997. We have
incurred, and expect to continue to incur, substantial expenses associated with
acquisition related costs. The amortization of goodwill and other intangible
costs will result in our continuing to incur net losses for the foreseeable
future, which could lead to a dramatic decline in our stock price.

         OUR REVENUES ARE NOT PREDICTABLE AND 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, including those described in this section. As a
result, our quarterly revenues and operating results are not predictable with
any significant degree of accuracy. In addition, we do not believe historical
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, which could lead to a dramatic
decline in our stock price.

         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 sold to a limited number
of large, enterprise customers during a given period. We expect our reliance on
these types of transactions to continue for the foreseeable future. If we are
unable to complete one or more large license transactions 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. For
example, in the second quarter of fiscal 2002, our revenues and operating
results were less than expected by market analysts because a number of our large
license customers cancelled or deferred purchases as a result of business
uncertainty created by the September 11 terrorist attacks in New York and
Washington, which exacerbated an already weak environment for information
technology spending.


                                       20
<Page>


Our dependence on a few relatively large license transactions could continue to
have an adverse effect on our quarterly revenues, revenue growth rates, or
operating results in future quarters if the slow-down in technology investment
continues as a result of economic or political factors.

         In addition, when negotiating large software licenses, many customers
time their negotiations near 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. If we are unable to complete a sufficient
number of license agreements during this short and intense sales period, our
revenues could be substantially below the expectations of market analysts, and
our stock price could decline.

         OUR QUARTERLY AND ANNUAL REVENUE AND REVENUE GROWTH RATES MAY BE
AFFECTED IF OUR DISTRIBUTION PARTNERS ARE UNSUCCESSFUL IN SELLING OUR PRODUCTS
OR IF WE ARE UNSUCCESSFUL IN ADDING NEW DISTRIBUTION PARTNERS.

         Many of our transactions are sourced, developed, and closed through our
strategic and distribution partners, including resellers and system integrators.
We believe that these transaction partners are extremely important influencers
of customer purchase decisions, particularly purchase decisions by large,
enterprise customers. If the number or size of our partner-sourced or
partner-influenced transactions were to decrease for any reason, our revenue
growth rates and operating results would 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 distribution partners' success in selling our products. In
addition, many of our distribution arrangements are non-exclusive, and these
distributors may carry competing 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 distribution partners to sell
our products; a decision by our distribution partners to favor competing
products; or an inability of our distribution partners to manage the timing of
their purchases from us against their sales to end-users, resulting in
inventories of unsold licenses held by distribution partners.

         OUR QUARTERLY AND ANNUAL 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 and potentially continuing in 2002 and
2003. Moreover, many software companies, including Peregrine, have experienced
increasing reluctance by customers to make substantial investments in new
technologies. In our second quarter of fiscal 2002, economic and political
uncertainty resulting from the September 11 terrorist attacks resulted in even
greater reluctance by customers to make large investments in our products. To
the extent these trends continue, we expect our quarterly revenues and operating
results could be adversely affected.

         Moreover, during this downturn, we have been highly dependent on our
ServiceCenter, AssetCenter, and FacilityCenter product lines to maintain our
revenue growth rates, and we expect our dependence on these product lines to
continue. If the capital investment downturn continues or worsens,


                                       21
<Page>


we may experience reduced demand for these core products as well, which could
have a material and adverse effect on our revenues, operating results, financial
condition, and stock price. Most software companies, including Peregrine,
currently have very limited visibility with respect to their near term quarters
and are having difficulty predicting their revenues and operating results during
these periods.

         THE RECENT TERRORIST ATTACKS IN NEW YORK AND WASHINGTON COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION.

         The September 11, 2001 terrorist attacks in New York City and
Washington, D.C. could have an adverse effect on our revenues, results of
operations, and financial condition. Throughout 2001, capital investment by
businesses, particularly capital investment in technology, has experienced
substantial weakness. Economic and political uncertainty resulting from the
attacks could result in further declines in new technology investments. Some
analysts have predicted that revenues of application software companies could be
particularly weak in the periods following the attacks, and our revenue and
operating results in the second quarter of fiscal 2002 were adversely affected
by the attacks. We do not know what continuing effect the September attacks, any
new attacks, or the war in Afghanistan could have on our business, revenues, or
results of operations. If businesses decide to defer or cancel purchases of new
software, our revenues will be adversely affected, which would have an adverse
effect on our results of operations and could have an adverse effect on our
financial condition.

         OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY CHANGES IN PRODUCT
MIX AND OTHER FACTORS, INCLUDING FACTORS RELATED TO THE MACROECONOMIC
ENVIRONMENT AND COMPETITIVE FACTORS IN OUR MARKETS.

         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.
Cancellations of licenses, subscriptions, or maintenance contracts could reduce
our revenues and could adversely affect our operating results. Our operating
margins were adversely affected by the shortfall in license revenues that
occurred in our second quarter of fiscal 2002, and we would expect an adverse
effect on our margins if our license revenues continue to fall short of current
expectations.

         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
impact our operating results. Other factors, including indirect factors
resulting from the macroeconomic climate, could also have an adverse effect on
our operating results in a given quarter or over several quarterly periods. For
example, in the current economic environment, we have experienced increased
demand from some customers for customer financing, including loan financing, and
leasing solutions. We expect this demand for customer financing to continue, and
we have engaged in customer financing where we believe it is a competitive
factor in obtaining business. Although we have programs in place to monitor and
mitigate the associated risks, there can be no assurance that such programs will
be effective in reducing related credit risk. We have experienced losses due to
customers' failing to meet their obligations. Future losses, if incurred, could
harm our business and have a material adverse effect on our operating results
and financial condition.

         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 would be


                                       22
<Page>


substantially reduced, and we could experience a large loss. The sales cycle for
our products typically takes four 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 four to 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. Until the second quarter of fiscal 2002, the average
size of our license transactions had been increasing as we generated an
increasing percentage of our revenues from a limited number of large, enterprise
customers. Our average license size decreased in the second quarter of fiscal
2002, however, because we were unable to complete several large transactions and
also because Remedy's average transaction size has historically been smaller
than Peregrine's. Nevertheless, we expect our dependence on large transactions
to continue, which could have the effect of further extending our sales cycle.
During our 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.

         WE RECENTLY ANNOUNCED A REORGANIZATION OF OUR BUSINESS OPERATIONS,
WHICH COULD RESULT IN UNEXPECTED NEAR-TERM REORGANIZATION EXPENSES.

         Any disruption in our sales processes resulting from our recent
reorganization could have an adverse effect on our revenues and results of
operations in near-term periods. In October 2001, we announced that we were
integrating our infrastructure management and e-markets operating units. Rather
than focusing our operations based on product distinctions, we will in the
future be organized on a functional basis. Our new organizational units will
focus on product development and marketing and sales and customer service. In
addition, a separate business group will focus on our new Xanadu information
asset management appliance for small to medium-sized companies. Reorganizations
such as the one we are undertaking can pose near term risks, particularly the
risk of disruptions in our sales processes as we combine the previously
product-focused sales forces in our infrastructure management and e-markets
groups. Among other things, we will need to train our previously separate sales
forces to sell and market our full portfolio of products. In addition, we may
incur related unexpected costs as we identify and address redundancies in the
sales, management, and administration organizations previously dedicated to
separate business units.

         OUR NEW PRODUCT INTRODUCTIONS MAY NOT BE SUCCESSFUL IN INCREASING OUR
REVENUES, AND NEW PRODUCT INTRODUCTIONS BY OUR COMPETITORS COULD ADVERSELY
AFFECT OUR REVENUES AND OPERATING RESULTS.

         If our new product introductions are not successful, our revenues,
revenue growth rates, and operating results could be adversely affected,
particularly if we invest substantial resources in the development and marketing
of new products that do not generate sufficient offsetting revenue. In October
2001, we introduced Xanadu, an information technology asset management
appliance. Xanadu will be targeted at small to medium-sized enterprises and will
offer asset discovery and tracking, employee self-service, and help desk
functionality. We will provide the software for Xanadu, which will be installed
on network servers marketed and sold by our distribution partners. As a result,
our success in selling and marketing Xanadu will depend largely on the efforts
of distribution partners over whom we have little or no control. The market for
Xanadu is currently unproven, and we cannot predict whether it will gain market
acceptance or generate material revenues. In the meantime, we are investing
substantial resources in this new product line, including dedicating one of our
operating divisions to developing this business.

         Announcements of new products by our competitors, or enhancements to
their existing products, could delay purchases by our customers pending the
introduction of the new product or enhancements. Similarly, announcements by us
or our competitors concerning pricing policies could have an adverse effect on
our revenues in a given quarter. Any announcement having the effect of deferring
or delaying customer purchase decisions would be expected to have an adverse
effect on our revenues and results of operations.


                                       23
<Page>


         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 third quarter have
tended to benefit, relative to our first and second quarters, from purchase
decisions made by the large concentration of our customers with calendar
year-end budgeting requirements. Our first and second quarters tend to be our
weakest. Revenues and operating results in the fourth 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 third and fourth quarters. For example, we may not
experience the typical increase in demand in our third quarter of fiscal 2002
if the downturn in capital spending and technology investment continues into
2002 or beyond. The recent terrorist attacks in New York and Washington could
also change, or magnify, our historical patterns of seasonality. Our
international revenues in the second quarter of fiscal 2002, for example,
were adversely affected by traditional European summer holiday seasonality,
which was further exacerbated by uncertainty from the terrorist attacks.
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.

         WE MAY EXPERIENCE PROBLEMS INTEGRATING OUR BUSINESS WITH REMEDY'S
BUSINESS. ANY INTEGRATION PROBLEMS COULD CAUSE US TO INCUR SUBSTANTIAL
UNANTICIPATED COSTS AND EXPENSES, WHICH WOULD HARM OUR OPERATING RESULTS.

         On August 27, 2001, we acquired Remedy Corporation, a supplier of
information technology service management and customer relationship management
solutions. If we fail to successfully integrate our business with Remedy's
business, we will incur substantial costs, which will increase our expenses and
increase our losses. Our target markets have differed historically from those of
Remedy. Specifically, our customer base has been comprised principally of large,
multinational enterprises, while Remedy's sales historically focused primarily
on small to mid-size businesses and organizations. To the extent it sold
software to larger companies, Remedy typically sold its software on a
departmental or divisional, as opposed to enterprise, basis. The characteristics
of these two market segments may be sufficiently distinct so that we do not
realize the anticipated synergies of the merger. We have less experience selling
to smaller organizations, and our sales practices and processes may not be
well-suited to success in these markets. In particular, our sales efforts tend
to focus on senior executives, chief financial officers and chief technology
officers of large, multinational corporations to whom we seek to sell large,
enterprise-wide licenses of our infrastructure management products. In contrast,
Remedy's transaction sizes tend to be substantially smaller, and their sales
efforts, when targeted at larger organizations, have focused historically on
managers of departments or divisions within the organization. In addition,
Remedy markets and sells other products, such as its customer relationship
management products, that we have no experience marketing or selling. If we are
unsuccessful in integrating the companies' respective businesses, our combined
revenues could fall or grow at a slower rate than anticipated, we could incur
substantial unexpected expenses, and we could fail to realize the anticipated
benefits of the merger.

         Any integration problems we experience could divert our management's
attention from other business opportunities, which could result in slower
revenue growth than anticipated or in declines in revenue. Integrating our
business with Remedy's business will be complex, time-consuming, and expensive.
The merger may disrupt both companies' businesses if not completed in a timely
and efficient


                                       24
<Page>


manner. Peregrine and Remedy are both global companies with substantial
operations throughout the world, and integrating geographically separate and
dispersed organizations may be difficult. Specific integration challenges we
will face include the following:

         -        retaining existing customers and strategic partners;

         -        retaining and integrating management and other key employees
                  of both companies;

         -        combining product offerings and product lines effectively and
                  quickly, including technical integration by our respective
                  engineering teams;

         -        integrating sales efforts so that customers can easily do
                  business with the combined company;

         -        transitioning multiple locations around the world to common
                  systems, including common information technology systems;

         -        persuading employees that the business cultures of the two
                  companies are compatible;

         -        successfully developing and promoting a unified brand strategy
                  and marketing it to existing and prospective customers; and

         -        developing and maintaining uniform standards, controls,
                  procedures, and policies.

         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 to our business or technologies. These investments have generally
been made by issuing shares of our common stock or, to a lesser extent, 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. For example, during fiscal 2001 and the first six months of fiscal
2002, we recognized impairment charges totaling $490 million and $359 million,
respectively, associated principally with impairment of acquired assets but to a
lesser extent with strategic investments. We will continue to monitor the value
of these investments, and may have additional impairment charges in the future.

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

         The markets for our products are 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. We face
competition from numerous companies that offer products that compete with one or
more of our products and services. With respect to our infrastructure management
products, these competitors include software companies as well as information
technology and system management companies, such as Applix, Blue Ocean, Computer
Associates, Control Software (a division of CSI-Maximus), FrontRange,
Hewlett-Packard, IBM, Intraware, Main Control, Microsoft, MRO Software (formerly
Project Software and Development Inc.), Network Associates, Nortel, PeopleSoft,
and Royal Blue Technologies. Our e-commerce enablement technology faces
competition from providers of customer relationship portals, such as Aspect
Communications; providers of catalog management solutions, such as Requisite
Technology; providers of e-commerce enablement software such as webMethods; and
providers of legacy


                                       25
<Page>


e-commerce technology and services such as SBC Communications, through its
acquisition of Sterling Commerce; and General Electric eXchange Solutions. In
the markets for employee relationship management products, including procurement
and e-procurement solutions, we face competition from established providers of
business-to-business Internet commerce solutions such as Ariba and CommerceOne;
established providers of enterprise resource planning software such as Oracle
and SAP; and numerous start-up and other entrepreneurial companies offering
products that provide one or more aspects of employee relationship management
such as self-help service offerings or web-based knowledge management systems.

         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 they 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 those competitors.
These new competitors or alliances could rapidly acquire significant market
share at our expense.

         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 acquisitions of Harbinger and Remedy, we have made a
number of acquisitions of businesses and technologies over the last four years,
and we expect to continue to make acquisitions as part of our growth strategy.
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 we believe could expand our
distribution channels. Even though we announce an acquisition, 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 integration of new businesses and
                  management personnel; and


                                       26
<Page>


         -        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. In addition, we may
raise additional equity or debt capital to finance cash acquisitions. Raising
additional equity capital would further dilute the interests of our existing
stockholders, and additional debt could impair our operating results and
financial condition. Additional financing may not be available when and as
needed on commercially reasonable terms, if at all. If an inability to obtain
financing were to preclude us from making an acquisition or completing a
previously announced acquisition, our future operating results could be
adversely affected, and our stock price could fall.

         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 software provider or a third-party
hosting service. We expect that a substantial portion of future revenues
generated by our business-to-business relationship management products will be
realized under a subscription-based model. We also expect that an increasing
portion of future revenues generated by our infrastructure resource management
products may be represented by subscriptions.

         Under the subscription revenue model, we generally will recognize
revenue and receive payment ratably over the term of a 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 have entered into agreements with a third party to provide a full
complement of services that will enable us to outsource the delivery of
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


                                       27
<Page>


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 other 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 would 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 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.

         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


                                       28
<Page>


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.

         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 efforts resulting
from our 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.

         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 partners who
market and sell our products. If we cannot establish these relationships, or if
our business 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 and, as a
result, our business 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. We have several international
sales offices in Europe, as well as offices in Japan, Singapore, Australia, and
elsewhere. 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.



                                       29
<Page>


         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
fluctuations in the exchange rate.

         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 maintain back-up generators of power in the event of a blackout.
Although our current insurance provides some coverage for any damages we, but
not our customers, may suffer as a result of any interruption in our power
supply, it may prove insufficient to cover any damages we might incur. We are in
the process of developing a plan to permit us to continue to operate critical
functions based in California during a blackout. Despite these precautions, we
may experience an interruption in our power supply. If blackouts or other forces
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.


                                       30
<Page>


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

         As of September 30, 2001, we had approximately $420 million of
indebtedness outstanding, consisting principally of $270,000,000 in
outstanding principal (including unamortized purchasers' discount) under our
5 1/2% convertible subordinated notes due 2007 and $150 million in short-term
financing associated with the August 2001 Remedy acquisition. In October
2001, we replaced the short-term financing with a $150 million three-year
revolving credit. Our indebtedness could adversely affect our results of
operations and financial condition. For example, our results of operations
will be adversely affected by approximately $15 million in annual interest
expense associated with the Convertible Subordinated Notes, 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 and interest on our
indebtedness, thereby reducing the availability of 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, as the terms of
our existing indebtedness do 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.

         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 covering up to
approximately 540,000 square feet of office space, including an option on
approximately 118,000 square feet, for our headquarters in San Diego,
California. This office space (including the option) relates to a five building
campus in San Diego, California, of which four buildings are presently occupied.
Our San Diego personnel occupy three of these buildings, and we sublease part of
the fourth building. In June 2001, we exercised our option for the fifth and
final building at the San Diego campus, which is scheduled to be completed in
October 2002. Including the exercise of the option, the leases require minimum
aggregate lease payments of approximately $201.2 million over their term, which
is approximately twelve years. In Atlanta, we lease approximately 95,000 square
feet of space, principally for our e-markets group, under a lease expiring in
2008. In the San Francisco Bay Area, we lease approximately 283,000 square feet
of space under multiple leases expiring between 2003 and 2006. The capital
commitments, construction oversight, and movement of personnel and facilities
involved in a


                                       31
<Page>


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 a sufficient number of developers,
discovery of software bugs and errors, or a failure of our current or future
products to conform to industry requirements.

         ERRORS OR OTHER SOFTWARE BUGS IN OUR PRODUCTS COULD RESULT IN
SIGNIFICANT EXPENDITURES TO 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
have 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. However, these limitations may
not be effective under the laws of some jurisdictions.

         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


                                       32
<Page>


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. We have from time to time in the past received
correspondence from third parties alleging that we infringe the third party's
intellectual property rights. We expect these claims to increase as Peregrine
and its intellectual property portfolio become larger. 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. 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 intellectual property, 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 intellectual property or license the infringed
intellectual property 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 intellectual property 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 OF 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 of 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.


                                       33
<Page>


         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 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. We may issue shares of
preferred stock pursuant to this prospectus. 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 of 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.

         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;


                                       34
<Page>


         -        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.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information required by this Item is set forth in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," beginning on page 12.



                                       35
<Page>


PART II.                   OTHER INFORMATION


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         In August 2001, we issued 202,422 shares of our common stock (excluding
39,406 shares of our common stock issuable upon exercise of assumed options) in
connection with the acquisition of all the outstanding shares of eRevenue, Inc.,
a Georgia corporation. The acquisition was effected pursuant to an Agreement and
Plan of Reorganization. The shares of our common stock issued to former
shareholders of eRevenue were issued in reliance on the exemption from the
registration requirements of the Securities Act of 1933 set forth under
Regulation D.


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

         The 2001 Annual Meeting of the Stockholders of the Company was held on
September 11, 2001 in San Diego, California. Barry M. Ariko, John J. Moores,
Christopher A. Cole, Rod Dammeyer, Stephen P. Gardner, Matthew C. Gless, William
B. Richardson, William D. Savoy, Charlie E. Noell, III, and Thomas G. Watrous,
Sr. were elected to the Board of Directors. In addition, the following item was
voted upon and passed.

         (i) To ratify the Board's selection of Arthur Andersen as independent
public accountants for the Company for the fiscal year ending March 31, 2002.

                Votes For               Votes Against          Abstentions
          ---------------------    ---------------------   ---------------------
               141,147,375                4,957,435               53,093



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         a)       Exhibits:

                      Exhibit       Exhibit Title
                      -------      ---------------
                      10.44        Revolving Credit Agreement dated as of
                                   October 29, 2001 among Peregrine Systems,
                                   Inc., Fleet National Bank, and certain other
                                   lenders.


b)       Reports on Form 8-K:

                  On September 10, 2001, we filed a Current Report on Form 8-K
in connection with our acquisition of Remedy Corporation.


                                       36
<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 13th day of November, 2001.


                                       PEREGRINE SYSTEMS, INC.


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



                                       37
<Page>





                                  EXHIBIT INDEX

     Exhibit        Exhibit Title
     -------       ---------------
      10.44        Revolving Credit Agreement dated as of October 29, 2001 among
                   Peregrine Systems, Inc., Fleet National Bank, and certain
                   other lenders.





                                       38