<PAGE>

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                    FORM 10-Q/A

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

                 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                         OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                EXCHANGE ACT OF 1934
                                          
                FOR THE TRANSITION PERIOD FROM ________ TO ________.

                         COMMISSION FILE NUMBER:  0-2222209
                                          
                              PEREGRINE SYSTEMS, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    DELAWARE                       95-3773312
          (STATE OR OTHER JURISDICTION          (I.R.S. EMPLOYER
         OF INCORPORATION OR ORGANIZATION)    IDENTIFICATION NUMBER)
                            
                               12670 HIGH BLUFF DRIVE
                            SAN DIEGO, CALIFORNIA  92130
            (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                   (619) 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, 1997 was 17,175,094.

<PAGE>

                              PEREGRINE SYSTEMS, INC.
                                          
                                  EXPLANATORY NOTE

     In October 1998, the Securities and Exchange Commission issued a letter to
the American Institute of Certified Public Accountants citing its views on the
proper procedures and practices that should be followed in purchase accounting
for acquired in-process research and development related to corporate
acquisitions. In this letter and in following public statements, the Commission
has affirmed its intention to require all companies to conform to these
announced views where purchase accounting for acquired in-process research and
development is involved. 

     As of the date of this amendment, the Company has completed five corporate
acquisitions which have been accounted for using the purchase method of
accounting and which have resulted in charges associated with the valuation of
acquired in-process research and development.  These acquisitions include United
Software, Inc. during the second quarter of fiscal 1998, Innovative Tech
Systems, Inc. and certain technology and other assets and liabilities of
International Software Solutions, both in the second quarter of fiscal 1999,
Prototype, Inc. in the fourth quarter of fiscal 1999 and FPrint UK Ltd. in the
first quarter of fiscal 2000.  The Company believes that its periodic reports
filed in fiscal 1998 and 1999, which include charges for in-process research and
development resulting from those acquisitions that have been reported to date,
were made in accordance with generally accepted accounting principles and
established industry practices at the time.  However, in response to and in
conformance with the Commission's announced guidelines on purchase accounting
for acquired in-process research and development, the Company is restating its
financial results for all periods extending back to the period ended September
30, 1997.

     This amendment to the Company's Quarterly Report on Form 10-Q, which sets
forth the Company's restated financial results for the period, does not
otherwise attempt to update the information included herein beyond the original
filing date of the report.
                                          
                                 TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
PART I.                                 FINANCIAL INFORMATION                                            PAGE NO.
-------                                 ---------------------                                            --------
<S>            <C>                                                                                          <C>
Item 1.        Condensed Consolidated Financial Statements

               Condensed Consolidated Balance Sheets as of September 30, 1997 (unaudited)
                 and March 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3

               Condensed Consolidated Statements of Operations for the Three Months
                 Ended September 30, 1997 and 1996 and for the Six Months Ended 
                 September 30, 1997 and 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . .       4

               Condensed Consolidated Statements of Cash Flows for the Six Months Ended
                 September 30, 1997 and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . .       5

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

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


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

Item 2.        Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      21

Item 4.        Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . .      21

Item 6.        Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . . . .      22

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      23
</TABLE>
                                                                      2
<PAGE>

                        PART I. FINANCIAL INFORMATION
                                      
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                            PEREGRINE SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                    RESTATED - SEE NOTE 1
                                                                                                    ---------------------

                                                                                                MARCH 31,           SEPTEMBER 30,
                                                                                                  1997                  1997
                                                                                                  ----                  ----
                                                                                                (AUDITED)            (UNAUDITED)
<S>                                                                                             <C>                 <C>
                                                                  ASSETS
                                                                     
  Current Assets:
  Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $   305              $   16,754
  Accounts receivable, net of allowance for doubtful accounts of $220 and $452,
    respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10,191                  11,496
  Financed receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,182                     965
  Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,752                     337
  Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          924                   1,782
                                                                                                  -------                 -------
      Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       14,354                  31,334

  Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        4,364                   4,735
  Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -                    31,662
  Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,020                     432
                                                                                                  -------                 -------
                                                                                                  $19,738                 $68,163
                                                                                                  -------                 -------
                                                                                                  -------                 -------

                                              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

  Current Liabilities:
    Bank line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 1,974              $    1,413
    Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          916                   2,556
    Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        6,079                   9,371
    Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        8,419                   8,028
    Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . .          497                     719
    Current portion of capital lease obligation. . . . . . . . . . . . . . . . . . . . . . .          364                     146
    Net liabilities of discontinued operation. . . . . . . . . . . . . . . . . . . . . . . .          170                       -
                                                                                                  -------                 -------
      Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       18,419                  22,233
  Capital lease obligation, net of current portion . . . . . . . . . . . . . . . . . . . . .          -                        42
  Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . .        1,395                   1,052
  Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . .        2,773                   2,956
                                                                                                  -------                 -------
        Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       22,587                  26,283
                                                                                                  -------                 -------
  Stockholders' Equity (Deficit):
    Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or
      outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -                       -  
    Common stock, $0.001 par value, 50,000 shares authorized, 12,920 and 17,175
      shares issued and outstanding , respectively . . . . . . . . . . . . . . . . . . . . .           13                      17
    Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       15,081                  63,852
    Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (15,807)                (19,564)
    Unearned portion of deferred compensation. . . . . . . . . . . . . . . . . . . . . . . .      (1,748)                 (1,602)
    Cumulative translation adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . .        (388)                   (561)
    Treasury stock, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -                   (262)
                                                                                                  -------                 -------
        Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . .      (2,849)                  41,880
                                                                                                  -------                 -------
                                                                                                  $19,738                 $68,163
                                                                                                  -------                 -------
                                                                                                  -------                 -------
</TABLE>

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

                                       3
<PAGE>

                             PEREGRINE SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                             RESTATED - SEE NOTE 1
                                                                                             ---------------------

                                                                                THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                                   SEPTEMBER 30,                SEPTEMBER 30,
                                                                              1996              1997        1996              1997
                                                                              ----              ----        ----              ----
<S>                                                                        <C>              <C>          <C>              <C>     
  Revenues:
    Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 4,096          $  7,039     $ 7,856          $ 13,367
    Maintenance and service. . . . . . . . . . . . . . . . . . . . . .       3,404             5,164       7,144             9,851

                                                                           -------          --------     -------          --------
      Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .       7,500            12,203      15,000            23,218
                                                                           -------          --------     -------          --------
  Costs and Expenses:
    Cost of licenses . . . . . . . . . . . . . . . . . . . . . . . . .          44                69         105               128
    Cost of maintenance and services . . . . . . . . . . . . . . . . .       1,130             2,095       2,279             3,876
    Sales and marketing. . . . . . . . . . . . . . . . . . . . . . . .       3,597             4,608       7,322             8,925
    Research and development . . . . . . . . . . . . . . . . . . . . .       1,385             1,659       2,800             3,303
    General and administrative . . . . . . . . . . . . . . . . . . . .         878             1,169       1,685             2,312
    Acquired in-process research and development costs . . . . . . . .           -             6,955           -             6,955
                                                                           -------          --------     -------          --------
      Total costs and expenses . . . . . . . . . . . . . . . . . . . .       7,034            16,555      14,191            25,499
                                                                           -------          --------     -------          --------
  Operating income (loss). . . . . . . . . . . . . . . . . . . . . . .         466           (4,352)         809           (2,281)
  Interest income (expense), and other, net. . . . . . . . . . . . . .       (117)               226       (229)               404
  Income (loss) before income taxes. . . . . . . . . . . . . . . . . .         349           (4,126)         580           (1,877)
  Provision for income taxes . . . . . . . . . . . . . . . . . . . . .           -             1,048           -             1,880
                                                                           -------          --------     -------          --------
  Net income (loss)                                                        $   349          $(5,174)     $   580          $(3,757)
                                                                           -------          --------     -------          --------
                                                                           -------          --------     -------          --------

  Net income (loss) per share. . . . . . . . . . . . . . . . . . . . .     $  0.02          $ (0.35)     $  0.04          $ (0.25)
  Weighted average common and common equivalent shares
    outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . .      14,330            15,001      14,330            14,777
                                                                           -------          --------     -------          --------
                                                                           -------          --------     -------          --------
</TABLE>
   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
   FINANCIAL STATEMENTS.

                                       4
<PAGE>

                             PEREGRINE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                    RESTATED - SEE NOTE 1
                                                                                                    
                                                                                                      SIX MONTHS ENDED
                                                                                                       SEPTEMBER 30, 
                                                                                                       -------------
                                                                                                  1996                1997
                                                                                                  ----                ----
<S>                                                                                            <C>                <C>     
  Cash flow from operating activities:
    Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $   580            $(3,757)
    Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
      activities:
      Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . .         679                 391
      Charge for acquired in-process research and development. . . . . . . . . . . . . . .           -               6,955
  Increase (decrease) in cash resulting from changes, net of business acquired  in:
        Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (677)             (1,899)
        Financed receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (915)                 217
        Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -               1,415
        Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (4)                   7
        Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (328)                 588
        Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (214)                 893
        Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (694)             (1,425)
        Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         343             (1,027)
                                                                                              --------            --------
                                                                                                   158               2,358
                                                                                              --------            --------
        Net cash used by discontinued business . . . . . . . . . . . . . . . . . . . . . .       (692)               (170)

                                                                                              --------            --------
  Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . . .       (534)               2,188
                                                                                              --------            --------
  Cash flows from investing activities:
    Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . .        (34)               (280)
    Proceeds from sale of product line . . . . . . . . . . . . . . . . . . . . . . . . . .         700                   -
                                                                                              --------            --------
    Cash acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -                 582
      Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . .         666                 302
                                                                                              --------            --------
  Cash flows from financing activities:
    Proceeds (repayment) on bank line of credit, net . . . . . . . . . . . . . . . . . . .       1,207             (1,974)
    Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (204)             (1,683)
    Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           2              18,269
    Treasury stock purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         -                 (262)
    Principal payments under capital lease obligation. . . . . . . . . . . . . . . . . . .       (188)               (218)
                                                                                              --------            --------
      Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . .         817            (14,132)
                                                                                              --------            --------
  Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . .       (217)               (173)
                                                                                              --------            --------
  Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         732              16,449
  Cash and equivalents, beginning of period. . . . . . . . . . . . . . . . . . . . . . . .         437                 305
                                                                                              --------            --------
  Cash and equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 1,169             $16,754
                                                                                              --------            --------
                                                                                              --------            --------
  Supplemental disclosure of cash flow information:
    Cash paid during the period for:
      Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 229             $    23
      Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         -               $   567
  Supplemental disclosure of non-cash investing and financing activities:
    Stock issued and other non-cash consideration for acquisition. . . . . . . . . . . . .       $ -               $38,617
</TABLE>
     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
     FINANCIAL STATEMENTS.

                                          5
<PAGE>
 
                              PEREGRINE SYSTEMS, INC.
                                          
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 1. BASIS OF PRESENTATION 

     The accompanying condensed consolidated balance sheet as of September 30,
1997, the condensed consolidated statements of operations for the three and six
month periods ended September 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six month periods ended September 30, 1997 and
1996 have been restated to reflect a change in the original accounting or the
purchase price allocation related to the September 1997 acquisition of United
Software, Inc.  The statements have been prepared by Peregrine Systems, Inc.
(the "Company") and have not been audited.  These financial statements, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position,
results of operations and cash flows for all periods presented.  These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K filed for the year
ended March 31, 1997, which provides further information regarding the Company's
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 consolidated condensed
financial statements include the accounts of the Company and its wholly owned
subsidiaries.  All significant intercompany transactions and balances have been
eliminated.

     The following table provides the effect of previously reported condensed
consolidated statements of operation for the three and six month periods ended
September 30, 1997.

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED                    SIX MONTHS ENDED
STATEMENT OF OPERATIONS                                          SEPTEMBER 30, 1997                   SEPTEMBER 30, 1997
-----------------------                                          ------------------                   ------------------
(In thousands, except per share amounts.)
<S>                                                         <C>              <C>               <C>                 <C>
                                                             DECEMBER 31,     DECEMBER 31,      DECEMBER 31,        DECEMBER 31,
                                                                1998             1998              1998                1998
                                                            -------------    -------------     -------------       -------------
                                                            (As reported)     (Restated)       (As reported)        (Restated)

  Total revenues                                              $   12,203        $   12,203       $   23,218          $   23,218
  Costs and expenses                                               9,600             9,600           18,544              18,544
                                                              ----------        ----------       ----------          ----------
  Income from operations excluding acquired in-
    process research and development costs and
    amortization of purchased intangible assets                    2,603             2,603            4,674               4,674
                                                              ----------        ----------       ----------          ----------
  Income from operation excluding acquired in-
    process research and development costs                         2,603             2,603            4,674               4,674
  Acquired in-process research and development costs              34,775             6,955           34,775               6,955
                                                              ----------        ----------       ----------          ----------
  Loss from operation                                           (32,172)           (4,352)         (30,101)             (2,281)
  Other income, net                                                  226               226              404                 404
  Income tax expense                                               1,048             1,048            1,880               1,880
                                                              ----------        ----------       ----------          ----------
  Net loss                                                     $(32,994)         $ (5,174)        $(31,577)           $ (3,757)
                                                              ----------        ----------       ----------          ----------
                                                              ----------        ----------       ----------          ----------
  Basic net loss per share                                     $  (2.20)         $  (0.35)        $  (2.14)           $  (0.25)
  Diluted net loss per share                                   $  (2.20)         $  (0.35)        $  (2.14)           $  (0.25)
</TABLE>

NOTE 2. USE OF ESTIMATES 

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and  
assumptions that affect the reported amounts of assets and liabilities and  
disclosure of contingent assets and liabilities at the date of the financial  
statements and the reported amounts of revenues and expenses during the  
reporting period. Actual results could differ from those estimates. 

                                         6
<PAGE>

NOTE 3. CASH AND CASH EQUIVALENTS 

     The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company's 
cash management and investment policies restrict investments to investment
quality, highly liquid securities.

NOTE 4. COMPUTATION OF NET INCOME (LOSS) PER SHARE 

     Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the periods. Common 
equivalent shares are included in the per share calculations where the effect of
their inclusion would be dilutive. In March 1997, the Financial Accounting 
Standards Board issued Statement of Financial Accounting Standards No. 128, 
"Earnings per Share" (SFAS 128), which changes the method of calculating 
earnings per share. SFAS 128 is effective for financial statements issued after 
December 15, 1997. The net income (loss) per share of the Company for the 
periods ended September 30, 1997 and 1996 would not be materially different 
under SFAS 128 as that presented herein.

     As a result of the write-off of approximately $7.0 million for acquired
in-process research and development, the Company reported a net loss for the
three and six  month periods ended September 30, 1997. Accordingly, common stock
equivalents of 3,240 were not included in the per share calculations for the
three month and six month periods ended September 30, 1997.

NOTE 5. INITIAL PUBLIC OFFERING 

     In April 1997, the Company offered and sold 2.3 million shares of its
common stock at an initial public offering price of $9.00 per share, raising
$19.3 million after underwriting discounts and commissions.

NOTE 6. LINE OF CREDIT 

     At March 31, 1997, the Company had a line of credit agreement which was
terminated in September 1997. The line of credit facility provided for maximum 
borrowings of $4.5 million. The maximum available commitment was reduced by 
outstanding letters of credit ($128,000 at March 31, 1997). Borrowings under the
agreement bore interest at the bank's prime rate (8.5% at March 31, 1997). 
During the year ended March 31, 1997, the weighted average interest rate under 
the agreement was approximately 8.4%, with interest only payable monthly. The 
line of credit was personally guaranteed by the Company's majority stockholder 
and was collateralized by the Company's accounts receivable, equipment, and 
certain assets. All amounts outstanding under the line of credit were repaid in 
April 1997, using proceeds received from the Company's initial public offering.

     Effective July 1, 1997, the Company entered into an agreement to replace
the above line of credit facility with one which provides for maximum borrowings
of  $5.0 million and expires on June 30, 1998. Borrowings under the line of
credit  bear interest at the bank's prime rate (8.5% at September 30, 1997). The
line of  credit is collateralized by the Company's accounts receivable,
equipment, and  certain other assets. In addition, the credit agreement contains
certain  covenants which, among other things, place certain restrictions on
future  borrowings and acquisitions above specified levels. The Company is
required to  maintain certain financial ratios and minimum equity balances. The
agreement  also provides for a foreign exchange facility, under which the
maximum principal  amount of foreign exchange transactions which may mature
during any two day  period is $2.0 million.

     At September 30, 1997, there were no amounts outstanding under the line of
credit facility. The outstanding line of credit balance at September 30, 1997 of
$1.4 million is entirely attributable to borrowings of the Company's wholly 
owned subsidiary Apsylog S.A., acquired in September 1997 in connection with the
United Software, Inc. acquisition. In October 1997, the Apsylog line of credit 
was repaid in full and terminated.  

                                          7
<PAGE>

                               PEREGRINE SYSTEMS INC.
                                          
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                          
NOTE 7. ACQUISITION 

     On August 29, 1997, the Company's Board of Directors approved the
acquisition of Apsylog S.A., a French corporation based in Paris, France, 
through the acquisition of all of the outstanding shares of United Software, 
Inc., a Delaware corporation and the parent corporation of Apsylog. The 
acquisition, which was completed September 19, 1997, was pursuant to an 
Agreement and Plan of Reorganization dated effective as of August 29, 1997. 
United Software, Inc. develops decision software solutions designed for asset 
management. The consideration for the stock of United Software, Inc. included 
1,916,213 shares of Peregrine Common Stock (including 32,021 shares of Common 
Stock issuable upon exercise of outstanding options assumed by the Company, all
of which were fully vested at the time of the acquisition) valued at $15.92 per
share or $30,506,000 plus an additional $8,111,000 consisting of expenses 
directly related to the acquisition and the assumption of net liabilities of 
United Software, Inc. The transaction 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 and the results of operations of United Software have
been included in the financial statements for the periods subsequent to
acquisition.  The Company allocated the fair values of the assets acquired
between acquired in-process research and development, developed technology and
purchase price in excess of identifiable assets.  The results of the allocation
of values between the assets are as follows. 
<TABLE>
<CAPTION>
               Assets                                         Fair Market Value
               ------                                         -----------------
                                                               (in thousands)
<S>                                                           <C>
Acquired In-Process Research and Development                      $  6,955
Purchase price in excess of identifiable assets                     31,684
                                                                  --------
Total                                                             $ 38,639
                                                                  --------
                                                                  --------
</TABLE>

     As a result of the recently promulgated guidance by the SEC regarding its
accepted valuation methodology for determining in-process research and
development costs, the Company has adjusted the allocation of the purchase price
originally reported.  The value of the acquired in-process technology was
computed using a discounted cash flow analysis on the anticipated income stream
of the related product sales.  The value assigned to acquired in-process
technology was determined by estimating the costs to develop the purchased
in-process technology into commercially viable products, estimating the
resulting net cash flows from the projects and discounting the net cash flows to
their present value.

     The nature of the efforts required to develop the acquired in-process
technology into commercially viable products principally relates to the
completion of all planning, designing and testing activities that are necessary
to establish that the products can be produced to meet their design
requirements, including functions, features and technical performance
requirements.  If the R&D project and technologies are not completed as planned,
they will neither satisfy the technical requirements of a changing market nor be
cost effective.  As of the acquisition date Apsylog had initiated development
efforts related to the product features and functionality that will reside in
the advancement of its Asset Manager Technology.  This new product line is
designed to deliver state of the art asset management technology.

     With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of Innovative prior to
the close of the acquisition.  Following is the estimated completion percentage,
estimated technology life and projected introduction date:
<TABLE>
<CAPTION>
                                    Percent       Technology      Introduction
In-Process Technology              Completed         Life            Dates
---------------------              ---------         ----            -----
<S>                                <C>            <C>             <C>
Next-generation Apyslog                38%          5 years         2Q/1999
</TABLE>

                                          8
<PAGE>

     The technology development projects under development at the time of the 
acquisition included the development of a leasing module incorporating 
advanced reporting capabilities, providing a new user interface and 
mail/action improvements, enhancing contract management, and improving 
response time. This will involve reconstructing certain aspects of the 
software architecture of the existing products to achieve complete 
compatibility, as well as developing new technology for adding the desired 
functionality.  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 Company currently believes that actual results have been 
consistent with forecasts with respect to acquired in-process revenues.  
Because the Company does not account for expenses by product, it is not 
possible to determine the actual expenses associated with the acquired 
technologies. However, the Company believes that expenses incurred to date 
associated with the development and integration of the acquired in-process 
research and development projects are approximately consistent with the 
Company's previous estimates. 

     The Company believed that the foregoing assumptions used in Apsylog's
acquired in-process research and development analysis were reasonable at the
time of the acquisition.  No assurance can be given, however, that the
underlying assumptions used to estimate expected project sales, development
costs or profitability, or the events associated with such projects, will
transpire as estimated.  The Company currently believes that actual results have
been consistent with forecasts with respect to acquired in-process revenues. 
Because the Company does not account for expenses by product, it is not possible
to determine the actual expenses associated with the acquired technologies. 
However, the Company believes that expenses incurred to date associated with the
development and integration of the acquired in-process research and development
projects are approximately consistent with the Company's previous estimates.

     The Company has completed many of the original research and development
projects in accordance with the plans outlined above.  The Company continues to
work toward the completion of other projects.  The majority of the projects are
on schedule, but delays may occur due to changes in technological and market
requirements for the Company's products.  The risks associated with these
efforts are still considered high and no assurance can be made that Apsylog's
upcoming products will meet with market acceptance.  Delays in the introduction
of certain products may adversely affect the Company's revenues and earnings in
future quarters.

                                          9
<PAGE>

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

     THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THIS "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT.  THE FOLLOWING
DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
REPORT. 

OVERVIEW 

     The Company develops, markets and supports SERVICECENTER, a suite of
software applications for managing the Enterprise Service Desk. The Company was
founded in 1981 primarily to provide consulting services for IT management 
software. In 1987, the Company launched its first software product, PNMS, a 
product designed to manage and monitor complex mainframe computer networks. In 
1995, the Company commenced sales of SERVICECENTER, the Company's solution for 
the Enterprise Service Desk. SERVICECENTER is currently available for the 
Windows NT, UNIX and MVS platforms. Since the release of SERVICECENTER in July 
1995, SERVICECENTER has accounted for substantially all of the Company's license
revenues. In addition, for the year ended March 31, 1997, over 80% of the 
Company's license sales of SERVICECENTER were attributable to UNIX and Windows
NT platforms.  

     In the latter half of fiscal 1996 and the beginning of fiscal 1997, the
Company implemented an internal restructuring to capitalize on the market 
opportunity for products addressing the requirements of the Enterprise Service 
Desk. This restructuring included rebuilding the Company's senior management 
team, redefining the product development strategy, initiating a comprehensive 
marketing strategy and strengthening the Company's financial and budgeting 
processes. In addition, in April 1996, the Company substantially reorganized its
sales force and instituted new sales management procedures.  

     In September 1997, the Company acquired Apsylog S.A. ("Apsylog"), a French
corporation and wholly owned operating subsidiary of United Software, Inc., a 
Delaware corporation ("United"), for a consideration consisting of approximately
1,916,213 shares of the Company's Common Stock, including 32,021 shares issuable
upon exercise of outstanding options held by employees and consultants of 
Apsylog and assumed by the Company (the "Apsylog Acquisition"). The Company 
accounted for the Apsylog Acquisition as a purchase transaction. The total 
purchase price was $38.6 million, including $30.5 million of stock, $3.5 million
in transaction costs and costs associated with integrating the operations of the
two companies and $4.6 million of assumed liabilities

     The Company's revenues are derived from product licensing, maintenance and
services. License fees are generally due upon the granting of the license and 
typically include a one-year maintenance period as part of the license 
agreement. The Company also provides ongoing maintenance services, which include
technical support and product enhancements, for an annual fee typically based 
upon the current price of the product. In fiscal 1995, 1996, and 1997, 
maintenance and service revenues represented 53%, 51%, and 42% of total 
revenues, respectively. The Company has sold its original PNMS software to a 
sizable installed base of customers, many of whom have transitioned to
SERVICECENTER. The Company's large installed customer base has generated a high
level of maintenance revenues. In fiscal 1995, 1996, and 1997, more than 90% of
the Company's customers renewed their maintenance agreements. Maintenance 
revenues from new licenses of SERVICECENTER combined with recurring maintenance
revenues from existing customers are expected to provide a continued source of
revenues as the  Company's installed customer base increases.  

                                        10
<PAGE>

     Revenues from license agreements are recognized currently, provided that
all of the following conditions are met: a noncancelable license agreement or
other  legally binding agreement has been signed, the product has been
delivered, there are no material uncertainties regarding customer acceptance,
collection of the resulting receivable is deemed probable, and no other
significant vendor  obligations exist. Revenues from post-contract support
services are recognized  ratably over the term of the support period, generally
one year. Maintenance  revenues which are bundled in license fees are unbundled
and recognized accordingly using vendor-specific evidence. Consulting revenues
are primarily  related to implementation services most often performed on a time
and material  basis under separate service agreements for the installation of
the Company's  products. Revenues from consulting and training services are
recognized as the  respective services are performed.  

     The Company currently derives substantially all of its license revenues
from the sale of SERVICECENTER and expects SERVICECENTER to account for a
significant  portion of the Company's revenues for the foreseeable future. The
Company's  future operating results are dependent upon continued market
acceptance of  SERVICECENTER, including future enhancements, as well as market
acceptance of ASSETCENTER, Apsylog's asset management product. Factors adversely
affecting the pricing of, demand for, or market acceptance of, SERVICECENTER or
ASSETCENTER, such as competition or technological change, could have a material
adverse  effect on the Company's business, operating results and financial
condition.  

     The Company conducts business overseas in a number of foreign currencies,
principally the British Pound, the Deutsche Mark and the French Franc. These 
currencies have been relatively stable against the U.S. dollar for the past 
several years. As a result, foreign currency fluctuations have not had a 
significant impact on the Company's revenues or results of operations. Although
the Company currently derives no revenues from highly inflationary economies, 
the Company is expanding its presence in international markets outside Europe,
including the Pacific Rim and Latin America, whose currencies have tended to 
fluctuate more relative to the U.S. Dollar. There can be no assurance that 
foreign currency exchange rates will not prove more volatile or that future 
fluctuations in the value of foreign currencies will not have a material adverse
effect on the Company's business, operating results and financial condition. 
Management has recently implemented a foreign exchange hedging program. The 
Company manages currency risk using one-month forward-rate currency contracts.
Currency contracts are in accordance with SFAS 52 and receive hedge accounting
treatment. Accordingly, to the extent not properly hedged by obligations 
denominated in local currencies, the Company's foreign operations remain subject
to the risks of future foreign currency fluctuations, and there can be no 
assurances that the Company's hedging activities will adequately protect the
Company against such risks.  

                                          11
<PAGE>

RESULTS OF OPERATIONS  

     The following table sets forth for the periods indicated selected
consolidated statements of operations data as a percentage of total revenues: 
 
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                         SEPTEMBER 30,             SEPTEMBER 30,
                                                                         -------------             -------------
                                                                       1996        1997          1996        1997
                                                                       ----        ----          ----        ----
<S>                                                                 <C>          <C>           <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Revenues:
    Licenses . . . . . . . . . . . . . . . . . . . . . . . .          54.6%      57.7%          52.4%       57.6%
    Maintenance and services . . . . . . . . . . . . . . . . .        45.4       42.3           47.6        42.4 
                                                                    -------     -------       -------     -------
      Total revenues . . . . . . . . . . . . . . . . . . . . .       100.0      100.0          100.0       100.0 
  Costs and expenses:
    Cost of licenses . . . . . . . . . . . . . . . . . . . . .         0.6        0.6            0.7         0.6 
    Cost of maintenance and services . . . . . . . . . . . . .        15.0       17.2           15.2        16.7 
    Sales and marketing. . . . . . . . . . . . . . . . . . . .        48.0       37.7           48.8        38.4 
    Research and development . . . . . . . . . . . . . . . . .        18.5       13.6           18.7        14.2 
    General and administrative . . . . . . . . . . . . . . . .        11.7        9.6            11.2       10.0 
    Acquired in-process research and development costs . . . .           -       57.0              -        30.0 
                                                                    -------    -------        -------     -------
      Total costs and expenses . . . . . . . . . . . . . . . .        93.8      135.7           94.6      (109.8)
                                                                    -------    -------        -------     -------
  Operating income . . . . . . . . . . . . . . . . . . . . . .         6.2      (35.7)           5.4        (9.8)
  Interest income (expense), and other, net. . . . . . . . . .        (1.5)       1.9           (1.5)        1.8 
  Income (loss) before income taxes. . . . . . . . . . . . . .         4.7      (33.8)           3.9        (8.0)
  Income tax expense . . . . . . . . . . . . . . . . . . . . .           -        8.6              -         8.1 
                                                                    -------    -------        -------     -------
  Net income                                                           4.7%    (42.4)%          3.9%      (16.1)%
</TABLE>
 
THREE MONTH AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 

     The Company's results of operations for the three month and six month
periods ended September 30, 1997 include results of operations for Apsylog 
subsequent to September 19, 1997. The impact of Apsylog's operations on the 
consolidated results of operations for the three and six months ended September
30, 1997 was de minimus.  

REVENUES 

     Total revenues were $12.2 million and $7.5 million in the second quarter of
fiscal 1998 and 1997, respectively, representing a period-to-period increase of 
63%. For the six month periods ended September 1997 and 1996, total revenue 
increased 55% from $15.0 million to $23.2 million. 

     LICENSES.  License revenues were $7.0 million and $4.1 million in the
second quarter of fiscal 1998 and 1997, respectively, representing 58% and 55%
of total  revenues in the respective periods and $13.4 million and $7.9 million
for the  six months ended September 30, 1997 and 1996, respectively,
representing 58% and  52% of total revenues for such periods. License revenues
increased 72% in the  second quarter of fiscal 1998 compared to the second
quarter of fiscal 1997. For  the six months September 30, 1997, license revenues
increased 70% compared to  the six month period ended September 30, 1996. The
dollar and percentage  increases in license revenues are attributable to
increased demand for new  licenses of SERVICECENTER, additional seats purchased
by existing SERVICECENTER customers, more effective corporate marketing
programs, improved sales force  productivity, and expansion of the Company's
sales force.  

     MAINTENANCE AND SERVICES.  Maintenance and services revenues were $5.2
million and $3.4 million in the second quarter of fiscal 1998 and 1997, 
respectively, representing 42% and 45% of total revenues in the respective 
periods and $9.9 million and $7.1 million for the six months ended September 30,
1997 and 1996, respectively, representing 42% and 48% of total revenues for such
periods. Maintenance and services revenues increased 52% in the second quarter 
of fiscal 1998 compared to the second quarter of fiscal 1997.  For the six
months ended

                                          12
<PAGE>

September 30, 1997, maintenance and service revenues  increased 38% compared to
the six months ended September 30, 1996. The dollar and percentage increases in
maintenance and services revenues are attributable  to renewals of maintenance
agreements from the Company's expanded installed base  of customers and
maintenance revenues included as part of new licenses and an  increased number
of consulting engagements related to implementation of software  from initial
license agreements.  

COSTS AND EXPENSES 

     COST OF LICENSES.  Cost of license revenues was $69,000 and $44,000 in the
second quarter of fiscal 1998 and 1997, respectively, each representing 1% of 
total license revenues in the respective periods and $128,000 and $105,000 for 
the six month periods ended September 30, 1997 and 1996, respectively, again 
representing 1% of total license revenues in the respective periods.  

     COST OF MAINTENANCE AND SERVICES.  Cost of maintenance and services
revenues was $2.1 million and $1.1 million in the second quarter of fiscal 1998
and 1997,  respectively, representing 41% and 33% of total maintenance and
service revenues  in the respective periods and $3.9 million and $2.3 million
for the six months ended September 30, 1997 and 1996, respectively, representing
39% and 32% of  total maintenance and services revenues for such periods,
respectively. The  dollar increases in the second quarter of fiscal 1998 over
1997 and in the six  months ended September 30, 1997 over the same period in
1996 are attributable to  an increase in customer support and professional
services personnel in  connection with the corresponding increase in
professional services revenue.  

     SALES AND MARKETING.  Sales and marketing expenses were $4.6 million and
$3.6 million in the second quarter of fiscal 1998 and 1997, respectively, 
representing 38% and 48% of total revenues in the respective periods and $8.9
million and $7.3 million for the six months ended September 30, 1997 and 1996, 
respectively, representing 38% and 49% of total revenues in such periods. The
dollar increases in sales and marketing expenses are attributable to the 
increase in personnel in the marketing department and marketing spending and, to
a lesser extent, expansion of both the North American and international sales 
forces and moderate operating expense increases. If the Company experiences a 
decrease in sales force productivity or for any other reason a decline in 
revenues, it is likely that operating margins will decline as well. The decrease
in sales and marketing expenses as a percentage of total revenues is
attributable to increased revenues, particularly increased license revenues, 
economies of scale, and the delayed hiring of additional sales staff.  

     RESEARCH AND DEVELOPMENT.  Research and development expenses were $1.7
million and $1.4 million in the second quarter of fiscal 1998 and 1997, 
respectively, representing 14% and 19% of total revenues in the respective 
periods, and $3.3 million and $2.8 million for the six months ended September 
30, 1997 and 1996, respectively, representing 14% and 19% of total revenues in 
such periods. The dollar increase from fiscal 1997 to fiscal 1998 is due 
primarily to the hiring of additional software developers, and the decrease as a
percentage of total revenues is due to increased revenues.  

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $1.2
million and $0.9 million in the second quarter of fiscal 1998 and 1997, 
respectively, representing 10% and 12% of total revenues in the respective 
periods and $2.3 million and $1.6 million for the six months ended September 30,
1997 and 1996, respectively, representing 10% and 11% of the total revenues in 
such period. The dollar increases from fiscal 1997 to 1998 are attributable 
primarily to administrative personnel additions to support the Company's growth 
and the additional administrative expenses associated with becoming a publicly 
traded company, while the decrease as a percentage of total revenues reflects 
the fact that revenues grew at a faster rate than general and administrative 
expenses.  

     ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS.  Acquired in-process
research and development costs of $7.0 million were incurred in the second 
quarter of fiscal 1998 in connection with the Apsylog Acquisition.

                                          13
<PAGE>

PROVISION FOR INCOME TAXES 

     Income taxes for the second fiscal quarter of 1998 amounted to $1.0 million
compared with zero in the comparable quarter of 1997. This increase results from
the $2.1 million dollar increase in operating profits, before taxes and 
recognition of the acquired research and development costs during the period. 
Excluding the effect of expensing the acquired research and development costs, 
the effective tax rate for the second quarter of fiscal 1998 and for the six 
months ended September 30, 1997 was 37%.  

LIQUIDITY AND CAPITAL RESOURCES 

     The Company had $16.8 million in cash and cash equivalents at September 30,
1997 compared to $0.3 million at March 31, 1997. The increase is primarily 
attributable to the Company's completion of its initial public offering in April
1997. The Company offered and sold 2.3 million shares of its Common Stock at an
initial public offering price of $9.00 per share, raising $19.3 million after
underwriting discounts and commissions.  

     At March 31, 1997, the Company had a $4.5 million revolving bank line of
credit scheduled to expire by its own terms November 30, 1997, and a term loan
from the same bank. The term loan was secured by trade receivables and fixed 
assets of the Company, and the revolving credit line was secured by accounts 
receivable, equipment and certain other assets of the Company. Both facilities
were personally guaranteed by the Company's majority stockholder. Both the 
credit line and term loan were repaid from proceeds of the Company's April 1997
initial public offering, and the bank line of credit was subsequently 
terminated.  

     Effective July 1, 1997, the Company entered into a new agreement to replace
the above line of credit. The new agreement allows up to $5.0 million in 
borrowings and is generally secured by the same collateral as the old line. 
There is no personal guarantee associated with the new line. There are however,
certain covenants, the most significant of which places certain restrictions on
future borrowings and acquisitions above specified levels. In addition, the 
Company is required to maintain certain financial ratios and minimum equity
balances. The agreement also provides for a foreign exchange facility of up to
$2.0 million in any two day period.  

     At September 30, 1997, there were no amounts outstanding under the line of
credit facility. The outstanding line of credit balance at September 30, 1997 of
$1.4 million is entirely attributable to borrowings of the Company's wholly 
owned subsidiary Apsylog S.A., acquired in September 1997 in connection with the
United Software, Inc. In October 1997, the Apsylog line of credit was repaid in 
full and terminated.  

     The Company believes that its current cash balances, cash available under
its bank facilities and cash flow from operations will be sufficient to meet its
working capital requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent the Company 
experiences growth in the future, the Company anticipates that its operating and
investing activities may  use cash. Consequently, any such future growth may
require the Company to obtain  additional equity or debt financing, which may
not be available on commercially  reasonable terms or which may be dilutive.  

FACTORS THAT MAY AFFECT FUTURE RESULTS 

     This report, including this Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statement  and other prospective information relating to future events.  These
forward-looking statements and other information are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including the following:    

     Limited Profitability; History of Operating Losses.  Through September 30,
1997, the Company has recorded cumulative net losses of approximately $47.4 
million, including approximately $7.0 million related to the write-off of 
acquired in-process research and development acquired in connection with the 
Apsylog Acquisition. In recent years, the product lines of both the Company and
Apsylog have changed substantially. The Company's SERVICECENTER product, from 
which the Company derived substantially all of its license revenues for the 
fiscal year ended March 31, 1997 and for the six months ended September 30, 
1997, only began shipping in mid-1995. Apsylog's ASSETCENTER product only began
shipping in mid-1996. As a result, prediction of the Company's future operating
results is difficult, if not impossible. Although the Company achieved 
profitability during the year ended

                                          14
<PAGE>

March 31, 1997 and for the six months ended  September 30, 1997 (excluding the
impact of the $7.0 million charge related to acquired in-process research and
development acquired in connection with the  Apsylog Acquisition), there can be
no assurance that the Company will be able to  remain profitable on a quarterly
or annual basis. In addition, the Company does  not believe that the growth in
revenues it has experienced in recent years is  indicative of future revenue
growth or future operating results. See " Product  Concentration; Dependence on
Market Acceptance of Enterprise Service Desk  Software" and " Risks Associated
with Apsylog Acquisition and Future  Acquisitions."  

     POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY.  The Company's
quarterly operating results have varied significantly in the past and may vary 
significantly in the future depending upon a number of factors, many of which 
are beyond the Company's control. These factors include, among others, the 
ability of the Company to develop, introduce and market new and enhanced 
versions of its software on a timely basis; market demand for the Company's 
software; the size, timing and contractual terms of significant orders; the 
timing and significance of new software product announcements or releases by the
Company or its competitors; changes in pricing policies by the Company or its 
competitors; changes in the Company's business strategies; budgeting cycles of 
its potential customers; changes in the mix of software products and services 
sold; changes in the mix of revenues attributable to domestic and international
sales; the impact of acquisitions of competitors; the impact of acquisitions by
the Company, including the Apsylog Acquisition; seasonal trends; the 
cancellations of licenses or maintenance agreements; product life cycles; 
software defects and other product quality problems; and personnel changes. The
Company has often recognized a substantial portion of its revenues in the last 
month or weeks of a quarter. As a result, license revenues in any quarter are 
substantially dependent on orders booked and shipped in the last month or weeks
of that quarter. Due to the foregoing factors, quarterly revenues and operating
results are not predictable with any significant degree of accuracy. In 
particular, the timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery. The timing between 
initial customer contact and fulfillment of criteria for revenue recognition can
be lengthy and unpredictable, and revenues in any given quarter can be adversely
affected as a result of such unpredictability. In the event of any downturn in 
potential customers' businesses or the economy in general, planne purchases of 
the Company's products may be deferred or canceled, which could have a material
adverse effect on the Company's business, operating results and financial 
condition.  

     The Company's business has experienced and is expected to continue to
experience seasonality. The Company's revenues and operating results in its 
December quarter typically benefit from purchase decisions made by the large 
concentration of customers with calendar year-end budgeting requirements, while
revenues and operating results in the March quarter typically benefit from the 
efforts of the Company's sales force to meet fiscal year-end sales quotas. In 
addition, the Company is currently attempting to expand its presence in
international markets, including Europe,  the Pacific Rim and Latin America.
International revenues comprise a significant  percentage of the Company's total
revenues, and the Company may experience  additional variability in demand
associated with seasonal buying patterns in  such foreign markets. In
particular, the quarter ended September 30 tends to  reflect the effects of
summer slowing of international business activity,  particularly in Europe. See
"--International Operations; Currency Fluctuations."
  
     PRODUCT CONCENTRATION; DEPENDENCE ON MARKET ACCEPTANCE OF ENTERPRISE
SERVICE DESK SOFTWARE.  The Company currently derives substantially all of its
license  revenues from the sale of SERVICECENTER and expects SERVICECENTER to
account for  a significant portion of the Company's revenues for the foreseeable
future. The  Company's future operating results are dependent upon continued
market  acceptance of SERVICECENTER, including future enhancements, as well as
market  acceptance of ASSETCENTER. Factors adversely affecting the pricing of,
demand  for, or market acceptance of SERVICECENTER or ASSETCENTER, such as
competition  or technological change, could have a material adverse effect on
the Company's  business, operating results and financial condition.  

     The Company's product strategy has focused on integrating a broad array of
IT management applications with other traditional internal help desk 
applications to create an Enterprise Service Desk. The market for Enterprise 
Service Desk software is relatively new and is characterized by ongoing 
technological developments, frequent new product announcements and 
introductions, evolving industry standards and changing customer requirements. 
The Company's future financial performance will depend in part on continued 
growth in the number of organizations implementing Enterprise Service Desk 
solutions.  

                                          15
<PAGE>

     RISKS ASSOCIATED WITH APSYLOG ACQUISITION AND FUTURE ACQUISITIONS.  The
Apsylog Acquisition involves a significant amount of integration of two 
companies that have previously operated independently. The principal operations
of Apsylog, including most of its employees, are located in Paris, France. No 
assurance can be given that difficulties will not be encountered in integrating 
certain products, technologies or operations of Apsylog with those of the 
Company or that the benefits expected from such integration will be realized or 
that Apsylog employee morale will not be adversely affected by the integration 
process. Such integration could result in a diversion of management's time and 
attention, which could have a material adverse effect on revenues and results of
operations. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations or of integrating personnel 
with disparate business backgrounds and different corporate cultures. There can 
be no assurance that either company will retain its key personnel, that the 
engineering teams of Apsylog and the Company will successfully cooperate and 
realize any technological benefits or that Apsylog or the Company will realize 
any of the other anticipated benefits of the Apsylog Acquisition. Apsylog's 
ASSETCENTER product has traditionally been sold into an organization's finance 
or procurement departments as opposed to SERVICECENTER, which is typically 
purchased by the IT Department. There can be no assurance that the Company will
be successful in continuing to sell to such constituencies or that it can 
successfully persuade customers and potential customers that an integrated
approach to managing IT assets is desirable. In addition, the public 
announcement and consummation of the Apsylog Acquisition could result in the 
cancellation, termination or nonrenewal of arrangements with Apsylog by 
suppliers, distributors or customers of Apsylog or the loss of certain key 
Apsylog employees, or the termination of negotiations or delays in ordering by 
prospective customers of Apsylog as a result of uncertainties associated with
the Apsylog Acquisition. Any significant amount of cancellations, terminations, 
delays or nonrenewals of arrangements with Apsylog or loss of key employees or 
termination of negotiations or delays in ordering could have a material adverse 
effect on the business, operating results or financial condition of the Company.

     Apsylog's success depends to a significant extent upon a limited number of
members of Apsylog's senior management, certain development personnel, and other
key Apsylog employees. Apsylog's future performance will also depend in 
significant part upon the continued service of its key technical, sales and 
senior management personnel following the Apsylog Acquisition. Only certain of 
these individuals (including Apsylog's Chief Executive Officer and seven 
additional employees) will be bound by non-competition agreements. In addition,
in connection with the Apsylog Acquisition, all repurchase restrictions on
shares of restricted Apsylog Common Stock held by Apsylog stockholders lapsed,
and all unvested options in respect of Apsylog's Common Stock vested and became
immediately exercisable. The loss of the services of one or more of Apsylog's
executive officers, development personnel, or other key employees or the
decision of one or more of such officers or key employees to join a competitor
or otherwise compete directly or indirectly with the Company could have a
material adverse effect on the Company's business, operating results and
financial condition.  

     In addition to the Apsylog Acquisition and as part of its business
strategy, the Company may make acquisitions of, or significant investments in,
businesses that offer complementary products, services and technologies. There
can be no assurances that the Company will make any additional acquisitions in
the future. Any such future acquisitions or investments would present risks
commonly encountered in acquisitions of businesses. Such risks include, among
others, the difficulty of assimilating the technology, operations or personnel
of the acquired businesses, the potential disruption of the Company's on-going 
business, the inability of management to maximize the financial and strategic 
position of the Company through the successful incorporation of acquired 
personnel, clients, or technologies, the maintenance of uniform standards, 
controls, procedures, and policies and the impairment of relationships with 
employees and clients as a result of any integration of new businesses and 
management personnel. The Company expects that future acquisitions, if any, 
could provide for consideration to be paid in cash, shares of stock or a 
combination of cash and stock. In the event of such an acquisition or 
investment, the factors described herein could have a material adverse effect on
the Company's business, financial condition and results of operations. 

     DEPENDENCE ON KEY PERSONNEL; ABILITY TO RECRUIT PERSONNEL.  The Company's
ability to achieve anticipated revenues is substantially dependent on its 
ability to attract and retain skilled personnel, especially sales, service and
implementation personnel. Other than certain employees of Apsylog, none of the
Company's employees, including its senior management, is bound by an employment
or non-competition agreement, and the Company does not maintain key man life 
insurance on any employee. The loss of the services of one or more of the 
Company's executive officers or key employees or the decision of one or more of 
such officers or employees to join a

                                          16
<PAGE>

competitor or otherwise compete directly or  indirectly with the Company could
have a material adverse effect on the  Company's business, operating results and
financial condition.  

     In addition, the Company believes that its future success will depend in
large part on its ability to attract and retain additional highly skilled 
technical, sales, management and marketing personnel. Competition for such 
personnel in the computer software industry is intense, and the Company has at 
times in the past experienced difficulty in recruiting qualified personnel. New 
employees hired by the Company generally require substantial training in the use
and implementation of the Company's products. In particular, a number of the 
Company's sales personnel have been with the Company for only a limited period 
of time. There can be no assurance that the Company will be successful in 
attracting, training and retaining qualified personnel, and the failure to do so
could have a material adverse effect on the Company's business, operating 
results and financial condition.  

     COMPETITION.  The market for the Company's products is highly competitive,
fragmented and subject to rapid technological change and frequent new product 
introductions and enhancements. Competitors vary in size and in the scope and 
breadth of the products and services offered. The Company encounters competition
from a number of sources, including (i) providers of internal help desk software
applications such as Remedy Corporation and Software Artistry, Inc., (ii) 
customer interaction software companies such as Clarify Inc. and The Vantive 
Corporation, whose products include internal help desk applications, (iii) 
information technology and systems management companies such as International 
Business Machines Corporation, Computer Associates International, Inc., McAfee 
Associates, Inc. and Hewlett-Packard Company through its recent acquisition of 
PROLIN, (iv) providers of asset management software, and (v) the internal 
information technology departments of those companies with help desk 
requirements. Because barriers to entry in the software market are relatively 
low, the Company anticipates additional competition from other established and
emerging companies as the market for  Enterprise Service Desk applications
expands. In addition, current and potential  competitors have established or may
in the future establish cooperative  relationships among themselves or with
third parties. The Company expects  software industry consolidation to occur in
the future, and it is possible that  new competitors or alliances among
competitors may emerge and rapidly acquire  significant market share. Increased
competition is likely to result in price  reductions, reduced gross margins and
loss of market share, any of which could  have a material adverse effect on the
Company's business, operating results and  financial condition. Some of the
Company's current and many of its potential  competitors have significantly
greater financial, technical, marketing and other  resources than the Company.
As a result, they may be able to respond more  quickly to new or emerging
technologies and changes in customer requirements or  to devote greater
resources to the development, promotion and sale of their  products than the
Company. There can be no assurance that the Company will be  able to compete
successfully against current and future competitors or that  competitive
pressures faced by the Company will not have a material adverse  effect on the
Company's business, operating results and financial condition.  

     MANAGEMENT OF GROWTH.  The Company's business has grown substantially in 
recent periods, with total revenues increasing from $19.6 million in fiscal 
1995 to $23.8 million in fiscal 1996 and to $35.0 million in fiscal 1997 and 
to $23.2 million in the first six months of fiscal 1998. If the Company is 
successful in achieving its growth plans, including the integration of 
Apsylog, such growth is likely to place a significant burden on the Company's 
operating and financial systems, resulting in increased responsibility for 
senior management and other personnel within the Company. The Company's 
ability to compete effectively and to manage future growth, if any, and its 
future operating results will depend in part on the ability of its officers 
and other key employees to implement and expand operational, customer support 
and financial control systems and to expand, train and manage its employee 
base. In particular, in connection with the Apsylog Acquisition, the Company 
will be required to integrate additional personnel and to augment or replace 
Apsylog's existing financial and management systems. Such integration could 
result in a disruption of operations of the Company or Apsylog and could 
adversely affect the Company's financial results. There can be no assurance 
that the Company's existing management or any new members of management will 
be able to augment or improve existing systems and controls or implement new 
systems and controls in response to future growth, if any. The Company's 
failure to do so could have a material adverse effect on the Company's 
business, operating results and financial condition. See "--Dependence on Key 
Personnel; Ability to Recruit Personnel" and "--Risks Associated with Apsylog 
Acquisition and Future Acquisitions."  

                                          17
<PAGE>

     LENGTHY SALES CYCLES.  The license of the Company's software generally
requires the Company to engage in a sales cycle that typically takes 
approximately six to nine months to complete. The length of the sales cycle may 
vary depending on a number of factors over which the Company may have little or 
no control, including the size of the transaction and the level of competition 
which the Company encounters in its selling activities. In addition, the sales 
cycle is typically extended 90 days for product sales through indirect channels.
During the sales cycle, the Company typically provides a significant level of 
education to prospective customers regarding the use and benefits of the 
Company's products. Any delays in the sale cycles of a large license or a number
of smaller licenses could have a material adverse effect on the Company's 
business, operating results and financial condition. See "--Potential 
Fluctuations in Quarterly Results; Seasonality."  

     EXPANSION OF DISTRIBUTION CHANNELS.  The Company has historically sold 
its products through its direct sales force and a limited number of 
distributors and has provided maintenance and support services through its 
technical and customer support staff. The Company is currently investing and 
intends to continue to invest significant resources in developing additional 
sales and marketing channels through system integrators and original 
equipment manufacturers ("OEMs') and other channel partners. There can be no 
assurance that the Company will be able to attract channel partners that will 
be able to market the Company's products effectively and will be qualified to 
provide timely and cost-effective customer support and service. To the extent 
the Company establishes distribution through such  indirect channels, its 
agreements with channel partners may not be exclusive and  such channel 
partners may also carry competing product lines. Any failure by the  Company 
to establish and maintain such distribution relationships could have a  
material adverse effect on the Company's business, operating results and  
financial condition. See "--Management of Growth" and "--International  
Operations; Currency Fluctuations."  

     INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS.  International sales
represented approximately 29% and 32% of the Company's total revenues in fiscal
1996 and fiscal 1997, respectively, and 33% for the six months ended September 
30, 1997. The Company currently has international sales offices in London, 
Paris, Frankfurt and Amsterdam. Apsylog currently has international offices in 
Paris and Munich. The Company believes that its continued growth and 
profitability will require continued expansion of its international operations, 
particularly in Europe, Latin America and the Pacific Rim. Accordingly, the 
Company intends to expand its international operations and enter additional 
international markets, which will require significant management attention and 
financial resources. In addition, the Company's international operations are 
subject to a variety of risks associated with conducting business 
internationally, including fluctuations in currency exchange rates, longer 
payment cycles, difficulties in staffing and managing international operations, 
problems in collecting accounts receivable, seasonal reductions in business 
activity during the summer months in Europe and certain other parts of the 
world, increases in tariffs, duties, price controls or other restrictions on 
foreign currencies, and trade barriers imposed by foreign countries, any of 
which could have a material adverse effect on the Company's business, operating 
results and financial condition. In addition, the Company has only limited 
experience in developing localized versions of its products and marketing and 
distributing its products internationally. There can be no assurance that the 
Company will be able to successfully localize, market, sell and deliver its 
products internationally. The inability of the Company to expand its 
international operations successfully and in a timely manner could have a 
material adverse effect on the Company's business, operating results and 
financial condition.  

     A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Foreign currency transaction gains and losses 
arising from normal business operations are credited to or charged against 
earnings in the period incurred. As a result, fluctuations in the value of the 
currencies in which the Company conducts its business relative to the U.S. 
dollar have caused and will continue to cause currency transaction gains and 
losses. Due to the substantial volatility of currency exchange rates, among 
other factors, the Company cannot predict the effect of exchange rate 
fluctuations upon future operating results. There can be no assurance that the 
Company will not experience currency losses in the future. The Company has 
recently implemented a foreign exchange hedging program, consisting principally 
of purchases of one month forward-rate currency contracts. Notwithstanding such 
a program, there can be no assurances that the Company's hedging activities will
adequately protect the Company against the risks associated with foreign 
currency fluctuations. See "--Management of Growth."  

     YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY BUDGETS.  Many currently
installed computer systems and software products are coded to accept only two 
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, in less than three

                                          18
<PAGE>

years, computer systems and/or software used by  many companies may need to be
upgraded to comply with such "Year 2000"  requirements. Significant uncertainty
exists in the software industry concerning  the potential effects associated
with such compliance.  

     The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues. Many companies are
expending  significant resources to correct their current software systems for
Year 2000  compliance. These expenditures may result in reduced funds available
to purchase  software products such as those offered by the Company.  

     DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT.  The Company's
success is dependent upon proprietary technology. The Company relies primarily 
on a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. The 
Company seeks to protect its software, documentation and other written materials
under trade secret and copyright laws, which provide only limited protection. 
Despite precautions taken by the Company, it may be possible for unauthorized 
third parties to copy aspects of its current or future products or to obtain and
use information that the Company regards as proprietary. In particular, the 
Company may provide its licensees with access to its data model and other 
proprietary information underlying its licensed applications. There can be no 
assurance that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competitors will not independently develop 
similar or superior technology. Policing unauthorized use of the Company's 
software is difficult and, while the Company is unable to determine the extent 
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do 
not protect the Company's proprietary rights to the same extent as do the laws 
of the United States. Litigation may be necessary in the future to enforce the 
Company's intellectual property rights, to protect the Company's trade secrets 
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and 
could have a material adverse effect on the Company's business, operating 
results and financial condition.  
     
     The Company is not aware that any of its software product offerings
infringes the proprietary rights of third parties. There can be no assurance, 
however, that third parties will not claim infringement by the Company with 
respect to its current or future products. The Company expects that software 
product developers will increasingly be subject to infringement claims as the 
number of products and competitors in the Company's industry segment grows and 
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly 
litigation, cause product shipment delays or require the Company to enter into 
royalty or licensing agreements. Such royalty or licensing agreements, if 
required, may not be available on terms acceptable to the Company or at all, 
which could have a material adverse effect on the Company's business, operating
results and financial condition.  

     RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS.  The market for
the Company's products is subject to rapid technological change, changing 
customer needs, frequent new product introductions and evolving industry 
standards that may render existing products and services obsolete. As a result, 
the Company's position in its existing markets or other markets that it may 
enter could be eroded rapidly by product advances. The life cycles of the 
Company's products are difficult to estimate. The Company's growth and future 
financial performance will depend in part upon its ability to enhance existing 
applications, develop and introduce new applications that keep pace with 
technological advances, meet changing customer requirements and respond to 
competitive products. The Company's product development efforts are expected to 
continue to require substantial investments by the Company. There can be no 
assurance that the Company will have sufficient resources to make the necessary 
investments. The Company has in the past experienced development delays, and 
there can be no assurance that the Company will not experience such delays in 
the future. There can be no assurance that the Company will not experience 
difficulties that could delay or prevent the successful development, 
introduction or marketing of new or enhanced products. In addition, there can be
no assurance that such products will achieve market acceptance, or that the 
Company's current or future products will conform to industry requirements. The 
inability of the Company, for technological or other reasons, to develop and 
introduce new and enhanced products in a timely manner could have a material 
adverse effect on the Company's business, operating results and financial 
condition.

     Software products as complex as those offered by the Company may contain
errors that may be detected at any point in a product's life cycle. The Company
has in the past discovered software errors in certain of its products


                                          19
<PAGE>

and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by the 
Company and by current and potential customers, errors will not be found, 
resulting in loss of, or delay in, market acceptance and sales, diversion of 
development resources, injury to the Company's reputation, or increased service 
and warranty costs, any of which could have a material adverse effect on the 
Company's business, results of operations and financial condition.  

     PRODUCT LIABILITY.  The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to 
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not 
experienced any product liability claims to date, the sale and support of 
products by the Company may entail the risk of such claims, and there can be no 
assurance that the Company will not be subject to such claims in the future. A 
product liability claim brought against the Company could have a material 
adverse effect on the Company's business, operating results and financial 
condition.

     VOLATILITY OF STOCK PRICE.  The Company completed its initial public
offering of Common Stock in April 1997, prior to which time no public market 
existed for the Company's Common Stock. The market price of the Company's Common
Stock has been since the initial public offering and is expected to continue to 
be subject to significant fluctuations in the future based on a number of 
factors, including any shortfall in the Company's revenues or net income from 
revenues or net income expected by securities analysts; announcements of new 
products by the Company or its competitors; quarterly fluctuations in the 
Company's financial results or the results of other software companies, 
including those of direct competitors of the Company; changes in analysts' 
estimates of the Company's financial performance, the financial performance of 
competitors, or the financial performance of software companies in general; 
general conditions in the software industry; changes in prices for the Company's
products or competitors' products; changes in revenue growth rates for the 
Company or its competitors; sales of large blocks of Common Stock by holders 
whose ability to sell has been limited by market stand-off agreements with the 
underwriters of the Company's initial public offering and this offering or by 
restrictions under applicable securities laws and conditions in the financial 
markets. In addition, the stock market may from time to time experience extreme
price and volume fluctuations, which particularly affect the market price for 
the securities of many technology companies and which have often been unrelated
to the operating performance of the specific companies. There can be no 
assurance that the market price of the Company's Common Stock will not 
experience significant fluctuations in the future.  

                                          20
<PAGE>

                             PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS 

RECENT SALES OF UNREGISTERED SECURITIES 

     On September 19, 1997, the Company completed the acquisition of United
Software, Inc. ("United") pursuant to an Agreement and Plan of Reorganization 
dated effective as of August 29, 1997. In connection with such acquisition, the 
Company issued 1,916,213 (including 32,021 shares subject to outstanding options
assumed in connection with the Apsylog Acquisition) shares of its Common Stock 
to the stockholders of United in reliance on the exemptions from the 
registration requirements of the Securities Act of 1933, as amended, set forth 
in Regulation S thereunder and in Section 4(2) of and Regulation D under the 
Securities Act. Of the shares issued, approximately 1,588,861 shares were issued
in reliance on Regulation S and approximately 295,331 shares were issued in 
reliance on Section 4(2)/Regulation D.  

USE OF PROCEEDS 

     In April 1997 the Company completed the sale of 2,300,000 shares of Common
Stock at a per share price of $9.00 in a firm commitment underwritten initial
public offering pursuant to a Registration Statement on Form S-1 (Registration 
No. 333-21483), which was declared effective on April 8, 1997. The Company's
managing underwriters for the April 1997 offering were UBS Securities LLC and 
Oppenheimer & Co., Inc. Of the $20,700,000 in aggregate proceeds raised in 
connection with the April 1997 offering, (i) $1,666,350 was paid to underwriters
in connection with underwriting discounts and (ii) approximately $650,000 was 
paid by the Company in connection with expenses, including legal, printing and 
filing fees, incurred in connection with the offering. There were no direct or 
indirect payments to directors or officers of the Company or any other person or
entity. Following the completion of the offering, the Company repayed 
indebtedness in an aggregate amount of $3,866,000 under an outstanding line of 
credit and term loan, and following the Apsylog Acquisition, the Company repaid
an aggregate of $1.4 million of outstanding bank indebtedness of Apsylog. None 
of the proceeds from the offering have been used for the construction of plant,
building or facility or the purchase of installation of machinery or equipment 
or for purchases of real estate or the acquisition of other businesses. The 
Company is currently investing the remaining net proceeds from the offering for
future use as additional working capital. Such remaining net proceeds have been
invested in highly liquid instruments with a maturity of three months or less. A
portion of those net proceeds may be used for the acquisition of businesses, 
products and technologies that are complementary to those of the Company.  

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

     The 1997 Annual Meeting of Stockholders of the Company was held on August
12, 1997, at which time the following matters were acted upon:  
 
<TABLE>
<CAPTION>
                                                                                                       Votes
                                                                                      Votes           Withheld/          Broker
                                                                      Votes For      Against        Abstentations       Non-Votes
                                                                      ---------      -------        -------------       ---------
<S>                                                                  <C>            <C>            <C>                 <C>
1. ELECTION OF DIRECTORS
   John J. Moores. . . . . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
   Christopher A. Cole . . . . . . . . . . . . . . . . . . . . .     13,715,243        --             242,730              --    
   David A. Farley . . . . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
   Richard A. Hosley . . . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
   Alan H. Hunt. . . . . . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
   Charles E. Noell III. . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
   Norris van den Berg . . . . . . . . . . . . . . . . . . . . .     13,882,543        --              75,430              --    
2. Ratification of Arthur Andersen LLP as independent accountants
   for the Company for the year ending March 31, 1998. . . . . .     13,954,158        --               3,815              --    
</TABLE>
 
                                          21
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
     a) Exhibits: 

     Exhibit No.                        EXHIBIT TITLE
     -----------                        -------------
<S>                 <C>
          4.2*      Declaration of Registration Rights, dated September 19,
                    1997, concerning certain registration rights granted by the
                    Registrant in connection with the acquisition of  United
                    Software, Inc.
               
         10.8*      Credit Agreement dated as of July 1, 1997 by and between the
                    Registrant and Wells Fargo Bank, N.A.
               
        10.20*      Special limited lease dated November 1, 1995 between Central
                    Monceau and Apsylog S.A.  (translation from French
                    original).
               
        10.21*      Lease dated January 19, 1995 between Central Monceau and
                    Apsylog S.A. (translation from French original).
               
         21.1*      List of Subsidiaries of the Registrant.
               
         27.1       Financial Data Schedule.
</TABLE>

    *Filed with the Company's original Report on Form 10-Q for the quarter ended
     September 30, 1997.

     b) Reports on Form 8-K: 

     The Company filed no Current Reports on Form 8-K during the three months
ended September 30, 1997. The Company filed a Current Report on Form 8-K on 
October 2, 1997 and a Current Report on Form 8-K/A on October 29, 1997 in 
connection with its acquisition of United Software, Inc. The amended Current 
Report on Form 8-K/A included the following financial statements (and notes 
thereto) relating to such acquisition:

     Consolidated Balance Sheets of United Software, Inc. as of December 31,
     1995, December 31, 1996, and June 30, 1997 (unaudited)   

     Consolidated Statements of Operations of United Software, Inc. for the
     years ended December 31, 1995 and 1996 and for the six months ended June
     30, 1996 and 1997 (unaudited)   

     Consolidated Statements of Stockholders' Deficit of United Software, Inc.
     for the years ended December 31, 1995 and 1996 and for the six months ended
     June 30, 1997 (unaudited)

     Consolidated Statements of Cash Flows of United Software, Inc. for the
     years ended December 31, 1995 and 1996 and for the six months ended June
     30, 1996 and 1997 (unaudited)   

     The following unaudited pro forma combined financial statements (and notes
thereto) were also included in the form 8-K/A:  

     Unaudited Pro Forma Combined Balance Sheet 
     Unaudited Pro Forma Combined Statement of Operations for the three months 
     ended June 30, 1997   
     Unaudited Pro Forma Combined Statement of Operations for the year ended   
     March 31, 1997   
                                          22
<PAGE>

                                     SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to its quarterly 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 21st day of April, 1999.

                                        
                                        PEREGRINE SYSTEMS, INC.

          
                                        By       /s/ David A. Farley
                                          -------------------------------------
                                                     David A. Farley
                                           Senior Vice President, Finance and 
                                        Administration Chief Financial Officer
                                              (Principal Financial Officer)





                                        
                                        By       /s/ Matthew C. Gless
                                          -------------------------------------
                                                    Matthew C. Gless
                                          Vice President, Finance and Chief
                                                  Accounting Officer



















                                          23
<PAGE>

                                                                    EXHIBIT 27.1
<TABLE>
<CAPTION>
                              PEREGRINE SYSTEMS, INC.
                                   FINANCIAL DATA
<S>                                                 <C>
Multiplier . . . . . . . . . . . . . . . . . . . .               1,000
Period Type. . . . . . . . . . . . . . . . . . . .               6-MOS
Fiscal Year End. . . . . . . . . . . . . . . . . .      March 31, 1998
Period Start . . . . . . . . . . . . . . . . . . .       April 1, 1997
Period End . . . . . . . . . . . . . . . . . . . .  September 30, 1997
Cash . . . . . . . . . . . . . . . . . . . . . . .              16,754
Securities . . . . . . . . . . . . . . . . . . . .                   0
Receivables. . . . . . . . . . . . . . . . . . . .              11,948
Allowances . . . . . . . . . . . . . . . . . . . .               (452)
Inventory. . . . . . . . . . . . . . . . . . . . .                   0
Current Assets . . . . . . . . . . . . . . . . . .              31,334
PP&E . . . . . . . . . . . . . . . . . . . . . . .              10,740
Depreciation . . . . . . . . . . . . . . . . . . .             (6,005)
Total Assets . . . . . . . . . . . . . . . . . . .              68,163
Current Liabilities. . . . . . . . . . . . . . . .              22,233
Bonds. . . . . . . . . . . . . . . . . . . . . . .                   0
Preferred Mandatory. . . . . . . . . . . . . . . .                   0
Preferred. . . . . . . . . . . . . . . . . . . . .                   0
Common . . . . . . . . . . . . . . . . . . . . . .                  17
Other SE . . . . . . . . . . . . . . . . . . . . .              41,863
Total Liability and Equity . . . . . . . . . . . .              68,163
Sales. . . . . . . . . . . . . . . . . . . . . . .              23,218
Total Revenues . . . . . . . . . . . . . . . . . .              23,218
CGS. . . . . . . . . . . . . . . . . . . . . . . .               4,004
Total Costs. . . . . . . . . . . . . . . . . . . .              25,499
Other Expenses . . . . . . . . . . . . . . . . . .                   0
Loss Provision . . . . . . . . . . . . . . . . . .                 232
Interest Expense . . . . . . . . . . . . . . . . .                  23
Income Pretax. . . . . . . . . . . . . . . . . . .             (1,877)
Income Tax . . . . . . . . . . . . . . . . . . . .               1,880
Income Continuing. . . . . . . . . . . . . . . . .             (3,757)
Discontinued . . . . . . . . . . . . . . . . . . .                   0
Extraordinary. . . . . . . . . . . . . . . . . . .                   0
Changes. . . . . . . . . . . . . . . . . . . . . .                   0
Net Income . . . . . . . . . . . . . . . . . . . .             (3,757)
EPS Basic. . . . . . . . . . . . . . . . . . . . .              (0.25)
EPS Diluted. . . . . . . . . . . . . . . . . . . .              (0.25)
</TABLE>