<PAGE>

                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549
                                  FORM 10-Q

/ X /    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
          
                  FOR THE QUARTERLY PERIOD ENDED JUNE 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 OF       (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 INCORPORATION OR ORGANIZATION)

                           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 June 30, 1997 was 15,215,735.

<PAGE>

                           PEREGRINE SYSTEMS, INC.

                              TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

   ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

            CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997 
            AND MARCH 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . 3

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
            MONTHS ENDED JUNE 30, 1997 AND 1996..... . . . . . . . . . . . . 4

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 
            THREE MONTHS ENDED JUNE 30, 1997 AND 1996... . . . . . . . . . . 5

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.. . . . . . 6

   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS..... . . . . . . . . . . . . . . . . . 7

 
PART II.  OTHER INFORMATION

   ITEM  2.  CHANGES IN SECURITIES.. . . . . . . . . . . . . . . . . . . . .13

   ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  . . . . . .13

   ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K....   . . . . . . . . . . . . .13

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

                                       2


<PAGE>

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


PEREGRINE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      JUNE 30,        MARCH 31,
                                                        1997            1997
                                                    -----------       ---------
                                                    (UNAUDITED)       (AUDITED)
                           ASSETS
 Current Assets:
     Cash and cash equivalents . . . . . . . . . .$  17,394,000      $  305,000
     Accounts receivable, net of allowance for 
      doubtful accounts of $350,000 and $220,000, 
      respectively . . . . . . . . . . . . . . . .   10,265,000      10,191,000
     Financed receivables. . . . . . . . . . . . .      977,000       1,182,000
     Deferred tax assets.. . . . . . . . . . . . .      975,000       1,752,000
     Other current assets. . . . . . . . . . . . .    1,058,000         924,000
                                                    -----------     -----------
     Total current assets. . . . . . . . . . . . .   30,669,000      14,354,000
 Property and Equipment, net . . . . . . . . . . .    4,391,000       4,364,000
 Other Assets. . . . . . . . . . . . . . . . . . .      483,000       1,020,000
                                                    -----------     -----------
                                                    $35,543,000     $19,738,000
                                                    -----------     -----------
                                                    -----------     -----------

 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 Current Liabilities:
     Bank line of credit . . . . . . . . . . . . .  $        --    $  1,974,000
     Accounts payable. . . . . . . . . . . . . . .      694,000         916,000
     Accrued expenses. . . . . . . . . . . . . . .    5,907,000       6,079,000
     Deferred revenue. . . . . . . . . . . . . . .    8,929,000       8,419,000
     Current portion of long-term debt . . . . . .      226,000         497,000
     Current portion of capital lease obligation .      256,000         364,000
     Net liabilities of discontinued operation . .           --         170,000
                                                    -----------     -----------
          Total current liabilities. . . . . . . .   16,012,000       18,419,00
 Long-Term Debt, net of current portion. . . . . .            -       1,395,000
 Deferred Revenue, net of current portion. . . . .    3,080,000       2,773,000
                                                    -----------     -----------
     Total liabilities . . . . . . . . . . . . . .   19,092,000      22,587,000
                                                    -----------     -----------
 Commitments and Contingencies
   Stockholders' Equity (Deficit):
     Preferred stock . . . . . . . . . . . . . . .           --              --
     Common stock. . . . . . . . . . . . . . . . .       15,000          13,000
     Additional paid-in capital. . . . . . . . . .   33,205,000      15,081,000
     Accumulated deficit . . . . . . . . . . . . .  (14,390,000)    (15,807,000)
     Unearned portion of deferred compensation . .   (1,680,000)     (1,748,000)
     Cumulative translation adjustment . . . . . .     (437,000)       (388,000)
     Treasury stock, at cost . . . . . . . . . . .     (262,000)             --
                                                    -----------     -----------
     Total stockholders' equity (deficit). . . . .   16,451,000      (2,849,000)
                                                    -----------     -----------
                                                    $35,543,000     $19,738,000
                                                    -----------     -----------
                                                    -----------     -----------

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

                                       3


<PAGE>

                           PEREGRINE SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)

                                                   THREE MONTHS ENDED JUNE 30,
                                                   ---------------------------
                                                        1997           1996 
                                                    -----------    ----------
 Revenues:
     Licenses. . . . . . . . . . . . . . . . . . .  $ 6,328,000    $ 3,760,000  
     Maintenance and services. . . . . . . . . . .    4,687,000      3,740,000  
                                                    -----------    -----------
          Total revenues . . . . . . . . . . . . .   11,015,000      7,500,000  
                                                    -----------    -----------
 Costs and Expenses:
     Cost of licenses. . . . . . . . . . . . . . .       59,000         61,000  
     Cost of maintenance and services. . . . . . .    1,781,000      1,149,000  
     Sales and marketing . . . . . . . . . . . . .    4,317,000      3,725,000  
     Research and development. . . . . . . . . . .    1,644,000      1,415,000  
     General and administrative. . . . . . . . . .    1,143,000        807,000  
                                                    -----------    -----------
          Total costs and expenses . . . . . . . .    8,944,000      7,157,000  
                                                    -----------    -----------
          Operating income (loss). . . . . . . . .    2,071,000        343,000  
 Interest income (expense) . . . . . . . . . . . .      186,000       (113,000) 
 Other income (expense), net . . . . . . . . . . .      (8,000)          1,000  
                                                    -----------    -----------
 Income from continuing operations before 
  income taxes . . . . . . . . . . . . . . . . . .    2,249,000        231,000  
 Income tax expense. . . . . . . . . . . . . . . .      832,000             --  
 Net income. . . . . . . . . . . . . . . . . . . .  $ 1,417,000    $   231,000  
                                                    -----------    -----------
                                                    -----------    -----------

 Net income per share. . . . . . . . . . . . . . .  $      0.08    $      0.02  
                                                    -----------    -----------
                                                    -----------    -----------
Weighted average common and common equivalent 
  shares outstanding . . . . . . . . . . . . . . .   17,567,000     14,330,000  
                                                    -----------    -----------
                                                    -----------    -----------

               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)


                                                   THREE MONTHS ENDED JUNE 30,
                                                            1997       1996
 
 Cash flow from operating activities:
     Net income. . . . . . . . . . . . . . . . . .  $ 1,417,000     $ 231,000  
     Adjustments to reconcile net income to net 
      cash provided by (used in) operating 
      activities:
     Depreciation and amortization . . . . . . . .      346,000       346,000  
          Increase (decrease) in cash resulting 
           from changes in:
          Accounts receivable. . . . . . . . . . .      (74,000)     (467,000)
          Financed receivables . . . . . . . . . .      205,000            --
          Deferred tax asset . . . . . . . . . . .      777,000            -- 
          Other current assets . . . . . . . . . .     (384,000)       (4,000)
          Other assets . . . . . . . . . . . . . .      537,000       156,000 
          Accounts payable . . . . . . . . . . . .     (222,000)     (480,000)
          Accrued expenses . . . . . . . . . . . .     (172,000)      328,000 
          Deferred revenue . . . . . . . . . . . .      817,000        25,000 
                                                    -----------     ---------
           . . . . . . . . . . . . . . . . . . . .    3,247,000       135,000 
                                                    -----------     ---------
     Net cash used by discontinued business. . . .     (170,000)     (297,000)
                                                    -----------     ---------
          Net cash provided by (used in) 
           operating activities. . . . . . . . . .    3,077,000      (162,000) 
                                                    -----------     ---------
 Cash flows from investing activities:
     Purchases of property and equipment . . . . .     (305,000)     (102,000)
     Proceeds from sale of product line. . . . . .      250,000       250,000  
                                                    -----------     ---------
          Net cash provided by (used in) investing  
           activities. . . . . . . . . . . . . . .      (55,000)      148,000  
                                                    -----------     ---------
 Cash flows from financing activities:
     Repayment on bank line of credit. . . . . . .   (1,974,000)     (156,000)
     Repayments of long-term debt. . . . . . . . .   (1,666,000)     (120,000)
     Issuance of common stock. . . . . . . . . . .   18,126,000            -- 
     Treasury stock purchased. . . . . . . . . . .     (262,000)           -- 
     Principal payments under capital lease 
      obligation . . . . . . . . . . . . . . . . .     (108,000)      (99,000)
                                                    -----------     ---------
          Net cash provided by (used in) 
            financing activities . . . . . . . . .   14,116,000      (375,000)
                                                    -----------     ---------
 Effect of exchange rate changes on cash . . . . .      (49,000)      (46,000)
                                                    -----------     ---------
 Net increase (decrease) in cash . . . . . . . . .   17,089,000      (435,000)
 Cash and equivalents, beginning of period . . . .      305,000       437,000  
                                                    -----------     ---------
 Cash and equivalents, end of period . . . . . . .  $17,394,000     $   2,000  
                                                    -----------     ---------
                                                    -----------     ---------

  Supplemental Disclosure of Cash Flow Information:
     Cash paid during the period for:
          Interest . . . . . . . . . . . . . . . .  $    10,000     $  109,000  
          Income taxes . . . . . . . . . . . . . .  $        --     $    7,000  
     
                 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 June 30, 
1997 and the condensed consolidated statements of operations and cash flows 
for the three month periods ended June 30, 1997 and 1996 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.  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.

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.

NOTE 3.  LIQUIDITY AND CAPITAL RESOURCES

     Cash equivalents represent highly liquid instruments with maturities of 
90 days or less.
 
NOTE 4.  COMPUTATION OF NET INCOME PER SHARE

     Net income 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 earnings per share of the 
Company for the periods ended June 30, 1997 and 1996 would not be materially 
different under SFAS 128 as that presented therein.

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.

                                       6

<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 
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. As a result, the 
Company's future operating results are dependent upon continued market 
acceptance of ServiceCenter, including future enhancements. Factors adversely 
affecting the pricing of, demand for or market acceptance of ServiceCenter, 
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 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 based 
upon the current price of the product. 

     Revenues from license agreements are recognized currently, provided that 
all of the following conditions are met: a non-cancelable license agreement 
has been signed,  the product has been delivered, there are no material 
uncertainties regarding customer acceptance, collection of the resulting 
receivable is deemed probable, and 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 with license agreements are unbundled 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 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 European currencies will remain stable 
relative to the U.S. dollar 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 does not 
currently have an active foreign exchange hedging program. Accordingly, to 
the extent not hedged by obligations denominated in local currencies, the 
Company's foreign operations are subject to the risks of future foreign 
currency fluctuations. The Company may implement a foreign currency forward 
hedging program to mitigate the foreign currency transaction risk in the 
future. 

RESULTS OF OPERATIONS

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

                                       7

<PAGE>

                                                 THREE MONTHS ENDED JUNE30, 
                                                 --------------------------
                                                     1997           1996    
                                                     ----           ----
    STATEMENT OF OPERATIONS DATA: 
         Revenues: 
         Licenses                                    57.4%           50.1% 
         Maintenance and services                    42.6            49.9   
                                                    -----           -----
                   Total revenues                   100.0           100.0   
         Costs and expenses: 
         Cost of licenses                             0.5             0.8   
         Cost of maintenance and services            16.2            15.3   
         Sales and marketing                         39.2            49.7   
         Research and development                    14.9            18.9   
         General and administrative                  10.4            10.7   
                                                    -----           -----
                   Total costs and expenses          81.2            95.4   
                                                    -----           -----
         Operating income                            18.8             4.6   
         Interest income (expense)                    1.7            (1.5)  
         Other income (expense), net                 (0.1)              -     
                                                    -----           -----
         Income (loss) before income taxes           20.4             3.1   
         Income tax expense                           7.5               -     
                                                    -----           -----
         Net income                                  12.9%            3.1% 
                                                    -----           -----
                                                    -----           -----


THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996

   REVENUES

     Total revenues were $11.0 million and $7.5 million in the first quarter 
of fiscal 1998 and 1997, respectively, representing a period-to-period 
increase of 47%.

     LICENSES.  License revenues were $6.3 million and $3.8 million in the 
first quarter of fiscal 1998 and 1997, respectively, representing 57% and 50% 
of total revenues in the respective periods.  The increases in license 
revenues are attributable to increased demand for new licenses of 
ServiceCenter, additional seats purchased by existing ServiceCenter 
customers, higher average transaction sizes, more effective corporate 
marketing programs, improved sales force productivity, and expansion of the 
Company's international sales force.

     MAINTENANCE AND SERVICES.  Maintenance and services revenues were  $4.7 
million and $3.7 million in the first quarter of fiscal 1998 and 1997, 
respectively, representing 43% and 50% of total revenues in the respective 
periods. The dollar increases 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 $59,000 and $61,000 in 
the first quarter of fiscal 1998 and 1997, respectively, each representing 1% 
of total license revenues in the respective periods. 

     COST OF MAINTENANCE AND SERVICES.  Cost of maintenance and services 
revenues was $1.8 million and $1.1 million in the first quarter of fiscal 
1998 and 1997, respectively, representing 38% and 31% of total maintenance 
and service revenues in the respective periods. The dollar increase in the 
first quarter of fiscal 1998 over 1997 is attributable to an increase in 
customer support personnel and professional services personnel in connection 
with the corresponding increase in professional services revenue. 

     SALES AND MARKETING.  Sales and marketing expenses were $4.3 million and 
$3.7 million in the first quarter of fiscal 1998 and 1997, respectively, 
representing 39% and 50% of total revenues in the respective periods. The 
dollar increase in sales and marketing expenses is attributable to the 
increase in personnel in the marketing department

                                       8
<PAGE>

and marketing spending and, to a lesser extent, expansion of both the North 
American and international sales forces and to 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, and economies of scale.

     RESEARCH AND DEVELOPMENT.  Research and development expenses were $1.6 
million and $1.4 million in the first quarter of fiscal 1998 and 1997, 
respectively, representing 15% and 19% of total revenues in the respective 
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 
$1.1 million and $0.8 million in the first quarter of fiscal 1998 and 1997, 
respectively, representing 10% and 11% of total revenues in the respective 
periods. The dollar and percentage 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.

   OTHER INCOME

     Other income was not material in the first quarter of fiscal 1998 and 1997.

   INCOME TAX EXPENSE

     Income tax expense for the first fiscal quarter of 1998 amounted to $0.8 
million compared with zero in the comparable quarter of 1997.  This increase 
results from the $2.0 million dollar increase in income before taxes.  The 
effective tax rate for the first quarter of fiscal 1998 was 37%.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had $17.4 million in cash and cash equivalents at June 30, 
1997 compared to $0.3 million at March 31, 1997.  The increase is 
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.

     The Company has a $4.5 million revolving bank credit line which expires 
November 30, 1997, and a term loan from the same bank.  The term loan is 
secured by trade receivables and fixed assets of the Company and the 
revolving credit line is secured by accounts receivable, equipment and 
certain other assets of the Company. Both facilities are 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.

     The Company believes that the net proceeds from its initial public 
offering in April 1997, together with 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. 

                                       9
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

     LIMITED PROFITABILITY; HISTORY OF OPERATING LOSSES. The Company has 
recorded cumulative net losses of approximately $14.4 million through June 
30, 1997. In recent years, the Company's product line has changed 
substantially. The Company's ServiceCenter product, from which the Company 
derived substantially all of its license revenues for the year ended March 
31, 1997, only began shipping in mid-1995. As a result, prediction of the 
Company's future operating results is difficult, if not impossible. Although 
the Company has achieved profitability in each quarter since March 31, 1996, 
that profitability is of limited history.  In addition, that profitability 
has fluctuated extensively. For these reasons, there can be no assurance that 
the Company will be able to remain profitable on a quarterly basis or 
maintain profitability on an annual basis. In addition, the Company does not 
believe that the growth in revenues it has experienced in recent years is 
necessarily indicative of future revenue growth or future operating results.

     POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; LENGTHY SALES CYCLE; 
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; 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, planned 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 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 delay in the sales cycle 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.

     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

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<PAGE>

total revenues, and the Company may experience additional variability in 
demand associated with seasonal buying patterns in such foreign markets.

     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. As a result, the Company's future operating results are 
dependent upon continued market acceptance of ServiceCenter, including future 
enhancements. Factors adversely affecting the pricing of, demand for, or 
market acceptance of ServiceCenter, 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. 

     DEPENDENCE ON KEY PERSONNEL; ABILITY TO RECRUIT PERSONNEL.  The 
Company's success will depend to a significant extent on the continued 
service of its senior management and certain other key employees of the 
Company, including selected sales, consulting, technical and marketing 
personnel. 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 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, several of the Company's executive 
officers, including its President and Chief Executive Officer, Chief 
Financial Officer, and certain operating vice presidents, have been employed 
by the Company for a relatively short period of time. Since joining the 
Company, the new management team has devoted substantial effort in refocusing 
the Company's product, sales and marketing strategies. In connection with 
such changes, the Company restructured its sales and marketing departments, 
which resulted in the replacement of a significant number of employees. 
Although management believes that this restructuring has benefitted the 
Company, many of the Company's current employees have been with the Company 
for only a limited period of time. 

     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. There can 
be no assurance that the Company will be successful in attracting and 
retaining such 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, and (iii) large information 
technology and systems management companies such as International Business 
Machines Corporation ("IBM") and Computer Associates International, Inc. 
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

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<PAGE>

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. If 
the Company is successful in achieving its growth plans, 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. 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.

     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. 

     INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS.  International sales 
represented approximately 29% of the Company's total revenues in both fiscal 
1996 and fiscal 1997, respectively. The Company currently has international 
sales offices in London, Paris, Frankfurt and Copenhagen. The Company 
believes that its continued growth and profitability will require 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

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<PAGE>

experience currency losses in the future. The Company has not previously 
undertaken hedging transactions to cover its currency exposure but may hedge 
a portion of its currency exposure in the future as management deems 
appropriate. 

                                   PART II. 
                               OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES

         None.

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

         None.  

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)   Exhibits:

           Exhibits     Exhibit Title 
           --------     -------------
        

            11.1        Statement regarding computation of per share earnings.
            27.1        Financial Data Schedule

b)  Reports on Form 8-K:

       No reports on Form 8-K were filed during the quarter ended June 30, 1997.

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<PAGE>

                                 SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized in the City of San Diego, California, 
this 13th day of August, 1997.

                                    PEREGRINE SYSTEMS, INC.


                                    By  /s/ DAVID A. FARLEY 
                                        -------------------
                                          David A. Farley
                                Vice President, Finance, Chief Financial
                                   Officer (Principal Financial and 
                                         Accounting Officer)


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