<PAGE>

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                                   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, 1998

                                          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                             (I.R.S.
           JURISDICTION OF                             EMPLOYER
           INCORPORATION OR                         IDENTIFICATION
            ORGANIZATION)                              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 June 30, 1998 was 19,383,570.

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<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, 1998 
      AND MARCH 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . .3

      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
      MONTHS ENDED JUNE 30, 1998 AND 1997. . . . . . . . . . . . . . . . . .4

      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 
      THREE MONTHS ENDED JUNE 30, 1998 AND 1997. . . . . . . . . . . . . . .5

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

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . .8


PART II.  OTHER INFORMATION

  ITEM  2.  CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . 20

  ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . 20

  ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 20

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

                                       2

<PAGE>

                                      PART I

                ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                              PEREGRINE SYSTEMS, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                       MARCH 31,      JUNE 30, 
                                                        1998           1998
                                                     -----------    -----------
                                                                    (UNAUDITED)
<S>                                                  <C>            <C>

                                     ASSETS
Current Assets:
     Cash and cash equivalents . . . . . . . .         $14,950         $13,216
     Short-term investments. . . . . . . . . .           7,027           7,800
     Accounts receivable, net of allowance for 
       doubtful accounts of $485 and $545, 
       respectively. . . . . . . . . . . . . .          16,761          17,929
     Deferred tax assets . . . . . . . . . . .           7,297           7,297
     Other current assets. . . . . . . . . . .           2,905           5,053
                                                      ---------       ----------
       Total current assets. . . . . . . . . .          48,940          51,295
Property and equipment, net. . . . . . . . . .           5,455           7,177
Goodwill and other . . . . . . . . . . . . . .           2,342           2,218
                                                      ---------       ----------
                                                       $56,737         $60,690
                                                      ---------       ----------
                                                      ---------       ----------

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable. . . . . . . . . . . . .         $ 2,337         $ 4,351
     Accrued expenses. . . . . . . . . . . . .           9,310           9,121
     Deferred revenue. . . . . . . . . . . . .          11,570          10,222
     Current portion of long-term debt . . . .             151             251
                                                      ---------       ----------
       Total current liabilities . . . . . . .          23,368          23,945
Long-term debt, net of current portion . . . .             966             449
Deferred revenue, net of current portion . . .           1,802           1,879
                                                      ---------       ----------
           Total liabilities . . . . . . . . .          26,136          26,273
                                                      ---------       ----------
Stockholders' Equity:
     Preferred stock, $0.001 par value, 
       5,000,000 shares authorized no shares 
       issued or outstanding . . . . . . . . .             -               -  
     Common Stock, $0.001 par value, 50,000,000 
       shares authorized, 18,790,000 and 
       19,384,000 shares issued and outstanding,
       respectively. . . . . . . . . . . . . .              19              20
     Additional paid-in capital. . . . . . . .          74,351          75,705
     Accumulated deficit . . . . . . . . . . .         (41,461)        (38,234)
     Unearned portion of deferred compensation          (1,493)         (1,404)
     Cumulative translation adjustment . . . .            (553)           (599)
     Treasury stock (at cost). . . . . . . . .            (262)         (1,071)
                                                      ---------       ----------
       Total stockholders' equity. . . . . . .          30,601          34,417
                                                      ---------       ----------
                                                       $56,737         $60,690
                                                      ---------       ----------
                                                      ---------       ----------

</TABLE>

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

                                       3

<PAGE>

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

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED JUNE 30,
                                                     ---------------------------
                                                         1997            1998
                                                      ---------       ---------
<S>                                                   <C>             <C>

Revenues:
  Licenses . . . . . . . . . . . . . . . . . .         $ 6,328         $13,882
  Maintenance and services . . . . . . . . . .           4,687           7,868
                                                       --------        --------
     Total revenues. . . . . . . . . . . . . .          11,015          21,750
                                                       --------        --------
Costs and Expenses:
  Cost of licenses . . . . . . . . . . . .                  59              71
  Cost of maintenance and services . . . . . .           1,781           4,455
  Sales and marketing. . . . . . . . . . . . .           4,317           8,142
  Research and development . . . . . . . . . .           1,644           2,393
  General and administrative . . . . . . . . .           1,143           1,980
                                                       --------        --------
     Total costs and expenses. . . . . . . . .           8,944          17,041
                                                       --------        --------
Operating income . . . . . . . . . . . . . . .           2,071           4,709
Interest income and other, net . . . . . . . .             178             260
                                                       --------        --------
Income before income taxes . . . . . . . . . .           2,249           4,969
Income tax expense . . . . . . . . . . . . . .             832           1,742
                                                       --------        --------
     Net Income. . . . . . . . . . . . . . . .         $ 1,417         $ 3,227
                                                       --------        --------
                                                       --------        --------

Net income per share - basic:
Net income per share . . . . . . . . . . . . .         $  0.10         $  0.17
                                                       --------        --------
                                                       --------        --------
Weighted average common shares outstanding . .          14,493          19,235
                                                       --------        --------
                                                       --------        --------

Net income per share - diluted:
Net income per share . . . . . . . . . . . . .         $  0.08         $  0.16
                                                       --------        --------
                                                       --------        --------
Weighted average common and common equivalent 
  shares outstanding . . . . . . . . . . . . .          17,567          20,478
                                                       --------        --------
                                                       --------        --------

</TABLE>

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

                                       4

<PAGE>

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

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED JUNE 30,
                                                      ---------------------------
                                                          1997          1998
                                                      ----------      ---------
<S>                                                   <C>             <C>
Cash flow from operating activities:
   Net income. . . . . . . . . . . . . . . . .         $ 1,417         $ 3,227
Adjustments to reconcile net income to net 
cash provided by operating activities:
  Depreciation and amortization. . . . . . . .             346             654
  Increase (decrease) in cash resulting from 
  changes in:
     Accounts receivable . . . . . . . . . . .             (74)         (1,168)
     Financed receivables. . . . . . . . . . .             205             -  
     Deferred tax assets . . . . . . . . . . .             777             -  
     Other current assets. . . . . . . . . . .            (384)         (2,148)
     Accounts payable. . . . . . . . . . . . .            (222)          2,014
     Accrued expenses. . . . . . . . . . . . .            (172)           (189)
     Deferred revenue. . . . . . . . . . . . .             817          (1,271)
     Other . . . . . . . . . . . . . . . . . .             537              28
                                                      ----------      ----------
                                                         3,247           1,147
                                                      ----------      ----------
     Net cash used by discontinued business. .            (170)            -  
                                                      ----------      ----------
       Net cash provided by operating activities         3,077           1,147
                                                      ----------      ----------
Cash flows from investing activities:
  Purchases of short-term investments. . . . .             -           (27,573)
  Maturities of short-term investments . . . .             -            26,800
  Purchases of property and equipment. . . . .            (305)         (2,191)
  Proceeds from sale of product line . . . . .             250             -  
                                                      ----------      ----------
     Net cash used in investing activities . .             (55)         (2,964)
                                                      ----------      ----------
Cash flows from financing activities:
  Repayment on bank line of credit . . . . . .          (1,974)            -  
  Repayments of long-term debt . . . . . . . .          (1,666)           (417)
  Issuance of common stock . . . . . . . . . .          18,126           1,356
  Treasury stock purchased . . . . . . . . . .            (262)           (809)
  Principal payments under capital lease 
  obligation . . . . . . . . . . . . . . . . .            (108)            -  
                                                      ----------      ----------
     Net cash provided by financing activities          14,116             130
                                                      ----------      ----------
Effect of exchange rate changes on cash. . . .             (49)            (47)
                                                      ----------      ----------
Net increase (decrease) in cash and cash 
equivalents. . . . . . . . . . . . . . . . . .          17,089          (1,734)
Cash and cash equivalents, beginning of period             305          14,950
                                                      ----------      ----------
Cash and cash equivalents, end of period . . .         $17,394         $13,216
                                                      ----------      ----------
                                                      ----------      ----------
Supplemental Disclosure of Cash Flow 
Information:
  Cash paid during the period for:
       Interest. . . . . . . . . . . . . . . .         $    10         $     5
       Income taxes. . . . . . . . . . . . . .         $   -           $    20

</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 June 30, 
1998 and the condensed consolidated statements of operations and cash flows 
for the three month periods ended June 30, 1998 and 1997 have been prepared 
by Peregrine Systems, Inc. (the "Company") without audit.  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, 1998, 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.

NOTE 2.  EARNINGS PER SHARE

     In 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."  SFAS 
128 replaced the previously reported primary and fully diluted income per 
share with basic and diluted income per share.  Unlike primary income per 
share, basic income per share excludes any dilutive effects of options, 
warrants and convertible securities.  Diluted income per share is similar to 
the previously reported fully diluted income per share.

     Basic income per share is computed using the weighted average number of 
common shares outstanding.  Diluted income per share is computed using the 
weighted average number of common shares and common share equivalents 
outstanding during the period.  Dilutive common share equivalents consist of 
employee stock options using the treasury method.

     The following table sets forth the computation of basic and diluted 
income per share:

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED JUNE 30 
                                                --------------------------
                                                    1997         1998     
                                                  --------     --------
                                                  (IN THOUSANDS, EXCEPT 
                                                    PER SHARE AMOUNTS)
<S>                                               <C>          <C>

Numerator:
  Net income . . . . . . . . . . . . . . .        $ 1,417       $ 3,227
                                                 ---------     ---------
                                                 ---------     ---------

Denominator:
  Denominator for basic income per share, 
  weighted average shares. . . . . . . .           14,493        19,235
  Effective of dilutive securities:
                                                 ---------     ---------
  Employee stock options . . . . . . . . .          3,074         1,243
                                                 ---------     ---------
  Dilutive potential common shares . . . .         17,567        20,478
  Denominator for diluted income per share         17,567        20,478
                                                 ---------     ---------
                                                 ---------     ---------

  Net income per share - basic . . . . . .        $  0.10       $  0.17
                                                 ---------     ---------
                                                 ---------     ---------
  Net income per share - diluted . . . . .        $  0.08       $  0.16
                                                 ---------     ---------
                                                 ---------     ---------
</TABLE>

                                       6

<PAGE>

NOTE 3.  REVENUE RECOGNITION

     As of April 1, 1998, the Company adopted AICPA SOP 97-2, Software 
Revenue Recognition, as amended by EITF 98-4 which was effective for 
transactions that the Company entered into in fiscal year 1998.  Prior years 
were not restated. The adoption of SOP 97-2 did not have a material adverse 
effect on the revenues or income for the three months ended June 30, 1998.

NOTE 4.  COMPREHENSIVE INCOME

     As of April 1, 1998, the Company adopted the Financial Accounting 
Standards Board's Statement of Financial Accounting Standards 130 "Reporting 
Comprehensive Income."  Statement 130 establishes new rules for the reporting 
and display of comprehensive income and its components.  The adoption of this 
statement had no material impact on the Company's net income or stockholders' 
equity, therefore no adjustments will be reported in stockholders' equity.

NOTE 5.  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

     The Company will be required to adopt Financial Accounting Standards 
Board's Statement of Financial Accounting Standards No. 131, "Disclosures 
about Segments of an Enterprise and Related Information." Statement 131 
superseded FASB Statement No. 14, Financial Reporting for Segments of a 
Business Enterprise effective fiscal 1999.  Statement 131 established 
standards for the way that public business enterprises report information 
about operating segments in annual financial statements and requires that 
those enterprises report selected information about operating segments in 
interim financial reports.  Statement 131 also establishes standards for 
related disclosures about products and services, geographic areas, and major 
customers.  The adoption of Statement 131 will not affect the results of 
operations or financial position,  but  may affect the disclosure of the 
segment information that will be disclosed in the Annual Report on Form 10-K 
for the year ended March 31, 1999.

NOTE 6.   ACQUISITION

     On July 30, 1998, the Company completed the acquisition of Innovative 
Tech Systems, Inc.  The acquisition was completed as a stock-for-stock 
exchange at the ratio of 0.2341 shares of Peregrine Systems Common Stock for 
each share of Innovative Tech Common Stock.  In addition, certain outstanding 
warrants to acquire Innovative Tech Common Stock were exchanged for and 
converted into shares of Peregrine Common on a net issuance basis, based on 
such exchange ratio and the trading price of Peregrine Common Stock prior to 
the closing of the acquisition.  Based on the measurement date of the 
transaction, consideration given for the acquisition is expected to be $72.9 
million plus acquisition related costs and net liabilities assumed.  The 
acquisition will be accounted for as a purchase, and the Company expects to 
take a charge related to the purchase of in-process research and development 
in the quarter ending September 30, 1998, of substantially all of the 
acquisition price.

                                       7

<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. 

OVERVIEW

     The Company develops, markets, and supports an integrated suite of 
software applications that automates the management of complex, 
enterprise-wide information and infrastructure assets.  In 1995, the Company 
commenced sales of SERVICECENTER, the Company's Enterprise Service Desk 
product suite.  During fiscal 1998 the Company expanded the strategic concept 
of its product line implementing its Infrastructure Management strategy and 
executing on that strategy with its acquisition in September 1997 of United 
Software, Inc., including its wholly-owned subsidiary Apsylog, S.A. ("Apsylog 
Acquisition").  As a result of the Apsylog Acquisition, the Company acquired 
its ASSETCENTER asset management product suite.  SERVICECENTER and 
ASSETCENTER are currently available for the Windows NT and UNIX platforms, 
and SERVICECENTER continues to be available for the MVS platform.

     Since the release of SERVICECENTER in July 1995, and until the Apsylog 
Acquisition, SERVICECENTER accounted for substantially all of the Company's 
license revenues.  Since the Apsylog Acquisition, SERVICECENTER and 
ASSETCENTER together have accounted for substantially all of the Company's 
license revenues. 

     During fiscal 1998, the Company determined that customer needs required 
a more comprehensive solution for control and management of their 
infrastructure assets, including availability of assets, minimizing 
investments and expense, consolidating data, and interfacing to enterprise 
applications.  Accordingly, the Company refocused its marketing strategy and 
product positioning to focus on this Infrastructure Management strategy.  The 
Company's focus on the Infrastructure Management strategy, the Company's 
rapid growth, and the Apsylog Acquisition have resulted in continuing efforts 
to rebuild the Company's senior management team, redefine the product 
development strategy, establish a comprehensive marketing strategy, and 
strengthen the Company's financial and budgeting processes.

     On July 30, 1998, the Company completed the acquisition of Innovative 
Tech Systems, Inc., a provider of facilities management software systems 
("Innovative").  The Company acquired Innovative to further its 
Infrastrusture Management strategy by coupling the Company's SERVICECENTER 
and ASSETCENTER products, which focus on the users information technology 
infrastructure, with Innovative's SPAN-FM product, which assist users to 
track and manage their physical plant, facilities, and related assets.

     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.  The Company has sold its original 
PNMS software to a sizable installed base of customers, many of whom have 
recently transitioned to SERVICECENTER. The Company's installed customer base 
has generated a consistent level of maintenance revenues. 

     Revenues from license agreements are recognized currently, provided that 
all of the following conditions are met: a noncancelable license agreement 
has been signed, the product has been delivered, there are no material 
uncertainties regarding customer acceptance, collection of the resulting 
receivable is deemed probable, and 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 
objective evidence. Consulting revenues are primarily related to 
implementation services most often performed on a time and material basis 
under separate service agreements for the installation of the Company's 
products. Revenues from consulting and training services are recognized as 
the respective services are performed. 

                                       8

<PAGE>

     The Company currently derives substantially all of its license revenues 
from the sale of SERVICECENTER and ASSETCENTER and expects them 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 the SERVICECENTER and ASSETCENTER product 
suites, including future enhancements, as well as SPAN-FM. Factors adversely 
affecting the pricing of, demand for or market acceptance of the 
SERVICECENTER, ASSETCENTER, or SPAN-FM product suites, 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 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.  The Company has 
implemented a foreign currency forward hedging program.  The hedging program 
consists primarily of using 30-day forward-rate currency contracts.  Currency 
contracts are in accordance with SFAS No. 52 and receive hedge accounting 
treatment.  Accordingly, to the extent 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 risk.

     Although the Company has been expanding its presence in the Pacific Rim 
over the last year, its Pacific Rim sales activity has not been material. 
Accordingly, the Company's operations and financial conditions have not been 
materially impacted by the recent Asian financial crisis.

                                       9

<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 JUNE 30, 
                                         ---------------------------
                                              1997          1998
                                            --------      --------
<S>                                         <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Licenses                                    57.4%          63.8%
  Maintenance and services                    42.6           36.2
                                            -------        -------
     Total revenues                          100.0          100.0
Costs and expenses:
  Cost of licenses                             0.5            0.4
  Cost of maintenance and services            16.2           20.5
  Sales and marketing                         39.2           37.4
  Research and development                    14.9           11.0
  General and administrative                  10.4            9.1
                                            -------        -------
     Total costs and expenses                 81.2           78.4
                                            -------        -------
Operating income                              18.8           21.6
                                            -------        -------
Interest income and other                      1.6            1.2
                                            -------        -------
Income before income taxes                    20.4           22.8
                                            -------        -------
Income tax expense                             7.5            8.0
                                            -------        -------
Net income                                    12.9%          14.8%
                                            -------        -------
                                            -------        -------

</TABLE>

THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997

REVENUES

     Total revenues were $21.8 million and $11.0 million in the first quarter 
of fiscal 1999 and 1998, respectively, representing a period-to-period 
increase of 97%.

     LICENSES.  License revenues were $13.9 million and $6.3 million in the 
first quarter of fiscal 1999 and 1998, respectively, representing 64% and 57% 
of total revenues in the respective periods.  The increases in license 
revenues are attributable to increased demand for new licenses of 
SERVICECENTER (and following the Apsylog Acquisition, licenses for 
ASSETCENTER), additional seats purchased by existing SERVICECENTER customers, 
higher average transaction sizes, more effective corporate marketing 
programs, improved sales force productivity, expansion of the Company's 
domestic and international sales forces, and the effect of combining 
Apsylog's operations since the Apsylog Acquisition in September 1997.

     MAINTENANCE AND SERVICES.  Maintenance and services revenues were  $7.9 
million and $4.7 million in the first quarter of fiscal 1999 and 1998, 
respectively, representing 36% and 43% 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, 
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 licenses was $71,000 and $59,000 in the first 
quarter of fiscal 1999 and 1998, respectively, each representing less than 1% 
of total license revenues in the respective periods. 

     COST OF MAINTENANCE AND SERVICES.  Cost of maintenance and services 
revenues was $4.5 million and $1.8 million in the first quarter of fiscal 
1999 and 1998, respectively, representing 57% and 38% of total maintenance 
and service revenues in the respective periods. The dollar increase in the 
first quarter of fiscal 1999 over 1998 is attributable to an increase in 
customer

                                      10

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support personnel and professional services personnel in connection with the 
corresponding increase in professional services revenue and the effect of 
combining Apsylog's operations since the Apsylog Acquisition in September 
1997. Cost of maintenance and services increased as a percentage of related 
revenues because of increased labor costs.

     SALES AND MARKETING.  Sales and marketing expenses were $8.1 million and 
$4.3 million in the first quarter of fiscal 1999 and 1998, respectively, 
representing 37% and 39% of total revenues in the respective periods. The 
dollar increase in sales and marketing expenses is attributable to the 
significant expansion of both the North American and international sales 
forces, increase in marketing personnel, the effect of combining Apsylog's 
operations since the Apsylog Acquisition in September 1997, and the effect of 
moderate operating expense increases.  Sales and marketing have decreased as 
a percentage of total revenues for the respective periods as a result of 
revenues increasing at a faster rate.  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.

     RESEARCH AND DEVELOPMENT.  Research and development expenses were $2.4 
million and $1.6 million in the first quarter of fiscal 1999 and 1998, 
respectively, representing 11% and 15% of total revenues in the respective 
periods. The dollar increase from the first quarter of fiscal 1998 to the 
first quarter of fiscal 1999 is due primarily to the increased cost of 
product author commissions, an increase in the number of personnel in the 
Research and Development department, and effect of combining Apsylog's 
operations since the Apsylog Acquisition in September 1997.  Research and 
development expenses have decreased as a percentage of total revenues from 
the first quarter of fiscal 1998 to the first quarter of fiscal 1999 as a 
result of revenues increasing at a faster rate. 

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses were 
$2.0 million and $1.1 million in the first quarter of fiscal 1999 and 1998, 
respectively, representing 9% and 10% of total revenues in the respective 
periods. The dollar increase from fiscal 1998 to 1999 are attributable 
primarily to costs associated with administrative personnel additions to 
support the Company's growth, management restructuring, and the effect of 
combining Apsylog's operations since the Apsylog Acquisition in September 
1997.  

PROVISION FOR INCOME TAXES

     Income tax expense for the first fiscal quarter of 1999 amounted to $1.7 
million compared with $0.8 million in the comparable quarter of fiscal 1998. 
This increase results from the $2.7 million dollar increase in income before 
taxes.  The effective tax rates for the first quarters of fiscal 1999 and 
fiscal 1998 were  37% and 35%, respectively.  

LIQUIDITY AND CAPITAL RESOURCES

     Until April 1997, Peregrine financed its operations through bank 
borrowings and private sales of the Company's Common Stock.  At June 30, 1998 
the Company had an aggregate cash and short-term investments balance of $21.0 
million due primarily to the Company's April 1997 initial public offering 
proceeds and cash generated by operations.

     The Company believes that the net proceeds from its initial public 
offering in April 1997, together with its current cash and short-term 
investments balances, 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 Peregrine experiences growth in the future, Peregrine anticipates that 
its operating and investing activities may use cash. Consequently, any such 
future growth may require Peregrine 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 
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:

     HISTORY OF OPERATING LOSSES. Through June 30, 1998, the Company has 
recorded cumulative net losses of approximately $38.2 million, including 
approximately $34.8 million related to the write-off of acquired in-process 
research

                                      11

<PAGE>

and development in connection with the Apsylog Acquisition.  The Company 
anticipates recognizing a significant net loss in the quarter ended September 
30, 1998 related to the write-off of acquired in-process research and 
development in connection with the acquisition of Innovative.  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 until the acquisition of 
ASSETCENTER, 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 years ended March 31, 1997 and 1998 
(excluding the impact of the $34.8 million charge related to acquired 
in-process research and development 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. 

     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, (i) the ability of the Company to 
develop, introduce and market new and enhanced versions of its software on a 
timely basis; (ii) market demand for the Company's software; (iii) the size, 
timing and contractual terms of significant orders; (iv) the timing and 
significance of new software product announcements or releases by the Company 
or its competitors; (v) changes in pricing policies by the Company or its 
competitors; (vi) changes in the Company's business strategies; (vii) 
budgeting cycles of its potential customers; (viii) changes in the mix of 
software products and services sold; (ix) changes in the mix of revenues 
attributable to domestic and international sales; (x) the impact of 
acquisitions of competitors; (xi) seasonal trends; (xii) the cancellations of 
licenses or maintenance agreements; (xiii) product life cycles; (xiv) 
software defects and other product quality problems; (xv) and personnel 
changes. The Company has historically operated with little or no backlog and  
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 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. 

     PRODUCT CONCENTRATION. The Company currently derives substantially all 
of its license revenues from the sale of its SERVICECENTER and ASSETCENTER 
suites of applications and expects them 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

                                      12

<PAGE>

market acceptance of SERVICECENTER and ASSETCENTER, including future 
enhancements as well as SPAN-FM. Factors adversely affecting the pricing of, 
demand for, or market acceptance of SERVICECENTER, ASSETCENTER, or SPAN-FM 
such as competition or technological change, could have a material adverse 
effect on the Company's business, results of operations, and financial 
condition. 

     DEPENDENCE ON MARKET ACCEPTANCE OF INFRASTRUCTURE MANAGEMENT SOFTWARE 
SOLUTIONS.  Until recently, 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 capable of managing multiple aspects of an enterprise's IT structure.  
In recent years, the Company's license revenues have derived principally from 
sales of its SERVICECENTER suite of IT management applications. In September 
1997, the Company broadened its IT infrastructure management product suite by 
acquiring ASSETCENTER, an asset management product line, through the Apsylog 
Acquisition. In addition, the Company has increased the functionality of 
SERVICECENTER to manage aspects of the enterprise infrastructure not 
necessarily related to IT. In July 1998, the Company acquired Innovative Tech 
Systems, Inc. ("Innovative"), a provider of facilities management software.  
Innovative's product strategy has focused on providing building and 
facilities management software applications, and its license revenues have 
consisted entirely of sales of its SPAN-FM applications suite.  In acquiring 
Innovative, the Company intends to further broaden its product line beyond 
traditional IT infrastructure management to offer a more comprehensive 
product suite capable of managing a business enterprise's IT infrastructure, 
its physical plant and facilities, its communications infrastructure, and its 
distribution systems. 

     In recent years, the market for enterprise software solutions has been 
characterized by rapid technological change, frequent new product 
announcements and introductions, and evolving industry standards. In response 
to advances in technology, customer requirements have become increasingly 
complex, resulting in industry consolidation of product lines offering 
similar or related functionality. In particular, the Company believes that a 
market for integrated enterprise-wide infrastructure management solutions, 
including applications for IT management, asset management, building and 
facilities management, communications resource management, and distribution 
systems management, is evolving from existing requirements for specific IT 
management solutions. Nevertheless, the existence of such a market is 
unproven. Any failure of such a market to develop would have a material 
adverse effect on the Company's business, results of operations, or financial 
condition. Regardless of the development of a market for integrated 
infrastructure management solutions, factors adversely affecting the pricing 
of, demand for, or market acceptance of one or more of SERVICECENTER or 
ASSETCENTER, or SPAN-FM could have a material adverse effect on the Company's 
business, results of operations, and financial condition. 

     INTEGRATION OF INNOVATIVE TECH SYSTEMS INTO THE COMPANY'S BUSINESS. The 
acquisition of Innovative, which was completed in July 1998, will require 
integration of two geographically separated companies that have previously 
operated independently. The Company believes that the acquisition will 
further its strategy to provide customers with a complete infrastructure 
management software solution. Nevertheless, no assurance can be given that 
difficulties will not be encountered in integrating the product offerings and 
operations of Innovative Tech with those of the Company, that the Company and 
Innovative will successfully complete and commercialize new products 
currently in development by Innovative or develop any new products through 
Innovative, that the marketing, distribution, or other operational benefits 
and efficiencies anticipated from integration of the respective businesses 
and products of Innovative will be achieved, or that Innovative employee 
morale will not be adversely affected as a result of the acquisition and the 
resulting integration. 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 of the Company. 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 
the Company will retain its key personnel, that the combined engineering 
teams will successfully cooperate and realize any technological benefits, 
that Innovative will benefit from the broader distribution and marketing 
opportunities available through the Company or that the Company will benefit 
from the broader product offerings available, or that the Company will 
realize any of the other anticipated benefits of the acquisition. Any failure 
to integrate the businesses and technologies of the companies successfully or 
any failure to realize the anticipated benefits of the acquisition could have 
a material adverse effect on the business, results of operations, and 
financial condition of the Company. 

     In addition, the consummation of the acquisition could result in the 
cancellation, termination, or nonrenewal of arrangements with Innovative's 
suppliers, distributors, or customers, or the loss of certain key employees, 
or the

                                      13

<PAGE>

termination of negotiations or delays in ordering by prospective customers of 
Innovative as a result of uncertainties that may be perceived to result from 
the acquisition. For example, customers or potential customers of Innovative 
who utilize enterprise service desk, asset management, or other 
infrastructure management software, including help desk software, marketed by 
competitors of Innovative could terminate or delay orders due to perceived 
uncertainties over Innovative's continued commitment to provide products and 
enhancements or support services for its products used in conjunction with 
such competing enterprise software. Any significant amount of cancellations, 
terminations, delays, or nonrenewals of arrangements with either company or 
loss of key employees or termination of negotiations or delays in ordering 
could have a material adverse effect on the business, results of operations, 
and financial condition of the Company, particularly in the quarter ending 
September 30,1998 and other near-term quarters. 

     RISKS ASSOCIATED WITH OTHER PEREGRINE ACQUISITIONS.  In addition to the 
Apsylog Acquisition and the acquisition of Innovative, the Company may make 
acquisitions of, or significant investments in, businesses that offer 
complementary products, services, and technologies and that further the 
Company's strategy of providing an integrated infrastructure management 
software solution. There can be no assurances, however, 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 business, the 
potential disruption of the Company's on-going businesses, 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 Company Common Stock, or a 
combination of cash and Company Common 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, results of operation, and financial 
condition.

     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 benefited 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. 

     The Company's ability to achieve anticipated revenues is also dependent 
in part upon its ability to recruit and employ skilled technical 
professionals from other countries. Any future shortage of qualified 
technical personnel who are either United States citizens or otherwise 
eligible to work in the United States could increase their reliance on 
foreign professionals. Many technology companies have already begun to 
experience shortages of such personnel. Any failure to attract and retain 
qualified personnel as necessary, including as a result of limitations 
imposed by federal immigration laws and the availability of visas issued 
thereunder, could have a material adverse effect on the business and results 
of

                                      14

<PAGE>

operations of the Company. 

     In particular, foreign computer professionals such as the type utilized 
by the Company typically become eligible for employment by obtaining a 
nonimmigrant visa commonly known as an H-1B. The Immigration Act of 1990 
limits the number of available H-1B visas to 65,000 per year. This limitation 
was reached for the first time approximately one month prior to the federal 
government's fiscal year ending September 30, 1997. In a notice published on 
May 11, 1998, the Immigration and Naturalization Service announced that the 
65,000 annual limitation on H-1B visas had already been reached for the 
federal government's fiscal year ending September 30, 1998. As a result, 
computer professionals from other countries who need an H-1B visa in order to 
be eligible for employment will not be eligible for employment in the United 
States until after October 1, 1998 at the earliest. Currently, legislation is 
pending in the United States Congress which, if passed in its present form, 
would increase the number of H-1B visas available. It is impossible to 
predict whether such legislation will ultimately become law. Likewise, it is 
impossible to predict what effect any future changes in the federal 
immigration laws will have on the business, results of operations, or 
financial condition of the Company.

     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. (now a division of Tivoli Systems, 
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 IBM, Computer Associates International, Inc., Network Associates, 
Inc. (recently formed as a result of the business combination of McAfee 
Associates, Inc. and Network General Corporation), and Hewlett-Packard 
Company through its acquisition of PROLIN; (iv) providers of asset management 
and facilities management software; and (v) the internal information 
technology departments of those companies with Infrastructure Management 
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 
infrastructure management applications expands. In addition, current and 
potential competitors have established or may in the future establish 
cooperative relationships among themselves or with third parties, or large 
software companies could acquire or establish alliances with smaller 
competitors of the Company. The Company expects software industry 
consolidation to continue in the future, and it is possible that new 
competitors or alliances among competitors may emerge and rapidly acquire 
significant market share.  For example, the Company's ability to sell its 
products depends in part on their compatibility with and support by providers 
of system management products, including Tivoli, Computer Associates, and 
Hewlett-Packard.  Both Tivoli and Hewlett-Packard have recently acquired 
providers of help desk software products.  The decision of one or more 
providers of system management products to close their systems to competing 
vendors like the Company, or to bundle their infrastructure management and/or 
help-desk software products with other products for enterprise licenses for 
promotional purposes or as part of a long-term pricing strategy, could have 
an adverse effect on the Company's ability to sell its products.  Increased 
competition, including increased competition as a result of acquisitions of 
help desk and other infrastructure management software vendors by system 
management companies, 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, results of operations, 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, results of operations, 
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 $61.9 million in fiscal 1998. If the Company is successful in achieving 
its growth plans, including the integration of Apsylog and Innovative, 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 acquisitions, the Company will be

                                      15

<PAGE>

required to integrate additional personnel and to augment or replace 
Innovative's existing financial and management systems. Such integration 
could result in a disruption of operations of the Company and could adversely 
affect the financial results of the Company. 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. In addition to continuing to invest in 
its direct sales force, particularly in North America where it has recently 
opened several new sales offices, 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% and 36% of the Company's total revenues in both 
fiscal 1997 and fiscal 1998, respectively. The Company currently has 
international sales offices in London, Paris, Frankfurt, Munich, Amsterdam 
and Copenhagen. 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, results of operations, and financial 
condition.  In particular, recent instability in the Asian-Pacific economies 
and financial markets, could have an adverse effect on the Company's 
operating results in future quarters. In addition, the Company has only 
limited experience in developing localized versions of its products and 
marketing and distributing its products internationally and 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, results of 
operations 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.

     ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION.  On January 1, 1999, 
certain member states of the European Economic Community (the "EEC") will fix 
their respective currencies to a new currency, the euro. On that day, the 
euro will become a functional legal currency within these countries. During 
the next three years, business in these EEC member states will be conducted 
in both the existing national currency, such as the French Franc or Deutsche 
Mark, and the euro. As a result, companies operating in or conducting 
business in EEC member states will need to ensure that

                                      16

<PAGE>

their financial and other software systems are capable of processing 
transactions and properly handling these currencies, including the euro. The 
Company's ASSETCENTER product was originally developed for the European 
market and is capable of managing currency data measured in euros. The 
Company is still assessing the impact that the euro will have on its internal 
systems and the other products it sells, however. The Company will take 
appropriate corrective actions based on the results of such assessment. The 
Company has not yet determined the costs related to addressing this issue, 
and there can be no assurance that this issue and its related costs will not 
have a material adverse affect on the Company's business, results of 
operations, and financial condition. 

     RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS.  The markets 
for the Company's products are 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. 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 business, 
results of operations, and financial condition of the Company. 

     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 
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 their reputation, or increased service and 
warranty costs, any of which could have a material adverse effect on the 
business, results of operations, and financial condition of the Company. 

     DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT.  The 
success of the Company will be, heavily 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 either regards as proprietary. In particular, the 
Company may provide its respective licensees with access to its data model 
and other proprietary information underlying its licensed applications. There 
can be no assurance that such means of protecting their proprietary rights 
will be adequate or that their competitors will not independently develop 
similar or superior technology. Policing unauthorized use of software is 
difficult and, while the Company is able 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 proprietary rights of the Company to the same extent as do the 
laws of the United States. Litigation may be necessary in the future to 
enforce their intellectual property rights, to protect 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 business, results of operations, 
and financial condition of any or all of the Company. 

     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 with respect to 
current or future products of the Company. The Company expects that software 
product developers will increasingly be subject to infringement claims as the 
number of products and competitors in their industry segment grows and the 
functionality of

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<PAGE>

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 acceptable terms or at all, which could have a material 
adverse effect on the business, results of operations, and financial 
condition of the Company.

     PRODUCT LIABILITY.  The license agreements which the Company enters with 
its customers typically contain provisions designed to limit exposure to 
potential product liability claims. It is possible, however, that the 
limitation of liability provisions contained in such 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 their products 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 its respective businesses, results of 
operations, and financial condition.

     CONTROL BY EXISTING STOCKHOLDERS.  Based on shares outstanding as of May 
31, 1998, the Company's officers, directors and their affiliates together 
beneficially own approximately 58.6% of the outstanding shares of the Company 
Common Stock. In particular, John J. Moores, Chairman of the Company Board, 
owns approximately 49.4% of the outstanding shares of the Company Common 
Stock. As a result, these stockholders will be able to control most matters 
requiring stockholder approval, including the election of directors and the 
approval of mergers, consolidations and sales of all or substantially all of 
the assets of the Company. This may prevent or discourage potential bids to 
acquire the Company unless the terms of acquisition are approved by such 
stockholders. 

     EFFECT OF CERTAIN COMPANY CHARTER PROVISIONS; LIMITATION OF LIABILITY OF 
DIRECTORS; ANTITAKEOVER EFFECTS OF DELAWARE LAW.  The Company is authorized 
to issue 5,000,000 shares of undesignated Preferred Stock. The Company Board 
has the authority to issue Preferred Stock in one or more series and to fix 
the price, rights, preferences, privileges and restrictions thereof, 
including dividend rights, dividend rates, conversion rights, voting rights, 
terms of redemption, redemption prices, liquidation preferences and the 
number of shares constituting a series or the designation of such series, 
without any further vote or action by Peregrine's stockholders. The issuance 
of Preferred Stock, while providing desirable flexibility in connection with 
possible acquisitions and other corporate purposes, could have the effect of 
delaying, deferring, or preventing a change in control of the Company without 
further action by the stockholders and may adversely affect the market price 
of the Common Stock and the voting and other rights of the holders of Common 
Stock. The issuance of Preferred Stock with voting and conversion rights may 
adversely affect the voting power of the holders of Common Stock, including 
the loss of voting control to others. The Company has no current plans to 
issue any shares of Preferred Stock. 

     Certain provisions of the Company's Amended and Restated Certificate of 
Incorporation and Bylaws eliminate the right of stockholders to act by 
written consent without a meeting and specify certain procedures for 
nominating directors and submitting proposals for consideration at 
stockholder meetings. Such provisions are intended to enhance the likelihood 
of continuity and stability in the composition of the Company Board and in 
the policies formulated by the Company Board and to discourage certain types 
of transactions which may involve an actual or threatened change of control 
of the Company. Such provisions are designed to reduce the vulnerability of 
the Company to an unsolicited acquisition proposal and, accordingly, could 
discourage potential acquisition proposals and could delay or prevent a 
change in control of the Company. Such provisions are also intended to 
discourage certain tactics that may be used in proxy fights but could, 
however, have the effect of discouraging others from making tender offers for 
the Company's shares and, consequently, may also inhibit fluctuations in the 
market price of the Company's Common Stock that could result from actual or 
rumored takeover attempts. These provisions may also have the effect of 
preventing changes in the management of the Company. 

     The Company is subject to Section 203 of the Delaware General 
Corporation Law (the "Antitakeover Law"), which regulates corporate 
acquisitions. The Antitakeover Law prevents certain Delaware corporations, 
including those whose securities are listed for trading on the Nasdaq 
National Market, from engaging, under certain circumstances, in a "business 
combination" with any "interested stockholder" for three years following the 
date that such stockholder became an interested stockholder. For purposes of 
the Antitakeover Law, a "business combination" includes, among other things, 
a merger or consolidation involving Peregrine and the interested stockholder 
and the sale of more than 10% of the Company's assets. In general, the 
Antitakeover Law defines an "interested stockholder" as any entity or person

                                      18

<PAGE>

beneficially owning 15% or more of the outstanding voting stock of the 
Company and any entity or person affiliated with or controlling or controlled 
by such entity or person. A Delaware corporation may "opt out" of the 
Antitakeover Law with an express provision in its original certificate of 
incorporation or an express provision in its certificate of incorporation or 
bylaws resulting from amendments approved by the holders of at least a 
majority of the company's outstanding voting shares. The Company has not 
"opted out" of the provisions of the Antitakeover Law.

     VOLATILITY OF TRADING PRICES.  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 subject to significant price and volume fluctuations 
and is expected to continue to be subject to significant price and volume 
fluctuations as a result of a number of factors. These factors include any 
shortfall in 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 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 products of the Company or products 
of competitors; changes in revenue growth rates for the Company or its 
competitors; sales of large blocks of the Company's Common Stock; and 
conditions in the financial markets in general. 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 market prices of the 
Company's Common Stock will not experience significant fluctuations in the 
future.

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<PAGE>


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

            10.3        1994 Stock Option Plan, as amended through July 1998,
                        including 1995 Stock Option Plan for French employees.
            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, 1998.

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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
14th day of August, 1998.

                                          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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