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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended JUNE 30, 2001

or

|/ / | Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission file number: 000-22209

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Peregrine Systems, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) | 95-3773312(I.R.S. Employer
Identification Number)
|---------------------------------------------------------------------- | -------------------------------------------------

3611 Valley Centre Drive
San Diego, California 92130(Address of principal executive offices, including zip code)

(858) 481-5000(Registrant's telephone number, including area code)

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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, 2001, was 162,762,158.

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PEREGRINE SYSTEMS, INC.

TABLE OF CONTENTS

|           |  |                                                                                                               |  | PAGE NO.
|---------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|PART I.    |  | FINANCIAL INFORMATION                                                                                         |  |         
|Item 1.    |  | Condensed Consolidated Financial Statements                                                                   |  |         
|           |  | Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and March 31, 2001 (audited)            |  | 1       
|           |  | Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2001 and 2000 (unaudited) |  | 2       
|           |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000 (unaudited) |  | 3       
|           |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                              |  | 4       
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         |  | 9       
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 32      
|PART II.   |  | OTHER INFORMATION                                                                                             |  |         
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                              |  | 33      
|Signatures |  | 34                                                                                                           

ii

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PART I  ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PEREGRINE SYSTEMS, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands, except per share amounts)

|                                                                                                                           |                                                                                                  | June 30,
2001              |           | March 31,
2001 |          
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------- | --------- | -------------- | ---------
|
|ASSETS                                                                                                                     |                                                                                                  |                            |           |                |          
|Current Assets:                                                                                                            |                                                                                                  |                            |           |                |          
|                                                                                                                           | Cash and cash equivalents                                                                        |                            | $         | 232,374        |          
|                                                                                                                           | Accounts receivable, net of allowance for doubtful accounts of $12,531 and $11,511, respectively |                            |           | 187,833        |          
|                                                                                                                           | Other current assets                                                                             |                            |           | 74,359         |          
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | Total current assets       |           |                | 494,566  
|Property and equipment, net of accumulated depreciation of $53,504 and $45,699, respectively                               |                                                                                                  |                            | 80,291    |                |          
|Goodwill, net of accumulated amortization of $409,944 and $334,178, respectively                                           |                                                                                                  |                            | 1,103,230 |                |          
|Other intangible assets, investments and other, net of accumulated amortization of $32,057 and $24,015, respectively       |                                                                                                  |                            | 240,469   |                |          
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | $                          | 1,918,556 |                | $        
|                                                                                                                           |                                                                                                  |                            |           |                |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                       |                                                                                                  |                            |           |                |          
|Current Liabilities:                                                                                                       |                                                                                                  |                            |           |                |          
|                                                                                                                           | Accounts payable                                                                                 |                            | $         | 38,858         |          
|                                                                                                                           | Accrued expenses                                                                                 |                            |           | 157,365        |          
|                                                                                                                           | Current portion of deferred revenue                                                              |                            |           | 87,561         |          
|                                                                                                                           | Current portion of long-term debt                                                                |                            |           | 397            |          
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | Total current liabilities  |           |                | 284,181  
|Deferred revenue, net of current portion                                                                                   |                                                                                                  |                            | 10,456    |                |          
|Other long-term liabilities                                                                                                |                                                                                                  |                            | 14,879    |                |          
|Long-term debt, net of current portion                                                                                     |                                                                                                  |                            | 3,697     |                |          
|Convertible subordinated notes                                                                                             |                                                                                                  |                            | 262,617   |                |          
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | Total liabilities          |           |                | 575,830  
|                                                                                                                           |                                                                                                  |                            |           |                |          
|Stockholders' Equity:                                                                                                      |                                                                                                  |                            |           |                |          
|Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or Outstanding                                |                                                                                                  |                            |          |                |          
|Common stock, $0.001 par value, 500,000 shares authorized, 162,762 and 160,359 shares issued and outstanding, respectively |                                                                                                  |                            | 163       |                |          
|Additional paid-in capital                                                                                                 |                                                                                                  |                            | 2,361,035 |                |          
|Accumulated deficit                                                                                                        |                                                                                                  |                            | (984,530  | )              |          
|Unearned portion of deferred compensation                                                                                  |                                                                                                  |                            | (19,608   | )              |          
|Cumulative translation adjustment                                                                                          |                                                                                                  |                            | (3,991    | )              |          
|Treasury stock, at cost                                                                                                    |                                                                                                  |                            | (10,343   | )              |          
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | Total stockholders' equity |           |                | 1,342,726
|                                                                                                                           |                                                                                                  |                            |           |                |          
|                                                                                                                           |                                                                                                  | $                          | 1,918,556 |                | $        
|                                                                                                                           |                                                                                                  |                            |           |                |          

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

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PEREGRINE SYSTEMS, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)        (unaudited)

|                                                                  |                                      | Three Months Ended
June 30, |        
|----------------------------------------------------------------- | ------------------------------------ | --------------------------- | -------
|
|Revenues:                                                         |                                      |                             |        
|                                                                  | Licenses                             |                             | $      
|                                                                  | Services                             |                             |        
|                                                                  |                                      |                             |        
|                                                                  |                                      | Total revenues              |        
|                                                                  |                                      |                             |        
|Costs and Expenses:                                               |                                      |                             |        
|                                                                  | Cost of licenses                     |                             |        
|                                                                  | Cost of services                     |                             |        
|                                                                  | Amortization of purchased technology |                             |        
|                                                                  | Sales and marketing                  |                             |        
|                                                                  | Research and development             |                             |        
|                                                                  | General and administrative           |                             |        
|                                                                  | Acquisition costs and other          |                             |        
|                                                                  |                                      |                             |        
|                                                                  |                                      | Total costs and expenses    |        
|                                                                  |                                      |                             |        
|Loss from operations before interest (net) and income tax expense |                                      |                             | (57,646
|Interest income (expense), net                                    |                                      |                             | (584   
|                                                                  |                                      |                             |        
|Loss from operations before income tax expense                    |                                      |                             | (58,230
|Income tax expense                                                |                                      |                             | 9,196  
|                                                                  |                                      |                             |        
|                                                                  |                                      | Net loss                    |        
|                                                                  |                                      |                             |        
|Net loss per share  basic and diluted:                           |                                      |                             |        
|                                                                  | Net loss per share                   |                             | $      
|                                                                  |                                      |                             |        
|                                                                  |                                      | Shares used in computation  |        
|                                                                  |                                      |                             |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PEREGRINE SYSTEMS, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)        (unaudited)

|                                                                            |                                                                               | Three Months Ended
June 30,                            |                                       
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------
|
|Cash flows from operating activities:                                       |                                                                               |                                                        |                                       
|Net loss                                                                    |                                                                               | $                                                      | (67,426                               
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                               |                                                        |                                       
|                                                                            | Depreciation, amortization, acquisition costs and other                       |                                                        |                                       
|                                                                            |                                                                               | Increase (decrease) in cash resulting from changes in: |                                       
|                                                                            |                                                                               |                                                        | Accounts receivable                   
|                                                                            |                                                                               |                                                        | Other current assets                  
|                                                                            |                                                                               |                                                        | Other assets                          
|                                                                            |                                                                               |                                                        | Accounts payable and other liabilities
|                                                                            |                                                                               |                                                        | Accrued expenses                      
|                                                                            |                                                                               |                                                        | Deferred revenue                      
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|Cash flows from investing activities:                                       |                                                                               |                                                        |                                       
|                                                                            | Acquisitions and investments, net of cash acquired                            |                                                        |                                       
|                                                                            | Purchases of property and equipment                                           |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|Cash flows from financing activities:                                       |                                                                               |                                                        |                                       
|                                                                            | Issuance (repayments) of long-term debt                                       |                                                        |                                       
|                                                                            | Issuance of common stock                                                      |                                                        |                                       
|                                                                            | Treasury stock purchased                                                      |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|                                                                            |                                                                               |                                                        |                                       
|Effect of exchange rate changes on cash and cash equivalents                |                                                                               |                                                        | (41                                   
|                                                                            |                                                                               |                                                        |                                       
|Net increase in cash and cash equivalents                                   |                                                                               |                                                        | (54,284                               
|Cash and cash equivalents, beginning of period                              |                                                                               |                                                        | 286,658                               
|                                                                            |                                                                               |                                                        |                                       
|Cash and cash equivalents, end of period                                    |                                                                               | $                                                      | 232,374                               
|                                                                            |                                                                               |                                                        |                                       
|Cash paid during the period for:                                            |                                                                               |                                                        |                                       
|                                                                            | Interest                                                                      |                                                        | $                                     
|                                                                            | Income taxes                                                                  |                                                        | $                                     
|Supplemental Disclosure of Noncash Investing Activities:                    |                                                                               |                                                        |                                       
|                                                                            | Stock issued and other noncash consideration for acquisitions and investments |                                                        | $                                     

The accompanying notes are an integral part of these condensed consolidated financial statements.

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

Note 1. Basis of Presentation

The accompanying condensed consolidated balance sheet as of June 30, 2001, condensed consolidated statements of operations for the three month periods
ended June 30, 2001 and 2000, and condensed consolidated statements of cash flows for the three month periods ended June 30, 2001 and 2000, have been prepared by Peregrine
Systems, Inc. (unless otherwise noted, "Peregrine Systems," "we," "PSI," "us," or "our" refers to Peregrine Systems, Inc.) and have not been audited. These condensed consolidated
financial statements, in our opinion, include all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for all periods presented. These
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K
filed for the year ended March 31, 2001, which provides further information regarding our significant accounting policies and other financial and operating information. Interim operating
results are not necessarily indicative of operating results for the full year or any other future period. The condensed consolidated financial statements include the accounts of PSI and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain amounts for prior periods have been reclassified to conform to current year presentation.

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

Our
net loss for the three month periods ended June 30, 2001 and 2000 approximates comprehensive loss, as defined by Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," for both periods.

Note 2. Revenue Recognition

Our revenues are derived principally from product licensing and services. License fees are generally due upon the granting of the license and typically include
a one-year warranty period as part of the license agreement. Service revenues are comprised of fees from maintenance (post-contract support), professional services
(consulting), network services, and training. We also derive revenues from transaction fees, subscription fees, and maintenance fees associated with our e-markets group.

Revenues
from direct and indirect license agreements are recognized, provided that all of the following conditions are met: a noncancelable license agreement has been signed; the
product has been delivered; there are no material uncertainties regarding customer acceptance; collection of the resulting receivable is deemed probable; risk of concession is deemed remote; and no
other significant vendor obligations exist. We may grant extended payment terms of more than one year. Typically this is only done in limited circumstances where the contract is with customers having
a proven credit history; when appropriate we discount the related receivable at the applicable market interest rate as a reduction of revenue. Revenues from maintenance services are recognized ratably
over the term of the support period, generally one year. Maintenance revenues which are bundled with license agreements, are unbundled using vendor specific objective evidence. Consulting revenues are
primarily related to implementation services most often performed on a time and material basis under separate service agreements for the installation of our products. Revenues from consulting and
training services are

4

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recognized as the respective services are performed. Transaction and subscription fees are recognized monthly as services are provided.

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

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

Note 3. Computation of Net Loss Per Share

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

Note 4. Acquisitions

On June 11, 2001, we announced that we had entered into a definitive agreement under which we would acquire all the outstanding shares of Remedy
Corporation, a supplier of information technology service management and customer relationship management solutions. This acquisition is currently subject to approval by Remedy's stockholders and
customary closing conditions. If the acquisition is completed, we will acquire all of the outstanding common stock of Remedy. Each outstanding share of Remedy common stock will be exchanged for $9.00
in cash and 0.9065 shares of our common stock. In addition, we will assume options outstanding under Remedy's employee stock incentive plans. Excluding assumed options and based on Remedy's
outstanding common stock as of the record date of July 9, 2001, we expect to issue approximately 28 million shares of our common stock in connection with the acquisition and to pay
Remedy stockholders an aggregate cash consideration of approximately $278.2 million.

With
respect to acquisition-related liabilities at June 30, 2001, we have both approved and preliminary plans of integration and consolidation. These plans include the steps we
believe will be necessary within the year to integrate the operations of these acquisitions. The plans provide for the consolidation of duplicate facilities and infrastructure assets and the
elimination of duplicative efforts

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and positions within the combined company. In connection with the integration plans we have accrued for acquisition-related costs comprised principally of the following components (in thousands):

Estimated LiabilityEstimated advisory fees

$
4,120Employee severance and relocation


9,810Duplicative facilities, equipment and efforts


4,230Other merger related costs


13,090$
31,250


This
accrual represents our best estimate, based on information available as of June 30, 2001, of the identifiable and quantifiable charges that we may incur as a result of the
acquisition and integration plans, however these estimates may change. Any changes in the estimates during the twelve month period following the acquisition will increase or decrease goodwill as
appropriate. We believe substantially all of the above costs will be paid for within the next twelve months.

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

|          |  | March 31,
2000 |        | Additions |   | Uses    |  | March 31,
2001 |         | Additions |   | Uses   |  | June 30,
2001
|--------- |  | -------------- | ------ | --------- | - | ------- |  | -------------- | ------- | --------- | - | ------ |  | -------------
|F.Print   |  | $              | 2,500  |           | $ |        |  | $              | (2,500  | )         | $ |       |  | $            
|Knowlix   |  |                | 1,100  |           |   |        |  |                | (1,100  | )         |   |       |  |              
|Telco     |  |                | 11,500 |           |   |        |  |                | (7,500  | )         |   | 4,000  |  |              
|Harbinger |  |                |       |           |   | 73,600  |  |                | (39,850 | )         |   | 33,750 |  |              
|Loran     |  |                |       |           |   | 8,500   |  |                | (500    | )         |   | 8,000  |  |              
|Tivoli    |  |                |       |           |   | 13,500  |  |                | (3,500  | )         |   | 10,000 |  |              
|Extricity |  |                |       |           |   | 18,000  |  |                |        |           |   | 18,000 |  |              
|          |  |                |        |           |   |         |  |                |         |           |   |        |  |              
|          |  | $              | 15,100 |           | $ | 113,600 |  | $              | (54,950 | )         | $ | 73,750 |  | $            
|          |  |                |        |           |   |         |  |                |         |           |   |        |  |              

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

Note 5. Segment and Geographic Operations

We have adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS
No. 131"). SFAS No. 131 requires disclosure of segment information in a manner consistent with the "management approach." The

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management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Prior to the acquisition of
Harbinger in June 2000, we operated exclusively in the Infrastructure Management industry. For the period of July 2000 through March 2001, we operated in two reportable segments,
the infrastructure management group and the e-markets group. Effective April 2001, we operate in four segments that meet the criteria of being a reportable segment in accordance
with the provisions of SFAS No. 131. These reportable segments are the infrastructure management group, the e-markets group, the integrated solutions group, and the shared-services
group. Transactions between our reportable segments are made at terms which approximate arms length transactions and are in accordance with accounting principles generally accepted in the United
States. There is no significant difference between the measurement of the reportable segment's profits and losses disclosed below and the measurement of profits and losses in our consolidated
statements of operations. Certain management allocations are made between these segments. Prior periods have not been restated, as it would be impracticable to do so. Required reported segment
information for the three month period ended June 30, 2001, inclusive of management allocations, is as follows (in thousands):

|                                                        |  | Infrastructure
Management
Group |         | E-Markets
Group |   | Integrated
Solutions
Group |   | Shared
Services |         | Consolidated |  
|------------------------------------------------------- |  | ------------------------------- | ------- | --------------- | - | -------------------------- | - | --------------- | ------- | ------------ | -
|Three month period ended June 30, 2001                  |  |                                 |         |                 |   |                            |   |                 |         |              |  
|Revenues                                                |  | $                               | 124,136 |                 | $ | 47,908                     |   | $               |        |              | $
|Income (loss) from operations before income tax expense |  | $                               | 17,568  |                 | $ | (44,108                    | ) | $               | (16,916 | )            | $

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

|                                       |  | North
America |         | EMEA |   | APLA   |  | Consolidated
|-------------------------------------- |  | ------------- | ------- | ---- | - | ------ |  | ------------
|Three month period ended June 30, 2001 |  |               |         |      |   |        |  |             
|Revenues                               |  | $             | 121,481 |      | $ | 44,510 |  | $           
|Three month period ended June 30, 2000 |  |               |         |      |   |        |  |             
|Revenues                               |  | $             | 59,474  |      | $ | 32,711 |  | $           

Note 6. Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date of FASB Statement No. 133," ("SFAS No. 137"). In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," ("SFAS No. 138"). SFAS No. 137 amends Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities," ("SFAS No. 133"), and SFAS No. 138 amends SFAS No. 137. SFAS No. 133, as
amended, requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. We have adopted SFAS No. 133, as amended, in the quarter ended

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June 30, 2001. SFAS No. 133 did not have a material effect on our consolidated results of operations, financial position or cash flows.

In
July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No. 141") and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions
occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination and requires
periodic evaluations of impairment of goodwill and intangible balances. SFAS No. 142 is effective April 1, 2002. We are currently assessing the impacts of adoption of SFAS No. 141
and SFAS No. 142 on goodwill and other intangible assets and the respective impact on the consolidated results of operations, financial position and cash flows.

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

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, statements concerning our future operations, financial condition and prospects, and business
strategies. The words "believe," "expect," "anticipate," and other similar expressions generally identify forward-looking statements. These forward-looking statements are subject to substantial risks
and uncertainties that could cause our future business, financial condition, or results of operations to differ materially from our historical results or currently anticipated results. Investors
should carefully review the information contained under the caption "Factors that may affect our business, financial condition, and future operating results," beginning on page 16 of this report. In
addition, investors are encouraged to review carefully the additional information contained under the caption "Additional risks associated with our pending acquisition of Remedy Corporation,"
beginning on page 29 of this report.

Overview

Peregrine is a leading global provider of software and services that are designed to reduce the frictional cost of doing business for our clients'
organizations. We offer products and services to address three principal domains:



We
offer software products, services, and enabling technologies that permit businesses to eliminate points of friction in their business processes and to improve their returns on
capital and investment in their infrastructure assets and electronic business investments. Our solutions are intended to make our
customers more competitive in their markets by removing the friction points associated with three primary business processes:



Peregrine
is organized to provide its solutions to customers through three groups:



Our
infrastructure management group provides software, technologies, and services to optimize and manage the procurement, maintenance, and disposition of business infrastructure. We
believe the use of our products can result in more efficient deployment of capital and other resources and can lower the cost of operating and maintaining organizational infrastructure. We offer
management solutions for diverse categories of business assets, including technology equipment and systems, telecommunications networks, corporate vehicle fleets, and physical plants and facilities.
Our products

9

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offer complete life cycle management of infrastructure assets. At the beginning of the cycle, we offer technologies and services that enable buyers and sellers of infrastructure assets to purchase and
sell assets electronically over the Internet. Once an asset has been made available for automated purchase or lease, we then automate and facilitate the management and maintenance of the asset as well
as its
ultimate disposition. In addition, our employee relationship management applications offer individual employees direct access to the resources, help, information, or infrastructure they require.

Our
e-markets group provides a suite of business-to-business software products and services to facilitate the processes of selling and purchasing
direct goods among trading partners. Specifically, our e-markets group focuses on creating and delivering technology and services that enable e-commerce. We provide fundamental
connection, transformation, cataloging, enterprise application integration, and business-to-business process integration in order to remove the frictional costs from the
processes of electronic commerce. The e-markets group provides vertically focused solutions for electronic commerce that are primarily focused on the automotive, energy, industrial
component, and retail/distribution industries. We believe that the combination of our technologies, as well as our hosted network service offerings, can result in lower costs, higher reliability, and
easier use for creating business-to-business connections using the Internet.

In
April 2001, we announced the creation of our integrated solutions group. We created this group specifically to respond to the requirements of our large, multinational
enterprise customers, who we believe require integrated and comprehensive solutions for both infrastructure management and e-transaction management. The group is intended to leverage the
synergies between our infrastructure management and e-markets groups by working with our large alliance partners, including some of the world's largest consulting firms, managed service
providers, and system integrators. These alliance partners serve as important and persuasive "influencers" for large enterprises considering technology purchases, and the integrated solutions group
was created to continue to create and improve relationships with these partners. The integrated solutions group has two primary responsibilities within our organization. The first mission is to market
and sell our comprehensive product portfolio to our large enterprise customers and strategic partners in a manner that is most efficient for both Peregrine and its largest customers. The group's
second objective is to sponsor and evolve new business areas through an internal incubator process. An example of one such incubator activity currently managed by the integrated solutions group is our
recent introduction ofReal Estate Portfolio Manager, a web-based technology offered primarily as a hosted solution to large real estate
owners, operators, leasing companies, and lessors to reduce the frictional costs associated with managing a host of complex tasks involved in corporate real estate investments.

On
June 11, 2001, we announced that we had entered into a definitive merger agreement under which we would acquire all the outstanding shares of Remedy Corporation, a supplier
of information technology service management and customer relationship management solutions. The acquisition is subject to approval by Remedy's stockholders and customary closing conditions. If the
merger is completed, we will acquire all of the outstanding common stock of Remedy. Each outstanding share of Remedy common stock will be exchanged for $9.00 in cash and 0.9065 shares of our common
stock. In addition, we will assume options outstanding under Remedy's employee stock incentive plans. Excluding assumed options and based on Remedy's outstanding common stock as of the record date of
July 9, 2001, we expect to issue approximately 28 million shares of our common stock in connection with the merger and to pay Remedy stockholders an aggregate cash consideration of
approximately $278.2 million.

The
pending acquisition of Remedy presents a number of risks, including the risk that the acquisition is not completed. For more information about the acquisition, please review the
information under the
caption "Additional risks associated with our pending acquisition of Remedy Corporation," beginning on page 29.

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Results of Operations

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

Three Months Ended
June 30,Statement of Operations Data:2001

2000Revenues:Licenses

58.2
%
66.2
%Services

41.8

33.8Total revenues

100.0

100.0Costs and expenses:Cost of licenses

0.4

0.5Cost of services

20.7

17.9Amortization of purchased technology

2.9

1.5Sales and marketing

39.2

40.0Research and development

14.2

13.6General and administrative

8.4

8.9Acquisition costs and other

47.7

112.2Total costs and expenses

133.5

194.6Loss from operations before interest and income tax expense, net

(33.5
)
(94.6
)Interest income (expense), net

(0.3
)
0.1Loss from operations before income tax expense

(33.8
)
94.5Income tax expense

5.4

6.3Net loss

(39.2
)%
(100.8
)%


Comparison of three month periods ended June 30, 2001 and 2000

Revenues

Revenues.Total revenues were $172.0 million and $94.3 million in the first quarters of fiscal 2002 and
2001, respectively, representing a period-to-period increase of 82%. The reasons for the revenue increase are more fully discussed below.

Licenses.License revenues were $100.2 million and $62.4 million in the first quarters of fiscal 2002 and
2001, respectively, representing 58% and 66% of total revenues in the respective periods. License revenues increased 61% in the first quarter of fiscal 2002 compared to the first quarter of fiscal
2001. License revenues declined as a percentage of total revenues as a result of increased services. The majority of this increase is attributable to increased demand for new and additional licenses
of our infrastructure resource management applications. We believe license revenues will fluctuate period-to-period in absolute dollars and as a percentage of total revenues.
In recent periods, our revenues and revenue growth rates have become increasingly dependent on our ability to complete one or more particularly large license transactions with a major enterprise
customer. We expect larger transaction sizes from a limited number of customers to account for a large percentage of license revenues for the foreseeable future.

Our
products are distributed through our direct sales organization and indirect sales channels and alliance partners, including value added resellers and systems integrators. We
believe that our alliance partners are particularly important in influencing the purchase decisions of our largest enterprise

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customers. We have substantially less ability to manage our sales through indirect channels and less visibility about our alliance partners' success in selling the products that they have purchased
from us. To the extent indirect sales continue to increase as a percentage of total revenues, we could experience
unforeseen variability in our future revenues and operating results if our alliance partners are unable to sell our products.

Services.Services revenues consist of support, consulting, and training services. Services revenues were
$71.8 million and $31.9 million in the first quarter of fiscal 2002 and 2001, respectively, representing 42% and 34% of total revenues in the respective periods. Services revenues
increased 125% in the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001. The dollar increases are primarily attributable to maintenance, consulting, and training related to the
maintenance, implementation, and use of our software from license agreements and related expansion. While these revenues are increasing in absolute dollars, we expect service revenues to fluctuate as
a percentage of total revenues.

Costs and Expenses

Cost of Licenses.Cost of software licenses primarily consists of third-party software royalties, product packaging,
documentation and production. Cost of licenses was $0.6 million and $0.5 million in the first quarter of fiscal 2002 and 2001, respectively, each representing less than 1% of total
revenues in the respective periods. These costs are expected to remain consistent as a percentage of total revenues.

Cost of Services.Cost of services primarily consists of personnel, facilities, and system costs in providing support,
consulting, and training services. Cost of services was $35.7 million and $16.9 million in the first quarter of fiscal 2002 and 2001, respectively, representing 21% and 18% of total
revenues in the respective periods.  The dollar increases are primarily attributable to an increase in personnel-related costs in order to support the related activities. Cost of
services as a percentage of total revenues increased slightly, principally because service revenues grew at a faster rate than license revenues.

Amortization of Purchased Technology.Amortization of purchased technology was $5.0 million and
$1.4 million in the first quarter of fiscal 2002 and 2001, respectively, representing 3% and 2% of total revenues in the respective periods. The increase is primarily due to the acquisitions we
made during fiscal 2001.

Sales and Marketing.Sales and marketing expenses primarily consist of personnel-related costs, facilities and system
costs, and travel and entertainment. Sales and marketing expenses were $67.5 million and $37.7 million in the first quarter of fiscal 2002 and 2001, respectively, representing 39% and
40% of total revenues in the respective periods. The dollar increases in sales and marketing expenses are primarily attributable to the significant expansion of both the North American and
international sales and marketing forces. We expect that sales and marketing expenses will continue to increase in absolute dollars as we continue to expand our sales and marketing efforts and
establish additional sales offices around the world. If we experience a decrease in sales force productivity or for any other reason a decline in revenues, it is likely that our operating margins will
decline as well.

Research and Development.Research and development expenses primarily consist of personnel-related costs. Research and
development expenses were $24.5 million and $12.8 million in the first quarter of fiscal 2002 and 2001, respectively, each representing 14% of total revenues in these periods. The dollar
increases in research and development are primarily attributable to an increase in the number of personnel conducting research and development associated with new product initiatives, and the
integration of acquired software and multiple applications.

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General and Administrative.General and administrative expenses primarily consist of employee salaries and overhead for
administrative personnel. General and administrative expenses were $14.5 million and $8.4 million in the first quarter of fiscal 2002 and 2001, respectively, representing 8% and 9% of
total revenues in the respective periods. The dollar increases in general and administrative expenses are primarily attributable to an increase in the number of personnel to support our growth.

Acquisition Costs and Other.Acquisition costs and other consist of amortization of intangibles, acquired
in-process research and development costs and other acquisition-related items. Acquisition costs and other were $81.9 million and $105.8 million in the first quarter of
fiscal 2002 and 2001, respectively, representing 48% and 112% of total revenues in the respective periods. The decrease is primarily attributable to our acquired in-process research and
development costs recognized in the first quarter of fiscal 2001 associated with our June 2000 acquisition of Harbinger.

Income Tax Expense

Income tax expenses were $9.2 million and $6.0 million in the first quarter of fiscal 2002 and 2001, respectively. This increase in absolute
dollars is attributable to an increase in taxable income. Excluding the effect on net income of acquisition costs, our effective tax rates were 32.0% and 33.1% for the first quarter of fiscal 2002 and
2001, respectively. Income tax expense is expected to continue to increase in absolute dollars but remain consistent as a percentage of operating revenues.

Liquidity and capital resources

Our cash and cash equivalents decreased to $232.4 million as of June 30, 2001 from $286.7 million as of March 31, 2001. This
decrease is primarily attributable to the funding of acquisitions, investments and related costs as well as other capital expenditures.

During
December and November of 2000, we issued $270 million principle amount of 51/2% Convertible Subordinated Notes due 2007. The notes provide for annual
aggregate interest payments of $14,850,000, payable semi-annually in arrears. During July 1999, we entered into a $20 million senior credit facility for a term of three years
with a syndicate of financial institutions. The facility is available for general corporate purposes, including acquisitions. As of June 30, 2001, there were no amounts outstanding with respect
to this facility.

On
June 11, 2001, we announced that we entered into a definitive agreement under which we would acquire all the outstanding shares of Remedy Corporation, a supplier of
information technology service management and customer relationship management solutions. This acquisition is subject to approval by Remedy's stockholders and customary closing conditions. Based on
Remedy's outstanding shares as of the record date of July 9, 2001, we expect to pay out approximately $278.2 million as cash merger consideration. As of June 30, 2001, we had
approximately $232 million in cash and cash equivalents, and Remedy Corporation had approximately $219 million in cash, cash equivalents, and short-term investments. As a
result of the acquisition, we would acquire all Remedy's cash and cash equivalents as of the date of the merger. We currently expect these amounts, together with our anticipated cash flows from
operations, to be sufficient to satisfy our working capital requirements for the next 12 months. Nevertheless, in anticipation of the use of cash for payment to Remedy stockholders in the
merger and to ensure adequate levels of working capital for the combined company after the merger, we are considering establishing a new bank facility or facilities. We may also consider in the future
additional financing in the form of issuances of our common stock or the issuance of debt securities, including debt securities convertible into shares of our common stock. Additional financing may
take the form of issuances of our common stock or the issuance of debt securities, including debt securities convertible into shares of our common stock. Additional financing may not be available when
and as required on commercially reasonable terms, if at all. In addition, the issuance of additional equity securities, including securities convertible into our equity securities, would dilute the
interests of

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our existing stockholders. Issuance of additional debt securities could impair our financial condition as we become increasingly leveraged, and interest payments would be expected to have an adverse
effect on our results of operations.

In
connection with our acquisition of Harbinger, we assumed the defense of an outstanding shareholder class action lawsuit against Harbinger and several of its former officers and
directors. Harbinger did not maintain directors' and officers' liability insurance to cover any liability resulting from this lawsuit, and Peregrine's insurance will not cover any liability of
Harbinger or its former officers or directors resulting from the lawsuit. In July 2001, we received preliminary court approval of a proposed settlement of this class action lawsuit. If the
settlement is finalized and approved by the court, we will be required to make an aggregate cash payment of $2.25 million to a class of former shareholders of Harbinger in exchange for
dismissal of all claims against Harbinger. Although the parties to the litigation have agreed in principle to this settlement, final settlement is subject to further documentation, various
contingencies, and final approval by the court. The court may not approve the settlement. If the court does not approve the settlement, the plaintiffs in the lawsuit may proceed with their claims,
without prejudice. It is also possible that if the settlement is approved by the court, claims could be pursued by class members who opt out of the class settlement by filing appropriate notices
with the court. If the litigation were to continue to proceed, we could be required to spend substantial sums in an effort to litigate this matter. Continued litigation would be likely to result in a
diversion of management's time and attention away from business operations. If the litigation were decided adversely to Harbinger, or we agree in the future to settle this litigation for a substantial
sum as a result of failure to obtain court approval of the pending settlement or for any other reason, our financial condition and results of operations could be materially and adversely affected.
Please refer to the section captioned "Factors that may affect our business, financial condition, and future operating results" for a more detailed description of the risks associated with this
lawsuit.

Quantitative and qualitative disclosures about market risk

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

We
conduct business overseas in a number of foreign currencies, principally in Europe. Although we currently derive no material revenues from highly inflationary economies, we are
expanding our presence in international markets outside Europe, including the Pacific Rim and Latin America, whose currencies have fluctuated in value relative to the U.S. dollar more than European
currencies. There can be no assurance that future fluctuations in the value of foreign currencies relative to the U.S. dollar will not have a material adverse effect on our business, financial
condition, or results of operations.

Currently,
we attempt to mitigate our transaction currency risks through our foreign exchange hedging program. The hedging program consists primarily of using forward-rate
currency contracts of approximately one month in length to minimize the short-term impact of foreign currency fluctuations. To the extent not properly hedged by obligations denominated in
local currencies, our foreign operations remain subject to the risks of future foreign currency fluctuations, and there can be no assurances that our hedging activities will adequately protect us
against such risk.

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In the fall of 2000, the technology driven Nasdaq Stock Market began a steep decline in stock prices particularly in the e-commerce sectors. In early 2001, it became
apparent to us that the downturn was other than temporary. In addition, it became apparent that technology spending, particularly in the e-commerce and enterprise resource planning
environments, would drop sharply in 2001. Accordingly,
we determined a SFAS 121 triggering event had occurred related to certain of our tangible and intangible assets. We prepared analyses (such as cash flow projections) related to these tangible
and intangible assets and as a result determined that certain assets had been impaired. During fiscal 2001, we wrote-off $490 million of impaired intangibles, investments and other
assets related primarily to an acquisition made in our e-markets group segment and investments made in our infrastructure management group segment. We will continue to monitor the value of
these assets in the future and may have future impairment charges.

Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date of FASB Statement No. 133," ("SFAS No. 137"). In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," ("SFAS No. 138"). SFAS No. 137 amends Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities," ("SFAS No. 133"), and SFAS No. 138 amends SFAS No. 137. SFAS No. 133, as
amended, requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. We have adopted SFAS No. 133, as amended, in the quarter ended June 30, 2001. SFAS No. 133 did not have a
material effect on our consolidated results of operations, financial position or cash flows.

During
July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No. 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for
acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination
and requires periodic evaluations of impairment of goodwill and intangible balances. SFAS No. 142 is effective April 1, 2002. We are currently assessing the impacts of adoption of SFAS
No. 141 and SFAS No. 142 on goodwill and other intangible assets and the respective impact on the consolidated results of operations, financial position and cash flows.

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Factors that may affect our business, financial condition, and future operating results

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

We have a history of losses, expect to continue to incur losses for the foreseeable future, and cannot assure that we will be profitable in the future on an
operating basis or otherwise.

We
have incurred substantial losses in recent years, and predicting our future operating results is difficult. If we continue to incur losses, if our revenues decline or grow at a
slower rate, or if our expenses increase without commensurate increases in revenues, our operating results will suffer and the price of our common stock may fall. Through June 30, 2001, we had
recorded cumulative net losses of approximately $984.5 million, principally as a result of acquisition costs related to the acquisitions completed since late 1997. We have incurred, and expect
to continue to incur, substantial expenses associated with acquisition related costs, and amortization of goodwill and other intangible costs will result in our continuing to incur net losses for the
foreseeable future. In addition, we do not believe recent revenue growth rates are sustainable in the future or indicative of future growth rates. If our revenue growth rates slow or our revenues
decline, our operating results could be seriously impaired because many of our expenses are fixed and cannot be easily or quickly changed. A reduction in our revenue growth rate and/or an impairment
of our financial results could lead to a dramatic decline in our stock price.

Our revenues are not predictable and vary significantly from quarter-to-quarter for numerous reasons beyond our control.
Quarter-to-quarter variations could result in a substantial decrease in our stock price if our revenues or operating results are less than market analysts
anticipate.

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

Our revenue growth is increasingly dependent on a small number of large license transactions.

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

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

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When negotiating large software licenses, many customers time their negotiations near quarter-end in an effort to improve their ability to negotiate more favorable pricing
terms. As a result, we recognize a substantial portion of our revenues in the last month or weeks of a quarter, and license revenues in a given quarter depend substantially on orders booked during the
last month or weeks of a quarter. If we are unable to complete a sufficient number of license agreements during this short and intense sales period, our revenues could be substantially below the
expectations of market analysts, and our stock price could decline.

Our quarterly and annual revenue and revenue growth rates may be affected if our distribution partners are unsuccessful in selling our products or if we are
unsuccessful in adding new distribution partners.

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

Our quarterly and annual revenues and revenue growth rates are dependent on the budgeting cycles and investment cycles of our
customers.

Our
quarter-to-quarter revenues will depend on customer budgeting cycles. If customers change their budgeting cycles, or reduce their capital spending on
technology, our revenues could decline. Many analysts predict substantially slower growth rates for, and potential reductions in, information technology capital investment in 2001 and potentially
continuing in 2002. Moreover, many software companies, including Peregrine, have experienced increasing reluctance by customers to make substantial investments in new technologies. To the extent these
projections prove accurate, we expect our quarterly revenues and operating results will be adversely affected. Moreover, during this downturn, we have been highly dependent on our ServiceCenter,AssetCenterandFacilityCenterproduct
lines to maintain our revenue growth rates, and we expect our dependence on these product lines to continue. If the capital investment downturn continues or worsens, we may experience reduced demand
for these core products as well, which could have a material and adverse effect on our revenues, operating results, financial condition, and stock price. Most software companies, including Peregrine,
currently have very limited visibility with respect to their near term quarters and are having difficulty predicting their revenues and operating results during these periods.

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Our quarterly and annual revenues and revenue growth rates could be affected by new products we announce or that our competitors
announce.

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

Our operating results could be adversely affected by changes in product mix and other factors, including factors related to the macroeconomic environment and
competitive factors in our markets.

Changes
in our product mix could adversely affect our operating results because some products provide higher margins than others. For example, margins on software licenses tend to be
higher than margins on maintenance and services. Cancellations of licenses, subscriptions, or maintenance contracts could reduce our revenues and could adversely affect our operating results. In
particular, our maintenance contracts with customers terminate on an annual basis. Substantial cancellations of maintenance or subscription agreements, or a substantial failure to renew these
contracts, would reduce our revenues and impact our operating results. In addition, other factors, including indirect factors resulting from the macroeconomic climate, could have an adverse effect on
our operating results in a given quarter or over several quarterly periods. For example, in the current economic environment, we have experienced increased demand from some customers for customer
financing, including loan financing, and leasing solutions. We expect this demand for customer financing to continue, and we have engaged in customer financing where we believe it is a competitive
factor in obtaining business. Although we have programs in place to monitor and mitigate the associated risks, there can be no assurance that such programs will be effective in reducing related credit
risk. We have experienced losses due to customers failing to meet their obligations. Future losses, if incurred, could harm our business and have a material adverse effect on our operating results and
financial condition.

The long sales cycle for our products may cause substantial fluctuations in our revenues and operating results.

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

Seasonal trends in sales of our software products may result in periodic reductions in our revenues and impairment of our operating
results.

Seasonality
in our business could result in our revenues in a given period being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events, seasonality could have an adverse impact on our results of operations. Historically, our

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revenues and operating results in our December quarter have tended to benefit, relative to our June and September quarters, from purchase decisions made by the large concentration of our customers
with calendar year-end budgeting requirements. Our June and September quarters tend to be our weakest. Revenues and operating results in the March quarter have tended to benefit from the
efforts of our sales force to meet fiscal year-end sales quotas. Notwithstanding these seasonal factors, other factors, including those identified in this section, could still result in
reduced revenues or operating results in our December and March quarters. For example, we may not experience the typical increase in demand in our December quarter if the downturn in capital spending
and technology investment continues through the end of 2001 or beyond. In addition, our pending acquisition of Remedy Corporation could have an adverse effect on revenues during these periods if
customers defer purchases as a result of uncertainty about the merger or in order to determine how Peregrine and Remedy will integrate their product lines. In addition, historical patterns may change
over time, particularly as our operations become larger and the sources of our revenue change or become more diverse. For example, our international operations have expanded significantly in recent
years, particularly in Europe. We also have an international presence in the Pacific Rim and Latin America. We may experience variability in demand associated with seasonal buying patterns in these
foreign markets. As an example, our September quarter is typically weaker in part due to the European summer holiday season.

Our June 2000 acquisition of Harbinger Corporation may reduce our revenue growth rates and make prediction of our future revenues and operating results
more difficult as we integrate our businesses and attempt to focus the strategic model of the combined company.

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



Harbinger and some of its former officers and directors are defendants in shareholder litigation for which neither Peregrine nor Harbinger is insured. The
outcome of this litigation, if determined adversely to Harbinger, could have a material adverse effect on our financial condition.

In
September 1999, a complaint was filed against Harbinger and some of its then-current and former officers and directors in the United States District Court for
the Northern District of Georgia. The complaint alleges that the defendants misrepresented or omitted material facts in violation of federal securities laws. An amended complaint was filed in
March 2000, expanding upon the allegations of the initial complaint by, among other things, alleging accounting improprieties. The complaint relates to actions by Harbinger during the period
from February 1998 to October 1998. Harbinger did not maintain directors' and officers' liability insurance during this period. As a result, we are not insured

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with respect to any potential liability of Harbinger or any officer or director of Harbinger. Harbinger was, however, obligated under agreements with each of its officers and directors to indemnify
them for the costs incurred in connection with defending themselves against this litigation and is obligated to indemnify them to the maximum extent permitted under applicable law if they are held
liable. In connection with the acquisition, we agreed to honor these contractual arrangements.

In
July 2001, we received preliminary court approval of a proposed settlement of this class action lawsuit. If the settlement is finalized and approved by the court, we will be
required to make an aggregate cash payment of $2.25 million to a class of former shareholders of Harbinger in exchange for dismissal of all claims against Harbinger. Although the parties to the
litigation have agreed in principle to this settlement, final settlement is subject to further documentation, various contingencies, and final approval by the court. The court may not approve the
settlement. If the court does not approve the settlement, the plaintiffs in the lawsuit may proceed with their claims without prejudice. It is also possible that, if the settlement is approved by the
court, claims could be pursued by class members who opt out of the class settlement by filing appropriate notices with the court. If the litigation were to continue to proceed, we could be required to
spend substantial sums in an effort to litigate this matter. Continued litigation would be likely to result in a diversion of management's time and attention away from business operations. If the
litigation were decided adversely to Harbinger, or if we were to agree in the future to settle this litigation for a substantial sum as a result of failure to obtain court approval of the pending
settlement or for any other reason, our financial condition and results of operations could be materially and adversely affected.



If our strategic investments in other companies are not successful, we could incur losses. We have made and expect to continue to make minority investments in
companies with businesses or technologies that we consider to be complementary to our business or technologies. These investments have generally been made by issuing shares of our common stock or, to
a lesser extent, paying cash. Many of these investments are in companies whose operations are not yet sufficient to establish them as profitable concerns. Adverse changes in market conditions or poor
operating results of underlying investments could result in our incurring losses or our being unable to recover the carrying value of our investments. For example, during fiscal 2001, we recognized
impairment charges totaling $490 million, associated principally with impairment of acquired assets but to a lesser extent with strategic investments. We will continue to monitor the value of
these investments, and may have additional impairment charges in the future.

Our business and operating results will be harmed if we cannot compete effectively against other companies in our markets.

The
markets for our products are intensely competitive and diverse, and the technologies for our products can change rapidly. New products are introduced frequently and existing
products are continually enhanced. We face competition from a number of sources in the markets for our infrastructure resource management, procurement and e-business connectivity
solutions. We face competition from numerous companies that offer products that compete with one or more of our products and services. With respect to our infrastructure management products, these
competitors include software companies as well as information technology and system management companies, such as Applix, Blue Ocean, Computer Associates, Control Software (a division of
CSI-Maximus), FrontRange, Hewlett-Packard, IBM, Intraware, Main Control, Microsoft, MRO Software (formerly Project Software and Development Inc.), Network Associates, Nortel,
PeopleSoft, and Royal Blue Technologies. Our e-commerce enablement technology faces competition from providers of customer relationship portals, such as Aspect Communications; providers of
catalog management solutions, such as Requisite Technology; providers of e-commerce enablement software such as webMethods; and providers of legacy e-commerce technology and
services such as SBC Communications, through its

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

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

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

We may experience integration or other problems with new acquisitions, which could have an adverse effect on our business or results of operations. New
acquisitions could dilute the interests of existing stockholders, and the announcement of new acquisitions could result in a decline in the price of our common stock.

In
addition to the acquisition of Harbinger, we have made a number of acquisitions of businesses and technologies over the last three years, and we expect to continue to make
acquisitions as part of our growth strategy. We are frequently in formal or informal discussions with potential acquisition candidates. Accordingly, we may in the future make acquisitions of, or large
investments in, businesses that offer products, services and technologies that we believe would complement our products or services. We may also make acquisitions of, or investments in, businesses
that we believe could expand our distribution channels. Even though we announce an acquisition, we may not be able to complete it. Any future acquisition or substantial investment would present
numerous risks. The following are examples of these risks:



We
expect that future acquisitions could provide for consideration to be paid in cash, shares of our common stock, or a combination of cash and our common stock. If the consideration
for the

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

In
June 2001, we announced our proposed acquisition of Remedy Corporation. For additional factors related to that pending transaction, please refer to the additional
information under the caption "Additional risks associated with our pending acquisition of Remedy Corporation" beginning on page 29 of this report.

Our future revenues and operating results may be adversely affected if the software application market continues to evolve toward a subscription-based model,
which may prove less profitable for us.

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

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

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

If we, or third parties on which we will rely, are unable to adequately deliver our Internet-based applications, our operating results may be adversely
affected.

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

In
addition, the third-party service providers that we engage may not deliver adequate support or service to our clients, which may harm our reputation and our business. Because these
third-party service providers handle the installation of the computer and communications equipment and software needed for the day-to-day operations of our Internet-based
applications, we will be dependent on them to manage, maintain and provide adequate security for customer applications. If our customers

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experience any delays in response time or other performance problems while using our Internet applications, as hosted by a third-party or by us, our customers may perceive the delays as defects with
our products and may stop using our applications, which would adversely affect our revenues. We have limited experience outsourcing these services and may have difficulty managing this process. We
will be required to monitor our third-party service providers to ensure that they perform these services adequately. In addition, if we do not maintain good relations with these third-party service
providers, or if they go out of business, they may be unable to perform critical support functions for us. If we were unable to find replacement third-party service providers, we would be required to
perform these functions ourselves. We may not be successful in obtaining or performing these services on a timely or cost-effective basis.

If we do not respond adequately to our industry's evolving technology standards, or do not continually develop products that meet the complex and evolving
needs of our customers, sales of our products may decrease.

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

If we cannot attract and retain qualified sales personnel, software developers, and customer service personnel, we will not be able to sell and support our
products.

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

If immigration laws limit our ability to recruit and employ skilled technical professionals from other countries, our business and operating results could be
harmed.

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

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Our business could be harmed if we lost the services of one or more members of our senior management team.

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

If we fail to manage expansion effectively, this will place a significant strain on our management and operational resources.

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

We may be unable to expand our business and increase our revenues if we are unable to expand our distribution channels.

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

If we are unable to expand our business internationally, our business, revenues and operating results could be harmed.

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

Conducting business internationally poses risks that could affect our financial results.

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

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

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



Our revenues, operating results, and stock price could be adversely affected if we were unable to conduct our business. In particular, our administrative
facilities and principal business operations are located in California, and any disruption in the available power supply in California could disrupt our operations, reduce our revenues, and increase
our expenses.

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

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

Our outstanding indebtedness could adversely affect our results of operations and financial condition, and we may incur substantially more
debt.

As
of June 30, 2001, we had approximately $267 million of indebtedness outstanding, consisting principally of our 51/2% convertible subordinated notes due
2007. Our indebtedness could adversely affect our results of operations and financial condition. For example, our results of operations will be adversely affected by approximately $15 million
in annual interest expenses, payable semi-annually. In addition, our indebtedness could:



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

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

We may have insufficient cash flow to meet our debt service obligations.

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

We have made substantial capital commitments that could have an adverse effect on our operating results and financial condition if our business does not
grow.

We
have made substantial capital commitments as a result of recent growth in our business that could seriously harm our financial condition if our business does not grow and we do not
have adequate resources to satisfy our obligations. In June 1999, we entered into a series of leases covering up to approximately 540,000 square feet of office space, including an option on
approximately 118,000 square
feet, for our headquarters in San Diego, California. This office space (including the option) relates to a five building campus in San Diego, California, of which four buildings are presently
occupied. Our San Diego personnel occupy three of these buildings, and we sublease part of the fourth building. In June 2001, we exercised our option for the fifth and final building at the San
Diego campus, which is scheduled to be completed in October 2002. Including the exercise of the option, the leases require minimum aggregate lease payments of approximately
$201.2 million over their term, which is approximately twelve years. In Atlanta, we lease approximately 95,000 square feet of space, principally for our e-markets group, under a
lease expiring in 2008. The capital commitments, construction oversight, and movement of personnel and facilities involved in a transaction of this type and magnitude present numerous risks,
including:



Product development delays could harm our competitive position and reduce our revenues.

If
we experience significant product development delays, our position in the market would be harmed, and our revenues could be substantially reduced, which would adversely affect our
operating results. We have experienced product development delays in the past and may experience delays in the future. In particular, we may experience product development delays associated with the
integration of recently acquired products and technologies. Delays may occur for many reasons, including an inability

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

Errors or other software bugs in our products could result in significant expenditures to correct the errors or bugs and could result in product liability
claims.

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



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

We could be competitively disadvantaged if we are unable to protect our intellectual property.

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

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

If we become involved in an intellectual property dispute, we may incur significant expenses or may be required to cease selling our products, which would
substantially impair our revenues and operating results.

In
recent years, there has been significant litigation in the United States involving intellectual property rights, including rights of companies in the software industry. We have
from time to time in the past received correspondence from third parties alleging that we infringe the third party's intellectual property rights. We expect these claims to increase as Peregrine and
its intellectual property portfolio become larger. Intellectual property claims against us, and any resulting lawsuit, may result in our incurring significant expenses and could subject us to
significant liability for damages and invalidate

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



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

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

Control by our officers and directors may limit our stockholders' ability to influence matters requiring stockholder approval and could delay or prevent a
change of control, which could prevent our stockholders from realizing a premium in the market price of their common stock.

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

Provisions in our charter documents and Delaware law may discourage potential acquisition bids for Peregrine and may prevent changes in our management that
stockholders otherwise would approve.

Some
provisions of our charter documents eliminate the right of stockholders to act by written consent without a meeting and impose specific procedures for nominating directors and
submitting proposals for consideration at a stockholder meeting. These provisions are intended to increase the likelihood of continuity and stability in the composition of our board of directors and
the policies established by the board of directors. These provisions also discourage some types of transactions, which may involve an actual or threatened change of control. These provisions are
designed to reduce Peregrine's vulnerability to an unsolicited acquisition proposal. As a result, these provisions could discourage potential acquisition proposals and could delay or prevent a change
of control transaction. These provisions are also intended to discourage common tactics that may be used in proxy fights. As a result, they could have the effect of discouraging third parties from
making tender offers for our shares. These provisions may prevent the market price of our common stock from reflecting the effects of actual or rumored take-over attempts. These provisions
may also prevent changes in our management.

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

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Our stock price has been and is likely to continue to be highly volatile, which may make the common stock difficult to resell at attractive times and
prices.

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



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

Additional risks associated with our pending acquisition of Remedy Corporation

On June 11, 2001, we announced that we entered into a definitive merger agreement under which we would acquire all the outstanding shares of Remedy
Corporation, a supplier of information technology service management and customer relationship management solutions. If the merger is completed, we will acquire all of the outstanding common stock of
Remedy. Each outstanding share of Remedy common stock will be exchanged for $9.00 in cash and 0.9065 shares of our common stock. In addition, we will assume options outstanding under Remedy's employee
stock incentive plans. Excluding assumed options and based on Remedy's outstanding common stock as of the record date of July 9, 2001, we expect to issue approximately 28 million shares
of our common stock in connection with the merger and to pay Remedy stockholders an aggregate of approximately $278.2 million in cash. We expect the acquisition will be accounted for using the
purchase method of accounting and will be treated as a tax-free reorganization. The definitive agreement has been approved by the boards of directors of both Remedy and Peregrine.

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Closing of the acquisition is subject to approval by Remedy's stockholders and customary closing conditions. In connection with the proposed merger, we filed a Registration Statement
on Form S-4 with the Securities and Exchange Commission. The registration statement contains a proxy statement that was mailed to Remedy's stockholders containing additional
information about the proposed merger. Investors and securities holders are urged to read the registration statement and the proxy statement. The registration statement and the proxy statement contain
important information about Remedy,
Peregrine, the proposed merger, risks relating to the merger, the persons soliciting proxies relating to the proposed merger, their interests in the proposed merger, and related matters.

We may experience problems integrating the businesses of Peregrine and Remedy. Any integration problems could cause us to incur substantial unanticipated costs
and expenses, which would harm our operating results.

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

Any
integration problems we experience could divert our management's attention from other business opportunities, which could result in slower revenue growth than anticipated or in
declines in revenue. Integrating our business with Remedy's business will be complex, time-consuming, and expensive. The merger may disrupt both companies' businesses if not completed in a
timely and efficient manner. Peregrine and Remedy are both global companies with substantial operations throughout the world, and integrating geographically separate and dispersed organizations may be
difficult. Specific integration challenges faced by Peregrine and Remedy include the following:



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The announcement of the merger could have an adverse effect on one or both companies' revenues in near-term quarters if customers delay, defer, or
cancel purchases pending resolution of the merger.

The
announcement of the merger could have an adverse effect on the near-term revenues and profitability of either or both of Peregrine and Remedy. In particular,
prospective customers could be reluctant to purchase either company's products if they are uncertain about the direction of the combined company's product offerings and its willingness to support and
service existing products. Since announcement of the merger, we have experienced questions from prospective customers about the status of the merger and our anticipated product integration plans,
which have not yet been determined. We understand that Remedy is experiencing similar inquiries. The announcement of the merger could create uncertainty among businesses and organizations
contemplating software or service purchases and subscriptions. If one large customer, or a significant group of small customers, were to delay their purchase decisions pending resolution of the
merger, the quarterly revenues of either Peregrine or Remedy could be substantially below the expectations of market analysts, which would have an adverse effect on their results of operations and
could cause a dramatic reduction in either company's stock price. We anticipate announcement of the merger could have an adverse effect on either or both companies' revenues in near-term
quarters pending completion of the merger and our announcements concerning product integration initiatives.

The merger could impair existing relationships of Peregrine and Remedy with suppliers, customers, strategic partners, and employees, which could have an
adverse effect on our individual and combined businesses and financial results.

The
public announcement of the merger could substantially impair important business relationships of either Peregrine or Remedy. Impairment of these business relationships could
reduce our revenues or increase our expenses, either of which would harm our financial results. Specific examples of situations in which we could experience problems include the following:



Our stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the
merger.

If
the combined company is unable to realize the strategic and financial benefits currently anticipated from the merger, our stockholders will have experienced substantial dilution of
their ownership interest without receiving any commensurate benefit. In connection with the merger, we anticipate that we will issue approximately 28 million shares of our common stock
(including options being assumed), representing approximately 14.7% of our outstanding common stock as of June 30, 2001, given effect to the merger.

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Failure to complete the merger could have a negative impact on our stock price as well as a negative impact on our businesses and financial
results.

If
the merger is not completed for any reason, we may be subject to a number of material risks, including the following:



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is set forth in the section entitled "Management's Discussion and Analysis of Financial Conditions and Results of
Operations," beginning on page 9.

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PART II.  OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized in the City of San Diego, California, this 13th day of August, 2001.

| |  | PEREGRINE SYSTEMS, INC.
| |  | -----------------------
| |  | By:                    

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