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

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FORM 10-K

|ý                                                                |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the fiscal year ended March 31, 2005                        
|OR                                                              
|o                                                                |  | 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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Securities registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0001 per share(Title of Class)

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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 filing requirements for the past 90 days.
Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes ý No o

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o
No ý

The aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant was approximately $259,647,879 on
September 30, 2004, based upon the average bid and asked prices of such common stock as reported on the over-the-counter securities market operated by Pink Sheets LLC.
Shares of common stock held by officers, directors and holders of more than 10% of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The
number of shares of the Registrant's common stock outstanding on May 31, 2005 was 15,074,426.

Documents
Incorporated by Reference: List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is
incorporated: 1) any annual report to security holders; 2) any proxy or information statement; and 3) any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933.

None.



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PEREGRINE SYSTEMS, INC.  ANNUAL REPORT ON FORM 10-K  TABLE OF CONTENTS

|GENERAL  |  | 1                                                                                                  
|-------- |  | ---------------------------------------------------------------------------------------------------
|ITEM 1.  |  | BUSINESS                                                                                           
|ITEM 2.  |  | PROPERTIES                                                                                         
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                  
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                              
|ITEM 5.  |  | MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|ITEM 6.  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                               
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS              
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                         
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                        
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE               
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                            
|ITEM 9B. |  | OTHER INFORMATION                                                                                  
|ITEM 10. |  | OUR DIRECTORS AND EXECUTIVE OFFICERS                                                               
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                             
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS     
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                     
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES & SERVICES                                                               
|ITEM 15. |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                         

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GENERAL

Forward-Looking Statements.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," "intend," "seek," "will," 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. Readers should carefully review the forward-looking statements included in this report under the captions "Introduction," "Risk Factors," beginning
on page 49 of this report, "Management's Discussion and Analysis of Financial Condition and Results of OperationLiquidity and Capital Resources," beginning on page 45 of
this report, and elsewhere in or incorporated by reference into this report.

Our Fiscal Year.Our fiscal year ends on March 31. All references to fiscal years refer to reporting periods ending on
March 31. All other references to a particular year refer to the calendar year.

Bankruptcy Reorganization and Fresh-Start Reporting.On September 22, 2002, Peregrine and its wholly-owned Peregrine
Remedy, Inc. subsidiary (Remedy), filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. Our reorganization plan was confirmed by the U.S. Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) on July 18, 2003 and became effective on August 7, 2003. From September 22, 2002 until August 7, 2003, we operated the business as a
Debtor-in-
Possession under the jurisdiction of the Bankruptcy Court.

Late Filings of Periodic Reports.Since our emergence from bankruptcy proceedings, we have not filed our periodic reports
under Section 13(a) of the Securities Exchange Act of 1934 on a timely basis. These reports were not filed on a timely basis because certain of our prior period financial statements required
restating as a result of our discovery of financial fraud in 2002, our involvement in bankruptcy law proceedings and restructuring activities following the discovery of fraud and the restatements,
significant turnover of experienced management and employees in connection with these matters, and the additional processes we employ to ensure the accuracy of our financial statements in light of
continuing deficiencies and material weaknesses in our internal control over financial reporting. Given these continuing deficiencies and material weaknesses, we cannot guarantee that our future
periodic reports will be filed on a timely basis. Readers should carefully review the information set forth under the caption "Risk Factors," beginning on page 49 of this report.

ITEM 1. BUSINESS

OVERVIEW

We are a global provider of enterprise software. Our core business is providing information technology asset and service management software solutions that are
designed to enable organizations in the private and public sectors to reduce costs, improve information technology (IT) productivity and service levels, and mitigate risk by managing portfolios of
information technology assets and streamlining service management operations.

Our
asset management and service management solutions are based on our flagship products, AssetCenter[nc_cad,176] and ServiceCenter[nc_cad,176]. Typically,
the assets managed with our products consist of information technology assets, such as computer and computer-networking hardware and software items, and other assets used to provide the infrastructure
to a business. The services managed with our products usually consist of the service delivery and support processes necessary to troubleshoot, support and maintain those same information technology
and infrastructure assets.

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Our
asset management solutions are designed to enable customers to manage the physical, financial and contractual aspects of information technology and other infrastructure assets from
their acquisition to their eventual disposal. These solutions, based on our AssetCenter product, are designed to help customers minimize costs, increase return, improve service delivery, reduce risk,
and ensure optimal employee productivity by identifying, tracking, and allocating the costs of their information technology assets more effectively and intelligently. Our asset management solutions
include:



Our
service management solutions are designed to enable service organizations to deliver services and support more efficiently and cost-effectively and to proactively
maintain information technology and other types of infrastructure assets. Based on our ServiceCenter product, these solutions are designed to help customers create service efficiencies, reduce service
outages, streamline service desk operations by integrating processes and tools across the organization, and ensure that service levels meet customer requirements. Our service management solutions
include:



In
addition, we also offer aConsolidationsolution to provide the tools and processes necessary to consolidate service operations and
enable an organization to identify hardware and software redundancies, eliminate unnecessary assets, maximize utilization of assets, and implement a best practices service operation.

Our
asset and service management solutions also draw on our four additional product lines, which complement and enhance our information technology asset and service management solutions:



Our
Discovery products automatically find, identify and track information technology and other infrastructure assets. Our IT Business Analytics products provide business intelligence,
analytic, and reporting solutions to meet the needs of executive management, including real-time viewing of strategic performance metrics. Our Self Service suite of products, referred to
as our Get-It applications, allow organizations to extend information technology asset and service management capabilities directly to all employees through a
web-based interface. Our Integration products, referred to as our Connect-It applications, enable customers to connect our products to a variety of third-party applications.

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In addition, we plan to offer business solutions that combine our capabilities and expertise in asset and service management to address specific customer business needs in these areas:



In
addition, we have embraced a new vision we call Optimal IT and announced our intent to develop a new DecisionCenter. product to deliver on this
vision. DecisionCenter and the solutions we develop around it will be designed to provide analytics and decision modeling capabilities that enable our customers to optimize the performance of the
technology infrastructure using information generated by existing applications, including ServiceCenter and AssetCenter. The Optimal IT solutions are expected to provide the capability of collecting,
understanding, analyzing and modeling the complex information that describes the technology environment, to enable organizations to make optimal tradeoffs given the constraints of time, resources,
costs and assets.

Our
customers include Fortune Global 2000 companies, medium-sized companies, numerous federal, state and local government agencies worldwide and outsourcers such as EDS and Unisys. We
focus on serving entire organizations, including government agencies and educational institutions and their departments, with large and complex infrastructures, and our customers also include
mid-size organizations with varied information technology asset and service management requirements.

Peregrine
Systems, Inc., a corporation, was incorporated in California in 1981, reincorporated in Delaware in 1994 and went public with an initial public offering in
April 1997. We filed for protection under Chapter 11 of the Federal Bankruptcy Code on September 22, 2002. Our reorganization plan was
approved by the Bankruptcy Court on July 18, 2003, and became effective on August 7, 2003. Our principal executive offices are located at 3611 Valley Centre Drive, San Diego, CA 92130.
Our telephone number is (858) 481-5000, and our website is accessible atwww.peregrine.com. The information posted on our website is
not incorporated into this report. We make our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K
and all amendments to these reports available free of charge on our website as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.

Industry Background

We operate mainly in the network and systems management sector of the enterprise software industry. This sector provides the applications and tools needed to
ensure the provision, capacity, performance and availability of an organization's computing, networking and software application resources. Most of our customers are information technology departments
of businesses and government and education entities, many of which operate globally. These entities face intense pressure to deliver highly reliable always-available service. Global enterprises today
must routinely manage tens of thousands of information technology assets, which include desktop and laptop computers, servers, routers and other computer-networking devices, data storage devices,
off-the-shelf and custom software housed on servers and personal computers, cell phones, personal digital assistant (PDA) devices and other technology. During the past decade,
these enterprises have faced increasing costs and operational and business risks in acquiring, managing and servicing information technology assets.

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Products

Our comprehensive asset management products enable organizations to manage the financial and physical elements of massive amounts of information technology and
other infrastructure assets. Our service management products enable organizations to improve the reliability and availability of their infrastructure by providing support for information technology
assets and by efficiently managing the problem resolution process, as well as additions, changes in location, upgrades and other changes to these assets within the enterprise.

As
an enterprise software provider, our products address critical needs in today's economy as the information technology departments of organizations seek ways to simplify and
consolidate information technology infrastructure, reduce costs and align information technology priorities to business objectives. Our flagship products in information technology asset and service
management are AssetCenter and ServiceCenter, which can be used in tandem to provide broad-based solutions for
information technology asset and service management needs. We offer four additional product lines that complement these flagship products: Discovery and Automation, IT Business Analytics, Self Service
and Integration. Descriptions of our two flagship products, as well as the four complementary product lines follow.

AssetCenter.Asset management software products enable organizations to manage information technology and other types of
assets that comprise the complex infrastructure supporting a customer's operations. These assets include desktop, laptop and personal computers, servers, routers and other computer-networking devices,
data storage devices, off-the-shelf and custom software housed on servers, cell phones, PDAs, as well as other devices that make it possible to operate a modern company or
government agency. AssetCenter allows organizations to inventory these assets and manage the other physical, financial and contractual aspects of these assets through the full lifecycle, beginning
with procurement and ending when the items are retired through disposal or divestiture. Our software automates processes and workflows, replacing tedious manual processes and less sophisticated
computer-based processes for tracking assets. Using this product, organizations have access to information showing where assets are located, who is using them, and which employees are entitled to
their use under corporate policy. This product also assists customers in managing the financial aspects of each asset, including contractual terms of purchase or lease and related warranties.
AssetCenter also provides the capability to manage software license compliance and entitlement, control expenses through charge-back programs to business units and reduce costs with
streamlined procurement processes. Customers can choose among AssetCenter's modules to meet specific business needs and provide a foundation for enduring management of their infrastructure. These
modules consist of "Cable and Circuit," "Chargebacks," "Contract Management," "Financial Management," "Portfolio Management," "Procurement Management," and "Software Asset Management."

ServiceCenter.Service management applications enable an organization to automate and optimize the service desk function,
improving the availability and productivity of infrastructure assets and reducing costs by allowing this service to be provided more efficiently. ServiceCenter provides tools and workflows designed to
strategically manage and extend the value of information technology infrastructure assets based on fully-integrated best-practice processes, in accordance with the Infrastructure
Technology Service Management framework set forth by the Information Technology Infrastructure Library. ITIL is a set of documents created by the United Kingdom government that represents the standard
for best practice in providing information technology service. ServiceCenter is built upon an application delivery platform that can be extended without complex programming and is used as an
information and workflow hub for an information technology organization. Many customers standardize their systems using ServiceCenter, to consolidate and replace multiple or isolated ticketing systems
located across disparate departments and geographies. Using ServiceCenter with our Self Service product, employees can easily submit any type of request or notify the service desk of any issues
related to computers, software applications or any other information technology asset. These

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requests
are automatically routed, prioritized and tracked until completion of the task requested. ServiceCenter's modules consist of "Asset Contracts," "Change Management," "Incident Management,"
"Configuration Management," "Request Management," "Problem Management," "Service Management," and "Service Level Management."

Discovery and Inventory.Our Enterprise Discovery products find, identify and track information technology assets with
modules for "Desktop Inventory" and "Network Discovery." Network Discovery provides visibility into network operations, including real time access into the configuration and performance of hardware
assets within the networked infrastructure. Network Discovery identifies all hardware and network devices connected to the network and delivers a port-to-port topographical
mapping of the IT infrastructure. Desktop Inventory then delivers a comprehensive configuration inventory of an organization's desktop and server environments by scanning all Windows and Unix computer
systems, delivering detailed hardware and software configuration information necessary to support processes such as software license compliance, configuration management, incident management, change
management, and other service support and delivery processes. Data from both Network Discovery and Desktop Inventory is seamlessly fed into ServiceCenter and AssetCenter to support the processes
described above.

IT Business Analytics.Our IT Business Analytics product, BI Portal, is a tool for advanced analysis and mining of data
maintained in ServiceCenter. Our product provides a predefined set of metrics and meta data from ServiceCenter, giving customers a consolidated list of their business variables and enabling users to
analyze standardized business data from a number of perspectives. Users are able to generate reports and graphs to identify and communicate trends that are not readily identifiable through more
traditional reporting methods. Our product also allows users to define their own queries or metrics and publish the results for other users to view.

Self Service.Our Self Service product line is composed of web-based applications that provide
self-service capabilities designed to make organizations more efficient. With these Get-It applications, employees are able to obtain information, resources and services
through any web browser. Get-Services extends ServiceCenter, giving employees a single point of entry for initiating and tracking service requests. An employee who needs
support for a malfunctioning laptop, for example, can simply access Get-Services to request service. Get-Services Change Management employs a simple Web interface for end users
and managers to control change management information over the internet. A third application, Get-Resources, enables employees to request information technology resources,
such as a printer, from their web-browser. The application streamlines the request process by providing information on assets and services approved for use by the business and automating
the management approval process. Get-Answers, a knowledge management application for service desk technicians and employees, provides a centralized company knowledge base
accessible by specified users. It provides a simple user interface, an intuitive and powerful search engine and a methodology ensuring that new information can be added easily and existing information
can be updated.

Integration.We provide powerful business process integration and data transformation capabilities in the form of adapters
and protocols to support integration of third-party software products with AssetCenter and ServiceCenter. Our flexible and open applications allow integration of disparate data and applications,
including third-party products such as accounting applications, commonly referred to as enterprise resource planning, or ERP, applications, network systems management applications and inventory
applications. This integration capability also allows companies with multiple information technology service organizations to maximize the value of the disparate software tools being used across the
organization to better understand the performance of the overall infrastructure.

We
recognize that the value of our software products depends on their ability to address specified business needs. As a result, we plan to continue to offer pre-defined
business solutions to solve our customers' highest-priority challenges. In designing our business solutions, we package one or more of

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the
software products described above with professional, educational, customer support and maintenance services based on our best practice experience.

Technology

Our applications automate information technology business processes and provide tailoring and workflow capabilities that enable the product to be modified to meet
customer-specific business needs. Our client-server applications are built using modern technologies and standard protocols to support distributed, heterogeneous architectures and to cooperate with
common middlewarethat is, the software that resides between the operating system and the end user application softwarefound in most enterprise environments. We also develop
tools, which we term "light-weight" agents, to automate complex discovery and administrative tasks, such as the distribution of software corrections or remote process execution. Our newer products use
industry-standard protocols such as J2EE, XML, SOAP and HTTP to facilitate integration with other enterprise software.

In
addition to creating technology for our products, we incorporate into our products certain technology created by other companies, some of which is critical to product use. When we
incorporate third-party technology into our products, we may be required to pay royalties to the technology providers.

As
part of our relationship with International Business Machines Corporation (IBM), we have an obligation to maintain compatibility between our products and certain IBM middleware
components. In return, we gain access to certain technical services from IBM, including technical and development support, education and training. In addition, we have early access to certain of IBM's
emerging technologies.

Product Licensing

We generate revenue from our software products by licensing them to our customers on a fee basis. We typically license our software products on a perpetual basis
under a non-exclusive license
agreement. License fees depend on the product licensed, the product's use and functionality, the number of users of the product licensed and the country in which the license is sold. We offer
discounts to customers based on competitive factors and the size or number of implementations they require. Indirect sales through our alliance partners are made at discounts from our list prices
based on the program and level at which the alliance partner participates.

Customer Support and Maintenance Services

Customer support and maintenance services represent an integral part of our relationships with our customers by facilitating their success with our products and
services. Through these services our customers receive product defect corrections, new releases and versions of our products, and access to our help-line personnel, who answer questions
about our products and assist customers in resolving problems. Our tiered-support offerings are designed to provide customers with a choice of maintenance plans so that they can select the plan that
best fits their organizational support needs. Our offerings include e-mail, phone and web-based support services. Additional offerings are available either as part of a higher
service level plan or as a stand-alone offering. Examples include 24-hour customer support, use of a designated support account manager and an annual system check. We maintain customer
support centers in the United States, United Kingdom, Canada, France, and Germany. We also have relationships with third parties that provide customer support and maintenance services for specified
customers and local markets. In addition, IBM agreed with certain joint customers to provide maintenance services on Peregrine products it sold in the event we become unable to fulfill those
obligations.

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Professional and Educational Services

In most cases, third parties are responsible for implementing the products that we sell and are paid directly by the customer. IBM, for example, has trained a
significant number of its consultants to deliver a broad range of professional services tied to our products. In addition, our own professional services group offers consulting and project management
services to help customers enjoy the full value of our products. In order to manage fluctuating demand for our services, in many cases we subcontract these integration services for which we are
responsible to one of our integration partners. We also sometimes act as a subcontractor to a third-party service provider, such as IBM.

The
basic consulting services we offer include:



Our
professional and educational services group also provides instructor-led training, web-based training, virtual classroom sessions and on-site
training to customers.

Our
professional services group has staff in the United States, United Kingdom, Canada, France, Germany, and the Netherlands. In areas where we do not have professional and educational
services personnel, partners deliver these services.

Product Development

We develop our products based on market and competitive trends and through consultation and collaboration with existing and potential customers. We devote
significant resources to developing new and enhanced versions of our products. Our research and development expenditures totaled $29.6 million, $29.3 million and $52.4 million in
fiscal 2005, 2004 and 2003, respectively, representing 15%, 17% and 23%, respectively, of revenue for those periods. Readers should carefully review "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional discussion of these expenditures.

Our
research and development teams are based in four locations: our San Diego headquarters; Bourg la Reine, France; Ottawa, Canada; and Richmond, England.

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Sales and Marketing

We sell our software and services in North America and Europe primarily through a direct sales force. Our direct sales model constitutes a set of coordinated
activities among field account representatives, inside sales and solutions consultants who consult on the technical aspects of our products. We conduct our sales and marketing efforts from our
headquarters in San Diego and field offices in major cities in North America and Europe. Additionally, we have regional offices in Japan, Australia and Singapore, serving the Asia/Pacific Rim markets.
We demonstrate our products over the Internet, via live "web-casts," but we frequently travel to customer locations for face-to-face product demonstrations to facilitate a consultative
sales process.

In
addition to our direct sales strategy, we sell our software indirectly through our alliance partners, which include global and regional solution providers and systems integration
firms. Our typical indirect alliance partner is a global or regional solution provider or a system integration firm that sells or influences sales of our products and provides related integration and
other services, with or without our assistance, to an end-user. In the Asia/Pacific Rim markets, as well as emerging markets in Europe and Latin America, our alliance partners manage the
sales process with limited assistance from us. In our core markets in North America and Europe, we typically assist our alliance partner in the sales process.

We
derive a substantial portion of our revenue from sales of products through our alliance partners. The largest of our alliance partners in fiscal 2005 was IBM. Sales associated with
our IBM relationship accounted for approximately 16% and 18% of our license revenue in fiscal 2005 and the 257 day period ended March 31, 2004, respectively. During our bankruptcy law
proceedings, we expanded our relationship with IBM by creating a risk mitigation program through which IBM guaranteed, for a stated period of time that varied by customer, the servicing of our
products to certain joint customers in the event we became unable to support the products. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsComparison of Results of Operations for the Fiscal Year Ended March 31, 2005 with the Pro Forma Combined Fiscal Year Ended March 31, 2004Revenue,"
beginning on page 28 of this report.

We
also devote resources to product marketing, marketing communications, alliance marketing, telemarketing and sales training. The primary focus of the marketing functions is to create
market awareness and demand for our products and to develop sales tools that support sales activities.

Customers

Our customers include Fortune Global 2000 companies, medium-sized companies, numerous federal, state and local government agencies worldwide and outsourcers, such
as IBM's Strategic Outsourcing Group, EDS and Unisys. We focus on serving large organizations with complex infrastructures, but our customers also include departments of these large organizations and
mid-size organizations with varied information technology asset and service management requirements. Outsourcers typically purchase our products to include them in broader information
technology solutions they offer to their customers. Our license sales to customers generally fall into two categories: existing customers buying additional licenses and modules, and new customers
buying their first license from us. For a discussion of the risks related to our customer base and other risks facing our business, readers should carefully review the information set forth under the
caption "Risk Factors," beginning on page 49 of this report.

Competition

Sources of Existing Competition.The market for our products is highly competitive and diverse. Our competitors vary in size
and in the scope and breadth of the products and services offered. These competitors include large, mid-tier and small vendors. Our closest competitors are Fortune 500

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technology
vendors that have greater financial resources than we do and offer a wide range of products and services, including offerings that compete with our information technology asset and service
management software, as well as a number of smaller niche vendors. Our competitors include: Altiris; Computer Associates; Hewlett-Packard; MRO Software; Remedy, a BMC Software Company; PS'SOFT; and
USU Software AG.

We
believe that the principal competitive factors affecting our market are:



Although
we believe that our products and services compete favorably with respect to these factors, the market for our products is highly competitive. In addition, potential customers
may have concerns about purchasing from us because of our size relative to larger competitors and our past accounting irregularities and bankruptcy law proceedings. Finally, large enterprises that
compete with us have better access to potential customers, and may be able to price their products more competitively because of their size and the breadth of their product offerings.

Sources of Future Competition.We believe that competition will be influenced by continuing consolidation in the software
industry. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire a significant market share. Current and potential competitors have established, or may in
the future establish, cooperative relationships among themselves or with third parties.

General Competitive Factors in the Industry.Some of our current and potential competitors have greater financial, technical,
marketing and other resources than we do. As a result, they may be able to respond more quickly than we can to new or emerging technologies and changes in customer needs. They may also be able to
devote greater resources to the development, promotion and sale of their products. We also believe that there is a trend among competitors toward securing market share at the expense of profitability.
We may not be able to compete successfully against current and future competitors that seek to improve market share at the expense of profitability. If this occurs, our responses to competitive
pressures may adversely affect our business, operating results and financial condition.

Seasonality

Like many software companies, demand for our products tends to be strongest in the quarters ending March 31 and December 31 and weakest in the
quarter ending June 30. We believe that we benefit in our quarter ending December 31, relative to our quarters ending June 30 and September 30, from the fact that many
customers make purchase decisions in connection with year-end budgeting requirements. Seasonal patterns may change over time and we may experience variability in demand associated with
seasonal buying patterns in foreign markets. As an example, our quarter ending September 30 is typically weaker, in part reflecting a slowdown in European business during that region's
traditional summer holiday season.

Segment and Geographic Financial Information

We focus on developing and marketing our information technology asset and service management software products to a single business segment: the network and
systems management sector of the software industry. Beginning in the second quarter of fiscal 2005 we changed the basis of segmentation

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from
a single reportable segment to two reportable segments as a result of changes in the manner in which management evaluates the performance of the business. This change was made possible by
improvements in internal financial reporting. The two reportable segments align with the internal management of worldwide business operations:



See
our consolidated financial statements and Note 15 thereto for financial information related to our reportable geographic segments.

Intellectual Property

Our success depends on our ability to maintain and protect our proprietary technology. We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect our proprietary rights. To a lesser extent, we rely on patent protection, and some of our technologies, consisting principally of
acquired technologies, are covered by issued patents and pending patent applications. We attempt to protect our intellectual property rights by limiting access to our software products and
documentation. Our software products are provided only to customers that have signed license agreements, certain partners that have signed partner agreements, and certain customer prospects that sign
restrictive software evaluation agreements. We attempt to restrict access to the source code for our software products and other proprietary information to our developers. However, like many software
companies, we maintain a copy of our source code on deposit with a
third-party escrow agent that is entitled to provide the source code to select customers if a triggering event occurs that prevents us from continuing to support our products. In addition, we enter
into confidentiality agreements with our employees and most customers, vendors and strategic partners. For a discussion of the risks related to our reliance on proprietary technology and other risks
facing our business, readers should carefully review the information set forth under the caption "Risk Factors," beginning on page 49 of this report.

Employees

As of March 31, 2005, we employed approximately 699 persons worldwide, including 211 in sales and marketing, 119 in customer support, educational services
and maintenance, 52 in professional services, 178 in research and development and 139 in finance and administration. At March 31, 2005 approximately 217 of our employees were located outside
North America, principally in Europe. None of our employees is represented by a labor union, other than by statutory unions or workers' committees required by law in some European countries. We have
not experienced any work stoppages.

ITEM 2. PROPERTIES

Our principal administrative, sales, marketing, support, research and development and training functions are located at our headquarters facility in San Diego,
California. As of March 31, 2005, we were leasing approximately 104,450 square feet of office space in San Diego for this headquarters facility pursuant to a lease that expires April 30,
2012. We also lease office space for sales, marketing, research and development and professional and educational services staff in various locations worldwide.

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ITEM 3. LEGAL PROCEEDINGS

Federal Government Investigations and Proceedings Pertaining to Historical Accounting Irregularities

Government Investigations.In early 2002, the Department of Justice and Securities and Exchange Commission (SEC) opened
investigations into Peregrine and certain former Peregrine employees pertaining to the accounting improprieties that took place prior to 2002. As a result of the DOJ's investigation, a number of our
former employees, including our former chief financial officer, treasurer, assistant treasurer and two sales executives have pleaded guilty to various felony charges and are awaiting sentencing. A
former managing director of KPMG Consulting has also pleaded guilty to felony counts in connection with these events. A number of other former employees, including our former chief executive officer
and chairman, chief operating officer, two executive vice presidents of worldwide sales, vice president of finance and chief accounting officer, and other sales and finance personnel have been charged
with various felonies in connection with these accounting irregularities and are awaiting trial. An Arthur Andersen partner who formerly was our lead auditor also was indicted in connection with these
events. The criminal charges generally relate to the manipulation of our apparent financial condition, misleading investors, hindering the government's investigation or conspiracy. In most of these
cases, the SEC filed a civil action against the individuals alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules promulgated thereunder.

Our Settlement with the Securities and Exchange Commission.In June 2003, the SEC filed a civil action against
Peregrine in the United States District Court for the Southern District of California alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules
promulgated thereunder. In the same month, our settlement with the SEC was approved by the United States District Court for the Southern District of California, resolving all the matters raised in the
civil action, except the request for a civil penalty and disgorgement. The SEC separately withdrew the request for monetary damages and disgorgement in July 2003. Under the terms of the
settlement, we agreed, among other things, to:



Continuing Investigations.The SEC and the DOJ are continuing their investigations and we are fully cooperating with them in
these investigations and as they prepare for the trials involving former employees and others. Since we have not filed our SEC periodic reports on a timely basis, we have not been in compliance with
the requirement of our settlement with the SEC pertaining to refraining from violating federal securities laws. To our knowledge, the SEC is not considering a further enforcement action against us and
neither Peregrine nor any current employee is a target of an ongoing investigation, but we can not be sure that a further enforcement action or criminal proceeding will not be brought against us.
Responding to any such actions could be expensive and time-consuming for management and could have an adverse effect on our reputation and ability to generate sales. Readers

11

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should
carefully review the information set forth under the caption "Risk Factors," beginning on page 49 of this report.

Stockholder Litigation Pertaining to Historical Accounting Irregularities as to Which Peregrine is No Longer a Party

During May and June 2002, a number of purported class action complaints were filed against Peregrine on behalf of purchasers of its securities during
various periods from 1999 to 2002. The complaints alleged false and misleading statements in SEC filings, financial statements and other public statements and asserted claims for violations of federal
securities laws. The complaints were ultimately consolidated into an action before the United States District Court for the Southern District of California (the Federal Securities Action). In
January 2003, the District Court entered an order designating a group of individuals identified as the Loran Group as lead plaintiff with respect to claims arising from violations of Sections
10(b) and 20(a) of the Securities Act of 1933 and Heywood Waga as lead plaintiff with respect to claims arising from violations of Section 11 of the Securities Exchange Act of 1934.

In
November 2003, the Bankruptcy Court certified a class consisting of persons who acquired Peregrine securities from July 22, 1999 through May 3, 2002, led by the
Loran Group and Heywood Waga (the Securities Class), and a class, consisting of persons holding the Predecessor Company's common stock as of the effective date of the reorganization plan (the Equity
Class). The Securities Class and the Equity Class were certified by the Bankruptcy Court solely for purposes of allowing them to enter into a settlement agreement with Peregrine to resolve the
allocation of new common stock among the various interests in Class 9 under our reorganization plan, consisting of the Securities Class, the Equity Class and certain of our former directors and
officers asserting indemnity claims relating to lawsuits filed against them (the Indemnification Class). The Bankruptcy Court's order approving the settlement agreement resolved the stockholder claims
against us and we are not a party to the Federal Securities Action.

Peregrine Litigation Trustee Action to Which Peregrine is Not a Party

Under our reorganization plan, an independent litigation trust was established and initially funded with $3.2 million in cash and 708,750 shares of new
common stock. With limited exceptions, potential claims and causes of action we had against our former officers and directors for negligence, breach of fiduciary duty, insider trading or any other
breaches of duty imposed by law, all potential claims we had against our former auditor Arthur Andersen relating to accounting services provided to us, claims brought by third parties against some of
our former directors and officers purportedly on our behalf as derivative claims, and certain other claims, were transferred to the litigation trust. The assigned trustee (the Litigation Trustee) has
the authority to prosecute, abandon, release, settle or otherwise dispose of these claims at the trustee's sole discretion, without the consent, authority or approval of any third parties, including
the Bankruptcy Court, except that the lead plaintiffs in the stockholder litigation, the Loran Group and Heywood Waga, must consent in advance to any release, settlement, compromise or liquidation of
claims. We are required under a Bankruptcy Court stipulation and the litigation trust agreement to provide the Litigation Trustee with access to our books and records, to make our employees available
as witnesses and to be available for depositions, interviews and other proceedings.

In
February 2004, the Litigation Trustee filed suit in California Superior Court in San Diego County against a number of our former directors and officers under theories of
insider trading, breach of fiduciary duty, waste of corporate assets, conspiracy and unjust enrichment (the Litigation Trustee Action). The trustee also is pursuing claims against Arthur Andersen for
violations of the federal securities laws in connection with accounting services Arthur Andersen provided to us. The Litigation Trustee Action is ongoing, but we are not a party to it. All of the
proceeds resulting from the Litigation

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Trustee
Action, if any, are for the benefit of the Securities Class and we are not entitled to receive any such proceeds.

Bankruptcy Reorganization; Claims Litigation; Class 7/9 Reserve Shares

Our Reorganization Plan.Our reorganization plan was confirmed by the Bankruptcy Court on July 18, 2003 and became
effective on August 7, 2003. Our plan provided for the treatment of ten classes of claims. Under the plan, all of our shares of old common stock were cancelled at the close of business on the
effective date, and we issued 15 million shares of new common stock, as discussed below. In addition, 2.65 million shares of new common stock were reserved for issuance under our 2003
Equity Incentive Plan. Readers should carefully review the original documents for more detail. Copies of our disclosure statement in support of the fourth amended plan of reorganization, our fourth
amended plan of reorganization, the related Bankruptcy Court confirmation orders and other relevant documents are incorporated by reference to reports previously filed with the SEC as indicated in the
exhibit list attached to this report. The following summary is qualified in its entirety by the reorganization plan and other source documents.

Classes with Remaining Rights Under the Reorganization Plan.The claims of all classes of claimants under our reorganization
plan have been resolved, with the exception of approximately $0.5 million in asserted amount of general unsecured claims in Class 8 under the reorganization plan and an administrative
claim.

Class 7.Class 7 comprises holders (as of the close of business on the effective date of the plan) of the
Predecessor Company's 5.5% convertible subordinated notes due 2007. Class 7 has already received an aggregate of $58.8 million in new 6.5% senior notes due 2007, an aggregate of
9,450,000 shares of new common stock (representing 63% of the 15,000,000 shares of new common stock issued on the effective date), and a cash payment of $86.5 million (equal to 30% of the
principal and accrued interest on the old subordinated notes). Class 7 will not be entitled to shares from the Class 7/9 Reserve, discussed further below.

Class 8.Approximately 1,200 general unsecured claims were filed against our Predecessor Company based on events that
took place prior to the bankruptcy filing. Through May 31, 2005, the aggregate face amount of these Class 8 claims asserted against us, plus the amounts we scheduled for payment for
Class 8 claims without a claim asserted against us, totaled approximately $383.6 million.

Claim
amounts are amended from time to time by the creditors and potential creditors asserting them and sometimes are filed with a face amount that is the minimum amount asserted by the
creditor. The amounts sought by such creditors can be increased. Classification of claims in the proper class sometimes requires judgment and some claims must be allocated to more than one class.
There also were disputes in the Bankruptcy Court regarding whether certain claims or portions thereof were properly classified as general unsecured claims under Class 8, which are payable in
cash, or as subordinated claims under Class 9. Class 9 creditors share in the pool of common shares already issued and reserved for these claims. For these and other reasons, the total
potential liability associated with Class 8 claims was difficult to predict. In connection with agreeing to the reorganization plan, the various constituencies independently analyzed the claims
and determined that the total payment on the Class 8 general unsecured claims was likely to be between $49.0 million and $65.0 million. The Class 7/9 Reserve Shares are to
be allocated between Class 7 and Class 9 based on whether the amount finally paid to resolve Class 8 claims falls below, within or above the range of $49 million to
$65 million.

Since
August 2003, we have been spending substantial time and money on the process of analyzing and, as appropriate, objecting to claims that we believe are without merit or
asserted for an inflated amount. We have negotiated settlements to various claims. Based on the reorganization plan, any

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claims
that we do not dispute or that are determined to be valid by the Bankruptcy Court after we have made an objection may be paid under one of two options, at the creditor's election: We may be
required either to pay 70% of the allowed amount of the claim, with 60% being paid in cash on the date of settlement and the remaining 10% paid out over a four-year period in equal annual
installments, or we may be required to pay 100% of the allowed amount of the claim, with 20% being paid in cash on the date of settlement and the remaining 80% being paid out over a
four-year period in equal annual installments. We have also agreed with some creditors to pay 65% of the allowed amount of the claim in cash on the date of settlement and nothing more.

We
began paying claims on the effective date of the reorganization plan and continue to pay as claims are settled, or otherwise resolved. Through May 31, 2005, we have paid,
settled or otherwise disposed of Class 8 claims with an original aggregate face amount of approximately $383.1 million. To resolve these claims we have paid or agreed to pay over time
approximately $45.0 million in cash. As of May 31, 2005, there were general unsecured claims asserted in the original aggregate face amount of approximately $0.5 million remaining
to be resolved.

As
of March 31, 2005, the most material of the claims remaining to be resolved were unliquidated indemnity claims made by John J. Moores, a former director, and by Richard Nelson,
a former officer and director. Among other lawsuits, Messrs. Moores and Nelson are defendants in the Litigation Trustee Action and the Federal Securities Action, which seek to recover monetary
damages from them based on events that transpired before Peregrine filed for bankruptcy law protection. The Moores and Nelson claims sought reimbursement from us for defense expenses in connection
with the litigation relating to their affiliation with Peregrine. The Moores and Nelson claims were unliquidated because the claimants started to incur defense expenses when the lawsuits were
originated and they will continue to do so until the lawsuits are resolved. In May 2005, we signed settlement agreements with Mr. Moores and Mr. Nelson to resolve their claims,
subject to Bankruptcy Court approval. Because these claims were unliquidated, until the claims were resolved we had been unable to determine our final estimated liability for Class 8 claims in
aggregate and, therefore, could not allocate the Class 7/9 Reserve Shares.

The
Moores and Nelson agreements were approved by the Bankruptcy Court on June 14, 2005 and June 21, 2005, respectively. As a result of these settlements, we are now in a
position to distribute the Class 7/9 Reserve Shares, because we know that the aggregate payment for Class 8 claims will be below $49.0 million, the low end of the range of previously
estimated payments of between $49.0 million and $65.0 million, determined by the various constituencies in the bankruptcy proceedings.

Class 9.Class 9 under our reorganization plan comprises the Equity Class (i.e., holders, as of the effective
date of the plan, of our Predecessor Company's common stock), the Securities Class (i.e., purchasers of our old common stock involved in the Federal Securities Action, and the Indemnity Class (i.e.,
certain former employees, officers and directors with indemnity claims). Under the plan, Class 9 became entitled to receive 4,950,000 shares of our new common stock, representing 33% of the
15,000,000 shares of new common stock issued on the effective date. Pursuant to the terms of the settlement among the Equity Class, Securities Class, and Indemnity Class, 4,016,250 shares of our new
common stock (representing 26.8% of the total stock issued) were issued to the Equity Class, 708,750 shares of our new common stock (representing 4.7% of the total stock issued) were issued to the
Litigation Trustee on behalf of the Securities Class, and 225,000 shares of our new common stock (representing 1.5% of the total stock issued) will be issued to the Indemnity Class to satisfy their
claims.

The
Class 7/9 Reserve Shares are an additional 600,000 shares of new common stock representing 4% of the 15,000,000 shares of new common stock issued on the effective date, that
were reserved for later allocation between Class 7 and Class 9 claims based on the amount finally paid to resolve Class 8 general unsecured claims. Now that the Moores and Nelson
settlements have been completed, we know

14

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that
the amount finally paid to resolve Class 8 claims will be below $49.0 million, so all of these 600,000 shares will be allocated to Class 9. As a result of the Class 9
settlement, the Equity Class will be entitled to receive 85%, or 510,000, of such shares and the Securities Class will be entitled to receive 15%, or 90,000, of such shares. We intend to distribute
the Class 7/9 Reserve Shares as soon as practicable.

The
following table summarizes the allocation of shares of new common stock, including the 600,000 Class 7/9 Reserve Shares, and potential proceeds from the Litigation Trustee
Action to various classes under our reorganization plan as a result of the plan, the Class 9 settlement, and the final resolution of Class 8 claims.

|        |                  | New Common Shares |              | Percent of Total Shares |  | Litigation Trust Proceeds |           
|------- | ---------------- | ----------------- | ------------ | ----------------------- |  | ------------------------- | ----------
|Class 7 |                  |                   |              | 9,450,000               |  |                           |           
|Class 9 |                  |                   |              |                         |  |                           |           
|        | Equity Class     |                   | 4,526,250    |                         |  |                           | 30.2      
|        | Securities Class |                   | 798,750      |                         |  |                           | 5.3       
|        | Indemnity Class  |                   | 225,000      |                         |  |                           | 1.5       
|        |                  |                   |              |                         |  |                           |           
|        |                  | Total Class 9     |              |                         |  | 5,550,000                 |           
|        |                  |                   |              |                         |  |                           |           
|        |                  |                   | Total Shares |                         |  |                           | 15,000,000

Administrative Claims and Luddy v. Peregrine.Administrative claims are claims related to obligations we purportedly incurred
after we filed for bankruptcy law protection during the administrative period of the bankruptcy case. In order to be paid, administrative claims must meet certain requirements under the bankruptcy
plan and bankruptcy laws. The only material potential remaining administrative claim is a claim asserted by our former chief technology officer, Frederic Luddy. In May 2004, Mr. Luddy
filed a complaint against us in the Court of Chancery for the State of Delaware seeking advancement of certain legal fees and expenses. Mr. Luddy's complaint alleged that Peregrine is required
to advance or reimburse him for his defense expenses in connection with the Federal Securities Action and the Litigation Trustee Action. His complaint also alleged that, pursuant to a paragraph of the
Bankruptcy Court's order confirming our reorganization plan, his indemnity claim can be pursued in state court. In June 2004, we removed Mr. Luddy's complaint from Delaware state court
to the Bankruptcy Court. We also filed a motion in Bankruptcy Court to dismiss the complaint on the basis, among other things, that Mr. Luddy failed to file any proof of claim before the
Bankruptcy Court and that his claim is barred by the discharge injunction entered in connection with the Bankruptcy Court's approval of our reorganization plan. On August 9, 2004,
Mr. Luddy filed a motion in Bankruptcy Court seeking to voluntarily dismiss his complaint, without prejudice, and on the same day filed a new complaint in the Delaware Court of Chancery,
seeking the same relief as in his prior complaint. We removed Mr. Luddy's new complaint to the Bankruptcy Court and filed a new motion to dismiss his complaint. Mr. Luddy, in turn, filed
a motion to remand the case to state court. On November 10, 2004, the Bankruptcy Court denied Mr. Luddy's motion for remand and found that it had jurisdiction to consider the complaint.
Also on November 10, 2004, the Bankruptcy Court granted in part and denied in part our motion to dismiss, without prejudice to our right to renew the motion later after discovery and formal
fact finding. On February 23, 2005, Mr. Luddy filed an amended complaint, which we answered on March 15, 2005. Discovery is scheduled to be completed by July 2005, but no
trial date has been set. We believe Mr. Luddy's claims are without merit and we intend to vigorously defend against them. While the outcome is not currently determinable, in the opinion of
management the matter will not materially affect our financial position, results of operations or liquidity.

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Litigation Regarding the Latham Report

To assist the SEC in its investigation, in August 2002 we provided to the SEC, pursuant to a confidentiality agreement, an extensive report and supporting
materials containing the preliminary findings and conclusions of our outside counsel, Latham & Watkins, regarding its investigation into, among other things, our accounting irregularities (the
Latham Report). After our bankruptcy law filing in September 2002, the Official Committee of Unsecured Creditors filed a motion to appoint a trustee and, as an exhibit to their motion, filed a
copy of the Latham Report under seal. Thereafter, Copley Press, Inc., which owns theSan Diego Union Tribune, petitioned the Bankruptcy Court to
unseal the pleadings and other documents filed under seal, including the Latham Report. We opposed the unsealing of the Latham Report. At the hearing on Copley's motion, the Bankruptcy Court held that
the Latham Report had been improperly filed, and struck it from the record. Copley appealed the Bankruptcy Court's decision to the United States District Court for the District of Delaware. On
July 12, 2004, the District Court issued a decision reversing the Bankruptcy Court's decision and ordering the Bankruptcy Court to have the Latham Report returned to the record, under seal, and
to engage in an access analysis to determine what portions of the Latham Report, if any, should be
unsealed. We have appealed the District Court's decision to the United States Court of Appeals for the Third Circuit. On April 22, 2005, as required by the District Court's order, and by
agreement between Copley and Peregrine, we filed a partially redacted version of the Latham Report and a proposed court order with the Bankruptcy Court. The filing made the unredacted portions of the
report a part of the public record. Under the proposed order, the redacted portions of the report would be deemed sealed and would not be a part of the public record. The sealing of the redacted text
was based on a compromise between Copley and Peregrine, without prejudice to our respective positions, and is not based on any judicial predetermination of cause or justification, or lack thereof, for
such sealing. Copley or other parties could move to unseal additional portions of the report, subject to a process that is defined in the proposed order. Our appeal to the Third Circuit remains
pending. Copley contends that the appeal is now moot and must be dismissed.

The
Latham Report also has been filed in court, under provisional seal, by Mr. Moores in connection with the Federal Securities Action and the Litigation Trustee Action.
Mr. Moores filed the Latham Report, under temporary seal, in both actions in connection with motions to dismiss the complaints against him. We have filed motions in both cases to have the
Latham Report stricken from the record or, as an alternative, to have the Latham Report, or portions of it, permanently sealed. On February 2, 2005, the District Court in the Federal Securities
Action ruled, among other things, that the Latham Report would not be stricken from the record, but that it would remain under seal pending any further applications to unseal it. Similarly, in the
Litigation Trustee Action, we have entered into an agreed stipulation and order with Mr. Moores providing that the unredacted Latham Report filed by him in that action under temporary seal
would remain under seal pending any further motions to unseal to be brought by Mr. Moores and other parties in interest. No such motion has been brought to date.

In
the criminal actions against former Peregrine employees and others pending in the U.S. District Court for the Southern District of California, a protective order was entered on
February 28, 2005 to provide limited protection for the confidential information of non-parties, such as the Latham Report and other Peregrine confidential information.

Other Litigation

We are also involved in legal proceedings, claims, and litigation arising from the ordinary course of business. Although the ultimate results of these legal
proceedings, claims and litigation are not currently determinable, in the opinion of management these matters will not materially affect our financial position, results of operation or liquidity.

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

No matter was submitted to a vote of stockholders during the fourth quarter of fiscal 2005.

ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our old common stock was traded on the Nasdaq National Market under the symbol "PRGN" from the time of our initial public offering in April 1997 until
August 30, 2002, when it was removed from listing on NASDAQ. From September 1, 2002 through August 7, 2003, our old common stock was traded in the
over-the-counter securities market operated by Pink Sheets LLC. Since August 8, 2003, our new common stock has been traded in the
over-the-counter securities market operated by Pink Sheets LLC under the symbol "PRGN." The over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The following table sets forth, for the periods indicated, the
high and low closing bid prices from April 1, 2003 until August 7, 2003, as reported on the Pink Sheets for our old common stock and the high and low closing bid prices from
August 8, 2003 through March 31, 2005, as reported on the Pink Sheets, for our new common stock.

|                                                              |  | HIGH |       | LOW
|------------------------------------------------------------- |  | ---- | ----- | ---
|FISCAL YEAR ENDED MARCH 31, 2005:                             |  |      |       |    
|Fourth Quarter                                                |  | $    | 21.05 |    
|Third Quarter                                                 |  |      | 20.00 |    
|Second Quarter                                                |  |      | 19.48 |    
|First Quarter                                                 |  |      | 22.15 |    
|FISCAL YEAR ENDED MARCH 31, 2004:                             |  |      |       |    
|Fourth Quarter                                                |  | $    | 26.95 |    
|Third Quarter                                                 |  |      | 21.00 |    
|Second Quarter (new common stock from 8/8/03 through 9/31/03) |  |      | 19.05 |    
|Second Quarter (old common stock from 7/1/03 through 8/7/03)  |  |      | 0.705 |    
|First Quarter                                                 |  |      | 0.44  |    

Our Recapitalization

Information in the table above subsequent to August 8, 2003 reflects the recapitalization of our capital stock pursuant to our reorganization plan.

As
of May 31, 2005, there were 15,074,426 shares of our new common stock, par value $0.0001, issued and outstanding and no shares of preferred stock issued and outstanding. We are
authorized to issue 100,000,000 shares of new common stock, and 5,000,000 shares of undesignated preferred stock, $0.0001 par value. We estimate that on May 31, 2005, there were approximately
1,273 holders of record of our new common stock.

Dividends

We have never declared or paid cash dividends on our capital stock. We currently expect to retain future earnings, if any, for use in the operation and expansion
of our business and do not anticipate paying any cash dividends in the foreseeable future. Payment of any cash dividends in the future may depend on the ability of our subsidiaries to pay dividends or
make cash payments or advances to us. The indenture governing our 6.5% senior notes due 2007 imposes restrictions on our ability to pay dividends. For example, our ability to pay dividends will depend
upon, among other things, our level of indebtedness at the time of the proposed dividend or distribution, whether there is a default under the indenture and the amount of dividends or distributions
made in the past. Our future dividend policy

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also
will depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our Board of Directors, including the General Corporation
Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits, and our Amended and Restated Certificate of Incorporation, which restricts our
ability to pay dividends, in cash or in kind, on our new common stock until certain obligations under the plan are paid in full or otherwise discharged.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information, as of March 31, 2005, with respect to shares of our new common stock that may be issued under our
existing equity compensation plans and any existing individual compensation arrangements under which our equity securities were authorized for issuance to employees or non-employees.
Information in the following table is provided as of March 31, 2005 and reflects our recapitalization pursuant to our reorganization plan.

|Plan Category                                                 |  | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |       | Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in first column) |        
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Equity compensation plans approved by security holders(1)     |  | 1,973,525                                                                                   |  | $                                                                           | 17.96 |                                                                                                                                               | 874,259
|Equity compensation plans not approved by security holders(3) |  | 224,500                                                                                     |  | $                                                                           | 17.04 |                                                                                                                                               | 0      
|Total                                                         |  | 2,198,025                                                                                   |  | $                                                                           | 17.86 |                                                                                                                                               | 874,259

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RECENT SALES OF UNREGISTERED SECURITIES

On January 4, 18 and 25, 2005 we issued to one employee on each such date, a total of 119, 110 and 102 shares, respectively, of our new common stock for
aggregate purchase prices of $2,407, $2,283 and $1,194, respectively, upon the exercise of stock options by these three former employees. All of these shares were issued by us without registration
pursuant to the exercise of stock options in reliance on the exemption provided by Section 3(A)(7) of the Securities Act, and comparable provisions of state securities laws, for securities
issued in connection with the approval and an order of the U.S. Bankruptcy Court pursuant to our prior bankruptcy proceedings.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Our selected consolidated financial data is presented below as of and for each of the years in the five-year period ended March 31, 2005, and
is derived from our audited consolidated financial statements. This historical data should be read in conjunction with the consolidated financial statements and the related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors" included elsewhere in this report.

We
adopted fresh-start reporting as of July 18, 2003 and our emergence from Chapter 11 resulted in a new reporting entity. The fiscal periods prior to and including
July 18, 2003 pertain to what is designated as our "Predecessor Company." While the fiscal periods subsequent to July 18, 2003 pertain to what is designated as our "Successor Company."
As a result of the implementation of fresh-start reporting, the financial statements of our Successor Company after the effective date are not comparable to our Predecessor Company's financial
statements for prior periods and are separated by a black line to highlight this lack of comparability. The Successor Company period from July 19, 2003 to

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March 31,
2004 is referred to as the "257 days ended March 31, 2004." The Predecessor Company period from April 1, 2003 to July 18, 2003 is referred to as the
"109 days ended July 18, 2003."

|                                           |                                                                        |  |   |         |   |   |         |   |   |         |   |   |         
|------------------------------------------ | ---------------------------------------------------------------------- |  | - | ------- | - | - | ------- | - | - | ------- | - | - | --------
|
|
|
|
|Consolidated Statement of Operations Data: |                                                                        |  |   |         |   |   |         |   |   |         |   |   |         
|                                           | Total revenue                                                          |  | $ | 191,050 |   | $ | 125,884 |   | $ | 48,655  |   | $ | 230,040 
|                                           | Loss from continuing operations before reorganization and income taxes |  |   | (18,531 | ) |   | (7,983  | ) |   | (3,788  | ) |   | (218,155
|                                           | Reorganization items, net                                              |  |   | (1,567  | ) |   | (7,188  | ) |   | 378,821 |   |   | (458    
|                                           | (Loss) income from continuing operations before income taxes           |  |   | (20,098 | ) |   | (15,171 | ) |   | 375,033 |   |   | (218,613
|                                           | (Loss) income from continuing operations                               |  |   | (25,400 | ) |   | (17,868 | ) |   | 373,937 |   |   | (226,705
|                                           | Income (loss) from discontinued operations, net of income taxes        |  |   |        |   |   |        |   |   | 252     |   |   | 257,564 
|                                           | Net (loss) income                                                      |  | $ | (25,400 | ) | $ | (17,868 | ) | $ | 374,189 |   | $ | 30,859  
|                                           | Net (loss) income per share, basic:                                    |  |   |         |   |   |         |   |   |         |   |   |         
|                                           | (Loss) income per share from continuing operations                     |  | $ | (1.69   | ) | $ | (1.19   | ) | $ | 1.91    |   | $ | (1.16   
|                                           | Income (loss) per share from discontinued operations                   |  |   |        |   |   |        |   |   |        |   | $ | 1.32    
|                                           | Net (loss) income per share                                            |  | $ | (1.69   | ) | $ | (1.19   | ) | $ | 1.91    |   | $ | 0.16    
|                                           | Basic shares used in computation                                       |  |   | 15,055  |   |   | 15,000  |   |   | 195,654 |   |   | 195,248 
|                                           | Net (loss) income per share, diluted:                                  |  |   |         |   |   |         |   |   |         |   |   |         
|                                           | (Loss) income per share from continuing operations                     |  | $ | (1.69   | ) | $ | (1.19   | ) | $ | 1.82    |   | $ | (1.16   
|                                           | Income (loss) per share from discontinued operations                   |  |   |        |   |   |        |   |   |        |   | $ | 1.32    
|                                           | Net (loss) income per share                                            |  | $ | (1.69   | ) | $ | (1.19   | ) | $ | 1.82    |   | $ | 0.16    
|                                           | Diluted shares used in computation                                     |  |   | 15,055  |   |   | 15,000  |   |   | 208,302 |   |   | 195,248 

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|                                 |                                               |  |   |         |   |   |         |  |   |         
|-------------------------------- | --------------------------------------------- |  | - | ------- | - | - | ------- |  | - | --------
|
|
|
|
|Consolidated Balance Sheet Data: |                                               |  |   |         |   |   |         |  |   |         
|                                 | Cash and cash equivalents                     |  | $ | 89,090  |   | $ | 110,600 |  | $ | 264,256 
|                                 | Working capital (deficit)                     |  |   | (19,641 | ) |   | 3,348   |  |   | (266,670
|                                 | Total assets                                  |  |   | 420,316 |   |   | 472,788 |  |   | 351,716 
|                                 | Long-term obligations, net of current portion |  |   | 29,007  |   |   | 46,467  |  |   |        
|                                 | Total stockholders' equity (deficit)          |  |   | 222,835 |   |   | 249,611 |  |   | (263,999

---

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

The following discussion and analysis of our financial condition, results of operations, liquidity and capital resources should be read in conjunction with the
consolidated financial statements and related notes included in this report. Some of the information contained in this discussion and analysis, or set forth elsewhere in this report, includes
forward-looking statements that involve risk and uncertainties. Readers should carefully review the information set forth under the caption "Risk Factors," beginning on page 49 of this report
for a discussion of important factors that could cause actual results to differ materially from our historical or anticipated results described herein, or implied, by the forward-looking statements in
this report. We undertake no obligation to revise or update any forward-looking statements for any reason.

OVERVIEW

From our initial public offering in 1997 through 2001, we significantly expanded our product lines and business through a series of acquisitions.

As
our operations grew through these acquisitions, our operating costs increased significantly. At the same time, the software industry began a downturn and we faced a challenging sales
environment. These factors created a liquidity crisis for us that was exacerbated by covenant defaults under our credit facility during the quarter ended December 31, 2001. This resulted in our
required repayment of approximately $100.0 million of outstanding debt.

In
January 2002, the SEC began an informal investigation into Peregrine and our then chief executive officer, Stephen Gardner, pertaining to transactions with Critical
Path, Inc. that had taken place in the first half of fiscal 2001 and involved $3.3 million in Peregrine revenue. In February 2002, Peregrine's Audit Committee initiated an
independent investigation into the transactions with Critical Path. In early May 2002, the Audit Committee and, upon its recommendation, the Board of Directors initiated a broad internal
investigation, obtained the resignations of Mr. Gardner and our chief financial officer at that time, Matthew Gless, among others, and publicly disclosed that we were conducting an internal
investigation into potential accounting irregularities or frauds, including alleged

21

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accounting
abuses by our senior management resulting in a substantive overstatement of revenue in prior periods. In mid-May 2002, we announced that we would restate our consolidated
financial statements for all of fiscal years 2000 and 2001 and for the first three quarters of fiscal 2002 (that is, the period from April 1999 through December 2001) as a result of the
discovery of accounting irregularities during those periods, and we also announced that our financial statements and related audit reports for the restatement period should not be relied upon.

In
June 2002 our newly appointed chief executive officer and chief financial officer, and the rest of the management team, simultaneously focused on four immediate goals:



We
streamlined our operations by divesting a number of businesses and non-core product lines and significantly reduced our personnel and cost structure. We also implemented a restructuring
plan to reduce expenses in line with future revenue expectations. The non-core Supply Chain Enablement (Harbinger and Extricity) and Remedy businesses were sold in June 2002 and
November 2002, respectively, and are treated as discontinued operations in the consolidated financial statements. During the fiscal year ended March 31, 2003, we sold other
non-core product lines, including products used in fleet management, facility management, telecommunications management, and travel management.

On
September 22, 2002, we filed for voluntary protection under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware. Our reorganization plan was confirmed by the Bankruptcy Court on July 18, 2003. We emerged from bankruptcy law protection on August 7, 2003. On February 28, 2003, we
filed a Current Report on Form 8-K with audited annual financial statements for the three fiscal years ended March 31, 2002, which included restatements for fiscal years 2001
and 2000 and for the first three quarters of fiscal year 2002 (i.e., the period from April 1, 1999 through December 31, 2001). The accounting restatement pertained mainly to revenue
recognition, accounting for business combinations, balance sheet presentation of factored accounts receivable and accounting for stock options and the related income tax effects. Generally, these
adjustments reduced previously reported overstated revenue and increased understated total liabilities and operating expenses that were not accounted for properly under generally accepted accounting
principles (GAAP).

As
a result of our bankruptcy law filing under Chapter 11, we were subject to the provisions of American Institute of Certified Public Accountants (AICPA) Statement of Position
90-7, "Financial Reporting of Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), for the reporting periods subsequent to September 22, 2002 through
July 18, 2003. Pursuant to SOP 90-7, we were required, among other things, to classify on the consolidated balance sheet liabilities arising prior to the September 22, 2002
petition date that were subject to compromise separately from those that were not, as well as liabilities arising post-petition. The liabilities that were potentially affected by the
reorganization plan were reported at the estimated amounts that would be allowed under the reorganization plan, even if they were ultimately settled for lesser amounts. Revenue, expenses (including
professional fees), realized gains and losses, and provisions for losses resulting from the reorganization of the business were reported separately as reorganization items.

We
applied the fresh-start reporting provisions of SOP 90-7 in the quarter ended September 30, 2003. As a result of the implementation of fresh-start reporting, the
financial statements of our Successor Company after July 18, 2003 are not comparable to our Predecessor Company's financial statements for prior periods.

22

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles. These accounting principles require us to make
certain estimates, judgments and
assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts
of revenue and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will
be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:



Revenue Recognition

As described below, significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period.
Material differences could result in the amount and the timing of our revenue for any period if our management made different judgments or utilized different estimates. Our revenue is derived
principally from software product licensing and related services. Our standard end-user license agreement provides for an initial fee for use of our products in perpetuity. License fees
are generally due upon the granting of the license. Maintenance revenue consists of fees for technical support and software updates. Consulting and
training revenue is for fees earned for professional services provided to customers primarily on a time and material basis. We recognize revenue in accordance with the provisions of Statement of
Position 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9 (SOP 97-2), and Staff Accounting Bulletins No. 101, "Revenue
Recognition in Financial Statements" and No. 104, "Revenue Recognition," issued by the SEC.

We
recognize revenue from license agreements with direct customers when all of the following conditions are met: a non-cancelable license agreement has been signed; the
product has been delivered; there are no material uncertainties regarding customer acceptance; the fee is fixed or determinable; collection of the resulting receivable is deemed probable; risk of
concession is deemed remote; and we have no other significant obligations. Estimates on collectibility are made by management on a transaction-by-transaction basis. If provided
in a license agreement, acceptance provisions generally grant customers a right of refund only if the licensed software does not perform in accordance with its published specifications. We believe the
likelihood of non-acceptance in these situations is remote and we generally recognize revenue when all other criteria for revenue recognition are met. If such determination cannot be made,
revenue is recognized upon the earlier of receipt of written acceptance or when the acceptance period has lapsed.

For
contracts with multiple obligations (e.g., current and future product delivery obligations, post-contract support or other services), we recognize revenue using the
residual method. Under the residual method, we allocate revenue to the undelivered elements of the contract based on vendor-specific objective evidence of their fair value. This objective evidence is
the sales price of each element

23

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when
sold separately or the annual renewal rate specified in the agreement for maintenance. We recognize revenue allocated to undelivered products when all of the other criteria for revenue
recognition have been met.

Revenue
from maintenance services is recognized ratably over the support period, which is generally one year. Consulting revenue is primarily derived from software product integration
services, which we typically perform on a time and material basis under separate service agreements. In our judgment, consulting services are not usually considered essential to the functionality of
the software. Training revenue derives from instructor-led and online educational services provided relating to our products. As a result, we recognize license revenue upon delivery of the
software, which generally is prior to the delivery of the consulting and training services. Revenue from consulting and training services is recognized as the respective services are performed.

We
also derive revenue from the sale of software licenses and maintenance services through distributors. Revenue from sales made through distributors is recognized when the distributors
have sold the software licenses or services to their customers and the criteria for revenue recognition under SOP 97-2 are met. Revenue from maintenance services sold through distributors
is recognized ratably over the contractual period with the end user.

Allowance for Doubtful Accounts

The Company makes estimates regarding the collectibility of its accounts receivable. The Company evaluates the adequacy of the allowance for doubtful accounts by
analyzing specific accounts receivable balances, historical bad debts, customer credit worthiness, current economic trends and changes in customer payment cycles. Material differences may result in
the amount and timing of expense for any period if management were to make different judgments or utilize different estimates. If the financial condition of our customers deteriorates resulting in an
impairment of their ability to make payments, additional allowances might be required.

Accounting for Income Taxes

Significant judgment is required in determining our worldwide income tax provision. In a global business like ours, there are many transactions and calculations
in which the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities and segregation of
foreign and domestic income and expense to avoid double taxation. We have accrued reserves for tax contingencies based upon our estimates of the tax ultimately to be paid. These estimates are updated
as new information becomes available. While these estimates are based upon the information available when these statements are issued, no assurance can be given that the final outcome of these matters
will not differ from the estimates reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and financial position,
results of operations or liquidity in the period for which such determination is made.

We
have recorded a valuation allowance on substantially all of our net deferred tax asset balances as of March 31, 2005 and 2004 because of uncertainties related to utilization of
deferred tax assets, primarily related to net operating loss carryforwards, before they expire. At such time, if any, as it is determined that it is more likely than not that the deferred tax assets
are realizable, the valuation allowance will be reduced. Reductions for deferred tax assets generated prior to the adoption of fresh-start reporting will be recorded as reductions to goodwill.

Legal Contingencies

We are currently involved in various claims and legal proceedings. Periodically, we review the status of each significant matter and assess our potential
financial exposure. If the potential loss from

24

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any
claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the
determination of probability and the determination of whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based on the best information
available at the time in accordance with SFAS No. 5, "Accounting for Contingencies." As additional information becomes available, we will reassess the potential liability related to our pending
claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. See
"Legal Proceedings" beginning on page 11 of this report and Note 17 of our notes to consolidated financial statements for a description of our material legal proceedings.

Fresh-Start

We adopted the fresh-start reporting provisions of SOP 90-7 on July 18, 2003. This resulted in a new basis of accounting. Under fresh-start
reporting, the reorganization value of the entity, as described below, is allocated to the entity's assets based on fair values, and liabilities are stated at the present value of amounts to be paid
determined at current interest rates. The determination of the reorganization value and fair value of assets relies on a number of estimates and assumptions, the ultimate outcome of which are
inherently subject to significant uncertainties and contingencies beyond our control.

Reorganization
value is the fair value of the entity before considering liabilities, and it approximates the amount a willing buyer would pay for the assets of the entity immediately
after reorganization. With the assistance of third-party financial advisors, we determined the fair value of the new common stock for the Successor Company to be $270 million, which represents
the business enterprise value adjusted for debt financing and other liabilities net of cash. For purposes of applying SOP 90-7, we used a business enterprise value of $277 million,
representing our best estimate of the Successor Company's reorganized business enterprise value.

Fresh-start
reporting requires that the reorganization value be allocated to the entity's assets in conformity with procedures specified by Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141). We engaged an independent appraiser to assist in determining the fair market value of our identifiable intangible assets. Identifiable
intangible assets consist of
developed technology, trademarks and trade names, customer contracts and customer lists. The fair value of these identifiable intangible assets was estimated to be $125.1 million and was
determined using the Successor Company's estimated future cash flow discounted at the Successor Company's weighted cost of capital of 12.0%. The identifiable intangible assets have estimated useful
lives ranging from five to six years.

Any
amount remaining after allocation of the reorganization value of the Successor Company to identified tangible and intangible assets is recorded as goodwill. Goodwill is not
amortized, but is subject to periodic evaluation for impairment at least annually.

Valuation of Long-Lived Assets

We evaluate the recoverability of our long-lived assets, including property and equipment and certain identifiable intangible assets, exclusive of
goodwill, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). Goodwill is
tested for impairment, at least annually, in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." SFAS 144 requires us to review
for impairment of long-lived assets whenever events or changes in circumstances indicate

25

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that
the carrying amount of an asset may not be recoverable. Factors that could trigger an impairment review include:



When
we determine that the carrying amount of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators, we assess the assets for impairment
based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future
undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. Fair value is generally determined based on the estimated future discounted
cash flows over the remaining useful life of the asset using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. The assumptions
supporting the cash flows, including the discount rates, are determined using our best estimates as of the date of the impairment review. Based on these estimates, we recognized impairment charges on
long-lived assets of our continuing operations of $35.6 million for fiscal 2003.

RESULTS OF OPERATIONS

As stated above, on July 18, 2003, the Bankruptcy Court confirmed our reorganization plan and it became effective on August 7, 2003. Results of
operations presented for periods prior to and including July 18, 2003 pertain to our company prior to its reorganization, our Predecessor Company. The results of operations presented for
periods after July 18, 2003 pertain to our company after its reorganization, our Successor Company. Where discussion applies to both the Predecessor Company and the Successor Company, we refer
to the Company. As a result of the implementation of fresh-start reporting on July 18, 2003, the Successor Company's results of operations are not comparable to results reported in prior
periods for the Predecessor Company, because of differences in the basis of reporting and the capital structure for the Predecessor Company and the Successor Company. See Note 1 of our notes to
consolidated financial statements included in this report for additional information about the consummation of the reorganization plan and the implementation of fresh-start reporting.

As
required by Item 303(b) of SEC Regulation S-K, the discussion and analysis of results of operations covers all periods for which financial statements are presented,
even those that relate to periods shorter than a full fiscal year. However, for clarity of presentation, where the adoption of fresh-start reporting did not have a material effect, we have only
compared the results of operations of our Successor Company for the fiscal year ended March 31, 2005 with the historical operations of the Successor and Predecessor Company on a pro forma
combined basis for the fiscal year ended March 31, 2004. Similarly, where the adoption of fresh-start reporting did not have a material effect, we have only compared the results of operations
of our Successor Company and Predecessor Company on a pro forma combined basis for the fiscal year ended March 31, 2004 with the historical results of operations of the Predecessor Company for
the fiscal year ended March 31, 2003.

The
discussion and analysis of results of operations for the shortened periods are not directly comparable to the full current fiscal year. For example, our Successor Company's license
revenue, maintenance revenue, amortization, income taxes, discontinued operations and reorganization items, net were all affected by the adoption of fresh-start reporting. In order to provide an
informative comparison of results of operations with our Successor Company's results for the fiscal year ended March 31, 2005, and with our Predecessor Company's results for the fiscal year
ended March 31, 2003, our Predecessor Company's results of operations are presented for the 109-day period ended July 18,

26

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2003
beside our Successor Company's results of operations for the 257-day period ended March 31, 2004, as well as on a pro forma combined basis for the combined fiscal year ended
March 31, 2004. References to fiscal 2005 refer to operating results for our Successor Company for the fiscal year ended March 31, 2005, references to fiscal 2003 refer to operating
results for our Predecessor Company for the fiscal year ended March 31, 2003, and references to fiscal 2004 refer to the pro forma combined results for our Predecessor Company and our Successor
Company for the twelve-month period ended March 31, 2004. This information is provided for comparative purposes only, but the value of such a comparison may be limited. The pro forma combined
financial information does not reflect the results of operations that either our Predecessor Company or our Successor Company would have achieved for the full 2004 fiscal year. The pro forma combined
financial information for the fiscal year ended March 31, 2004 is presented on a merely additive basis and does not give pro forma effect to our Predecessor Company's results as if the
consummation of the reorganization plan and the related fresh-start and other adjustments had occurred at the beginning of the period presented.

The
following table sets forth for the periods indicated the selected consolidated statement of operations data as a percentage of total revenue.

|                                                                |                                    | Successor
Company |       | Successor
Company |       |       |       | Pro forma
Combined
Company |       | Predecessor
Company |      
|--------------------------------------------------------------- | ---------------------------------- | ----------------- | ----- | ----------------- | ----- | ----- | ----- | -------------------------- | ----- | ------------------- | -----
|
|
|
|Revenue:                                                        |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|Licenses                                                        |                                    | 33.8              | %     | 39.0              | %     | 27.8  | %     | 35.9                       | %     | 38.5                | %    
|Maintenance                                                     |                                    | 57.1              | %     | 52.7              | %     | 60.0  | %     | 54.7                       | %     | 43.4                | %    
|Consulting and training                                         |                                    | 9.1               | %     | 8.3               | %     | 12.2  | %     | 9.4                        | %     | 18.1                | %    
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|                                                                | Total revenue                      |                   | 100.0 | %                 | 100.0 | %     | 100.0 | %                          | 100.0 | %                   | 100.0
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|Costs and expenses:                                             |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|Cost of licenses                                                |                                    | 0.8               | %     | 1.1               | %     | 1.4   | %     | 1.2                        | %     | 2.7                 | %    
|Cost of maintenance                                             |                                    | 9.8               | %     | 9.5               | %     | 10.6  | %     | 9.8                        | %     | 11.5                | %    
|Cost of consulting and training                                 |                                    | 9.5               | %     | 8.7               | %     | 10.9  | %     | 9.3                        | %     | 16.7                | %    
|Sales and marketing                                             |                                    | 35.4              | %     | 29.1              | %     | 30.0  | %     | 29.3                       | %     | 46.9                | %    
|Research and development                                        |                                    | 15.5              | %     | 16.2              | %     | 18.3  | %     | 16.8                       | %     | 22.8                | %    
|General and administrative                                      |                                    | 27.4              | %     | 26.6              | %     | 28.7  | %     | 27.2                       | %     | 37.9                | %    
|Amortization of intangible assets                               |                                    | 12.2              | %     | 12.9              | %     | 0.0   | %     | 9.3                        | %     | 0.0                 | %    
|Restructuring, impairments and other                            |                                    | (0.6              | )%    | 0.0               | %     | (2.6  | )%    | (0.7                       | )%    | 40.1                | %    
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|                                                                | Total operating costs and expenses |                   | 110.0 | %                 | 104.1 | %     | 97.3  | %                          | 102.2 | %                   | 178.6
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|Operating (loss) income from continuing operations              |                                    | (10.0             | )%    | (4.1              | )%    | 2.7   | %     | (2.2                       | )%    | (78.6               | )%   
|Foreign currency transaction losses (gains), net                |                                    | 1.1               | %     | 0.5               | %     | (2.1  | )%    | (0.2                       | )%    | (0.7                | )%   
|Reorganization items, net                                       |                                    | (0.8              | )%    | (5.7              | )%    | 778.6 | %     | 212.9                      | %     | (0.2                | )%   
|Interest income                                                 |                                    | 0.8               | %     | 0.9               | %     | 1.3   | %     | 1.0                        | %     | 0.3                 | %    
|Interest expense                                                |                                    | (2.1              | )%    | (3.7              | )%    | (9.7  | )%    | (5.3                       | )%    | (15.9               | )%   
|Other income                                                    |                                    | 0.5               | %     | 0.0               | %     | 0.0   | %     | 0.0                        | %     | 0.0                 | %    
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|(Loss) income from continuing operations before income taxes    |                                    | (10.5             | )%    | (12.1             | )%    | 770.8 | %     | 206.2                      | %     | (95.1               | )%   
|Income tax expense on continuing
operations                     |                                    | (2.8              | )%    | (2.1              | )%    | (2.2  | )%    | (2.2                       | )%    | (3.5                | )%   
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|(Loss) income from continuing operations                        |                                    | (13.3             | )%    | (14.2             | )%    | 768.6 | %     | 204.0                      | %     | (98.6               | )%   
|Income (loss) from discontinued operations, net of income taxes |                                    | 0.0               | %     | 0.0               | %     | 0.5   | %     | 0.1                        | %     | 112.0               | %    
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      
|Net (loss) income                                               |                                    | (13.3             | )%    | (14.2             | )%    | 769.1 | %     | 204.1                      | %     | 13.4                | %    
|                                                                |                                    |                   |       |                   |       |       |       |                            |       |                     |      

27

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COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 2005 WITH THE PRO FORMA COMBINED FISCAL YEAR ENDED MARCH 31, 2004

REVENUE

Revenue comprises license fees, maintenance service fees and fees for consulting and training services.

The
following table summarizes Successor Company revenue for the fiscal year ended March 31, 2005 and pro forma combined revenue for the fiscal year ended March 31, 2004
(dollars in thousands):

|              |                              |  |   |         |  | Predecessor
Company |         | Pro Forma
Combined |   |        |  |   |        
|------------- | ---------------------------- |  | - | ------- |  | ------------------- | ------- | ------------------ | - | ------ |  | - | -------
|
|
|
|
|Total Revenue |                              |  |   |         |  |                     |         |                    |   |        |  |   |        
|              | New                          |  | $ | 191,050 |  | $                   | 125,884 |                    | $ | 43,060 |  | $ | 168,944
|              | Pre-fiscal 2003 transactions |  |   |        |  |                     |        |                    |   | 5,595  |  |   | 5,595  
|              |                              |  |   |         |  |                     |         |                    |   |        |  |   |        
|              | Total                        |  | $ | 191,050 |  | $                   | 125,884 |                    | $ | 48,655 |  | $ | 174,539
|              |                              |  |   |         |  |                     |         |                    |   |        |  |   |        

Revenue
totaled $191.1 million for the fiscal year ended March 31, 2005, an increase of $16.5 million, or 9%, from the $174.5 million for the pro forma
combined fiscal year ended March 31, 2004. License revenue for the fiscal year ended March 31, 2004 includes $5.6 million for license transactions entered into prior to fiscal
2003 but for which all revenue recognition criteria were not satisfied until the pro forma combined fiscal year ended March 31, 2004. Revenue for the fiscal year ended March 31, 2005
increased by $22.1 million, or 13%, from the pro forma combined revenue for the fiscal year ended March 31, 2004, excluding license transactions initiated prior to fiscal 2003. The
reasons for the revenue increases or decreases are discussed below.

Licenses

We generally license our products to end-users under perpetual license agreements for an up-front fee. License revenue for the pro forma
combined fiscal year ended March 31, 2004 includes $5.6 million from license transactions originally entered into prior to fiscal 2003 but for which all revenue recognition criteria were
not satisfied until the later period. The delay in recognizing revenue from license transactions originally entered into prior to fiscal 2003 arises from long-term installment payments,
which are recognized as installments come due, and amounts related to products for which the expiration of certain product exchange or upgrade rights occurred in the later period. Commencing in fiscal
2003, we changed certain business practices by limiting the number of long-term installment contracts and contracts containing product exchange or upgrade rights. Upon the application of
fresh-start reporting as of July 18, 2003, amounts that would have been recognized as revenue in future fiscal quarters by the Successor Company for such arrangements were eliminated because we
had no significant future performance obligations under these agreements. Anticipated collections of Predecessor Company extended pay receivables were recorded as other assets in connection with the
adoption of fresh-start reporting. At March 31, 2004, other assets included $5.0 million of such receivables, which were collected during the fiscal year ended March 31, 2005.

28

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The
following table summarizes Successor Company license revenue for the fiscal year ended March 31, 2005 and pro forma combined license revenue for the fiscal year ended
March 31, 2004 (dollars in thousands):

|         |                              | Successor
Company |        | Successor
Company |   | Predecessor
Company |        | Pro Forma
Combined |        |       |   |        |       
|-------- | ---------------------------- | ----------------- | ------ | ----------------- | - | ------------------- | ------ | ------------------ | ------ | ----- | - | ------ | ------
|
|
|
|Licenses |                              |                   |        |                   |   |                     |        |                    |        |       |   |        |       
|         | New                          |                   | $      | 64,647            |   | $                   | 49,146 |                    | $      | 7,930 |   | $      | 57,076
|         | Pre-fiscal 2003 transactions |                   |        |                  |   |                     |       |                    |        | 5,595 |   |        | 5,595 
|         |                              |                   |        |                   |   |                     |        |                    |        |       |   |        |       
|Total    |                              | $                 | 64,647 |                   | $ | 49,146              |        | $                  | 13,525 |       | $ | 62,671 |       
|         |                              |                   |        |                   |   |                     |        |                    |        |       |   |        |       

License
revenue totaled $64.6 million for the fiscal year ended March 31, 2005, an increase of $2.0 million, or 3%, from the $62.7 million for the pro forma
combined fiscal year ended March 31, 2004. License revenue for the fiscal year ended March 31, 2005 resulted mostly from license transactions entered into during the period and, as a
result of the adoption of fresh-start reporting, did not include any revenue from license transactions initiated prior to fiscal 2003. License revenue for the fiscal year ended March 31, 2005
increased by $7.6 million, or 13%, from the pro forma combined fiscal year ended March 31, 2004, excluding transactions initiated prior to fiscal 2003. The increase primarily reflected
higher unit sales as a result of demand for new and additional licenses, largely from our existing customer base, precipitated, in part, by our emergence from bankruptcy proceedings in
August 2003 and our subsequent increased sales and marketing efforts. License revenue for the pro forma combined fiscal year ended March 31, 2004 included $57.1 million of license
fees attributable mostly to new license transactions entered into during the period and $5.6 million attributable to license transactions initiated prior to fiscal 2003 but for which revenue
was first recognizable in the pro forma combined fiscal year ended March 31, 2004.

Maintenance

Most customers purchase maintenance services when buying new or additional licenses. Maintenance services consist primarily of providing enhancements and upgrades
for our products along with customer support services for our products. Generally, maintenance contracts are entered into for one-year periods, contain economic index fee escalation
provisions and are renewable annually at the customer's option. Maintenance contracts are generally prepaid by the customer and revenue is recognized ratably over the contract period. Maintenance
revenue may include fees for
services rendered in prior periods in instances in which customers did not renew their maintenance contracts until the current period.

As
described earlier, we adopted the fresh-start reporting provisions of SOP 90-7 as of July 18, 2003. Fresh-start reporting requires that the reorganization
value be allocated to the entity's assets in accordance with SFAS No. 141. In accordance with these pronouncements, we determined the fair market value of our assets and liabilities at
July 18, 2003, including our deferred maintenance revenue balances. Accordingly, we reduced our deferred maintenance revenue balances by $6.3 million to reflect the fair value of
maintenance contracts existing at July 18, 2003. This $6.3 million adjustment has the effect of reducing maintenance revenue over the maintenance contract period for those contracts that
existed when we adopted fresh-start reporting. In the fiscal year ended March 31, 2005 maintenance revenue was reduced by $1.4 million. The balance of the adjustment of
$0.4 million at March 31, 2005 will be amortized through March 31, 2007.

29

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The
following table summarizes Successor Company maintenance revenue for the fiscal year ended March 31, 2005 and pro forma combined maintenance revenue for the fiscal year ended
March 31, 2004 (dollars in thousands):

|            |  | Successor
Company |         | Successor
Company |   | Predecessor
Company |  | Pro Forma
Combined |        |  |   |        | 
|----------- |  | ----------------- | ------- | ----------------- | - | ------------------- |  | ------------------ | ------ |  | - | ------ | 
|
|
|
|Maintenance |  | $                 | 109,031 |                   | $ | 66,340              |  | $                  | 29,176 |  | $ | 95,516 | 
|            |  |                   |         |                   |   |                     |  |                    |        |  |   |        | 

Maintenance
revenue totaled $109.0 million for the fiscal year ended March 31, 2005, an increase of $13.5 million, or 14%, from the $95.5 million reported for
the pro forma combined fiscal year ended March 31, 2004. This increase is net of the $1.4 million reduction discussed above and a $4.4 million reduction resulting from the
adoption of fresh-start reporting for the fiscal year ended March 31, 2005 and the pro forma combined fiscal year ended March 31, 2004, respectively. Excluding the reduction in
maintenance revenue resulting from the adoption of fresh-start reporting, maintenance revenue increased $10.5 million, or 11%, from the pro forma combined fiscal year ended March 31,
2004. The increase occurred mainly as a result of our efforts to increase the percentage of customers renewing their maintenance contracts and because the revenue attributable to additional licenses
covered by maintenance contracts exceeded the revenue lost from cancellations, in whole or in part, of maintenance contracts during the renewal process.

Consulting and Training

Consulting and training services include a range of professional and educational services intended to help our customers use our software products more
effectively. Beginning in June 2002, as part of expense-cutting initiatives, we reduced our consulting staff and began to refer customers more frequently to third-party service providers for
general consulting services. We began to focus on supplementing our customers' and the third-party service providers' project teams with consultants possessing specialized knowledge of the more
complex aspects of our products and the best practices for integrating our products into the customers' business operations.

During
the latter half of fiscal 2004, we began to reinvest in expanding our consulting business due to increasing customer demand after our emergence from bankruptcy proceedings. We
hired additional business development personnel, new managers and other staff to address this demand.

The
following table summarizes Successor Company consulting and training revenue for the fiscal year ended March 31, 2005 and pro forma combined consulting and training revenue
for the fiscal year ended March 31, 2004 (dollars in thousands):

|                        |  | Successor
Company |        | Successor
Company |   | Predecessor
Company |  | Pro Forma
Combined |       |  |   |        | 
|----------------------- |  | ----------------- | ------ | ----------------- | - | ------------------- |  | ------------------ | ----- |  | - | ------ | 
|
|
|
|Consulting and training |  | $                 | 17,372 |                   | $ | 10,398              |  | $                  | 5,954 |  | $ | 16,352 | 
|                        |  |                   |        |                   |   |                     |  |                    |       |  |   |        | 

Revenue
for consulting and training services totaled $17.4 million for the fiscal year ended March 31, 2005, an increase of $1.0 million, or 6%, from the
$16.4 million pro forma combined consulting and training revenue for the fiscal year ended March 31, 2004. This increase primarily reflects the reinvestment efforts that began in the
latter half of fiscal 2004.

30

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Revenue by Segment

We organize our business operations according to two reportable operating segments:



The
following table summarizes Successor Company revenue by reportable operating segment for the fiscal year ended March 31, 2005 and pro forma combined revenue by reportable
operating segment for the fiscal year ended March 31, 2004 (dollars in thousands):

|                   |          | Successor
Company |         | Successor
Company |   | Predecessor
Company |        | Pro Forma
Combined |        |        |   |         |        
|------------------ | -------- | ----------------- | ------- | ----------------- | - | ------------------- | ------ | ------------------ | ------ | ------ | - | ------- | -------
|
|
|
|Revenue            |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        
|                   | Americas |                   | $       | 103,740           |   | $                   | 68,318 |                    | $      | 32,043 |   | $       | 100,361
|                   | EMEA/AP  |                   |         | 87,310            |   |                     | 57,566 |                    |        | 16,612 |   |         | 74,178 
|                   |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        
|Total              |          | $                 | 191,050 |                   | $ | 125,884             |        | $                  | 48,655 |        | $ | 174,539 |        
|                   |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        
|% of total revenue |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        
|                   | Americas |                   |         | 54                | % |                     | 54     | %                  |        | 66     | % |         | 58     
|                   | EMEA/AP  |                   |         | 46                | % |                     | 46     | %                  |        | 34     | % |         | 42     
|                   |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        
|                   |          |                   | 100     | %                 |   | 100                 | %      |                    | 100    | %      |   | 100     | %      
|                   |          |                   |         |                   |   |                     |        |                    |        |        |   |         |        

Revenue
for the Americas territory totaled $103.7 million for the fiscal year ended March 31, 2005, an increase of $3.4 million, or 3%, from the pro forma combined
revenue for the fiscal year ended March 31, 2004. License revenue for the Americas territory totaled $31.8 million for the fiscal year ended March 31, 2005, a decrease of
$1.9 million, from the pro forma combined license revenue for the fiscal year ended March 31, 2004. License revenue for the Americas territory for the fiscal year ended March 31,
2004 includes $5.2 million for license transactions entered into prior to fiscal 2003 but for which all revenue recognition criteria were not satisfied until the pro forma combined fiscal year
ended March 31, 2004. License revenue for the Americas territory for the fiscal year ended March 31, 2005 increased by $3.2 million from the pro forma combined license revenue for
the fiscal year ended March 31, 2004, excluding transactions initiated prior to fiscal 2003. The increase primarily reflected higher unit sales as a result of demand for new and additional
licenses, largely from our existing customer base, precipitated, in part, by our emergence from bankruptcy proceedings in August 2003 and our subsequent increased sales and marketing efforts.
Maintenance revenue for the Americas territory for the fiscal year ended March 31, 2005 increased $3.7 million from the pro forma combined fiscal year ended March 31, 2004,
primarily as a result of increased focus on renewal efforts and because the revenue attributable to additional licenses covered by maintenance contracts exceeded the revenue lost from cancellations,
in whole or in part, of maintenance contracts during the renewal process. Americas consulting and training revenue for the fiscal year ended March 31, 2005 increased $1.6 million from
the pro forma combined fiscal year ended March 31, 2004 and primarily reflects the reinvestment efforts which began in the latter half of fiscal 2004.

Revenue
for the EMEA/AP territory totaled $87.3 million for the fiscal year ended March 31, 2005, an increase of $13.1 million, or 18%, from the pro forma combined
revenue for the fiscal year ended March 31, 2004. License revenue in EMEA/AP for the fiscal year ended March 31, 2005 increased $3.9 million from the pro forma combined fiscal
year ended March 31, 2004 as a result of

31

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higher
unit sales of new and additional licenses, largely to our existing customer base, precipitated, in part, by our emergence from bankruptcy proceedings in August 2003 and our subsequent
increased sales and marketing efforts. This increase was also caused in part by favorable fluctuations in exchange rates with the U.S. dollar. Revenue also increased as the result of hiring new
personnel and improved execution of the sales model. EMEA/AP maintenance revenue in the fiscal year ended March 31, 2005 increased by $9.8 million from the pro forma combined fiscal year
ended March 31, 2004 primarily as a result of increased focus on renewal efforts and because the revenue attributable to additional licenses covered by maintenance contracts exceeded the
revenue lost from cancellations, in whole or in part, of maintenance contracts during the renewal process. EMEA/AP consulting and training revenue for the fiscal year ended March 31, 2005
decreased $0.6 million from the pro forma combined fiscal year ended March 31, 2004 and primarily reflects the June 2002 change in our consulting services strategy, offset in part
by the impact associated with the reinvestment efforts which began in the latter half of fiscal 2004.

COSTS AND EXPENSES

Cost of Licenses

The cost of licenses primarily consists of third-party software royalties, product packaging, documentation and production, and distribution costs.

The
cost of licenses totaled $1.5 million for the fiscal year ended March 31, 2005, a decrease of $0.6 million, or 30%, from the pro forma combined cost of licenses
for the fiscal year ended March 31, 2004. The cost of licenses represented 2% and 3% of license revenue for the fiscal year ended March 31, 2005 and the pro forma combined fiscal year
ended March 31, 2004, respectively. This decrease resulted primarily from reductions in software royalties and from ongoing cost reductions implemented in the latter portion of fiscal 2003
through the quarter ended June 30, 2003. We began to outsource most of our product distribution beginning in the three months ended June 30, 2003, and fully implemented the outsourcing
prior to the quarter ended June 30, 2004.

Cost of Maintenance

The cost of maintenance services primarily consists of personnel, facilities and system costs related to technical support services to our customers on
maintenance contracts.

The
cost of maintenance totaled $18.7 million for the fiscal year ended March 31, 2005, an increase of $1.7 million, or 10%, from the pro forma combined fiscal year
ended March 31, 2004. This increase resulted primarily from increases in personnel costs. The cost of maintenance represented 17% and 18% of maintenance revenue for the fiscal year ended
March 31, 2005 and the pro forma combined fiscal year ended March 31 2004, respectively.

Cost of Consulting and Training

The cost of consulting and training services primarily consists of personnel, facilities and system costs associated with providing these services. The cost of
consulting and training services also includes fees paid to third-party subcontractors providing services on our behalf.

The
cost of consulting and training totaled $18.1 million for the fiscal year ended March 31, 2005, an increase of $1.9 million, or 12%, from the pro forma combined
fiscal year ended March 31, 2004. The cost of consulting and training represented 105% and 100% of consulting and training revenue for the fiscal year ended March 31, 2005 and the pro
forma combined fiscal year ended March 31, 2004, respectively. The cost increase is the result of our reinvesting in expanding our consulting business during the latter half of fiscal 2004
primarily through the addition of personnel.

32

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Sales and Marketing

Sales and marketing expenses primarily consist of personnel costs, including sales commissions and travel costs, facilities and system costs related to our sales,
including technical pre-sales, and marketing functions. The costs of advertising and marketing promotions are also included in sales and marketing expenses.

Sales
and marketing expenses totaled $67.6 million for the fiscal year ended March 31, 2005, an increase of $16.4 million, or 32%, from the pro forma combined fiscal
year ended March 31, 2004. The increase reflects higher strategic marketing consulting fees, personnel costs, commission expense and advertising costs. The increase in commission expense
resulted primarily from the increase in license revenue, exclusive of transactions initiated prior to fiscal 2003.

Research and Development

Research and development (R&D) expenses primarily consist of personnel, facilities and systems costs associated with our R&D efforts, which include software
development and product management efforts. R&D expenses also include the cost of services for consultants or other third parties that we hire from time to time to augment our own R&D personnel. No
software development costs were capitalized during the periods presented, as costs incurred between technological feasibility and product releases were minimal.

R&D
expenses totaled $29.6 million for the fiscal year ended March 31, 2005, and were substantially the same as those for the pro forma combined fiscal year ended
March 31, 2004.

General and Administrative

General and administrative (G&A) expenses consist of personnel, facilities and systems costs related to our operations. G&A also includes the cost of business
insurance and professional fees, including legal, accounting, investment banking and other advisory fees, except for fees directly related to our bankruptcy reorganization, which are accounted for
under Reorganization Items, Net.

G&A
expenses totaled $52.4 million for the fiscal year ended March 31, 2005, an increase of $4.9 million, or 10%, from like expenses for the pro forma combined
fiscal year ended March 31, 2004. The increase primarily reflects an increase in personnel costs offset in part by a decrease in professional fees.

Amortization of Intangible Assets

Fresh-start reporting requires that the reorganization value be allocated to the entity's assets in conformity with procedures specified by SFAS 141.
Identifiable intangible assets identified in connection with fresh-start reporting which are subject to amortization consist of developed technology, trademarks
and trade names, maintenance contracts and customer lists. With the adoption of fresh-start reporting, our Successor Company determined the fair value of these identifiable intangibles to be
$125.1 million, and to have useful lives ranging from five to six years. For the fiscal year ended March 31, 2005 and the 257 days ended March 31, 2004 our Successor
Company recorded non-cash charges for amortization of intangible assets of $23.2 million and $16.2 million, respectively.

Restructuring and Other

Restructuring and other for our Successor Company totaled $1.1 million for the fiscal year ended March 31, 2005 and represents a gain realized upon
the sale of a minority investment in another company.

33

---



Restructuring and other for our Predecessor Company totaled $1.2 million for the 109 days ended July 18, 2003 and represents a gain realized upon the sale of certain
minority investments in other companies.

Foreign Currency Transaction Gains (Losses), Net

Foreign currency transaction gains (losses), net consist primarily of exchange rate gains or losses resulting from remeasurement of foreign-denominated
short-term intercompany and third-party receivable and payable balances and cash balances of our operating entities into their functional currencies at period-end market rates.
Foreign currency transactions resulted in gains of $2.2 million for the fiscal year ended March 31, 2005, with such gains resulting primarily from the impact of the weakening U.S. dollar
on our foreign-denominated short-term intercompany receivable and payable balances. Foreign currency transactions resulted in losses of $0.4 million for the pro forma combined
fiscal year ended March 31, 2004.

Reorganization Items, Net

As discussed above, as a result of our bankruptcy-law filing we became subject to the provisions of SOP 90-7 for the reporting periods
subsequent to September 22, 2002. Pursuant to SOP 90-7, revenue, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from our
Predecessor Company's reorganization of the business through the bankruptcy proceedings are reported separately as reorganization items, except for the sale of the assets of our wholly-owned Remedy
subsidiary, which is recorded among discontinued operations. Our Successor Company has also incurred charges recorded in reorganization items, net, primarily related to bankruptcy-proceeding
professional fees.

Reorganization
items, net totaled $1.6 million for the fiscal year ended March 31, 2005, and consist primarily of professional fees directly related to the bankruptcy
filing, net of $0.7 million of gains on settlements with creditors. Reorganization items, net totaled $7.2 million for the 257 days ended March 31, 2004 and also consisted
primarily of professional fees directly related to the bankruptcy filing.

Reorganization
items, net for our Predecessor Company consist of the following (in thousands):

109 Days Ended July 18, 2003Professional fees

$
(8,279
)Employee retention and benefits


(6,302
)Acceleration of deferred compensation charges


(499
)Gains on settlements with creditors


35,393Increase to fresh-start basis of assets and liabilities


358,508$
378,821


In
the 109 days ended July 18, 2003, our Predecessor Company recorded a net reorganization gain of $378.8 million. Of this gain, $358.5 million resulted from
the fair value adjustment to our assets and liabilities in connection with the adoption of fresh-start reporting. We also recognized a $35.4 million gain on our settlement with creditors upon
exiting bankruptcy. These gains were offset somewhat by professional fees directly related to our bankruptcy proceeding and other costs directly related to the implementation of our reorganization
plan.

34

---



Interest Income

Interest income totaled $1.5 million for the fiscal year ended March 31, 2005, a decrease of $0.3 million, or 19%, from the pro forma
combined fiscal year ended March 31, 2004. This decrease is primarily the result of lower available cash balances invested.

Interest Expense

Interest expense primarily includes interest expense and amortized costs related to our borrowings. Interest expense totaled $4.0 million for the fiscal
year ended March 31, 2005, a decrease of $5.3 million, or 57%, from the pro forma combined fiscal year ended March 31, 2004. Interest expense decreased primarily as a result of
lower debt balances, offset in part by higher interest rates on currently outstanding debt.

Other Income

Other income for the fiscal year ended March 31, 2005 represents a $0.9 million gain resulting from the collection of employee receivables that had
previously been written off as uncollectible prior to our bankruptcy filing.

Income Taxes

Tax expense is derived primarily from taxes on foreign operations for which no U.S. federal benefit can be recorded and interest accrued on our tax contingencies.

Income
tax expense totaled $5.3 million for the fiscal year ended March 31, 2005, and $3.8 million for the pro forma combined fiscal year ended March 31,
2004. This tax expense represented 26.5% of the loss from continuing operations before income taxes for the fiscal year ended March 31, 2005 and 1.1% of income from continuing operations before
income taxes for the pro forma combined fiscal year ended March 31, 2004.

Discontinued Operations

Income from discontinued operations related to Remedy for the 109 days ended July 18, 2003 of $0.3 million pertained to the collection of a
trade receivable that had extended payment terms.

COMPARISON OF RESULTS OF OPERATIONS OF THE PRO FORMA COMBINED FISCAL YEAR ENDED MARCH 31, 2004 WITH THE FISCAL YEAR ENDED MARCH 31, 2003

REVENUE

Revenue comprises license fees, maintenance service fees and fees for consulting and training services. The year ended March 31, 2003 includes revenue for
non-core product lines that were sold during such fiscal year. As a result of the disposition of the non-core product lines, the results for the 109-day period
ended July 18, 2003 and the 257-day period ended March 31, 2004 do not include any non-core product line revenue.

Predecessor Company

Revenue totaled $48.7 million for the 109-day period ended July 18, 2003, all of which was related to core products (i.e., our current
product line, which excludes product lines divested during fiscal 2003). Revenue for the 109-day period ended July 18, 2003 includes $5.6 million of revenue for license
transactions entered into prior to fiscal 2003, but for which all revenue recognition criteria were not satisfied until the period ended July 18, 2003.

35

---



Successor Company

Revenue totaled $125.9 million for the 257-day period ended March 31, 2004, all of which was related to core products.

Revenue
for the Pro Forma Combined Fiscal Year ended March 31, 2004 and Predecessor Company Revenue for the Fiscal Year ended March 31, 2003 (dollars in thousands)

|              |  | Successor
Company |         | Predecessor
Company |   | Pro forma
Combined |  | Predecessor
Company |         |  |   |         | 
|------------- |  | ----------------- | ------- | ------------------- | - | ------------------ |  | ------------------- | ------- |  | - | ------- | 
|
|
|
|Total Revenue |  |                   |         |                     |   |                    |  |                     |         |  |   |         | 
|Core          |  | $                 | 125,884 |                     | $ | 48,655             |  | $                   | 174,539 |  | $ | 216,077 | 
|Non-core      |  |                   |        |                     |   |                   |  |                     |        |  |   | 13,963  | 
|              |  |                   |         |                     |   |                    |  |                     |         |  |   |         | 
|Total         |  | $                 | 125,884 |                     | $ | 48,655             |  | $                   | 174,539 |  | $ | 230,040 | 
|              |  |                   |         |                     |   |                    |  |                     |         |  |   |         | 

Revenue
totaled $174.5 million for the pro forma combined fiscal year ended March 31, 2004, down 24% from the $230.0 million in revenue reported for our Predecessor
Company for the fiscal year ended March 31, 2003. Pro forma revenue for the combined fiscal year ended March 31, 2004 were attributable solely to core products and services and were down
19% from the $216.1 million of revenue for core products and services reported for our Predecessor Company for fiscal 2003. The reasons for the decreases are discussed below.

Licenses

We generally license our products to end-users under perpetual license agreements. License revenue for our Predecessor Company includes revenue from
license transactions entered into prior to fiscal 2003. For these transactions, revenue was recognized in fiscal 2003 or the 109 days ended July 18, 2003, when all the revenue
recognition criteria were satisfied. The delay in recognizing this revenue arises from long-term installment payments, which are recognized as installments come due, and amounts related to
products for which the expiration of certain product exchange or upgrade rights occurred in the later period. Commencing in fiscal 2003, we changed certain business practices by limiting the number of
long-term installment contracts and contracts containing product exchange or upgrade rights. The application of fresh-start reporting as of July 18, 2003 eliminated any additional
amounts to be recognized as revenue in future fiscal quarters by our Successor Company, because we have no significant future performance obligations under these agreements. In addition, anticipated
future collections of Predecessor Company receivables with extended payment terms have been recorded as other assets in connection with the adoption of fresh-start reporting and, as a result, will not
be recognized as revenue upon receipt by the Successor Company.

Predecessor Company

License revenue for the 109-day period ended July 18, 2003 totaled $13.5 million, of which $7.9 million was attributable to new
license transactions entered into during the period and $5.6 million was attributable to license transactions initiated prior to fiscal 2003, but for which all revenue recognition criteria were
met in the reported period.

Successor Company

License revenue for the 257-day period ended March 31, 2004 totaled $49.1 million. This license revenue resulted mostly from license
transactions entered into during the period and, as a result of the

36

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adoption
of fresh-start reporting, does not include any revenue from license transactions initiated prior to fiscal 2003.

License
revenue for the Pro Forma Combined Fiscal Year ended March 31, 2004 and Predecessor Company license revenue for the Fiscal Year ended March 31, 2003 (dollars in
thousands):

|                                   |  | Successor Company |        |  |   |        |  |   |        |  |   |        | 
|---------------------------------- |  | ----------------- | ------ |  | - | ------ |  | - | ------ |  | - | ------ | 
|
|
|
|
|Licenses                           |  |                   |        |  |   |        |  |   |        |  |   |        | 
|Core, new                          |  | $                 | 49,146 |  | $ | 7,930  |  | $ | 57,076 |  | $ | 59,385 | 
|Core, pre-fiscal 2003 transactions |  |                   |       |  |   | 5,595  |  |   | 5,595  |  |   | 25,837 | 
|                                   |  |                   |        |  |   |        |  |   |        |  |   |        | 
|Total core                         |  |                   | 49,146 |  |   | 13,525 |  |   | 62,671 |  |   | 85,222 | 
|Non-core                           |  |                   |       |  |   |       |  |   |       |  |   | 3,345  | 
|                                   |  |                   |        |  |   |        |  |   |        |  |   |        | 
|Total                              |  | $                 | 49,146 |  | $ | 13,525 |  | $ | 62,671 |  | $ | 88,567 | 
|                                   |  |                   |        |  |   |        |  |   |        |  |   |        | 

Pro
forma license revenue for the combined fiscal year ended March 31, 2004 totaled $62.7 million. For combined fiscal 2004, $57.1 million of the pro forma license
revenue was attributable to license transactions entered into during the period and $5.6 million was attributable to license transactions initiated prior to fiscal 2003, but for which all
revenue recognition criteria were met in the period. License revenue for our Predecessor Company for fiscal 2003 totaled $88.6 million, including $3.3 million of license fees for
non-core product lines that were subsequently divested in fiscal 2003. For fiscal 2003, $59.4 million of the core license revenue was attributable to license transactions entered
into during the fiscal year and $25.8 million was attributable to core license transactions initiated prior to fiscal 2003, but for which revenue was first recognizable in fiscal 2003. Pro
forma license revenue for core products for combined fiscal 2004, excluding transactions initiated prior to fiscal 2003, decreased by $2.3 million, or 4%, from such license revenue for fiscal
2003. Pro forma license revenue for transactions initiated prior to the reported period, but for which all revenue recognition criteria were met in the combined fiscal 2004, decreased by
$20.2 million, or 78%, from the license revenue for transactions initiated prior to the fiscal year, but for which all revenue recognition criteria were met in fiscal 2003. As discussed above,
this decrease resulted from the adoption of fresh-start reporting and changes in our business practices limiting the number of long-term installment contracts and contracts containing
product exchange or upgrade rights.

Maintenance

Most customers purchase maintenance services when buying new or additional licenses. Maintenance services consist primarily of providing enhancements, upgrades
and customer support services for our products. Generally, maintenance contracts are entered into for one-year periods and are renewable annually unless cancelled by the customer. The
customer generally prepays maintenance contracts and revenue is recognized ratably over the contract period.

As
described earlier, we adopted the fresh-start reporting provisions of SOP 90-7 as of July 18, 2003. Fresh-start reporting requires that the reorganization value be
allocated to the entity's assets in accordance with SFAS No. 141. In accordance with the pronouncement, we determined the fair market value of our assets and liabilities at July 18,
2003, including our deferred maintenance revenue balances. Accordingly, we reduced our deferred maintenance revenue balances by $6.3 million to reflect the fair value of existing maintenance
contracts in place at July 18, 2003. This $6.3 million adjustment by our Successor Company will have the effect of reducing maintenance revenue over the maintenance

37

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contract
periods. Of this amount, $4.4 million reduced maintenance revenue in the 257-day period ended March 31, 2004.

Predecessor Company

Maintenance revenue for the 109-day period ended July 18, 2003 totaled $29.2 million. Maintenance revenue for this period was for core
products only, as non-core products were divested in the year ended March 31, 2003.

Successor Company

Maintenance revenue for the 257-day period ended March 31, 2004 totaled $66.3 million, all of which was related to core products.

Maintenance
revenue for the Pro Forma Combined Fiscal Year ended March 31, 2004 and Predecessor Company maintenance revenue for the fiscal year ended March 31, 2003
(dollars in thousands):

|            |  | Successor Company |        |  |   |        |  |   |        |  |   |        | 
|----------- |  | ----------------- | ------ |  | - | ------ |  | - | ------ |  | - | ------ | 
|
|
|
|
|Maintenance |  |                   |        |  |   |        |  |   |        |  |   |        | 
|Core        |  | $                 | 66,340 |  | $ | 29,176 |  | $ | 95,516 |  | $ | 94,454 | 
|Non-core    |  |                   |       |  |   |       |  |   |       |  |   | 5,347  | 
|            |  |                   |        |  |   |        |  |   |        |  |   |        | 
|Total       |  | $                 | 66,340 |  | $ | 29,176 |  | $ | 95,516 |  | $ | 99,801 | 
|            |  |                   |        |  |   |        |  |   |        |  |   |        | 

Pro
forma maintenance revenue for the combined fiscal year ended March 31, 2004 totaled $95.5 million. Maintenance revenue for our Predecessor Company for fiscal 2003
totaled $99.8 million, including $5.3 million for non-core product lines. Pro forma maintenance revenue for the combined fiscal year ended March 31, 2004 increased by
$1.1 million, or 1%, from maintenance revenue for core products for our Predecessor Company for fiscal 2003. Pro forma core maintenance revenue for the combined fiscal year ended
March 31, 2004 reflects a $4.4 million reduction resulting from the adoption of fresh-start reporting. The negative impact of fresh-start mostly offset the overall maintenance growth in
our core products of $5.5 million, or 6%. The increase occurred partially because the revenue attributable to additional licenses covered by maintenance contracts exceeded the revenue lost from
cancellations, in whole or in part, of maintenance contracts during the renewal process. Maintenance fees are amortized evenly over the contract period, so the pro forma results for the
combined fiscal year ended March 31, 2004 also reflects the full impact of our expanded customer base and related increases in new or additional licenses from the beginning of fiscal 2004 to
March 31, 2004. In addition, the pro forma combined fiscal year ended March 31, 2004 included maintenance revenue related to prior maintenance periods for which customers did not renew
their maintenance contracts until such later period.

Consulting and Training

Consulting and training services include a range of professional and educational services intended to help our customers use our software products more
effectively. Beginning in June 2002 as part of expense-cutting initiatives, we reduced our consulting staff and began to refer customers more frequently to third-party service providers for
general consulting services. We began to focus on supplementing our customers' and the third-party service providers' project teams with consultants

38

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possessing
specialized knowledge of the more complex aspects of our products and the best practices for integrating our products into the customers' business operations.

The
following table summarizes pro forma consulting and training revenue for the combined fiscal year period ended March 31, 2004 and consulting and training revenue for our
Predecessor Company for the fiscal year ended March 31, 2003 (dollars in thousands):

|                        |  | Successor Company |        |  |   |       |  |   |        |  |   |        | 
|----------------------- |  | ----------------- | ------ |  | - | ----- |  | - | ------ |  | - | ------ | 
|
|
|
|
|Consulting and training |  |                   |        |  |   |       |  |   |        |  |   |        | 
|Core                    |  | $                 | 10,398 |  | $ | 5,954 |  | $ | 16,352 |  | $ | 36,401 | 
|Non-core                |  |                   |       |  |   |      |  |   |       |  |   | 5,271  | 
|                        |  |                   |        |  |   |       |  |   |        |  |   |        | 
|Total                   |  | $                 | 10,398 |  | $ | 5,954 |  | $ | 16,352 |  | $ | 41,672 | 
|                        |  |                   |        |  |   |       |  |   |        |  |   |        | 

Pro
forma revenue for consulting and training services totaled $16.4 million for the combined fiscal year ended March 31, 2004. Revenue for consulting and training services
totaled $41.7 million for our Predecessor Company for fiscal 2003, including $5.3 million of consulting and training revenue for non-core product lines. Pro forma consulting
and training revenue decreased in the combined fiscal year ended March 31, 2004 by $20.0 million, or 55%, compared to the consulting and training revenue for our Predecessor Company for
fiscal 2003, primarily as a result of the change in our consulting services strategy.

Revenue by Segment

We organize our business operations according to two reportable operating segments:



The
following table summarizes pro forma combined revenue by reportable operating segment for the fiscal year ended March 31, 2004 and revenue by segment for our Predecessor
Company for the fiscal year period ended March 31, 2003 (dollars in thousands):

|                   |  | Successor
Company |         | Predecessor
Company |   | Pro Forma
Combined |   | Predecessor
Company |         |   |   |         |  
|------------------ |  | ----------------- | ------- | ------------------- | - | ------------------ | - | ------------------- | ------- | - | - | ------- | -
|
|
|
|Americas           |  | $                 | 68,318  |                     | $ | 32,043             |   | $                   | 100,361 |   | $ | 146,461 |  
|EMEA/AP            |  |                   | 57,566  |                     |   | 16,612             |   |                     | 74,178  |   |   | 83,579  |  
|                   |  |                   |         |                     |   |                    |   |                     |         |   |   |         |  
|Total              |  | $                 | 125,884 |                     | $ | 48,655             |   | $                   | 174,539 |   | $ | 230,040 |  
|                   |  |                   |         |                     |   |                    |   |                     |         |   |   |         |  
|% of total revenue |  |                   |         |                     |   |                    |   |                     |         |   |   |         |  
|Americas           |  |                   | 54      | %                   |   | 66                 | % |                     | 58      | % |   | 64      | %
|EMEA/AP            |  |                   | 46      | %                   |   | 34                 | % |                     | 42      | % |   | 36      | %
|                   |  |                   |         |                     |   |                    |   |                     |         |   |   |         |  
|                   |  |                   | 100     | %                   |   | 100                | % |                     | 100     | % |   | 100     | %
|                   |  |                   |         |                     |   |                    |   |                     |         |   |   |         |  

39

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Pro
forma revenue for the Americas territory totaled $100.3 million for the combined fiscal year ended March 31, 2004, a decrease of $46.1 million, or 31%, from the
revenue for our Predecessor Company for fiscal 2003. Of the decrease, $14.0 million resulted from the fact we were no longer selling the non-core products we had divested in fiscal
2003. Pro forma core consulting and training revenue for the Americas territory declined $12.4 million for the combined fiscal year ended March 31, 2004 as we began to refer our
customers more frequently to third-party service providers for general consulting services. Although core license revenue for the Americas territory remained relatively consistent, decreasing only
$0.1 million, total license revenue for the Americas territory for the pro forma combined period was lower due to an $11.1 million decrease in revenue recognized in connection with
fiscal 2003 transactions primarily as a result of our change in business practice and the adoption of fresh-start reporting. Pro forma Americas maintenance revenue related to core products decreased
$5.6 million in this combined period compared to the Americas maintenance revenue for our core products for our Predecessor Company for fiscal 2003, with an additional $3.0 million
decrease resulting from the fresh-start adjustment. The remainder of the decrease in Americas maintenance revenue was the result of lower renewal rates in the combined period.

Pro
forma revenue for the EMEA/AP territory totaled $74.2 million for the combined fiscal year ended March 31, 2004, a decrease of $9.4 million, or 11%, from the
revenue for the EMEA/AP territory for our Predecessor Company for fiscal 2003. The effect of currency exchange rate changes increased EMEA/AP fiscal 2004 revenue by $9.9 million. Pro forma
license revenue in EMEA/AP for the combined fiscal year ended March 31, 2004 related to pre-fiscal 2003 transactions decreased $9.2 million. This decrease in recognized
revenue related to transactions initiated prior to fiscal 2003 is the result of a change in business practice and the adoption of fresh-start reporting. Of the total revenue decline,
$7.7 million reflected the lower consulting and training revenue caused by our change in strategy. Pro forma maintenance revenue increased in the EMEA/AP region for the combined period,
offsetting a portion of these revenue decreases. The increase in maintenance revenue occurred because the revenue attributable to additional licenses covered by maintenance contracts exceeded the
revenue lost from cancellations, in whole or in part, of maintenance contracts during the renewal process. In addition, the pro forma combined fiscal year ended March 31, 2004 included
maintenance revenue related to prior maintenance periods but for which customers did not renew their maintenance contracts until the combined fiscal 2004 period.

COSTS AND EXPENSES

Stock Based Compensation Expense

Prior to July 2002, the Predecessor Company granted a number of stock options at an exercise price below the then fair market value of the common stock.
The difference between the fair market value at the date of grant and the exercise price is recorded as deferred compensation on the date of grant, and compensation expense is recognized over the
vesting period of the option. In November 2003, the Predecessor Company completed the sale of its Remedy business (see Note 5 to the consolidated financial statements), which accelerated
the recognition of substantially all deferred compensation charges related to stock options. Since July 2002, substantially all stock options have been granted with exercise prices equal to the
fair market value at the date of grant. As a result, there has been a substantial decrease in compensation charges related to stock options since November 2003. Compensation charges for the
stock options are reflected in operating cost and expenses as noted below.

Cost of Licenses

The cost of software licenses primarily consists of third-party software royalties, product packaging, documentation and production and distribution costs. The
cost of licenses represented 3% of pro forma license revenue for the pro forma combined fiscal year ended March 31, 2004. The cost of licenses

40

---



represented
7% of license revenue for our Predecessor Company for fiscal 2003. This decrease resulted primarily from cost reductions implemented in the latter portion of fiscal 2003, including the
outsourcing of most of our product distribution. License costs were also lower in the fiscal 2004 period because of the disposition of non-core products in fiscal 2003.

Cost of Maintenance

The cost of maintenance services primarily consists of personnel, facilities and system costs related to technical support services to our customers on
maintenance contracts. The cost of maintenance
represented 18% of maintenance revenue in the pro forma combined fiscal year ended March 31, 2004. The cost of maintenance represented 27% of maintenance revenue in fiscal 2003. The cost of
maintenance for the pro forma combined period totaled $17.0 million; a decrease of $9.4 million compared with the cost of maintenance for fiscal 2003. Of the decrease,
$4.2 million was related to stock option compensation charges in fiscal 2003. The remaining cost decreases resulted from actions implemented in fiscal 2003 to reduce operating costs, including
a reduction in workforce and facilities costs related to maintenance functions. We also experienced cost reductions from fiscal 2003 because of divestiture of non-core product lines.

Cost of Consulting and Training

The cost of consulting and training services primarily consists of personnel, facilities and system costs associated with providing these services. The cost of
consulting and training services also includes fees paid to third-party subcontractors providing services on our behalf. The cost of consulting and training represented 100% of consulting and training
revenue for the pro forma combined fiscal year ended March 31, 2004. The cost of consulting and training represented 92% of consulting and training revenue for fiscal 2003. The cost of
consulting and training services in the pro forma combined period decreased $22.1 million from the year-earlier period. Of the decrease, $4.2 million was related to stock
option compensation charges in fiscal 2003. The remaining cost decreases resulted mostly from our reduction in workforce as we revised our strategy for these services.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel costs, including sales commissions and travel costs, facilities and system costs related to our sales,
including technical pre-sales, and marketing functions. The costs of advertising and marketing promotions are also included in sales and marketing expenses. Sales and marketing expenses in
the pro forma combined fiscal year ended March 31, 2004 totaled $51.2 million, down $56.7 million from fiscal 2003. Of the decrease $14.7 million was related to stock
option compensation charges in fiscal 2003. The decrease also reflects cost reductions implemented in fiscal 2003 as part of our restructuring plan, including a reduction in workforce, facilities
consolidation and a decrease in marketing promotion activities. We closed several sales offices around the world as we focused direct sales efforts on North America and major European markets.
Beginning in the first half of fiscal 2003, we began to rely more on third-party distributors to sell our products and services in markets in which we chose not to maintain a significant direct sales
presence, such as in Asia and Latin America.

Research and Development

Research and development (R&D) expenses primarily consist of personnel, facilities and systems costs associated with our R&D and product management efforts. R&D
expenses also include the cost of services for consultants or other third parties whom we hire to augment our own R&D personnel. No software development costs were capitalized during the periods
presented, as costs incurred between technological feasibility and product releases were minimal. R&D expenses were $29.3 million for the pro forma combined fiscal year ended March 31,
2004, a drop of $23.1 million from fiscal 2003.

41

---



Of
the decrease, $8.4 million was related to stock option compensation charges in fiscal 2003. The remainder of the decrease resulted primarily from a reduction in workforce in connection with
the sale of several non-core product lines in fiscal 2003.

General and Administrative

General and administrative (G&A) expenses consist of personnel, facilities and systems costs related to our operations. G&A also includes the cost of business
insurance and professional fees, including legal, accounting, investment banking and other advisory fees, except for fees directly related to our bankruptcy reorganization, which are accounted for
under Reorganization Items, Net.

G&A
expenses for the pro forma combined fiscal year ended March 31, 2004 totaled $47.8 million, down $41.0 million from fiscal 2003. The decrease reflects the
benefit of restructuring efforts implemented in fiscal 2003. Of the decrease, $10.5 million was related to stock option compensation charges in fiscal 2003. G&A savings were also realized by
reducing professional fees, personnel, closing underutilized facilities, reducing telecommunication costs and the cost of supporting our internal systems. G&A costs for fiscal 2004 includes
approximately $16.1 million in professional fees for service providers who assisted with our restructuring, investigation and other activities related to the previously mentioned accounting
irregularities, the strategic positioning of our core products, and audit and tax services. G&A costs for fiscal 2003 include approximately $38.7 million in professional fees for service
providers who assisted with our restructuring, investigation and other activities related to the previously mentioned accounting irregularities, the strategic positioning of our core products, and
audit and tax services. Fees directly related to our bankruptcy-law filing under Chapter 11 are included in Reorganization Items, Net discussed below.

Amortization of Intangibles

Fresh-start reporting requires that the reorganization value be allocated to the entity's assets in conformity with procedures specified by SFAS 141. We
engaged an independent appraiser to assist in the allocation of the reorganization value to our Successor Company's assets and liabilities by determining the fair market value of its intangible
assets. Identifiable intangible assets consist of developed technology, trademarks and trade names, customer contracts and customer lists. With the adoption of fresh-start reporting we determined the
fair value of these identifiable intangibles to be $125.1 million, and to have useful lives ranging from five to six years. For the 257-day period ended March 31, 2004, our
Successor Company recorded non-cash charges for amortization of intangibles of $16.2 million.

Restructuring, Impairments and Other

Restructuring, impairments and other for our Predecessor Company consist of the following (in thousands):

Predecessor Company109 Days Ended
July 18, 2003

Year Ended
March 31, 2003Gain on sale of investments

$
(1,239
)
$
Gain on sale of non-core product lines





(15,318
)Loss from abandoned fixed assets





34,692Loss from abandoned leases





33,295Employee severance





19,813Stockholder litigation settlement





18,821Impairment of investments





928Total

$
(1,239
)
$
92,231


42

---



For
the 109-day period ended July 18, 2003, restructuring, impairments and other represented a gain for our Predecessor Company realized upon the sale of certain
minority investments in other companies.

During
June 2002, our Predecessor Company began to implement a restructuring plan to reduce expenses in line with future revenue expectations and focus operations on the core
market. In fiscal 2003, restructuring, impairments and other expenses included charges of $33.3 million for losses from abandoned leases, $34.7 million for losses from abandoning fixed
assets and $19.8 million for employee severance. These charges were reduced somewhat by a fiscal 2003 gain on the sale of non-core product lines.

Foreign Currency Transaction Gains (Losses), Net

Foreign currency transaction gains (losses), net consist primarily of exchange rate gains or losses resulting from remeasurement of foreign-denominated
short-term intercompany and third-party receivable and payable balances and cash balances of our operating entities into their functional currencies at period-end market rates.
Foreign currency transactions resulted in losses of $0.4 million for the pro forma combined fiscal year ended March 31, 2004.

Reorganization Items, Net

As discussed above, as a result of our bankruptcy-law filing, as of September 22, 2002, we became subject to the provisions of SOP
90-7 for the reporting periods subsequent to September 22, 2002. Pursuant to SOP 90-7, revenue, expenses (including professional fees), realized gains and losses, and
provisions for losses resulting from our Predecessor Company's
reorganization of the business through the bankruptcy proceedings are reported separately as reorganization items, except for the sale of the assets of our Remedy subsidiary, which is recorded among
discontinued operations. Our Successor Company may also incur future charges, primarily related to bankruptcy-proceeding professional fees in future periods, which will be recorded as reorganization
items.

Predecessor Company

Reorganization items, net for our Predecessor Company consist of the following (in thousands):

Predecessor Company109 Days Ended
July 18, 2003

Year Ended
March 31, 2003Professional fees

$
(8,279
)
$
(12,125
)Reduction of previously accrued estimated lease exit cost adjusted to the allowed claim amount





21,405Write-off of debt issuance costs





(5,435
)Employee retention and benefits


(6,302
)

Acceleration of deferred compensation charges


(499
)

Gains on settlements with creditors


35,393


Increase in basis of assets and liabilities


358,508


Lease abandonment charges





(4,303
)Total

$
378,821

$
(458
)


43

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For the 109 days ended July 18, 2003, the Predecessor Company recorded a net reorganization gain of $378.8 million. Of this gain, $358.5 million resulted from
the fair value adjustments to our assets and liabilities with the adoption of fresh-start reporting. We also recognized a $35.4 million gain on our settlement with creditors upon exiting
bankruptcy law protection. These gains were partially offset by our costs directly related to the implementation of our reorganization plan.

Net
reorganization items for fiscal 2003 include charges of $12.1 million for professional fees directly related to the Chapter 11 filing, a $5.4 million
write-off of debt issuance costs, and lease abandonment charges of $4.3 million. These charges were offset by a $21.4 million gain resulting from the reversal of a fiscal
2002 exit cost provision related to an abandoned facility that was settled more favorably, as the accrued cost was reduced to the allowed claim amount upon the Chapter 11 filing.

Successor Company

Reorganization items, net for the 257-day period ended March 31, 2004 totaled $7.2 million and consisted entirely of professional fees
directly related to our bankruptcy proceedings.

Interest Income

Interest income for the combined pro forma fiscal year ended March 31, 2004 was $1.9 million, an increase of $1.1 million, or 137%, over
fiscal 2003. Interest income was greater in the fiscal 2004 period, reflecting higher available cash balances to invest.

Interest Expense

Interest expense included interest charges and amortization of debt issuance costs related to our borrowings. Interest expense decreased to $9.4 million
for the pro forma combined fiscal year 2004, down $27.1 million from fiscal 2003. Interest expense was higher in fiscal 2003 because of a higher amount of outstanding debt of
$270 million and because in June 2002 we had entered into relatively high
cost financing arrangements to address the liquidity crisis until we completed the sale of our Remedy business in November 2002.

Income Taxes

Income tax expense totaled $3.8 million for the pro forma combined fiscal year ended March 31, 2004, down from the $8.1 million recorded for
the fiscal year ended March 31, 2003. Our tax expense represented 1.1% of income from continuing operations before income taxes for the pro forma combined fiscal year ended March 31,
2004. For fiscal 2003 tax expense represented 3.7% of loss from continuing operations before income taxes. Income tax expense for fiscal 2004 and 2003 mainly reflected taxes on operations in certain
foreign jurisdictions. Tax expense was higher in fiscal 2003 due to accruing for tax contingencies in that fiscal year resulting from certain tax exposures.

Discontinued Operations

As part of our effort to raise cash and reduce expenses, we sold our Supply Chain Enablement (SCE) and Remedy businesses in June and November 2002,
respectively. These businesses are treated as discontinued operations.

The
SCE business offered software applications and services that automated and integrated business-to-business relationships. In June 2002, Peregrine sold
all of the shares of its wholly-owned Peregrine Connectivity (the SCE business) subsidiary to PCI International, Inc., an entity affiliated with Golden Gate Capital LLC, for approximately
$35 million in cash. The $47.8 million loss on the disposal of SCE was provided for in fiscal 2002. For fiscal 2003, results from discontinued operations include income from SCE of
$1.4 million.

44

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In
September 2002, Peregrine and Remedy entered into an agreement with BMC Software, Inc. (BMC) pursuant to which BMC, subject to bid procedures approved by the Bankruptcy
Court, acquired the assets and assumed substantially all the liabilities of the Remedy business for $355 million, subject to certain adjustments provided for in the acquisition agreement. In
November 2002, the sale of Remedy to BMC was approved by the Bankruptcy Court and completed. In June 2003, Peregrine and BMC agreed on a final adjusted sale price of $348 million.
Income from discontinued operations of Remedy for the 109-day period ended July 18, 2003 totaled $0.3 million and relates to the collection of a trade receivable that had
extended payment terms. No amounts related to Remedy will affect the results of our Successor Company, due to the adoption of fresh-start reporting treatment.
Remedy's discontinued operations provided income of $256.2 million in fiscal 2003, primarily from the gain on sale.

LIQUIDITY AND CAPITAL RESOURCES

We primarily generate cash from software licensing, maintenance renewals and the provision of consulting and training services. Our primary uses of cash are for
general working capital purposes and debt service. We also use cash to purchase capital assets to support our business. In fiscal 2005 and fiscal 2004, our principal liquidity requirements were for
operating expenses, working capital and debt and bankruptcy related payments. We have funded these liquidity requirements from cash on hand that was primarily generated from the disposal of our
non-core product lines and our SCE and Remedy businesses in 2002.

The
following table summarizes the Successor Company cash and cash equivalents, restricted cash and working capital (deficit) as of March 31, 2005 and 2004 (dollars in thousands):

March 31, 2005

March 31, 2004Cash and cash equivalents

$
84,765

$
105,946Cashrestricted


4,325


4,654Working capital (deficit)


(19,641
)

3,348


Cash
equivalents primarily consist of overnight money market accounts, time deposits, commercial paper and government agency notes. The restricted cash relates primarily to security for
certain real property leases and certain other obligations. Working capital (deficit) consists primarily of cash and cash equivalents, accounts receivable, deferred taxes, and other current assets net
of accounts payable, accrued expenses, and current portions of deferred revenue and notes payable.

For
the fiscal year ended March 31, 2005, the 257 days ended March 31, 2004 and the 109 days ended July 18, 2003 our cash flows were as follows
(dollars in thousands):

|                                             |                      | Successor Company |         | Predecessor
Company
109 Days
Ended
July 18, 2003 |  
|-------------------------------------------- | -------------------- | ----------------- | ------- | ------------------------------------------------ | -
|
|Cash (used in) provided by:                  |                      |                   |         |                                                  |  
|                                             | Operating activities |                   | $       | (1,938                                           | )
|                                             | Investing activities |                   |         | 1,247                                            |  
|                                             | Financing activities |                   |         | (22,030                                          | )
|Effect of exchange rate fluctuations on cash |                      |                   | 1,540   |                                                  |  
|Net cash flows from discontinued operations  |                      |                   |        |                                                  |  
|                                             |                      |                   |         |                                                  |  
|Net decrease in cash and cash equivalents    |                      | $                 | (21,181 | )                                                | $
|                                             |                      |                   |         |                                                  |  

We
believe our cash on hand and operating cash flows will be sufficient to fund our operations and planned capital expenditures and to satisfy our scheduled non-trade payment
obligations for at least

45

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12 months
from the date of this report. However, our ability to generate adequate cash depends upon our future performance, which in turn is subject to general economic conditions and
financial, business and other factors affecting our operations, including factors beyond our control. Please review the information set forth under the caption "Risk Factors," beginning on
page 49 of this report. We currently have no lines of credit or similar facilities with any financial institutions. There can be no assurance that additional financing will be available in the
future or that, if available, we will be able to obtain it on terms favorable to us.

Operating Activities

For the fiscal year ended March 31, 2005 the Successor Company used $1.9 million of cash in operating activities. Our Successor Company reported a
net loss of $25.4 million, which was offset by cash inflows from changes in working capital of $4.3 million and non-cash charges of $27.6 million for amortization and
depreciation. Working capital inflows were primarily impacted by decreases in accounts receivable and other assets of $4.9 million and $4.3 million, respectively, and increases in
accrued expenses of $2.3 million. These inflows were offset, in part, by decreases in accounts payable and deferred revenue of $2.5 million and $4.7 million, respectively. Of the
amortization charge, $23.2 million was related to the new identifiable intangibles established with the adoption of fresh-start reporting treatment as of July 18, 2003.

For
the 257-day period ended March 31, 2004, the Successor Company generated $4.9 million in cash from operating activities. Our Successor Company reported a
net loss of $17.9 million, including non-cash charges of $20.8 million for amortization and depreciation. Of the amortization charge, $16.2 million was related to
identifiable intangibles established with the adoption of fresh-start reporting as of July 18, 2003. Changes in working capital also contributed to the increase in cash from operating
activities including the collection of $7.5 million of long-term installment sales of the Predecessor Company subsequently paid to several financial institutions under accounts
receivable financing facilities.

Our
Predecessor Company used $51.7 million of net cash in operating activities in the 109 days ended July 18, 2003. Our Predecessor Company reported net income from
continuing operations of $373.9 million for this period. However, most of the income was non-cash in nature, because it resulted from the adoption of fresh-start reporting
treatment. During the period, our Predecessor Company used $42.9 million of cash for reorganization items related to implementing our reorganization plan, which accounts for most of the
decrease in the period.

Investing Activities

For the fiscal year ended March 31, 2005 the Successor Company generated $1.2 million of net cash from investing activities, which primarily
reflects $4.2 million of cash from the sale of investments and $0.9 million from the collection of employee receivables that had previously been written off as uncollectible prior to our
bankruptcy filing, net of $4.6 million used for capital expenditures, mostly for computers and data processing equipment and leasehold improvements.

For
the 257 days ended March 31, 2004 the Successor Company generated $6.6 million of net cash from investing activities, which primarily reflects the collection of
$10.0 million released from escrow as part of the Remedy sale, net of $2.6 million in capital expenditures and the commitment of an additional $1.9 million to restricted cash,
related mostly to new real estate leases.

For
the 109 days ended July 18, 2003 the Predecessor Company provided $32.6 million of net cash from investing activities. Cash from investing activities increased
$27.2 million because that amount of restricted cash became available for general use in accordance with our reorganization plan and also increased $5.4 million from the sale of
investments.

46

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Financing Activities

For the fiscal year ended March 31, 2005 the Successor Company used $22.0 million of net cash in financing activities. This primarily reflects
repayment of $17.6 million of principal on long-term debt as well as $4.7 million of principal on factor loans.

For
the 257 days ended March 31, 2004 the Successor Company repaid $7.1 million of its factor loan obligations and $7.4 million in other long-term
debt.

For
the 109 days ended July 18, 2003, under the terms of the reorganization plan, our Predecessor Company paid down $24.3 million on factor loans and paid
$86.5 million, in addition to other consideration, to the holders of its convertible subordinated notes.

Contractual Commitments

Operating Lease Obligations

We lease certain buildings and equipment under non-cancelable operating lease agreements. The leases generally require us to pay all executory costs,
such as taxes, insurance and maintenance related to the leased assets. Certain of the leases contain provisions for periodic rate escalations to reflect cost-of-living
increases. At March 31, 2005, future minimum lease payments under non-cancelable operating leases, excluding leases subsequently rejected under our plan of reorganization, were as
follows (in thousands):

Year Ended March 312006

$
6,4832007


6,1102008


5,9972009


6,0282010


5,268Thereafter


18,479Total minimum lease payments

$
48,365


Non-trade Obligations and Commitments

As of March 31, 2005 our principal future non-trade obligations and commitments include the following (in thousands):

|                                            |  |   |         | Fiscal Year Projections
|------------------------------------------- |  | - | ------- | -----------------------
|
|
|Senior notes(1)                             |  | $ | 36,750  |                        
|Bankruptcy claims(2)                        |  |   | 7,346   |                        
|Motive payments(3)                          |  |   | 3,750   |                        
|                                            |  |   |         |                        
|Total                                       |  | $ | 47,846  |                        
|Less: Amounts representing imputed interest |  |   | (1,028) | (4)                    
|                                            |  |   |         |                        
|Total present value at March 31, 2005       |  | $ | 46,818  |                        
|                                            |  |   |         |                        

---

47

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Bankruptcy Claims

We began paying claims on the effective date of the reorganization plan and continue to pay as claims are settled, liquidated, or otherwise resolved. Through
May 31, 2005, we have paid, settled or otherwise disposed of Class 8 claims with an original aggregate face amount of approximately $383.1 million (including approximately
$133.0 million of duplicate, erroneous and otherwise invalid claims). To resolve these claims we have paid or agreed to pay over time approximately $45.0 million in cash. As of May 31,
2005, there were general unsecured claims asserted in the original aggregate face amount of approximately $0.5 million remaining to be resolved. For more information on the status of claims
litigation, see "Legal ProceedingsBankruptcy Reorganization; Claims Litigation; Class 7/9 Reserve Shares," beginning on page 13 of this report.

RECENT ACCOUNTING PRONOUNCEMENTS

On December 16, 2004 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment" (SFAS 123R), requiring that the compensation cost relating to share-based payment transactions be measured and recognized in the financial statements using the fair value of the
awards. This statement eliminates the alternative to use Accounting Principles Board (APB) Opinion No. 25's, "Accounting for Stock Issued to Employees" intrinsic value method of accounting that
was provided in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, issuing stock options to employees generally
resulted in recognition of no compensation cost. SFAS 123R requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share
plans, performance based awards and employee share purchase plans. SFAS 123R replaces Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." In April 2005 the Securities and Exchange Commission amended Regulation S-X to amend the
date for compliance with SFAS 123R to the first interim or annual reporting period of a registrant's first fiscal year beginning after June 15, 2005. As a result, we are required to
adopt SFAS 123R on April 1, 2006. We are currently assessing the impact of SFAS 123R on our compensation strategies and financial statements and determining which transition
alternative we will elect. We believe the adoption of SFAS 123R may have a material effect on our operating results if current compensation strategies are continued.

48

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RISK FACTORS

The following factors currently affect or may affect our business, financial condition or future operating results. Readers should carefully consider these
factors before making an investment decision with respect to our common stock

Risks Related to Investing in Our Common Stock

We have preliminarily identified material weaknesses in our internal control over financial reporting.

Management is in the process of completing its assessment of the effectiveness of our internal control over financial reporting for the fiscal year ended
March 31, 2005 as required by Section 404 of the Sarbanes-Oxley Act of 2002. Although management has not completed its assessment, management has identified the following control
deficiencies that represent material weaknesses at March 31, 2005:



As
we complete our assessment of our internal control over financial reporting we may identify additional control deficiencies and we may determine that those deficiencies, either alone
or in combination with others (including other control deficiencies that we have identified as of the date of filing of this Annual Report on Form 10-K, but which do not by
themselves or when aggregated with other identified control deficiencies currently constitute a material weakness), constitute one or more additional material weaknesses. When we complete our
assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm completes its audit of our assessment, we expect it to issue an
adverse opinion on the effectiveness of our internal control over financial reporting. The control deficiencies increase the risk that transactions will not be accounted for consistently and in
accordance with established policy or generally accepted accounting principles, and they increase the risk of error. For more information about deficiencies in our internal control over financial
reporting, and about the status of these control deficiencies as of the date of filing of this report, readers should carefully review the information set forth under the caption "Controls and
Procedures" beginning on page 66 of this report.

We
have taken steps to ensure that the consolidated financial statements contained in this report are accurate in all material respects, and we have taken specified remedial actions to
ensure that future consolidated financial statements will be accurate in all material respects. However, our internal control over financial reporting remains ineffective. See "Controls and
Procedures." Our management cannot guarantee that controls and procedures put into place have prevented or will prevent all error and fraud. A control system can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. For more information regarding the process put into place to determine the accuracy of the consolidated financial statements included in
this report, readers should carefully review the information set forth under the caption "Controls and ProceduresChanges in Internal Control Over Financial Reporting," in Item 9A
beginning on page 69 of this report.

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Management has not completed its assessment of our internal control over financial reporting and we have not filed the associated report of our independent registered public
accounting firm as required by Section 404 of the Sarbanes-Oxley Act, which, when filed, could have an adverse effect on the trading price of our common stock and our business.

Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to include "Management's Report on Internal Control over Financial Reporting" in this
Annual Report on Form 10-K which must include, among other things, an assessment of the effectiveness, as of the end of the fiscal year, of the Company's internal control over
financial reporting. We have not completed our assessment of the effectiveness of our internal control over financial reporting for the fiscal year ended March 31, 2005 as required by
Section 404 of the Sarbanes-Oxley Act of 2002. Failure to comply fully with Section 404 might subject the Company to sanctions or investigation by regulatory authorities, such as the
Securities and Exchange Commission. Any such action could adversely affect the Company's financial results and the market price of the Company's common stock.

Once
we have completed our assessment of our internal control over financial reporting and our independent registered public accounting firm has completed its review of our assessment,
we intend to file an amendment to this Annual Report on Form 10-K that will include the report of management on internal control over financial reporting and the associated report
of our independent registered public accounting firm as required by Section 404 of the Sarbanes-Oxley Act of 2002. Although management has not completed its assessment of the effectiveness of
our internal control over financial reporting as of March 31, 2005, management has identified certain control deficiencies which represent material weaknesses at March 31, 2005.
Therefore, upon completion of our assessment, we will have to conclude in the "Management Report on Internal Control over Financial Reporting" in our amended Annual Report on
Form 10-K that our internal control over financial reporting is not effective. In view of the fact that the financial information presented in this Annual Report on Form 10-K
was prepared in the absence of effective internal control over financial reporting, we have devoted a significant amount of time and resources to the analysis of the financial statements. As a result
of this, management believes that the financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, results of operations
and
cash flows. Our inability to remedy our material weaknesses promptly and effectively could have a material adverse effect on our business, results of operations and financial condition, as well as
impair our ability to meet our SEC quarterly and annual reporting requirements in a timely manner. This could in turn adversely affect the trading price of our common stock. Prior to the remediation
of these material weaknesses, there remains the risk that the transitional controls on which we currently rely will fail to be sufficiently effective, which could result in a material misstatement of
our financial position and results of operation and require a restatement. In addition, even if we are successful in strengthening our controls and procedures, such controls and procedures may not be
adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements.

Our continuing internal control material weaknesses may have a continuing adverse effect on our operations.

Customers that purchase software products are making a significant long-term investment in technology. Because of the long-term nature of
such an investment, customers are often concerned about the stability of their suppliers. Our previous financial and accounting problems, any future problems regarding our ability to file our SEC
reports on a timely basis, and the material weaknesses in our internal control over financial reporting as described in this Annual Report on Form 10-K could adversely affect our
results of operations and financial condition. Any loss in sales could also have a material adverse effect on our operating results. Additionally, concerns such as these may impair our ability to
negotiate favorable terms from suppliers, landlords and others. The failure to obtain such favorable terms could adversely affect our financial performance.

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Our fiscal 2004 financial statements and our financial statements for earlier periods are not comparable to our financial statements for fiscal 2005 and later periods.

In connection with our emergence from bankruptcy proceedings, we adopted fresh-start reporting for our consolidated financial statements during fiscal 2004, for
periods beginning July 18, 2003, in accordance with generally accepted accounting principles. Under fresh-start reporting, a new reporting entity is deemed to be created, and the recorded
amounts of tangible and intangible assets and liabilities are adjusted to reflect their fair value. This reporting method also calls for a re-establishment of total assets at the
reorganization value and the recording of any portion of the reorganization value that cannot be attributed to specific tangible or identified intangible assets as goodwill. As a result, our reported
historical consolidated financial statements for periods prior to July 18, 2003, which are contained in this report, generally are not comparable to those reported under fresh-start reporting.

We may not be able to file our future SEC reports on a timely basis.

The significant deficiencies and material weaknesses in our internal control over financial reporting cause us to expend extra time, money and effort to ensure
our financial reports are accurate. In particular, until we remediate the material weaknesses in our internal control over financial reporting, we expect we will have to review all significant account
balances and transactions reflected in the financial statements for each quarterly and annual period, and otherwise analyze the transactions underlying our financial statements to verify the accuracy
of our financial statements. The significant deficiencies and material weaknesses in our internal control over financial reporting may result in our inability to consistently maintain timely filings
of our SEC reports, which could have a material adverse impact on our business, our customers, results of operations and financial condition.

Failure or circumvention of our controls and procedures could seriously harm our business.

We have made significant changes in our internal control over financial reporting and our disclosure controls and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions and can provide only reasonable, and not absolute, assurances that the objectives of the system are met. In addition, the effectiveness
of our remediation efforts and of our internal control over financial reporting is subject to limitations, including the assumptions used in identifying the likelihood of future events and the
inability to eliminate misconduct completely. As a result, our remediation efforts to improve our internal control over financial reporting may not prevent all improper acts or ensure that all
material information will be made known to management in a timely fashion. Also, because substantial additional costs may be necessary to implement these remedial measures, our limited resources may
cause a further delay in remediating all of our material weaknesses. The failure or circumvention of our controls, policies and procedures or of our remediation efforts could have a material adverse
effect on our business, results of operations and financial condition.

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Certain historic Peregrine periodic reports filed with the Securities and Exchange Commission prior to our bankruptcy reorganization are inaccurate and cannot be relied upon.

Although we restated our financial results in February 2003 for fiscal years 2000 and 2001 and the first three quarters of fiscal 2002 (that is, the period
from April 1999 through December 2001), we have not amended the prior periodic reports we have on file with the SEC for those periods. As a result, the financial and other information
included in these reports is inaccurate and unreliable. In addition, the information contained in periodic reports for fiscal 1999 and periods prior to that may also be inaccurate and unreliable.

The Securities and Exchange Commission investigation into accounting irregularities that occurred prior to our bankruptcy reorganization remains open. We entered into a
settlement with the SEC to resolve a civil action they filed against us, but we are not in full compliance with the settlement agreement because we have failed to meet our periodic reporting
obligations on a timely basis.

In
June 2003, the SEC filed a civil action against Peregrine alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules promulgated
thereunder related to the accounting irregularities that occurred prior to our bankruptcy reorganization. In the same month, we entered into a settlement with the SEC, which was approved by the United
States District Court for the Southern District of California and which resolved all the matters raised in the civil action, except the request for a civil penalty and disgorgement. The SEC separately
withdrew the request for monetary damages and disgorgement in July 2003. As part of our settlement with the SEC, we were enjoined from violating Section 17(a) of the Securities Act of
1933 and Sections 10(b), 13(a), and 13(b) of the Securities Exchange Act of 1934 as well as Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13.
We have not filed our periodic reports on time with the SEC since the date of the consent decree. Thus we have been in violation of these provisions of the securities laws and have not complied with
our settlement agreement with the SEC. We can give no assurances that our future periodic reports will be filed on a timely basis.

The
SEC investigation remains open and we continue to receive document and other information requests from the SEC, the DOJ and the Federal Bureau of Investigation. We are cooperating
fully with these agencies and continue to provide them with relevant information they request. While we
remain in discussions with the SEC and to our knowledge the SEC is not considering a further enforcement action against us, we can offer no assurance that a further enforcement action will not be
brought. We may be required to devote a substantial amount of time to the continuing investigation and responding to any enforcement action would be expensive and time-consuming for
management. If an enforcement action is brought, we could face financial penalties, personnel retention problems and customer defections as a result. It also could damage our reputation and our
ability to generate sales.

Other
civil litigation matters pertaining to us, but to which we are not a party, are pending in the California Superior Court in San Diego and the Federal District Court in San Diego.
See "Legal Proceedings," beginning on page 11. We are responding to subpoena requests in connection with these matters and some of our current employees may be called upon to give depositions
or other testimony in these proceedings. These obligations may require a substantial amount of time and attention by certain of our management and other employees.

The Department of Justice investigation into accounting irregularities that occurred prior to our bankruptcy reorganization remains open. We may be required to devote a
substantial amount of time to the ongoing investigation and criminal charges could be brought against us.

In early 2002, the DOJ opened an investigation into the accounting irregularities that occurred prior to our bankruptcy reorganization. As a result of the DOJ
investigation, a number of our former employees, including our former chief financial officer, treasurer, assistant treasurer and two sales

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executives
have pleaded guilty to various felony charges and are awaiting sentencing. A number of other former employees, including our former chief executive officer and chairman, chief operating
officer, two executive vice presidents of worldwide sales, vice president of finance and chief accounting officer, and other sales and finance personnel, have been charged with various felonies in
connection with these accounting irregularities and are awaiting trial. An Arthur Andersen partner who formerly was our lead auditor also was indicted in connection with these events. The criminal
charges generally relate to the manipulation of our apparent financial condition, misleading investors, hindering the government's investigation or conspiracy. In most of these cases, the SEC filed a
civil action against these same individuals alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules promulgated thereunder.

The
DOJ investigation remains open and we continue to receive document and other information requests from the DOJ, the SEC and the Federal Bureau of Investigation. We are cooperating
fully with these agencies and continue to provide them with relevant information they request. To our knowledge neither Peregrine nor any current employee is a target of the DOJ criminal
investigation, but there can be no assurance that criminal charges will not be brought in the future. We may be required to devote a substantial amount of time to the continuing investigations. If
criminal charges
were brought against us, we could face personnel retention problems and customer defections as a result. It also could damage our reputation and our ability to generate sales.

Our new common stock is not listed on any exchange or quoted on the Nasdaq National Market System.

Under the provisions of our reorganization plan, shares of our old common stock were cancelled at the close of business on August 7, 2003. Our new common
stock is not listed for trading on any exchange or quoted on the Nasdaq National Market System, although trading in the new common stock is reported on the Pink Sheets under the symbol PRGN. Our new
common stock is thinly traded compared to larger, more widely known companies in our industry. Our new common stock has experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our new common stock without regard to our operating performance. We cannot assure you that investors will be able to liquidate
their investment in our Company without considerable delay, if at all. Also, we cannot assure you that our new common stock will be listed on a national securities exchange or quoted on the Nasdaq
National Market System at any time in the future. Even if a robust market for such stock were to develop, we could not assure you that it would continue to exist. Furthermore, even if a robust trading
market were to develop and persist, the prices at which such securities might trade would depend upon a number of factors, including industry conditions, the performance of, and investor expectations
for, our Successor Company and market factors, such as the number of holders who might wish to dispose of their securities to raise funds or recognize losses for tax or other purposes.

Our stock price may continue to be highly volatile, which might make the new common stock difficult to resell.

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



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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. This
volatility has affected many companies irrespective of or disproportionately to their operating performance. These broad market and industry factors could hurt the market price of our new common
stock, regardless of our actual operating performance.

Our charter documents permit us to issue shares of preferred stock without shareholder approval, which could adversely affect the rights of the holders of our new common stock
and may inhibit a takeover or change in our control.

Our Board of Directors has the authority to issue as many as 5,000,000 shares of preferred stock in one or more series. Our charter documents permit our Board to
determine or alter the rights, preferences, privileges and restrictions of this preferred stock without any further vote or action by our stockholders. The issuance of preferred stock allows us
flexibility in connection with possible acquisitions and for other corporate purposes. However, the rights of holders of our new common stock may suffer as a result of the rights granted to holders of
preferred stock that may be issued in the future. This may include the loss of voting control to others. In addition, we could issue preferred stock to prevent a
change in control of our company, depriving holders of our new common stock of an opportunity to sell their stock at a price in excess of the prevailing market price.

Risks Related to Our Business

There can be no assurances that our future operations will be profitable.

We emerged from bankruptcy proceedings in August 2003 with a new business plan, new management, a reduced staff and fewer software products in our
portfolio. As a result of our constrained liquidity since late 2001 and our bankruptcy proceedings, prior to fiscal 2005 we did not

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invest
in our products and infrastructure to the same degree that we otherwise would have. During fiscal 2005 we incurred substantial expenditures in connection with our efforts to become current in
our periodic filings with the SEC, to remedy the deficiencies in our internal control over financial reporting, to recruit additional personnel for our finance group, and to further market, develop
and expand our product offerings. During fiscal 2006, we anticipate that we will continue to incur substantial expenditures in these areas. Continuing government investigations into individuals
formerly or currently associated with Peregrine and the ongoing Department of Justice investigation of Peregrine could damage our reputation with customers and prospects and harm our ability to
generate new business. Our ability to implement our business plan and to operate profitably under these conditions is unproven.

Executing our post-bankruptcy business strategy involves substantial risks, and we may not be able to achieve our goals.

We face substantial risks in implementing our business strategy, including:



One
or more of these factors, individually or combined, could damage our ability to operate our business. There can be no assurance that the anticipated results of our plan of
reorganization will be realized or that our plan of reorganization will have the expected effects on our business or operations.

Our outstanding indebtedness could adversely affect our operating results and financial condition, and we might incur substantially more debt in the future.

As of March 31, 2005 we had approximately $46.8 million of non-trade indebtedness outstanding. Our annual debt service costs relating to
our 6.5% Senior Notes due 2007, which require semi-annual payments in February and August of each year until paid in August 2007, total $16.8 million, $15.9 million and
$7.6 million in fiscal 2006, fiscal 2007 and fiscal 2008, respectively. Our total debt service costs for all our notes payable, other than the 6.5% Senior Notes, are $3.7 million per
year. Our non-trade indebtedness could adversely affect our operating results and financial condition by:



Payment
of principal and interest on this non-trade debt will require the dedication of a substantial portion of our cash flow from operations, thereby reducing the
availability of cash flow to fund working capital, capital expenditures and other general corporate purposes.

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

A delay in our ability to make investments in our business will adversely affect our business.

We made significant expenditures during fiscal 2005 to maintain and improve our business operations and to retain our competitive position and plan additional
significant expenditures in fiscal 2006. If we are delayed in making some or all of the planned expenditures because of cash or other constraints, our business will be adversely affected.

We may not generate sufficient cash flow or secure sufficient financing to fund debt obligations, ongoing operations or capital expenditures.

We will be required to generate cash sufficient to pay all amounts due on our outstanding indebtedness, conduct our business operations and fund capital
expenditures. Prior to entering bankruptcy proceedings, we funded our operations through the sale of our products and services, the sale of equity securities, the issuance of debt securities, the
factoring of accounts receivable and asset dispositions. Since emerging from bankruptcy proceedings, we have funded our operations with operating cash flow and cash on hand from previous asset
dispositions. We have limited access to the debt and equity markets at this time because of our deficiencies in internal control over financial reporting and the pending governmental investigations.
For the fiscal year ended March 31, 2005 we had a net loss of $25.4 million and a working capital deficiency of $21.0 million. Substantial increases in our net losses and our
expenses in fiscal 2006 could have a material adverse impact on our available cash and on our business, operations and financial condition. If we are unable to generate sufficient cash flow from
operations during fiscal 2006 and in the future or secure sufficient financing, we may not be able to pay our debt, maintain our business, rebuild our infrastructure, respond to competitive challenges
or fund our other liquidity and capital needs. If we need to seek alternative sources of financing, there can be no assurance that we will be able to obtain the requisite financing.

Our business depends on alliance partners and could suffer materially if our partners, particularly IBM, fail to generate sufficient sales of our products.

A significant portion of our license revenue is sourced, developed and closed with our alliance partners, including global and regional solution providers,
systems integration firms and third party distributors. If the number or size of these transactions were to decrease for any reason, our operating results would be adversely affected. Any degradation
in our alliance partner relationships could hurt our operating results. Our IBM relationship accounted for approximately 16% and 18% of our license revenue in fiscal 2005 and the 257 day period ended
March 31, 2004, respectively, which consists of payments received from IBM as a Peregrine reseller. A decline in revenues attributable to our IBM relationship would have a material adverse
impact on our business, operations and financial condition.

In
addition, many of our alliance partner arrangements are non-exclusive, meaning that these alliance partners may carry competing products. As a result, we could experience
unforeseen variability in our revenue and operating results for a number of reasons, including the following:



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Our business depends on partners, particularly IBM, that integrate for end users most of the products that we sell.

In most cases, the products we sell are implemented by third parties. These partners are designated technology companies whose employees have been trained to
integrate our products for end users. IBM in particular has trained a significant number of its consultants to deliver a broad range of professional services in connection with our products. Any
degradation in our relationships with these partners, particularly IBM, could damage our ability to integrate all the products that we sell and thus could have a material adverse effect on our
business.

Our management endured substantial and recurring turnover.

We experienced significant turnover in senior management and other strategic personnel. We have had four chief executive officers and four chief financial
officers since January 2002. Many members of our financial management team joined Peregrine in the 2005 fiscal year. Our future performance depends, in part, on the ability of our new
management team to effectively work together, manage our workforce and retain highly qualified technical and managerial personnel.

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

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 damage our business and harm our operating results and financial condition. Our success depends on the continued service of our senior management and other strategic sales, consulting, technical
and marketing personnel. We do not maintain key man life insurance on any of our employees.

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.

Our products and services require a sophisticated selling effort targeted at key individuals 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 integrating and maintaining them,
require highly-trained customer service and support personnel. We may have difficulty recruiting and retaining qualified employees for these positions. In addition, we currently do not allocate stock
options to all of our employees, as we did in the past. This change in our strategy for allocating stock options grants to employees may have an adverse impact on our ability to retain key personnel.
If we are not successful in attracting and retaining qualified sales personnel, software developers and customer service personnel, our operating results could be materially harmed.

A delay in completing a small number of large license transactions could adversely affect our operating results in any particular quarter.

When negotiating large software licenses, many customers time the conclusion of negotiations near the end of a quarter to improve their ability to negotiate a
more favorable price. As a result, we recognize a substantial portion of our revenue in the last month or weeks of a quarter, and thus license revenue in a given quarter depends substantially on
orders booked during that strategic period. If we are unable to complete a sufficient number of license agreements during this short and intense sales period, our revenue in a given quarter could
diminish. This risk intensifies if the license agreements we are unable to complete are large.

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We may be required to defer recognition of license revenue for a significant period of time after entering into certain licensing agreements, which could negatively impact our
results from operations.

We may have to delay recognizing revenue for a significant period of time for different types of transactions, including:



These
factors and other specific accounting requirements for software recognition require that we have terms in our license agreements and follow revenue recognition procedures we have
developed to allow us to recognize revenue when we initially deliver software or perform services. Although we have a standard form of license agreement that we believe meets the criteria for current
revenue recognition on delivered elements, we negotiate and revise these terms and conditions in some transactions. Therefore, it is possible that from time to time we may license our software or
provide services with terms and conditions that do not permit revenue recognition at the time of delivery or even as work on the project is completed. During fiscal 2003, 2004 and 2005 we had to defer
recognition of revenue for a material number of sales transactions because of revenue recognition issues.

If accounting interpretations relating to revenue recognition change, our reported revenue could decline or we could be forced to make changes in our business practices.

Revenue recognition for the software industry is governed by several accounting standards and interpretations. These pronouncements include,
SOP 97-2, "Software Revenue Recognition," SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition," and the Securities and Exchange
Commission Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101) and Staff Accounting Bulletin No. 104, "Revenue Recognition" (SAB 104).
These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance. While we have had revenue recognition issues in the
past, and revenue recognition constitutes one of the issues in our June, 2003 settlement with the SEC, our consolidated financial statements during the fiscal years 2000 and 2001 and the first three
quarters of fiscal 2002 have been properly restated in accordance with the SEC's June 2003 civil action. We believe since that time our revenue has been recognized in compliance with these
standards and with our June, 2003 settlement with the SEC.

The
accounting profession and regulatory agencies continue to discuss various provisions of these pronouncements to provide additional guidance on their application. These discussions
and the issuance of new interpretations, once finalized, could lead to unanticipated reductions in recognized revenue. They could also drive significant adjustments to our business practices which
could result in increased administrative costs, lengthened sales cycles, and other changes which could adversely affect our reported revenue and results of operations.

A limited number of products provide a substantial part of our license revenue.

The majority of our software license revenue in fiscal 2005 and in fiscal 2004 came from the sale of our two flagship products, our Asset Center and Service
Center products. In addition to these two flagship products, we currently offer four additional software product lines to complement them, which are Discovery and Automation, Business Intelligence,
Employee Self-Service and Integration. While we

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intend
to enhance our existing products and software business solutions by offering new modules that may be separately chargeable and we may diversify our product offerings, there can be no assurance
we will be successful in this regard. We expect that our Asset Center and Service Center applications, along with the maintenance and training services provided in connection with these two products,
will continue to account for a majority of our future revenue. Factors adversely affecting the cost and pricing of, or demand for, our Asset and Service Center products, such as competition or
technological change, could have a material adverse effect on our business, financial conditions or results of operations.

When we account for employee stock option plans using the fair value method in fiscal 2007, it could lower our earnings and we could be forced to change our employee
compensation practices.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American
Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. We are required to begin expensing our stock based
compensation plans using a fair value method on April 1, 2006, which could result in material accounting charges. For example, in fiscal 2005, if we accounted for stock based compensation plans
using a fair value method prescribed under Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based Compensation," as amended by Statement of Financial Accounting
Standard No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123," the method would have an adverse impact on our
earnings. The Financial Accounting Standards Board has issued regulations that require us to deduct the value of options from earnings beginning April 1,
2006, which would require us at that time to measure all employee stock base compensation awards using a fair value method and record such expense in our consolidated financial statements, unless the
effective date is postponed or the regulation is changed. As a result, we may decide to reduce the number of stock options granted to employees or to grant options to fewer employees. This could
affect our ability to retain existing employees and attract qualified candidates, and increase the cash compensation we would have to pay to them.

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

Announcements of new products or releases by us or by our competitors could prompt customers to delay purchases pending the introduction of the new product or
release. In addition, announcements by us or by our competitors concerning pricing policies could damage our revenue in a given quarter or the renewal rates among our existing customers.

Our products' long sales cycle may cause substantial fluctuations in our revenue and operating results.

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 revenue during that period, our
revenue and earnings could be substantially reduced and could result in a significant loss. The sales cycle for our products typically requires four to nine months for completion and delays could
extend this period. Any delay in the sales cycle of a license for a significant amount of revenue or a number of smaller licenses could damage our operating results and financial condition.

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Product development delays could materially harm our competitive position and result in a material reduction in our revenue.

We have experienced product development delays in the past and may experience them in the future. Delays may occur for many reasons, including an inability to
hire developers, discovery of software bugs and errors or the failure of our current or future products to conform to industry requirements. If we experience significant product development delays,
our position in the market and our revenue could be negatively affected.

Errors or defects in our products could be costly to fix, may result in product warranty claims or a reduction in our renewal rates among existing customer and could reduce
revenue.

Despite testing before the release of products, software products frequently contain errors, security flaws and defects, especially when first introduced or when
new versions are released, and they could be infected by viruses. Software errors in our products could affect the ability of our products to work with other hardware or software products. Security
flaws in our products could expose us to claims as well as harm our reputation, which could adversely impact our future sales. The detection and correction of any security flaw can be time consuming
and costly. Errors can be detected at any point in a product's life cycle. Past errors have delayed our product shipments until the software problems have been corrected and have increased our costs.
Some of our products are intended for use in applications that may be critical to a customer's business. As a result, we expect that our customers and potential customers may have a greater
sensitivity to product defects than the market for software products generally. If we were required to expend significant amounts to correct software bugs or errors, our revenue could be adversely
affected as a result of an inability to deliver the product, and our operating results could be impaired as we incur additional costs without offsetting revenue.

Discovery
of errors or defects 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 decline significantly. Our license agreements with 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.

The loss of any of the technology licenses we rely on to build our products could have a material adverse effect on our business.

Our software relies on technologies licensed from third parties. These technologies may not continue to be available to us on terms that are acceptable and that
allow our products to remain competitively priced. If we lose any of these licenses, there is no guarantee that we will be able to obtain comparable licenses from alternative third parties. The loss
of any of these licenses or the ability to maintain any of them on commercially acceptable terms could delay development and distribution of our products. Any such delay could harm our business.

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Our prior cost reduction initiatives may adversely affect our future operations and our ability to hire new personnel.

In connection with our effort to cut costs, we restructured our organization in 2002 and 2003, streamlining operations and reducing our workforce. Substantial
costs accompanied the workforce reductions, including severance and other employee-related costs, and our restructuring plan may yield unanticipated consequences, such as attrition beyond our planned
reduction in workforce or a decline in employee morale. As a result of these reductions, our ability to respond to unexpected challenges may be impaired and we may be unable to take advantage of new
opportunities. In addition, many employees who were terminated possessed specific knowledge or expertise that may prove to have been important to our operations. In that case, their absence may create
difficulties.

We may face exposure to significant additional tax liabilities.

As a multinational corporation, we are subject to income taxes as well as non-income business taxes, in both the United States and various foreign
jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are many
transactions and calculations in which the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related
entities and segregation of foreign and domestic income and expense to avoid double taxation. We have accrued reserves for tax contingencies based upon our estimates of the tax ultimately to be paid.
This estimate is updated as more information becomes available. If these contingencies materialize, or if actual liabilities are greater than our estimates of liabilities, it could have a material
adverse effect on our liquidity.

Although
we believe that our tax estimates are reasonable, we cannot assure you that the final determination of our tax audits and any litigation will not be different from what is
reflected in our historical income tax provisions and accruals.

We
face exposure to additional non-income tax liabilities. These include payroll, sales, use, value-added, net worth, property and goods and services taxes, both in the
United States and in various foreign jurisdictions.

If we do not successfully address the risks inherent in the conduct of our international operations, our revenues and other financial results could decline.

We derived 46%, 42% and 36% of our revenues from international sales in our EMEA/AP territory in fiscal 2005, 2004 and 2003, respectively. We intend to continue
to operate in international markets and to spend significant financial and managerial resources to do so. Conducting business outside the United States 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. We may also expand our international operations and enter additional
international markets in the future. This expansion could adversely affect our operating margins and earnings. We may not be able to maintain or increase international business demand for our products
and services. Moreover, exchange rate risks could 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, which would make our products more expensive in local currencies. Where we sell our products in local currencies, we could
be competitively unable to change our prices to reflect fluctuations in the exchange rate.

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



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Any
of these risks could have a significant impact on our ability to deliver products on a competitive and timely basis. Significant increases in the level of customs duties, export
quotas or other trade restrictions could also hurt our business, financial condition or results of operations.

Our operating results could be adversely affected if we are unable to conduct our business due to events beyond our control.

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. For example, if blackouts or other such 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.

Risks Related to Our Industry

Our operating results may be adversely affected if the software industry continues to evolve toward licensing models that may prove less profitable for us.

We have historically sold our products 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 under other licensing models. One such model is the subscription model, in which the up-front license fee is
replaced by smaller monthly fees. If we are not successful in adapting to customer demands or industry trends pertaining to licensing models, or if customers otherwise do not believe the models we
offer are attractive, our business could be impaired.

Our operating results may be adversely affected if existing customers do not continue to purchase from us.

A significant portion of our revenue reflects incremental sales to existing customers. Because of the continuing decline in corporate technology spending over the
past several years, our customers may decline to purchase additional licenses or additional modules for software products they previously licensed from us. If our existing customers do not continue to
purchase from us or if their purchases decline significantly, or we lose a significant number of our existing customers, our revenue and financial condition may be materially and adversely affected.

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.

Rapid technological change in our industry could erode our competitive position in existing markets, or in markets we may enter in the future. We may be unable to
improve the performance and features of our products to respond to these developments or may not have the resources necessary to do so. 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

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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.

Seasonal trends in our software product sales may result in periodic declines in our revenue and impairment of our operating results.

Like many software companies, demand for our products tends to be strongest in the quarters ending December 31 and March 31 and weakest in the
quarter ending June 30. We believe that we benefit in our third fiscal quarter, ending December 31, relative to our quarters ending June 30 and September 30, from purchase
decisions made by the large concentration of our customers with calendar year-end budgeting requirements. Seasonal patterns may change over time. We already experience variability in
demand associated with seasonal buying patterns in foreign markets. As an example, we believe the weakness in our quarter ending September 30 in part reflects the European summer holiday
season.

Any failure to compete effectively against other companies will have a material adverse effect on our business and operating results.

The market for our products is highly competitive. Our competitors vary in size and in the scope and breadth of the products and services offered. These
competitors include large, mid-tier and small vendors. Our closest competitors are Fortune 500 technology vendors that have greater financial resources than we do and offer a wide range of
products and services, including offerings that compete with our asset and service management software, as well as a number of smaller niche vendors. Our competitors include: Altiris; Computer
Associates; Hewlett-Packard; MRO Software; Remedy, a BMC Software Company and former Peregrine subsidiary; PS'SOFT; and USU Software AG. If we cannot compete effectively by offering products that are
comparable in functionality, ease of use and price to those of our competitors and their breadth of offerings, our revenue will decrease, as will our operating results. A segment of our customer base
is not using current versions of our products and, therefore, may be more likely to consider switching to competitors' products. In addition, potential customers may have concerns about purchasing
from us because of our size relative to larger competitors and our accounting irregularities and bankruptcy proceedings.

Many
current and potential competitors have substantially greater financial, technical, marketing and other resources than we have. 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. These large competitors may
have better access to potential customers and may be able to price their products more competitively because of their size and the breadth of their product offerings. In addition, alliances among
companies that are not currently direct competitors could create new competitors with substantial market presence. In particular, it is possible that large software companies will acquire or establish
alliances with our smaller competitors, thereby increasing the resources available to those competitors. Additionally, acquisitions in our industry could result in a consolidation in the enterprise
software business. Such a consolidation would likely result in fewer but even larger companies operating in the enterprise software business able to offer more products at more competitive pricing
with an increased level of superior services, which could have a material adverse impact on our ability to compete in our market space. For us, this could mean lost customers, decreased revenue and
increased downward pricing pressure. These new competitors could rapidly gain market share at our expense.

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We may not be able to price our products competitively as software industry suppliers increasingly focus on market share.

In response to declining conditions in the software industry, some suppliers are offering discounted prices or favorable terms on their products in an effort to
generate sales and increase market share. Because many of our competitors are larger and offer a wider range of products, they may be able to offer bigger discounts and more favorable terms on their
products in relation to the discounts and payment terms we can profitably offer on our products. There is no assurance that we will be able to remain competitive when other suppliers are offering
competing products at a significant discount or on more favorable terms. This price competition could result in price reductions, loss of customers, replacement of our products for products from our
competitors, and a loss of market share, any of which could have a material adverse effect on our business. Also, some of our competitors may bundle software products for promotional purposes or as a
long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, materially constrain the prices we can charge for our products. In
addition, if we do not adapt our pricing models to reflect changes in customer use of our products, our new software license revenue could decrease.

Inability to protect our intellectual property could put us at a competitive disadvantage.

If we fail to adequately protect our proprietary rights, competitors could offer similar products relying on technologies we developed, thereby eroding our
competitive position and decreasing our revenue. We attempt to protect our intellectual property rights by limiting access to our software and software code, documentation, and other proprietary
information and by relying on a combination of patent, copyright, trade secret and trademark 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 licensees 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 do laws in the United States. Our inability to adequately
protect our intellectual property for these or other reasons could adversely affect our business.

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 revenue and operating results.

Significant litigation in the United States in recent years has focused on intellectual property rights, including rights of companies in the software industry.
We have from time to time received
correspondence from third parties alleging that we have infringed upon that party's intellectual property rights. We expect these claims to increase if our intellectual property portfolio grows.
Intellectual property claims against us, and any resulting lawsuit, may cause significant expenses and could subject us to significant liability for damages and invalidate what we currently believe
are our proprietary rights. Such 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:



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

Similarly,
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 time and attention.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 materially affect the fair value of these securities.

We
conduct business overseas, principally in Europe, in a number of foreign currencies. Although we currently derive no material revenue from highly inflationary economies, we have a
presence in international markets outside Europe, including Latin America, where currencies have fluctuated in value relative to the U.S. dollar more than European currencies. Future fluctuations in
the value of foreign currencies relative to the U.S. dollar may have an adverse effect on our business, financial condition, or results of operations.

Currently,
we do not attempt to mitigate our currency transaction risks through our foreign exchange hedging program, but we may consider such a program in the future.

At
March 31, 2005, the non-current portion of our notes payable totaled $29.0 million with fixed notional or imputed interest rates ranging from 6.5% to 8.0%.
We do not believe we have significant market risk with respect to these notes resulting from changes in interest rates. See Note 7 of Notes to consolidated financial statements included in this
report for further discussion of these notes payable.

Our
foreign operations expose us to certain risks. A foreign government may impose trade or foreign exchange restrictions or increased tariffs, which could adversely affect our
operations. In addition, we are subject to a variety of other regulations in various foreign markets, including regulations pertaining to social security assessments, employment and severance pay
requirements, import/export regulations and antitrust issues. Our failure to comply with these regulations could have a material adverse effect on our business in a particular market or in general.
Assertions that we failed to comply with regulations or the effect of adverse regulations in one market could adversely affect us in other markets as well by causing increased regulatory scrutiny or
negative publicity in those other markets.

Our
operations in some markets may also be adversely affected by political, economic and social instability in foreign countries. As we continue to operate in international markets,
these and other risks associated with international operations may increase.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is set forth in our consolidated financial statements and notes thereto beginning on page F-1 of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities and
Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required public disclosure.

As
of March 31, 2005, management carried out an assessment under the supervision of and with the participation of our chief executive officer and the chief financial officer, of
the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). As of the date of this
assessment, the chief executive officer and the chief financial officer concluded that our disclosure controls and
procedures were not effective. Although management has not yet completed its assessment of our internal control over financial reporting, management has identified certain control deficiencies which
represented material weaknesses and, as a result, cause management to conclude the Company's internal control is not effective.

In
view of the fact that the financial information presented in this report was prepared in the absence of effective internal control over financial reporting, we have devoted a
significant amount of time and resources to the analysis of the financial statements contained in this report. In particular, we have reviewed all significant account balances and transactions
reflected in the financial statements contained in this report and otherwise analyzed the transactions underlying our financial statements to verify the accuracy of the financial statements contained
in this report. Accordingly, management believes that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations, and
cash flows.

A
control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Additionally, judgments in decision-making can be faulty and
breakdowns in internal control over financial reporting can occur because of simple errors or mistakes that are not detected on a timely basis.

Since
we have not completed our assessment of the Company's internal control over financial reporting, this Annual Report on Form 10-K includes a report of our
independent registered public accounting firm that disclaims an opinion on management's assessment and the effectiveness of the Company's internal control over financial reporting as of
March 31, 2005. We intend to file an amendment to this Annual Report on Form 10-K to include the report of management on internal control over financial reporting and the
associated report of our independent registered public accounting firm as required by Section 404 of the Sarbanes-Oxley Act once we have completed our assessment of internal control over
financial reporting and our independent registered public accounting firm has completed its review of our assessment and our internal control over financial reporting.

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Status of Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and
procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management
is in the process of evaluating the effectiveness of our internal control over financial reporting as of March 31, 2005. In performing our assessment of internal
control over financial reporting, management is using the criteria described inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). However, management has not completed its assessment of the design of the Company's internal control over financial reporting
and the related testing of our internal control over financial reporting.

Although
management has not completed its assessment of the effectiveness of our internal control over financial reporting as of March 31,
2005,management has identified certain control deficiencies that represent material weaknesses (as defined in Public Company Accounting Oversight Board
Auditing Standard No. 2) at March 31, 2005. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or detected. The identified material weaknesses are discussed in greater detail below. We may identify
additional material weaknesses as we complete our assessment. The existence of one or more material weaknesses at March 31, 2005 precludes management from concluding that the Company's internal
control over financial reporting
was effective as of March 31, 2005, based on the criteria in theInternal ControlIntegrated Framework.Therefore, upon completion of
our assessment, we will have to conclude in the "Management Report on Internal Control over Financial Reporting" in our amended Annual Report on Form 10-K that our internal control
over financial reporting is not effective and we expect that our independent registered public accounting firm will issue an adverse opinion on the effectiveness of our internal control over financial
reporting when we complete our assessment.

Management
has identified the following material weaknesses in our internal control over financial reporting:



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As
we complete our assessment of our internal control over financial reporting, which includes our continued assessment of identified control deficiencies, we may identify additional
control deficiencies and we may determine that those deficiencies, either alone or in combination with others (including other control deficiencies that we have identified as of the filing date of
this Annual Report on Form 10-K but which do not by themselves or when aggregated with other identified control deficiencies currently constitute a material weaknesses) constitute one or more
additional material weaknesses.
Deficiencies we are presently assessing include, among others, review of account reconciliations, prevention of unauthorized purchases and payments of goods and services, and the completeness of
deferred revenue and revenue.

Changes in Internal Control Over Financial Reporting

As discussed above, management has not completed its assessment of our internal control over financial reporting at March 31, 2005. However, remediation
efforts have resulted in changes to our internal control over financial reporting during the quarter ended March 31, 2005 that management believes have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. During the fourth quarter of the fiscal year ended March 31, 2005, we continued efforts to remedy the significant
deficiencies, including material weaknesses, in our internal control over financial reporting as part of our Sarbanes-Oxley Act compliance project.

In
previously filed periodic reports with the SEC we disclosed certain deficiencies in our internal control over financial reporting. Such deficiencies related to our ability to provide
proper and accurate financial reporting or other procedural inefficiencies which contributed to delays in our financial reporting. In connection with our Sarbanes-Oxley Act of 2002 (SOX) compliance
project, we have now defined an internal control framework based on Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), for
assessing our internal control over financial reporting and determining whether identified control deficiencies rise to material weaknesses.

Our
management has discussed the material weaknesses described above with our Audit Committee. In an effort to remediate the identified material weaknesses and other deficiencies, we
have taken the following actions regarding our internal control over financial reporting:



ITEM 9B. OTHER INFORMATION

None.

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ITEM 10. OUR DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding our directors as of March 31, 2005:

|Name                            |  | Age |  | Principal Position(s)                        
|------------------------------- |  | --- |  | ---------------------------------------------
|James P. Jenkins(2)(4)          |  | 57  |  | Chairman of the Board of Directors           
|John Mutch(4)                   |  | 48  |  | President, Chief Executive Officer & Director
|Andrew J. Brown(1)(5)           |  | 45  |  | Director                                     
|Victor A. Cohn(1)(3)(5)         |  | 55  |  | Director                                     
|James W. Harris(1)(4)           |  | 57  |  | Director                                     
|Alan J. Hirschfield(2)(3)(4)(5) |  | 69  |  | Director                                     
|Mark Israel(2)(3)               |  | 50  |  | Director                                     

---

Each
of our directors stands for election every year. We do not have a classified or staggered board. See the discussion below regarding the rights of the post-emergence
equity committee to designate one director at the next annual meeting of our stockholders.

James P. Jenkinsjoined our Board of Directors in August 2003. He is the chairman of our Board of Directors and a member of the
Compensation Committee and the Executive Committee. Since July 2002, Mr. Jenkins has been employed by Mellon HBV Alternative Strategies, LLC., an investment management company where he
is a managing director and portfolio manager. Before joining Mellon, he was a senior managing director and head of investment banking at Advest, Inc., a financial services company. From 1999 to
2000, Mr. Jenkins led Solid ISG Capital Markets, LLC, an investment company, as its president and chief executive officer. He managed J.P. Jenkins Company LLC, an investment company from its
inception in 1996 through 1999. From 1997 to 1998, Mr. Jenkins was an executive vice president, head of investment banking, of Laidlaw Global Securities, Inc. and was a member of its
Executive Committee and Board of Directors. Mr. Jenkins began his career at Kuhn, Loeb & Co. in 1972, which merged with Lehman Brothers in 1978. He moved to The First Boston Corporation
in 1984, where he stayed until 1996, rising to the position of managing director. From 2002 to 2003, Mr. Jenkins was a director of Telespectrum Worldwide Inc. Mr. Jenkins holds a
B.A. and an M.B.A. from Stanford University.

John Mutchjoined our Board of Directors in March 2003 and is a member of the Executive Committee. Mr. Mutch was chairman of
the Compensation Committee of our Board of Directors from March 2003 through August 2003. Mr. Mutch has served as our president and chief executive officer since
August 2003. From December 1999 through August 2002, he was the chief executive officer of HNC Software, Inc., an enterprise analytics software provider. He also served as
president of HNC Software from May 2001 through August 2002. Mr. Mutch joined HNC Software in 1997, and from 1997 to 1999 served in various other senior executive positions,
including vice president, marketing and president of HNC Insurance Solutions. In 1994, Mr. Mutch founded MVenture Holdings, Inc., a private equity fund that invests in public and private
technology companies, which became MVenture Holdings LLC in 2002. From December 1986 to June 1994, Mr. Mutch held a variety of executive sales and marketing positions with
Microsoft Corporation, including director of organization marketing. Mr. Mutch holds a B.S. from Cornell University and an M.B.A. from the University of Chicago.

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Andrew J. Brownjoined our Board of Directors in October 2003 and serves as the chairman of our Audit Committee and as a member of
our Special Committee. Since December 2004, Mr. Brown has served as chief financial officer of PalmOne Inc., a provider of handheld computing and communications solutions. From
February 2004 until July 2004, Mr. Brown was the chief financial officer of Pillar Data Systems, a networking storage company. From October 2000 until its acquisition by
EMC Corp. in October 2003, he served as chief financial officer of Legato Systems, Inc., a company that provides software solutions for information management. From 1988 to 2000,
Mr. Brown held several financial leadership positions at Adaptec Inc., a storage infrastructure solutions company, including vice president of finance and chief financial officer.
Mr. Brown holds a B.S. in Accounting from Eastern Illinois University.

Victor A. Cohnjoined our Board of Directors in October 2003 and serves as chairman of our Corporate Governance and Nominating
Committee and is a member of the Audit Committee and Special Committee. Mr. Cohn is the chief executive officer and founder of Focal Point Partners, a business management firm. Prior to
founding Focal Point in 2001, he was founder and chairman of Alley Capital Partners, a joint venture with Wit Capital, providing financing for early-stage companies. Mr. Cohn's prior experience
includes managing the worldwide equity capital markets business for Salomon Brothers, UBS Securities and Bear, Stearns & Co. He is a director of Verity Inc., where he is chairman of the
audit committee and a director of Dwango, where he is the non-executive chairman. Mr. Cohn holds a B.S. from Pennsylvania State University.

James W. Harrisjoined our Board of Directors in August 2003 and is a member of the Executive Committee and the Audit Committee.
Mr. Harris is president and founder of Seneca Financial Group, Inc., a merchant bank located in Greenwich, Connecticut. Prior to establishing Seneca in 1993, he was managing director at
Lehman Brothers and headed its Financial Restructuring Group. Before joining Lehman in 1982, Mr. Harris spent 10 years with Citibank N.A.'s Banking Group, rising to the position of
senior credit officer. Mr. Harris is a director of El Paso Electric Company, where he serves as a member of the executive committee and as chairman of the nominating and governance committee.
He was an adjunct professor at Columbia University's Graduate School of Business in New
York, N.Y. from 2001 through 2003. Mr. Harris holds a B.A. from Vanderbilt University and an M.B.A. from Harvard Business School.

Alan J. Hirschfieldjoined our Board of Directors in October 2003 and serves as chairman of our Compensation Committee and Special
Committee and is a member of the Corporate Governance and Nominating Committee and Executive Committee. From 1992 to 2000, Mr. Hirschfield was co-chief executive officer of Data
Broadcasting Corp., a financial information company. Data Broadcasting merged with the Financial Times and Pearsons Inc. to become Interactive Data Corp., and he remains a director of that
company. From 1982 through 1986, he was chairman and chief executive officer of Twentieth Century Fox Film Corp. and, from 1973 through 1978, president and chief executive officer of Columbia
Pictures, Inc. Mr. Hirschfield is also a director of Cantel Medical Corp., where he chairs the compensation committee; Carmike Cinemas, Inc., where he is chairman of the audit
committee and Leucadia National Corporation, where he is a member of the audit committee. Mr. Hirschfield holds a B.A. from the University of Oklahoma and an M.B.A. from Harvard Business
School.

Mark Israeljoined our Board of Directors in August 2003 and is a member of the Compensation Committee and the Corporate Governance
and Nominating Committee. Mr. Israel is director of distribution and channel sales for Magellan Products, a division of Thales Navigation, a provider of navigation, positioning and guidance
solutions. Previously, he was the senior vice president of marketing at Cognet Corp., a software company based in Valhalla, NY, responsible for product marketing, corporate communications and
strategic alliances. Prior to joining Cognet in 1998, Mr. Israel was vice president of marketing and channels at Dictaphone Corp. From 1984 to 1997, he held sales management positions at Apple
Computer. He also held sales management positions at TDK

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Electronics
and Fuji Photo. Mr. Israel studied business management and marketing at Nassau Community College.

Under
our reorganization plan, four members of our Board of Directors (Carl Goldsmith, Robert Horwitz, James P. Jenkins and Ben Taylor) were designated by the official committee
of unsecured creditors and three members of our Board of Directors (James W. Harris, Mark Israel and John Mutch) were selected by the equity committee. Under the plan, the directors selected by
each committee were entitled to select replacements in the event any director originally selected by the committee resigned or otherwise became unwilling or unable to serve as a director within
90 days after the effective date of the plan. Following this process, in October 2003, Andrew J. Brown, Victor A. Cohn and Alan Hirschfield were selected to replace
Messrs. Goldsmith, Horwitz and Taylor. In addition, under our reorganization plan, the post-emergence equity committee has the right to designate one of the seven nominee directors
on our voting slate at the next annual meeting of our stockholders.

Audit Committee Financial Expert.The Audit Committee consists of Messrs. Brown, Harris and Cohn. Our Board of
Directors has determined that Messrs. Brown, Harris and Cohn are "audit committee financial experts" as defined by the rules and regulations of the Securities and Exchange Commission. Our board
of directors has further determined that Messrs. Brown and Cohn are independent of management pursuant to applicable NASD Marketplace Rules regarding the independence of board and audit
committee members. Mr. Harris is the founder and president of Seneca Financial Group, Inc. Seneca Financial was the financial advisor for the Official Committee of Equity Security
Holders (the Equity Committee) consisting of the holders of our old common stock in connection with the bankruptcy proceedings, and received fees for its financial advisory services in 2003. Although
Seneca Financial was an advisor to the Equity Committee, and not Peregrine, Peregrine paid the financial advisory fees to Seneca Financial. As a result of the payment of fees by Peregrine,
Mr. Harris is not independent under that term's definition in the NASD Marketplace Rules. The Board has determined it is in the best interests of Peregrine and its stockholders that
Mr. Harris serve on the Audit Committee due to Mr. Harris' financial expertise and the Board's conclusion that the payments made to Seneca Financial for its services as financial advisor
to the Equity Committee would not interfere with Mr. Harris' exercise of independent judgment in carrying out his responsibilities as an Audit Committee member.

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The
following table sets forth certain information regarding our executive officers as of March 31, 2005:

|Name                |  | Age |  | Principal Position(s)                                                     
|------------------- |  | --- |  | --------------------------------------------------------------------------
|John Mutch          |  | 48  |  | President, Chief Executive Officer, Director                              
|Kenneth Saunders    |  | 43  |  | Executive Vice President, Chief Financial Officer                         
|Jeff Boyce          |  | 48  |  | Senior Vice President, Worldwide Professional Services                    
|Kevin Courtois      |  | 45  |  | Senior Vice President, General Counsel and Secretary                      
|Alan Kerr           |  | 49  |  | Senior Vice President, EMEA & APAC Field Operations                       
|Beth Martinko       |  | 51  |  | Senior Vice President, Worldwide Customer Support                         
|Mary Louise O'Keefe |  | 58  |  | Senior Vice President, Human Resources                                    
|Craig Ryall         |  | 47  |  | Senior Vice President, Americas Field Operations                          
|Deborah Traub       |  | 33  |  | Senior Vice President, Product Development and Delivery                   
|James Zierick       |  | 48  |  | Senior Vice President, Strategy, Marketing and Corporate Development      
|Russell Mann        |  | 36  |  | Senior Vice President, Strategic Initiatives                              
|Russell Clark       |  | 37  |  | Vice President, Finance, Corporate Controller and Chief Accounting Officer

John Mutch.For information regarding Mr. Mutch, please refer to the information regarding our directors, above.

Kenneth Saundershas served as our executive vice president with responsibilities for managing our financial operations and infrastructure
since August 2004. He was appointed our chief financial officer on November 1, 2004 and continues to serve as an executive vice president. Mr. Saunders served, until recently, as
chief financial officer of Fair Isaac Corporation, an analytic software solutions provider he joined in August 2002 when Fair Isaac acquired HNC Software, Inc. Mr. Saunders was
with HNC Software, an analytics software provider, from August 1996 when it acquired Risk Data Corporation, a decision software company, through August 2002. Mr. Saunders held a
variety of senior management titles while with HNC from August 1996 to December 1999, when he became chief financial officer. Mr. Saunders served as vice president of finance and
chief financial officer of Risk Data Corporation from January 1992 to August 1996. Mr. Saunders holds a B.S. in Accounting from Widener University.

Jeff Boycehas served as our senior vice president of worldwide professional services since April 2005. From July 2003 to April
2005 he was our vice president of professional services. From January 2001 to September 2002, he was senior vice president of sales at Managed Objects, a business service management
software company in McLean, Virginia, where he oversaw sales and services. Mr. Boyce's sales and services career included management positions at several leading technology companies, including
vice president of Americas sales and services at Candle Corp, an enterprise systems management software company, from April 1998 to January 2001, and vice president of North American
field operations for Legent Corp., an application and systems management software company, from August 1994 to December 1995. From April 1991 to August 1994, he also held
executive positions with Syncordia, a global telecommunications outsourcing subsidiary of British Telecom. From June 1978 to April 1991, Mr. Boyce held various positions at IBM.

Kevin Courtoishas served as our general counsel since October 2003 and prior to that as our assistant general counsel since he
joined us in September 2001. From May 1998 to September 2001, Mr. Courtois was general counsel of NxTrend Technology, Inc. and, from April 2000 to
June 2001, was also general counsel of NxTrend's BuildNet, Inc. affiliate. From April 1994 to May 1998, Mr. Courtois served in the legal department of IBM, most
recently as IBM Senior Attorney. From August 1990 to

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April 1994,
Mr. Courtois was in private practice with Jackson & Walker, LLP. From August 1981 to August 1987 he held a variety of software development and other
technical positions with Texas Instruments, Inc. Mr. Courtois holds a B.A. from the University of Notre Dame, an M.S. from the Southern Methodist University School of Engineering and
Applied Science, and a J.D. from the Southern Methodist University School of Law.

Alan Kerrhas served as our senior vice president and general manager of Europe, Middle East, Africa (EMEA) and Asia, Pacific Rim (APAC)
operations since April 2003. From January 2002 to March 2003, Mr. Kerr served as our vice president and general manager of EMEA. From January 1997 to
December 2000, Mr. Kerr was with Informix Software, a database software company, where he held several management positions, most recently as senior vice president, international
operations. From January 2001 to July 2001, Mr. Kerr was senior vice president, worldwide sales at Ascential Corporation, a data integration company. Additionally, Mr. Kerr
has held leadership roles with Software AG, a database and process integration company, Data General, a computer manufacturer, and Philips Data Systems, a computer company. Mr. Kerr studied
Civil Engineering at Strathclyde University, Glasgow, Scotland.

Beth Martinkohas served as our senior vice president, worldwide customer support since September 2002. From 1993 to 2002,
Ms. Martinko served in various leadership positions at Q+E Software, a data connectivity company; Intersolv, which acquired Q+E Software in April 1994; and Merant, PLC which was formed
by the merger of Intersolv and Microfocus in September 1998. Her positions included vice president of human resources, vice president of customer support and vice president of customer
education. Ms. Martinko holds a B.S. in Mathematics from Wilmington College.

Mary Louise O'Keefehas served as our vice president, human resources since April 1999 and has served as our senior vice president,
human resources since May 2001. Prior to joining us, Ms. O'Keefe was a consultant. From 1991 to 1998, Ms. O'Keefe created and managed the Human Resources Operations Center, which
provided complete human resource support for 32,000 aerospace employees for AlliedSignal Aerospace. Ms. O'Keefe also held numerous other corporate and regional human resource leadership roles
at AlliedSignal and Bendix Corporation. Ms. O'Keefe holds a B.S. in Management and an M.B.A. in Industrial Relations from Wayne State University.

Craig Ryallhas served as our senior vice president, Americas field operations since April 2003 and has primary responsibility for
sales and alliances activities in North America and Latin America. From January 2002 to April 2003, Mr. Ryall served as our senior vice president worldwide alliances and services.
Mr. Ryall served as our Vice President, IBM Alliance from April 2001 to January 2002 and as area vice president, merger integration from April 2000 to April 2001.
Prior to that, Mr. Ryall served as the area vice president, western area from January 1998 to March 2000 and as one of our regional managers from September 1997 to
January 1998. Mr. Ryall holds a B.S. and an M.B.A. in Information Systems from San Diego State University.

Deborah Traubhas served as our senior vice president, product development & delivery since July 2002. Since
June 1998, Ms. Traub has served in variety of roles with us, including vice president, development, area vice president, development, director of development and senior technical
consultant. From May 1988 to June 1998, Ms. Traub served as mission operations manager for the Space Very Long Baseline Interferometry Project at the NASA/Jet Propulsion
Laboratory. Ms. Traub holds a B.A. from Cal State Northridge and an M.S. in Computer Science from Azusa Pacific University.

James Zierickhas served as our senior vice president of strategy, marketing and corporate development since January 2004. From
1989 to 2003, Mr. Zierick was an engagement manager and principal at McKinsey & Company, specializing in marketing, new business development and strategy development at the multinational
strategic management consulting firm. From 1982 to 1989, Mr. Zierick served as vice president of Zierick Manufacturing. Mr. Zierick holds an A.B. in

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Engineering
from Dartmouth College and an M.B.A. in Business from Dartmouth's Amos Tuck School of Business Administration.

Russell Mannhas served as our senior vice president, strategic initiatives since August 2004. From May 2003 to
August 2004, Mr. Mann was the vice president of my FICO Consumer Services for Fair Isaac Corp, an analytic software solutions provider. He previously worked for HNC Software as vice
president, growth initiatives from January 2002 to September 2002, until its acquisition by Fair Isaac, and was a consultant to several companies until he rejoined Fair Isaac. Prior to
HNC Software, Mr. Mann served from December 1998 until January 2002 in a variety of management roles for Homestore Inc., most recently as the vice president and general
manager, software group. From May 1997 until December 1998, he was the director of solutions marketing for ONYX Software. Mr. Mann previously was affiliated with Deloitte
Consulting/Braxton Associates from May 1990 until September 1995, in senior engagement manager and independent contractor roles. Mr. Mann holds a B.A. in Asian Studies from
Cornell University and an M.B.A. from Harvard Business School.

Russell Clarkhas served as our vice president, finance, corporate controller and chief accounting officer since August 2004. From
August 2002 to August 2004, Mr. Clark was the vice president, finance, corporate controller, assistant secretary and principal accounting officer for Fair Isaac Corporation. From
January 2000 to August 2002, he held various positions at HNC Software Inc., including senior vice president, corporate finance, assistant secretary and principal accounting
officer. From August 1990 to January 2000, he held various positions at PricewaterhouseCoopers LLP, including senior manager, audit and business advisory services, in that firm's
technology industry group. Mr. Clark is a certified public accountant and holds a B.B.A. in accounting from The University of Iowa.

The
following table sets forth certain information regarding our other key personnel as of March 31, 2005:

|Name           |  | Age |  | Principal Position          
|-------------- |  | --- |  | ----------------------------
|John Skousen   |  | 47  |  | Corporate Compliance Officer
|Julie Bahadori |  | 36  |  | Director of Internal Audit* 

---

John Skousenhas served as our corporate compliance officer since September 2003. Mr. Skousen reports directly to the
Corporate Governance and Nominating Committee of our Board of Directors. From 2002 to 2003, Mr. Skousen was our acting vice president of finance and controller. From 2000 to 2002,
Mr. Skousen served as our director of mergers and acquisitions. Mr. Skousen served as an independent consultant from 1997 through 2000, focusing on international and emerging businesses.
From 1987 to 1997, Mr. Skousen held several executive-level finance and operation positions at Price Costco, a membership warehouse club. Prior to his positions at Price Costco,
Mr. Skousen was a financial analysis
manager at Fujitsu Systems and a certified public accountant at PricewaterhouseCoopers LLP. Mr. Skousen holds a B.S. in Accounting from Brigham Young University and an M.B.A. from San Diego
State University.

Julie Bahadorihas served as director of internal audit since August 2004, reporting directly to the Audit Committee of our Board
of Directors. From June 2003 to July 2004, Ms. Bahadori was the director of internal audit at Fair Isaac Corp. From August 2000 to June 2003, Ms. Bahadori
served in the internal audit function of Applied Materials, Inc. From August 1998 through early 2000, she served in the internal audit function at Hitachi Data Systems. Prior to her
position at Hitachi, Ms. Bahadori served as a consultant and senior consultant for Arthur Andersen in the Financial Audit and Internal Audit capacities. Ms. Bahadori holds a B.A. in
Accounting from the University of Houston and is a certified internal auditor.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and any persons who own more than 10% of our common stock
to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on our review of reports and amendments thereto furnished to us pursuant to
Rule 16a-3(e) during or with respect to fiscal 2005, we believe, except as described below, that all executive officers, directors and holders of greater than 10% of Peregrine stock
complied with all applicable Section 16(a) filing requirements: one late Form 4 was filed by Mr. Mann one day after the due date with respect to the grant of stock options.

CODE OF ETHICS

Our Board of Directors has adopted a code of conduct that applies to all employees, including our principal executive officer, principal financial officer and
principal accounting officer or controller, or persons performing similar functions. A copy of this code of conduct is available on our website at www.peregrine.comunder the caption "Investors" and we
intend to disclose on our website any amendment to, or waiver from, any provision of our code of
conduct within four business days following the date of the amendment or waiver.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides, for the three fiscal years ended March 31, 2005, certain summary information concerning compensation paid or accrued by us
to, or on behalf of, our chief executive officer, our four other most highly compensated executive officers as of March 31, 2005 and our former chief financial officer who served until
October 31, 2004 and who would have been one of the four

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other
most highly compensated executive officers if he had been serving as an executive officer as of March 31, 2005 (the "named executive officers"):

|                                                                  |  |                |  | Annual Compensation |                         | Long-Term Compensation Awards |   |                          |             
|----------------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- | ----------------------------- | - | ------------------------ | ------------
|
|Current Named Executive Officers                                  |  |                |  |                     |                         |                               |   |                          |             
|John Mutch(4) President and Chief Executive Officer               |  | 2005
2004
2003 |  | $                   | 433,333
251,538
       |                               | $ | 525,000
548,739
        | (5)(5)      
|Craig Ryall Senior Vice President, Americas Field Operations      |  | 2005
2004
2003 |  | $                   | 234,000
225,000
225,625 |                               | $ | 316,151
322,809
210,697  | (8)(8)(8)   
|Alan Kerr(10) Senior Vice President, EMEA & APAC Field Operations |  | 2005
2004
2003 |  | $                   | 369,727
353,372
303,996 |                               | $ | 302,665
453,355
333,478  | (11)(11)(11)
|Ken Saunders Chief Financial Officer                              |  | 2005           |  | $                   | 218,750                 |                               | $ | 493,438                  | (13)        
|Martinko, Beth Senior Vice President, Worldwide Customer Support  |  | 2005
2004
2003 |  | $                   | 239,200
230,000
134,167 |                               | $ | 152,125
199,916
63,001   | (15)(15)(15)
|Former Named Executive Officers                                   |  |                |  |                     |                         |                               |   |                          |             
|Ken Sexton(18) Former Chief Financial Officer                     |  | 2005
2004
2003 |  | $                   | 208,010
275,000
229,167 |                               | $ | 216,563
1,634,266
62,500 | (19)(19)(19)

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OPTION GRANTS IN FISCAL 2005

The following table sets forth certain information regarding options to purchase shares of our new common stock granted in fiscal 2005 to our named executive
officers. SEC rules require us to show hypothetical gains that the named executive officers would have for these options at the end of their 10-year terms. We calculated the gains assuming
annual compound price appreciation of 5% and 10% from the date the option was originally granted pursuant to the recapitalization to the end of the 10-year term. The 5% and 10% assumed
annual compound rates of stock price appreciation are required by SEC rules. These rates do not represent estimates or projections of future stock prices. Under the 2003 Equity Incentive Plan, we are
authorized to issue a total of 2,917,000 shares of new common stock, including shares of new common stock issuable pursuant to options that survived the reorganization. Each January 1,
beginning on January 1, 2005, and continuing for 10 years, the number of shares we are authorized to issue is increased pursuant to the formula described in "Item 12

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Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersEquity Compensation Plan Information."

|                                  |  |         |  | Percent of
Total Options
Granted to
Employees in
Fiscal Year
2005(1) |   |   |       |  |            | Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term(2)
|--------------------------------- |  | ------- |  | -------------------------------------------------------------------- | - | - | ----- |  | ---------- | -------------------------------------------------------------------------------------------------
|
|
|
|Current Named Executive Officers: |  |         |  |                                                                      |   |   |       |  |            |                                                                                                  
|John Mutch                        |  |        |  |                                                                     |   |   |      |  |           |                                                                                                  
|Craig Ryall                       |  |        |  |                                                                     |   |   |      |  |           |                                                                                                  
|Alan Kerr                         |  |        |  |                                                                     |   |   |      |  |           |                                                                                                  
|Ken Saunders(3)                   |  | 150,000 |  | 23.5                                                                 | % | $ | 17.40 |  | 08/16/2014 |                                                                                                  
|Beth Martinko                     |  |         |  |                                                                      |   |   |       |  |            |                                                                                                  
|Former Named Executive Officers:  |  |         |  |                                                                      |   |   |       |  |            |                                                                                                  
|Ken Sexton                        |  |        |  |                                                                     |   |   |      |  |           |                                                                                                  

---

AGGREGATE OPTION EXERCISES IN FISCAL 2005 AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding the exercise of options for new common stock during the 2005 fiscal year and the value of options for
new common stock held by our named executive officers as of March 31, 2005.

|                                  |  |   |  |   |  | Number of Shares
Underlying Unexercised
Options at Fiscal Year End |  | Value of Unexercised
in-the-money Options
at Fiscal Year End(1)
|--------------------------------- |  | - |  | - |  | ------------------------------------------------------------------ |  | ---------------------------------------------------------------
|
|
|Current Named Executive Officers: |  |   |  |   |  |                                                                    |  |                                                                
|John Mutch                        |  |  |  |  |  | 138,541                                                            |  | 211,459                                                        
|Craig Ryall                       |  |  |  |  |  | 20,799                                                             |  | 36,314                                                         
|Alan Kerr                         |  |  |  |  |  | 27,431                                                             |  | 46,794                                                         
|Ken Saunders                      |  |  |  |  |  |                                                                   |  |                                                               
|Beth Martinko                     |  |  |  |  |  | 21,250                                                             |  | 38,750                                                         
|Former Named Executive Officers:  |  |   |  |   |  |                                                                    |  |                                                                
|Ken Sexton                        |  |  |  |  |  | 25,352                                                             |  |                                                               

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DIRECTOR COMPENSATION

Our director compensation plan was adopted on September 30, 2003, and was retroactive to August 8, 2003. Under our plan, each
non-employee director received a retainer of $35,000 for fiscal 2005 for service on our Board of Directors. This annual retainer and the retainers for the chairman of the Board of
Directors and the chairmen of the committees discussed below are paid in equal quarterly installments over the fiscal year. In addition, each non-employee director receives $2,000 for each
in-person board meeting attended in person, $750 for each in-person board meeting participated in telephonically and $500 for each telephonic board meeting participated in,
except for the first telephonic meeting attended during a fiscal quarter, for which no fee is paid.

In
addition to the regular board retainer and meeting fees, the chairman of the Board of Directors and members of certain board committees receive additional compensation. The
non-employee chairman of our Board of Directors receives an additional retainer of $15,000, plus an additional $1,000 for each board meeting attended in person, and an additional $250 for
each meeting attended telephonically, except for the first telephonic meeting attended during a fiscal quarter, for which no fee is paid.

Each
non-employee member of our Audit Committee receives $2,000 for each meeting of the committee not held contiguously with a Board of Directors meeting attended in person
and $500 for each meeting participated in telephonically. The non-employee chairman of our Audit Committee receives an additional retainer of $40,000, plus an additional $500 for each
meeting of the committee not held contiguously with a Board of Directors meeting attended in person and an additional $500 for each meeting participated in telephonically.

Each
non-employee member of our Corporate Governance and Nominating Committee and Compensation Committee receives $1,500 for each meeting of the committee not held
contiguously with a Board of Directors meeting attended in person and $500 for each meeting participated in telephonically. The non-employee chairman of our Corporate Governance and
Nominating Committee and the non-employee chairman of our Compensation Committee each receive an additional retainer of $8,000, plus an additional $500 for each meeting of the committee
not held contiguously with a Board of Directors meeting attended in person and no additional compensation for each meeting participated in telephonically.

The
non-employee members of our Special Committee receive a retainer of $10,000. Each non-employee member of the committee also receives $1,000 for each meeting
of the committee attended in person and $500 for each meeting participated in telephonically. The non-employee chairman of our Special Committee receives an additional retainer of $5,000,
plus an additional $500 for each meeting of the committee attended in person and $250 for each meeting participated in telephonically. There is an annual cap on fees of $75,000 for the chairman and
$50,000 for each other member of the Special Committee.

In
addition to the cash compensation described above, each non-employee director is reimbursed for their reasonable expenses associated with attending meetings and was
granted during fiscal 2004 a stock option to purchase 25,000 shares of new common stock pursuant to our 2003 Equity Incentive Plan. No options were granted to the directors in fiscal 2005. All options
were granted at the fair market value of our new common stock on the date of the grant and become exercisable in equal installments over four years, with the first installment vesting after one year.
The options expire ten years after the grant date and remain exercisable for a period of one year after cessation of service as a director. Upon a change of control, as defined in the plan, the shares
of new common stock underlying the option grants become fully exercisable.

Under
Peregrines' Restated Certificate of Incorporation and Bylaws, the directors and officers are entitled to indemnification from Peregrine to the fullest extent permitted by Delaware
corporate law.

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We
have entered into indemnification agreements with each of our non-employee directors and our executive officers. The indemnification agreements contain provisions that may require us
among other things, to indemnify the directors and officers against liabilities that may arise by reason of their status as directors and officers.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS FOR OUR CURRENT NAMED EXECUTIVE OFFICERS

Employment Agreement with Alan Kerr

We entered into an employment agreement with Mr. Kerr on December 24, 2001. Pursuant to the agreement, Mr. Kerr is treated as an
at-will employee. The agreement provides for,
among other things, Mr. Kerr's employment as vice president and general manager, Europe, Middle East and Africa at an initial annual base salary of £192,500. Additionally,
Mr. Kerr was paid a signing bonus of £35,000. Mr. Kerr is also eligible to receive incentive compensation. As of the date of Mr. Kerr's employment agreement, his
incentive target was £157,500 based on revenue targets that, if met, would result in "on target earnings" of £350,000. Mr. Kerr is entitled to a car allowance of
£1,500 per month and a mobile phone allowance of £50 per month. Mr. Kerr is eligible to be reimbursed for all other reasonable, out-of-pocket
business expenses incurred in the performance of his duties on our behalf. Additionally, upon the commencement of his employment, Mr. Kerr was granted a stock option to purchase 200,000 shares
of our old common stock, which was subsequently cancelled in connection with our recapitalization. Mr. Kerr was also entitled to an option to purchase 50,000 shares of old common stock after
six months of employment with us, which was subsequently forfeited in connection with our recapitalization. In August 2003, Mr. Kerr received a retention bonus of £77,000
upon our emergence from bankruptcy proceedings.

Pursuant
to his employment agreement, we reserve the right to terminate Mr. Kerr without notice and without pay in lieu of notice, if we have reasonable grounds to believe he is
guilty of gross misconduct or gross negligence. Additionally, we have the right to terminate Mr. Kerr's employment without cause provided that we give twelve months' written notice or provide
compensation to him in lieu of notice equal to twelve months' base salary plus the amount of Mr. Kerr's incentive target bonus. Mr. Kerr may voluntarily terminate his employment upon
twelve months' prior written notice.

The
employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for six months after Mr. Kerr's employment
with us ceases.

Employment Agreement with Craig Ryall

We entered into an executive employment agreement with Mr. Ryall on July 1, 2002. Pursuant to the agreement, Mr. Ryall is treated as an
at-will employee. The agreement provides for, among other things, Mr. Ryall's original employment as senior vice president, alliances at an initial annual base salary of $225,000.
Mr. Ryall is also eligible to receive incentive compensation, the terms, amount and payment of which will be determined by us at our sole discretion. Mr. Ryall is eligible for all
customary fringe benefits available to our executives.

If
we terminate Mr. Ryall's employment for cause, he is entitled to receive only his base salary then in effect prorated to the date of termination. All of our other obligations
to Mr. Ryall pursuant to his employment agreement will be automatically terminated. In the event that Mr. Ryall's employment is terminated by us without cause, he will receive his base
salary then in effect, prorated to the date of termination, and a severance payment equivalent to one year of his base salary in effect on the date of termination, provided that he meets certain
conditions set out in his employment agreement. Mr. Ryall may voluntarily terminate his employment upon sixty days' prior written notice. If Mr. Ryall voluntarily terminates his
employment, he will be entitled to receive his base salary and employee benefits for the

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sixty-day
notice period. At the conclusion of the sixty-day period, all of our other obligations pursuant to his employment agreement will be automatically terminated.

Effective
February 22, 2005 the Compensation Committee of our Board of Directors approved an amendment to Mr. Ryall's employment agreement. The amendment provides that, if
involuntarily terminated for reasons other than for cause or voluntarily terminated for good reason, the annual Management Incentive Compensation Plan (MICP) (or successor plan) bonus target will be
included in the calculation of his severance benefit. Also effective February 22, 2005, the Compensation Committee defined when termination for good reason would result in a severance benefit.

The
employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for one year after Mr. Ryall's employment
with us ceases.

Employment Agreement with John Mutch

We entered into an employment agreement with Mr. Mutch on August 18, 2003. The agreement provided, among other things, for Mr. Mutch's
employment as president and chief executive officer.

Effective
August 18, 2003, the Compensation Committee of our Board of Directors approved an option grant to Mr. Mutch for 350,000 shares of our new common stock pursuant to
the 2003 Equity Incentive Plan. The right to exercise the options vests in forty-eight equal monthly installments. All options will vest in full on an accelerated schedule if a change in corporate
control occurs.

On
May 25, 2004, the Compensation Committee approved granting to Mr. Mutch 40,000 restricted shares of our new common stock. The restricted shares vested immediately upon
issuance. The restricted shares may not be sold prior to May 25, 2005 other than in connection with a sale of the
Successor Company or upon Mr. Mutch's termination under certain circumstances. The Compensation Committee also approved a grant to Mr. Mutch of performance stock units, which will be
issued in the event of a change in corporate control. The target number of performance stock units that Mr. Mutch will be entitled to receive will be based upon the value attributed to the
Successor Company in connection with the change in corporate control. The actual number of performance stock units that will be issued to Mr. Mutch will be based upon the achievement by
Mr. Mutch of specified performance goals. Based on the fully diluted number of shares of common stock outstanding as of March 31, 2005, the value of the target number of performance
stock units ranges from approximately $1,310,750 to $3,458,500. To the extent the fully diluted number of shares of common stock outstanding increases, the value of the performance stock units will
increase.

On
August 20, 2004, we entered into an amended and restated employment agreement with Mr. Mutch. The amended employment agreement provides for Mr. Mutch's continued
employment as president and chief executive officer. Pursuant to his amended employment agreement, from and after August 1, 2004, Mr. Mutch is entitled to an annual base salary of
$450,000. On May 25, 2004, the Board of Directors authorized a bonus of $300,000; of that total $270,000 was paid on June 15, 2004 and the remaining $30,000 was paid on
November 30, 2004 in recognition of his achievements during fiscal 2004. Pursuant to our management incentive compensation plan, Mr. Mutch was paid $178,500 on June 15, 2004 and
$35,273 on November 30, 2004 for fiscal year 2004 performance. In fiscal 2005, Mr. Mutch is eligible for a target bonus of $400,000 based on the attainment of bonus objectives, including
certain earnings and revenue targets.

Upon
termination of his employment for any reason, Mr. Mutch is entitled to payment of all salary and unpaid vacation accrued to the date of termination plus any payment that he
is entitled to receive with respect to the performance stock units. Upon Mr. Mutch's voluntary termination or termination by us for cause, he is not entitled to any severance benefits or
additional vesting of shares or stock options. In the event that Mr. Mutch's employment is terminated without cause, because of his death or disability or by him for good reason, he will
receive the severance benefits set forth below. If

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Mr. Mutch
is terminated at any time, he will be entitled to a severance payment equal to two times his base salary plus an amount equal to two times his target bonus. Either severance payment
will be payable within five days after the effective date of Mr. Mutch's termination. In addition, all options that would have vested during the twelve months following the date of termination
become immediately exercisable. In the event of a change in corporate control while Mr. Mutch is employed by us, or within three months of his termination without cause, by him for good reason
or for death or disability, Mr. Mutch will be entitled to a severance payment equal to three times his base salary plus an amount equal to three times his target bonus, payable on the effective
date of the change in control. In the event that Mr. Mutch is terminated following a change in corporate control, he will only be entitled to receive the benefits specified in the preceding
sentence. Further, if Mr. Mutch receives such payments on account of a change in corporate control that occurs within three months of his termination without cause, by him for good reason or
for death or disability, these payments will be offset against any payments previously paid pursuant to his termination. If any payments made to Mr. Mutch under this agreement are subject to an
excise tax under the Internal Revenue Code, we will provide him with a cash payment sufficient to pay the excise tax and an additional payment sufficient to pay the federal and state income and
employment taxes arising from the payments made by us for the excise tax.

The
amended employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for one year after Mr. Mutch's
employment with us ceases.

Employment Agreement with Beth Martinko

We entered into an employment agreement with Ms. Martinko effective January 20, 2004. Pursuant to the agreement, Ms. Martinko is treated as
an at-will employee. The agreement provides, among other things, for Ms. Martinko's employment with us as senior vice president, customer support at an initial annual base salary of
$230,000. Ms. Martinko is also eligible to receive incentive compensation, the terms and amount of which will be determined by us at our sole discretion. Ms. Martinko is eligible to
receive all customary fringe benefits available to our executives including a gross-up to reimburse her for estimated taxes for reimbursement for commuting expenses.

If
we terminate Ms. Martinko's employment without cause, she will be entitled to receive a severance payment equal to one year base salary, provided she agrees to provide us with
transition assistance without additional compensation for three months following her termination. All of our other obligations to Ms. Martinko pursuant to her employment agreement will be
automatically terminated. If we terminate Ms. Martinko's employment without cause prior to March 1, 2006, and Ms. Martinko is unable to terminate the temporary housing lease that
she entered into on January 20, 2004, we will reimburse Ms. Martinko for her monthly rent of $1,600 and up to $200 in utilities through February 28, 2006. Ms. Martinko may
voluntarily terminate her employment upon sixty days' prior written notice. If Ms. Martinko voluntarily terminates her employment, she will be entitled to receive her base salary and employee
benefits for the sixty-day notice period. At the conclusion of the sixty-day notice period, all of our other obligations pursuant to her employment agreement will be
automatically terminated.

Effective
February 22, 2005 the Compensation Committee of our Board of Directors approved an amendment to Ms. Martinko's employment agreement. The amendment provides that,
if Ms. Martinko is involuntarily terminated for reasons other than for cause or voluntarily terminated for good reason, the annual MICP (or successor plan) bonus target will be included in the
calculation of her severance benefit. Also effective February 22, 2005, the Compensation Committee defined when termination for good reason would result in a severance benefit.

The
employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for one year after Ms. Martinko's
employment with us ceases.

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Employment Agreement with Kenneth Saunders

We entered into an employment agreement with Mr. Saunders on July 20, 2004 which was effective August 16, 2004. We amended the employment
agreement by a letter agreement effective October 1, 2004. The employment agreement provides, among other things, for Mr. Saunders' employment as executive vice president at an initial
base salary of $14,583.34 per semi-monthly period. Pursuant to the employment agreement, as amended by the letter agreement, Mr. Saunders assumed the role of our chief financial
officer on November 1, 2004.

Mr. Saunders
is eligible to receive a performance bonus with an annual target for fiscal year 2005 of $150,000, under our MICP bonus target prorated from his hire date.
Mr. Saunders received a one-time signing bonus of $50,000, which must be repaid to us if Mr. Saunders voluntarily terminates his employment prior to August 6, 2005. We
have paid to Mr. Saunders the following one-time recruiting bonuses that he was eligible to receive upon hiring the following full time employees prior to October 31, 2004:
(i) $150,000 upon the hiring of a vice president, controller and chief accounting officer, (ii) $50,000 upon the hiring of a director of internal audit and (iii) $50,000 upon the
hiring of a director of tax (items (i) through (iii) are collectively referred to as the Recruiting Bonuses). Under his original employment agreement, Mr. Saunders was entitled to
a one-time bonus in the amount of $150,000 (Process Bonus) in the event our finance department was successful in concluding a "soft" close for the month ending November 2004 and a
"hard" close for the quarter ending December 31, 2004, and we filed our Quarterly Report on Form 10-Q for the quarter ending December 31, 2004 on a timely basis, or,
if the filing is not timely, the financial statements and management's discussion and analysis of financial condition and results of operations for that quarterly period were completed in time to
permit a timely filing. The Process Bonus criteria has been amended as described below. Mr. Saunders is eligible to receive all customary fringe benefits available to our executives.

On
July 21, 2004, the Compensation Committee of our Board of Directors approved an option grant to Mr. Saunders of 150,000 shares of our new common stock. The options will
vest at the rate of 25% after the first twelve months and in thirty-six equal monthly installments thereafter. All options will vest in full if a change in corporate control occurs. The
Compensation Committee also approved a grant to Mr. Saunders of performance stock units, which will be issued in the event of a change in corporate control. The target number of performance
stock units that Mr. Saunders will be entitled to receive will be based upon the value attributed to the Successor Company in connection with the change in corporate control. The actual number
of performance stock units that will be issued to Mr. Saunders will be based upon the achievement by Mr. Saunders of specified performance goals.
Based on the fully diluted number of shares of common stock outstanding as of March 31, 2005, the value of the target number of performance stock units ranges from approximately $499,000 to
$917,500. To the extent the fully diluted number of shares of common stock outstanding increases, the value of the performance stock units will increase.

On
February 2, 2005, the Compensation Committee of our Board of Directors approved an amendment to the criteria for earning the Process Bonus in his employment agreement. The
criteria for earning the $150,000 Process Bonus include: (i) $75,000 when the fiscal year 2004 Annual Report in Form 10-K was filed with the SEC; (ii) $25,000 if
Peregrine's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 was filed with the SEC by February 15, 2005; (iii) $25,000 if Peregrine's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 was filed with the SEC by March 31, 2005; and (iv) $25,000 if Peregrine's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004 was filed with the SEC by May 15, 2005. Mr. Saunders was paid $100,000 of the Process Bonus in
fiscal 2005, and was paid an additional $25,000 of the Process Bonus in fiscal 2006 for services provided in fiscal 2006.

Upon
termination of his employment for any reason, Mr. Saunders is entitled to payment of all salary and unpaid vacation accrued to the date of termination plus any payment he is
entitled to

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receive
for the performance stock units. Upon Mr. Saunders' voluntary termination or termination by us for cause, he is not entitled to any severance benefits or additional vesting of shares or
stock options. In the event that Mr. Saunders' employment is terminated without cause, because of his death or disability or by him for good reason, he will receive the severance benefits set
forth below in this paragraph. If Mr. Saunders is terminated any time prior to August 16, 2005, he will be entitled to a severance payment equal to his annual base salary plus the amount
of his MICP bonus target plus the amount of the Signing Bonus, Recruiting Bonuses and the Process Bonus. If Mr. Saunders is terminated any time after August 16, 2005, he will be entitled
to a severance payment equal to his annual base salary plus the amount of his MICP bonus target. Either severance payment will be payable in twenty-four semi-monthly
installments.

In
the event of a change in corporate control, Mr. Saunders will be entitled to a payment equal to two times his annual base salary plus two times the amount of his MICP bonus
target plus two times the Signing Bonus, Recruiting Bonuses and the Process Bonus (collectively, the Change in Corporate Control Payment), provided that Mr. Saunders does not voluntarily
terminate his employment within ninety days of the change in corporate control. The Change in Corporate Control Payment will be payable on the ninety-first day following the change in corporate
control. In the event Mr. Saunders is terminated by us or a Successor Company for any reason within twelve months following a change in corporate control, Mr. Saunders will only be
entitled to the Change in Corporate Control Payment, and he will not be entitled to any other severance payments. If any payments made to Mr. Saunders under the agreement are subject to an
excise tax under the Internal Revenue Code, we will provide him with a cash payment sufficient to pay the excise tax and an additional payment sufficient to pay the federal and state income and
employment taxes arising from the payments made by us for the excise tax.

The
employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for one year after Mr. Saunders'
employment with us ceases.

Retention Bonus Plan and Plan Agreements

On February 22, 2005 the Board of Directors approved the adoption of a Retention Bonus Plan (the "Plan"). Certain executives of the Company selected by the
Compensation Committee of the Board of Directors, including all of the named executive officers, with the exception of Alan Kerr, are participants in the Plan. The Plan provides that the participants
will be entitled to cash retention bonuses ("Retention Bonuses") in amounts determined by the Compensation Committee. The Retention Bonuses will only become payable upon a change in control of the
Company. The Plan also provides for a retention bonus pool for key employees to be designated in the event of a change in control. The maximum amount of all Retention Bonuses may not exceed 1.5% of
the total consideration received by the Company's common stockholders in connection with a change in control.

Effective
February 23, 2005, we entered into a Retention Bonus Plan Agreement with each of the named executive officers employed at that date that would provide a retention bonus
of $250,000 pursuant to the Retention Bonus Plan upon a change in control under certain circumstances. The retention bonus is payable 50% upon a change in corporate control and the remaining 50% on a
date that is six months after the change in control, subject to certain conditions including that the named executive officer remains employed with us through the six month anniversary of the change
in control. If, however, the named executive officer's employment is terminated without cause or by the named executive officer for good reason as defined, in connection with, in anticipation of, or
following a change in control, the second payment is payable on the date of the termination. If employment with us terminates for any reason prior to the completion of the change in control, the named
executive officer forfeits any payments under the Plan.

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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS FOR OUR FORMER NAMED EXECUTIVE OFFICERS

Employment Agreement with Ken Sexton

We entered into a three-year employment agreement with Mr. Sexton dated June 24, 2002. On February 27, 2003, the Bankruptcy Court
issued an order approving an amended employment agreement with Mr. Sexton. The amended agreement provided for Mr. Sexton's employment as executive vice president and chief financial
officer at an annual base salary of $275,000. Mr. Sexton was also eligible to receive a performance bonus for achieving certain results in our bankruptcy proceeding. Mr. Sexton received
$62,500 of his performance bonus in March 2003. The total performance bonus that Mr. Sexton was eligible to receive was based upon amounts paid to the unsecured creditors under our plan
of reorganization and the number of months that we remained in bankruptcy proceedings. Based on these factors, Mr. Sexton received an additional performance bonus of $1,187,500 on
August 7, 2003. Mr. Sexton was also eligible for an emergence bonus, the amount of which depended upon the timing of our emergence from bankruptcy proceedings. Mr. Sexton received
an emergence bonus of $150,000 on August 7, 2003.

In
August 2002, we granted Mr. Sexton an option to purchase 900,000 shares of our old common stock pursuant to our 1994 stock option plan. Twenty-five percent
of the total number of shares underlying the option vested on June 24, 2003 and 2.0833% of the total number of shares underlying the option were to vest each month thereafter. We also granted
Mr. Sexton 100,000 shares of restricted old common stock pursuant to a restricted stock plan. Twenty-five percent of the shares vested on June 24, 2003, and 1/36th of the
total remaining number of the restricted shares were to vest each month thereafter. In connection with our recapitalization, Mr. Sexton's option grant for 900,000 shares of old common stock was
converted into an option to purchase 25,352 shares of our new common stock pursuant to the 2003 Equity Incentive Plan and his restricted stock award of 100,000 shares of restricted old common stock
was converted into 2,051 shares of our new common stock that were fully vested.

On
April 5, 2004, we entered into a first amendment to the amended employment agreement. The first amendment provided that Mr. Sexton's employment with us would cease upon
the earlier to occur of the completion of our fiscal 2004 Form 10-Q filings or October 31, 2004. If we did not have cause to terminate Mr. Sexton's employment on or by
October 31, 2004, his employment with us would be deemed terminated without cause, entitling him to a severance payment in the amount of $550,000. Under the first amendment, Mr. Sexton
was not eligible for any bonus payments for fiscal 2005. Under the first amendment, Mr. Sexton also agreed to be available until December 31, 2005 for consultation with us, from time to
time, for purposes of reviewing filings with the Securities and Exchange Commission. We will compensate Mr. Sexton for his consultation services, if any, at a rate of $225 per hour.

On
August 30, 2004, we entered into a second amendment to the amended employment agreement. Under the second amendment, Mr. Sexton was eligible to receive a management
incentive compensation plan bonus for fiscal 2004 in the amount of $255,750, and received the remaining amount of his bonus of $41,016 on November 30, 2004. Mr. Sexton was eligible to
receive a performance bonus for only the first half of fiscal 2005, or for up to 60% of the annual target bonus of $275,000. The actual amount of the performance bonus awarded to Mr. Sexton was
$216,562.50 based on our results and was paid on February 15, 2005. Mr. Sexton was also eligible to receive incentive compensation, the terms, amount, and payment of which were
determined by us in our sole and absolute discretion. The second amendment provided that, from October 1, 2004 through October 31, 2004, Mr. Sexton would serve only as an
executive vice president and not as our chief financial officer. However, on October 28, 2004 and effective as of October 1, 2004, we entered into a letter agreement amending the amended
employment agreement, pursuant to which Mr. Sexton continued as our chief financial officer

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until
October 31, 2004. Mr. Sexton resigned from his position as chief financial officer and executive vice president on October 31, 2004 and received the $550,000 severance
payment.

The
amended employment agreement contains confidentiality, non-solicitation and non-competition obligations that survive for one year after Mr. Sexton's
employment with us ceased.

Employment Agreement with David Sugishita

We entered into an employment agreement with Mr. Sugishita on December 9, 2003. Pursuant to the agreement, Mr. Sugishita was treated as an
at-will employee. Mr. Sugishita was hired as our executive vice president, special projects at an initial annual base salary of $300,000. In that capacity, Mr. Sugishita's
responsibilities included providing financial guidance and direction limited to our prospective financial activities. Mr. Sugishita was not responsible for any of our prior financial
statements. Mr. Sugishita was also eligible to participate in our MICP with an annual target bonus of $175,000. Pursuant to the agreement, for the first eighteen months of his employment,
Mr. Sugishita was entitled to receive a monthly housing payment of $5,000. Effective November 2003, the Compensation Committee of our Board of Directors also approved an option grant to
Mr. Sugishita for 150,000 shares of our new common stock pursuant to the 2003 Equity Incentive Plan. The right to exercise the options vested at a rate of 25% after the first twelve months and
in twenty-four equal monthly installments thereafter. Upon termination of Mr. Sugishita's employment, all vested options are exercisable for 180 days following the date of
his termination. In the event of a change in corporate control, all options would have vested upon the closing of such change in control.

Upon
termination of his employment for any reason, Mr. Sugishita was entitled to payment of all salary and unpaid vacation accrued to the date of termination. Upon
Mr. Sugishita's voluntary termination or termination by us for cause, he was not entitled to any severance benefits. In the event that Mr. Sugishita's employment was terminated without
cause, or by him for good reason, he would have
received the severance benefits set forth below. If he was terminated within the first twelve months of his employment, he would be entitled to a severance payment equal to his base salary plus the
maximum amount of his target bonus. If Mr. Sugishita was terminated any time after his first year of employment, he would have been entitled to a severance payment equal to two times his base
salary plus an amount equal to two times the maximum amount of his target bonus. In the event of a change in corporate control, under specified circumstances, Mr. Sugishita would have been
entitled to a severance payment equal to three times his base salary plus an amount equal to three times his target bonus. If any payments made to Mr. Sugishita under this agreement were
subject to an excise tax under the Internal Revenue Code, we would have provided him with a cash payment sufficient to pay the excise tax and an additional payment sufficient to pay the federal and
state income and employment taxes arising from the payments made by us for the excise tax.

On
June 25, 2004, Mr. Sugishita submitted a letter of resignation that was to take effect on August 27, 2004. We terminated Mr. Sugishita's employment on
July 15, 2004. We entered into a Settlement Agreement and General Release with Mr. Sugishita on February 9, 2005 pursuant to which we paid Mr. Sugishita $175,000 and his
attorneys $50,000 for legal fees and he released us from any claims he may have against us.

The
employment agreement contained confidentiality, non-solicitation and non-competition obligations that survive for one year after Mr. Sugishita's
employment with us ceased.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of our Board of Directors is responsible for determining salaries, incentives and other forms of compensation for our directors,
officers and other employees. The Compensation Committee also administers various incentive compensation and benefit plans. The members of the Compensation Committee are Messrs. Jenkins,
Hirschfield and Israel. Messrs. Jenkins

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and
Israel have been members of the Compensation Committee since August 2003, and Mr. Hirschfield has been a member of the Compensation Committee since October 2003. None of the
members of our Compensation Committee were officers or employees of ours or any of our subsidiaries during or prior to fiscal 2005, except for Mr. Mutch. Mr. Mutch became our Chief
Executive Officer, a position he currently occupies, after he left his position as a member of the Compensation Committee in August 2003.

None
of our executive officers has served on the board of directors or on the compensation committee of any other entity that currently has or has had any executive officers who served
either on our Board of Directors or on our Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of May 31, 2005, with respect to the beneficial ownership (as defined by
Rule 13d-3 under the Securities Exchange Act of 1934) of our new common stock by:



In
each instance, unless otherwise indicated, information about the number of shares owned and the nature of ownership has been provided by the individuals identified or described or is
based on documents publicly filed by such persons and is not derived from our direct knowledge. Unless otherwise indicated, and subject to community property laws where applicable, to our knowledge
each person has sole voting and investment power with respect to the shares shown beneficially owned by

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that
shareholder. Unless otherwise indicated in the footnotes, the address of each beneficial owner is c/o Peregrine Systems, Inc., 3611 Valley Centre Drive, San Diego, California 92130.

|                                               |                                                                      | Beneficial Ownership
of New Common Stock(1) |          
|---------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------- | ---------
|
|PRINCIPAL STOCKHOLDERS                         |                                                                      |                                             |          
|                                               | LC Capital Master Fund Ltd                                           |                                             | 1,220,224
|                                               | RH Capital Associates LLC                                            |                                             | 922,650  
|                                               | Mellon HBV Alternative Strategies, LLC                               |                                             | 1,170,750
|                                               | MW Post Advisory Group, LLC                                          |                                             | 1,243,455
|CURRENT DIRECTORS AND NAMED EXECUTIVE OFFICERS |                                                                      |                                             |          
|                                               | Andrew J. Brown                                                      |                                             | 6,250    
|                                               | Victor A. Cohn                                                       |                                             | 6,250    
|                                               | James W. Harris                                                      |                                             | 6,250    
|                                               | Alan J. Hirschfield                                                  |                                             | 6,250    
|                                               | Mark Israel                                                          |                                             | 17,499   
|                                               | James P. Jenkins                                                     |                                             | 1,177,000
|                                               | Alan Kerr                                                            |                                             | 36,709   
|                                               | John Mutch                                                           |                                             | 222,291  
|                                               | Craig Ryall                                                          |                                             | 27,940   
|                                               | Ken Saunders                                                         |                                             | 40,625   
|                                               | Beth Martinko                                                        |                                             | 28,750   
|FORMER DIRECTORS AND NAMED EXECUTIVE OFFICERS  |                                                                      |                                             |          
|                                               | Ken Sexton(20)                                                       |                                             | 25,352   
|                                               | All current executive officers and directors as a group (17 persons) |                                             | 1,721,376
|                                               |                                                                      |                                             |          
|                                               |                                                                      |                                             |          

---

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91

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For
information regarding our equity compensation plan see "Item 5, Market Price for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesEquity
Compensation Plan Information."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There were no transactions or series of transactions during fiscal 2005 or any current proposed transactions or series of transactions to which we have been a
party in which the amount involved in the transaction or series of transactions exceeds $60,000 and in which any person who served as a director or executive officer during fiscal 2005 or currently,
or was or is a holder of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing individuals, had or will have a direct or indirect material interest, other
than compensation arrangements described in Item 11 of this report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES

Audit and Related Fees The following is a summary of fees and services approved by the Audit Committee and performed by our external auditors for the fiscal years
ended March 31, 2005 and 2004.

Audit Fees.The aggregate fees billed to us for each of fiscal 2005 and fiscal 2004 for professional services rendered by
PricewaterhouseCoopers LLP for (i) the audit of our annual financial statements

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included
in our Form 10-K; (ii) review of our interim financial statements included in the quarterly reports on Form 10-Q; and (iii) audits of our
various statutory requirements were:

Fiscal Year ended March 31, 2005

$
3,605,000Fiscal Year ended March 31, 2004

$
2,945,000


Amounts
are accumulated based on the fiscal year for which the service is provided and not the year in which the services are rendered. Certain amounts have been estimated pending
completion of statutory audits or accumulation of actual billing information.

Tax Fees.The aggregate fees billed to us in each of fiscal 2005 and fiscal 2004 for professional services rendered by KPMG
and PricewaterhouseCoopers LLP for tax compliance, tax advice and tax planning were:

Fiscal Year ended March 31, 2005:KPMG:

$
1,853,000PricewaterhouseCoopers LLP


387,000Total:

$
2,240,000Fiscal Year ended March 31, 2004:KPMG:

$
853,000PricewaterhouseCoopers LLP


1,454,000Total:

$
2,307,000


All Other Fees.The aggregate fees billed to us in each of fiscal 2005 and fiscal 2004 for products and services provided by
KPMG and PricewaterhouseCoopers LLP, except those included above under the captions "Audit Fees" and "Tax Fees" were:

Fiscal Year ended March 31, 2005:KPMG:

$
85,000PricewaterhouseCoopers LLP


Total:

$
85,000Fiscal Year ended March 31, 2004:KPMG:

$
71,000PricewaterhouseCoopers LLP:


25,000Total:

$
96,000


Our
Audit Committee has not adopted any pre-approval policies or procedures.

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   The following documents are filed as part of this report:

1.     CONSOLIDATED FINANCIAL STATEMENTS:

|                                                                                                                                                                                                                                                                                   |  | Page
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                            |  | F-2 
|Consolidated Balance Sheets as of March 31, 2005 and 2004 (Successor Company)                                                                                                                                                                                                      |  | F-5 
|Consolidated Statements of Operations for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended July 18, 2003 and the Year Ended March 31, 2003
(Predecessor Company)                                                     |  | F-6 
|Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended
July 18, 2003 and the Year Ended March 31, 2003 (Predecessor Company) |  | F-7 
|Consolidated Statements of Cash Flows for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended July 18, 2003 and the Year Ended March 31, 2003
(Predecessor Company)                                                     |  | F-8 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                                         |  | F-9 

2.     FINANCIAL STATEMENT SCHEDULES:

|Schedule IIValuation and Qualifying Accounts                                                                                                                   |  | S-1
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. |  |    

3.     EXHIBITS

|Exhibit |  | Description                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(h)  |  | Acquisition Agreement, dated September 20, 2002, by and among BMC Software Inc., Peregrine Systems, Inc. and Peregrine Remedy, Inc.                                                         
|2.2(h)  |  | First Amendment to Acquisition Agreement, dated September 24, 2002, by and among BMC Software, Inc., Peregrine Systems, Inc. and Peregrine Remedy, Inc.                                     
|2.3(h)  |  | Second Amendment to Acquisition Agreement, dated October 25, 2002, by and among BMC Software, Inc., Peregrine Systems, Inc. and Peregrine Remedy, Inc.                                      
|2.4(h)  |  | Third Amendment to Acquisition Agreement, dated November 18, 2002, by and among BMC Software, Inc., Peregrine Systems, Inc. and Peregrine Remedy, Inc.                                      
|2.5(i)  |  | Disclosure Statement in Support of Fourth Amended Plan of Reorganization of Peregrine Systems, Inc. and Peregrine Remedy, Inc., dated May 29, 2003.                                         
|2.6(j)  |  | Fourth Amended Plan of Reorganization of Peregrine Systems, Inc. and Peregrine Remedy, Inc., as modified, dated July 14, 2003.                                                              
|2.7(j)  |  | Order Pursuant to Section 1129 of the Federal Bankruptcy Code Confirming Debtors' Fourth Amended Plan of Reorganization, as modified, dated July 14, 2003 (Docket Nos. 1902, 2163 and 2229).
|2.8(g)  |  | Acquisition Agreement, dated June 12, 2002, by and among Peregrine Connectivity, Inc., Peregrine Systems, Inc. and PCI International Limited.                                               
|        |  |                                                                                                                                                                                             

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|2.9(g)   |  | Amendment No. 1 to Acquisition Agreement, dated June 21, 2002, by and among Peregrine Connectivity, Inc., Peregrine Systems, Inc., PCI International Limited and PCI International, Inc.                                                                                                                                                                                                                                                                                                      
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.10(a)  |  | Asset Purchase Agreement, dated July 19, 2002, by and among Peregrine Systems, Inc. and MAXIMUS, Inc.                                                                                                                                                                                                                                                                                                                                                                                         
|2.11(a)  |  | Letter amending the Asset Purchase Agreement, dated July 30, 2002, by and among Peregrine Systems, Inc. and Maximus, Inc.                                                                                                                                                                                                                                                                                                                                                                     
|2.12(a)  |  | Asset Purchase Agreement, dated July 31, 2002, by and among Peregrine Systems, Inc. and Tririga Real Estate & Facilities LLC.                                                                                                                                                                                                                                                                                                                                                                 
|2.13(a)  |  | Letter amending the Asset Purchase Agreement, dated August 2, 2002, by and among Peregrine Systems, Inc. and Tririga Real Estate & Facilities LLC.                                                                                                                                                                                                                                                                                                                                            
|2.14(a)  |  | Purchase and Sale Agreement, dated September 9, 2002, by and among eXchangeBridge, Inc., Peregrine Systems, Inc. and GLE Acquisitions, LLC.                                                                                                                                                                                                                                                                                                                                                   
|2.15(a)  |  | Asset Purchase Agreement, dated November 15, 2002, by and among Peregrine Systems, Inc., October Acquisition Corporation and American Express Travel Related Services Company, Inc.                                                                                                                                                                                                                                                                                                           
|2.16(a)  |  | Asset Purchase Agreement, dated November 7, 2002, by and among Peregrine Systems Ltd. and TSB Solutions, Inc.                                                                                                                                                                                                                                                                                                                                                                                 
|2.17(a)  |  | Asset Purchase Agreement, dated November 7, 2002, by and among Telco Research Corporation and Symphony Service Corp.                                                                                                                                                                                                                                                                                                                                                                          
|3.1(l)   |  | Restated Certificate of Incorporation as filed with the Secretary of the State of Delaware on August 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                 
|3.2(l)   |  | Amended and Restated Bylaws, adopted August 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.1(l)   |  | Specimen Common Stock Certificate for our par value $0.0001 per share common stock issued in connection with our reorganization under our Fourth Amended Plan of Reorganization.                                                                                                                                                                                                                                                                                                              
|4.2(k)   |  | Indenture dated August 7, 2003 between Peregrine Systems, Inc. and U.S. Bank National Association, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                
|4.3(k)   |  | Form of 61/2% Senior Notes due 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.4(a)   |  | Final Order, signed on November 12, 2003, (a) Certifying Classes for Settlement Purposes Only, (b) Appointing Settlement Class Representatives, (c) Approving and Authorizing Class Representatives to
Enter Into and Implement Settlement Agreement, (d) Estimating Value of Class 9 Indemnity Claims of Directors and Officers for Purposes of Implementing Settlement Agreement and Making Plan Distributions, and (e) Approving Adequacy of Notice
Procedures for Class Action Settlement.
|9.1(a)   |  | Voting and Distribution Agreement, dated August 5, 2003, by and among Peregrine Systems, Inc. and the Post-Emergence Equity Committee.                                                                                                                                                                                                                                                                                                                                                        
|10.1(a)  |  | Form of Standard Indemnification Agreement for directors and officers.                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.2(a)  |  | 1997 Employee Stock Purchase Plan, as amended and restated effective as of November 1, 2000 and form of agreement thereunder.                                                                                                                                                                                                                                                                                                                                                                 
|10.3(a)* |  | 1997 Director Option Plan, as amended January 18, 2000 and form of agreement thereunder.                                                                                                                                                                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|10.4(a)*  |  | 1999 Nonstatutory Stock Option Plan, as amended through October 17, 2001 and form of agreement thereunder.                                
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|10.5(a)*  |  | 1994 Stock Option Plan, as amended through July 8, 2002 and form of agreement thereunder.                                                 
|10.6(a)*  |  | 2003 Equity Incentive Plan, a restatement of the 1994 Stock Option Plan, and forms of agreement thereunder.                               
|10.7(a)   |  | Amended and Restated Office Lease and Settlement Agreement between Peregrine Systems, Inc. and Kilroy Realty, L.P., dated August 28, 2003.
|10.8(a)   |  | First Amendment to Amended and Restated Office Lease and Settlement Agreement, dated December 2003.                                       
|10.9(a)*  |  | Amended Employment Agreement, effective June 1, 2002, between Peregrine Systems, Inc. and Gary G. Greenfield.                             
|10.10(a)* |  | First Amendment to Amended Employment Agreement, dated December 11, 2003, by and among Peregrine Systems, Inc. and Gary G. Greenfield.    
|10.11(a)* |  | Restricted Stock Agreement, dated August 22, 2002, between Peregrine Systems, Inc. and Gary G. Greenfield.                                
|10.12(a)* |  | Amended Employment Agreement, effective June 24, 2002, between Peregrine Systems, Inc. and Kenneth A. Sexton.                             
|10.13(a)* |  | Restricted Stock Agreement, dated August 22, 2002, between Peregrine Systems, Inc. and Kenneth A. Sexton.                                 
|10.14(a)* |  | First Amendment to Amended Employment Agreement, dated April 5, 2004, by and among Peregrine Systems, Inc. and Kenneth A. Sexton.         
|10.15(a)* |  | Employment Letter, dated August 14, 2003, between Peregrine Systems, Inc. and John Mutch.                                                 
|10.16(a)* |  | Statement of Terms and Conditions of Employment, dated December 20, 2001, between Peregrine Systems, Inc. and Alan Kerr.                  
|10.17(a)* |  | Executive Employment Offer Letter, dated December 20, 2001, between Peregrine Systems, Inc. and Alan Kerr.                                
|10.18(a)* |  | Executive Employment Agreement, dated July 1, 2002, between Peregrine Systems, Inc. and Craig Ryall.                                      
|10.19(a)* |  | Executive Employment Agreement, dated July 1, 2002, between Peregrine Systems, Inc. and Mary Lou O'Keefe.                                 
|10.20(a)* |  | Executive Employment Agreement, dated July 1, 2002, between Peregrine Systems, Inc. and Deborah Traub.                                    
|10.21(a)  |  | Reserved.                                                                                                                                 
|10.22(a)  |  | Reserved.                                                                                                                                 
|10.23(a)  |  | Reserved.                                                                                                                                 
|10.24(p)  |  | Reserved.                                                                                                                                 
|10.25(a)  |  | Reserved.                                                                                                                                 
|10.26(a)* |  | Employment Letter, dated January 5, 2004, between Peregrine Systems, Inc. and James Zierick.                                              
|          |  |                                                                                                                                           

96

---



|10.27(a)  |  | Executive Employment Agreement, dated January 20, 2004, between Peregrine Systems, Inc. and Beth Martinko.                                                                                                                                  
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28(a)* |  | Key Employee Retention Plan.                                                                                                                                                                                                                
|10.29(a)* |  | Key Employee Severance Plan.                                                                                                                                                                                                                
|10.30(a)* |  | Management Incentive Compensation Program.                                                                                                                                                                                                  
|10.31(f)  |  | Loan and Security Agreement by and among Peregrine Systems, Inc., certain of its subsidiaries, Foothill Capital Corporation, and certain lenders that were parties thereto.                                                                 
|10.32(f)  |  | Amendment No. 1 to Loan and Security Agreement by and among Peregrine Systems, Inc., certain of its subsidiaries, Foothill Capital Corporation, and certain lenders that were parties thereto.                                              
|10.33(f)  |  | Post Closing Matters Agreement by and among Peregrine Systems, Inc., certain of its subsidiaries, Foothill Capital Corporation, and certain lenders that were parties thereto.                                                              
|10.34(a)  |  | Forbearance Agreement, dated August 26, 2002, by and among Peregrine Systems, Inc., certain of its subsidiaries, Fleet Business Credit, LLC, Silicon Valley Bank, Wells Fargo HSBC Trade Bank, N.A. and Fleet Business
Credit, LLC as agent.
|10.35(a)  |  | Intercreditor Agreement, dated August 26, 2002, by and among Peregrine Systems, Inc., certain of its subsidiaries, Foothill Capital Corporation, and certain lenders that were party thereto.                                               
|10.36(a)  |  | Settlement Agreement by and among Peregrine Systems, Inc., Peregrine Remedy, Inc. and Motive Communications, Inc.                                                                                                                           
|10.37(a)  |  | Settlement Agreement and Release by and among Peregrine Systems, Inc., International Business Machine Corporation and IBM Credit Corporation.                                                                                               
|10.38(a)  |  | Settlement Agreement and Mutual General Release by and among Peregrine Systems, Inc., Fujitsu Transaction Solutions, Inc. and Fleet Business Credit LLC.                                                                                    
|10.39(a)  |  | Mutual Release Agreement, dated August 7, 2003, by and among Peregrine Systems, Inc., certain of its subsidiaries and Fleet Business Credit, LLC.                                                                                           
|10.40(a)  |  | Promissory Note, dated August 26, 2002, with Fleet Business Credit, LLC.                                                                                                                                                                    
|10.41(a)  |  | Agreement Regarding Purchaser Bank Arrangements, dated August 7, 2003, by and among Peregrine Systems, Inc., certain of its subsidiaries, Fleet Business Credit, LLC, Silicon Valley Bank and Wells Fargo HSBC Trade
Bank, N.A.             
|10.42(a)  |  | Consent and Termination Agreement, dated August 7, 2003, by and among Fleet Business Credit, LLC, Wells Fargo HSBC Trade Bank, N.A., Silicon Valley Bank and Fleet Business Credit, LLC.                                                    
|10.43(a)  |  | Mutual Release Agreement, dated August 7, 2003, by and among Peregrine Systems, Inc., certain of its subsidiaries, and Silicon Valley Bank.                                                                                                 
|10.44(a)  |  | Promissory Note, dated August 26, 2002, with Silicon Valley Bank Promissory Note.                                                                                                                                                           
|10.45(a)  |  | Mutual Release Agreement, dated August 7, 2003, by and among Peregrine Systems, Inc., certain of its subsidiaries, and Wells Fargo HSBC Trade Bank, N.A.                                                                                    
|10.46(a)  |  | Promissory Note dated August 26, 2002, with Wells Fargo HSBC Trade Bank, N.A.                                                                                                                                                               
|10.47(a)  |  | Facility Funding Agreement, dated September 9, 2002, between Peregrine Systems, Inc. and its Peregrine Systems Operations Limited subsidiary.                                                                                               
|          |  |                                                                                                                                                                                                                                             

97

---



|10.48(a)  |  | Amended Settlement Agreement, dated October 14, 2003, among Peregrine Systems, Inc., the Post-Emergence Equity Committee, and the Loran Group and Heywood Waga as co-lead plaintiffs in the Securities
Action.
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.49(a)  |  | Funding Agreement, dated September 9, 2002, between Peregrine Systems Operations Limited and Peregrine Systems Limited.                                                                                       
|10.50(a)  |  | Debtor in Possession Credit Agreement, dated September 24, 2002, by and among Peregrine Systems, Inc., Peregrine Remedy, Inc., and various subsidiaries thereof, and BMC Software, Inc.                       
|10.51(b)  |  | Revolving Credit Agreement, dated October 29, 2001, by and among Peregrine Systems, Inc., Fleet National Bank, and certain other lenders.                                                                     
|10.52(c)  |  | First Amendment to Revolving Credit Agreement and Limited Waiver, dated December 20, 2001, by and among Peregrine Systems, Inc., Fleet National Bank, and certain other lenders.                              
|10.53(c)  |  | Second Amendment to Revolving Credit Agreement and Limited Waiver, dated December 31, 2001, by and among Peregrine Systems, Inc., Fleet National Bank, and certain other lenders.                             
|10.54(a)  |  | Third Amendment to Revolving Credit Agreement and Limited Waiver, dated March 25, 2002, by and among Peregrine Systems, Inc., Fleet National Bank, and certain other lenders.                                 
|10.55(a)  |  | Fourth Amendment to Revolving Credit Agreement and Limited Waiver, dated April 22, 2002, by and among Peregrine Systems, Inc., Fleet National Bank, and certain other lenders.                                
|10.56(m)* |  | Second Amendment to Employment Agreement between Peregrine Systems, Inc. and Ken Sexton dated August 30, 2004.                                                                                                
|10.57(m)* |  | Employment Agreement between Peregrine Systems, Inc. and Kenneth Saunders dated July 20, 2004.                                                                                                                
|10.58(m)* |  | Amended and Restated Employment Agreement between Peregrine Systems, Inc. and John Mutch dated August 20, 2004..                                                                                              
|10.59(m)* |  | Performance Stock Unit Agreement between Peregrine Systems, Inc. and John Mutch effective August 20, 2004.                                                                                                    
|10.60(m)* |  | Restricted Stock Grant Notice and Restricted Stock Agreement between Peregrine Systems, Inc. and John Mutch dated August 20, 2004.                                                                            
|10.61(m)* |  | Employment Agreement between Peregrine Systems, Inc. and Russell Mann dated July 12, 2004.                                                                                                                    
|10.62(m)* |  | Employment Agreement between Peregrine Systems, Inc. and Russell Clark dated August 4, 2004.                                                                                                                  
|10.63(n)* |  | Third Amendment to Employment Agreement between Peregrine Systems, Inc. and Ken Sexton effective October 1, 2004.                                                                                             
|10.64(p)* |  | Amendment to Restated Employment Agreement between Peregrine Systems, Inc. and Ken Saunders effective October 1, 2004.                                                                                        
|10.65(p)* |  | Settlement Agreement and Mutual General Release between Gary Greenfield and Peregrine Systems, Inc. dated August 27, 2004.                                                                                    
|10.66(p)  |  | Executive Employment Agreement between Peregrine Systems, Inc. and Kevin Courtois effective as of October 6, 2004.                                                                                            
|          |  |                                                                                                                                                                                                               

98

---



|10.67(p) |  | Executive Employment Agreement between Peregrine Systems, Inc. and Beth Martinko effective January 20, 2004.                                      
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|10.68(q) |  | Amended and Restated Employment Agreement between Peregrine Systems, Inc. and Ken Saunders dated as of March 4, 2005.                             
|10.69(q) |  | Amended and Restated Employment Agreement between Peregrine Systems, Inc. and Ken Saunders dated as of March 4, 2005.                             
|10.70(q) |  | Retention Bonus Plan effective February 22, 2005.                                                                                                 
|10.71(q) |  | Performance Stock Unit Agreement between Peregrine Systems Inc. and Ken Saunders effective August 6, 2004.                                        
|10.72(r) |  | Form of Retention Bonus Plan Agreement between Peregrine Systems, Inc. and its executive officers dated February 23, 2005.                        
|10.73(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Craig Ryall effective as of February 22, 2005.                                   
|10.74(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Beth Martinko effective as of February 22, 2005.                                 
|10.75(r) |  | Settlement Agreement and General Release between Peregrine Systems, Inc. and David Sugishita dated as of February 6, 2005.                        
|10.76(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Russ Mann effective as of February 22, 2005.                                     
|10.77(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Kevin Courtois effective as of February 22, 2005.                                
|10.78(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Deborah Traub effective as of February 22, 2005.                                 
|10.79(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and James Zierick effective as of February 22, 2005.                                 
|10.80(r) |  | Executive Employment Agreement between Peregrine Systems, Inc. and Donald Boyce effective as of February 22, 2005.                                
|10.81(r) |  | Amended Employment Agreement between Peregrine Systems, Inc. and Mary Lou O'Keefe effective as of February 22, 2005.                              
|16.1(e)  |  | Letter from KPMG LLP regarding Change in Certifying Accountant.                                                                                   
|16.2(d)  |  | Letter from Arthur Andersen LLP regarding Change in Certifying Accountant.                                                                        
|21.1(r)  |  | Subsidiaries of the Registrant.                                                                                                                   
|31.1(r)  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|31.2(r)  |  | Certification of Chief Financial Officer pursuant to Section 303 of the Sarbanes-Oxley Act of 2002.                                               
|32.1(r)  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2(r)  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.1(a)  |  | Securities and Exchange Commission Final Judgment of Permanent Injunction against Defendant Peregrine Systems, Inc.                               
|         |  |                                                                                                                                                   

99

---



|99.2(a) |  | Securities and Exchange Commission Supplemental Consent and Undertaking of Defendant Peregrine Systems, Inc.                                            
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|99.3(a) |  | Amended Litigation Trust Agreement.                                                                                                                     
|99.4(a) |  | Order Approving Modified Employment Agreements and Compensation and Incentive Packages for Debtor's Chief Executive Officer and Chief Financial Officer.
|99.5(a) |  | Consent and Undertaking of Peregrine Systems, Inc.                                                                                                      

---

100

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date: June 30, 2005 |  | PEREGRINE SYSTEMS, INC.
|------------------- |  | -----------------------
|                    |  | By:                    

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the
dates indicated:

|Signature                                 |  | Title                                                                                                     |  | Date         
|----------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | -------------
|/s/JOHN MUTCHJohn Mutch                   |  | President, Chief Executive Officer & Director (Principal Executive Officer)                               |  | June 30, 2005
|/s/KENNETH J. SAUNDERSKenneth J. Saunders |  | Executive Vice President & Chief Financial Officer (Principal Financial Officer)                          |  | June 30, 2005
|/s/RUSSELL C. CLARKRussell C. Clark       |  | Vice President, Finance, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |  | June 30, 2005
|/s/JAMES P. JENKINSJames P. Jenkins       |  | Chairman of the Board of Directors                                                                        |  | June 30, 2005
|/s/ANDREW J. BROWNAndrew J. Brown         |  | Director                                                                                                  |  | June 30, 2005
|/s/VICTOR A. COHNVictor A. Cohn           |  | Director                                                                                                  |  | June 30, 2005
|/s/JAMES W. HARRISJames W. Harris         |  | Director                                                                                                  |  | June 30, 2005
|/s/ALAN J. HIRSCHFIELDAlan J. Hirschfield |  | Director                                                                                                  |  | June 30, 2005
|/s/MARK ISRAELMark Israel                 |  | Director                                                                                                  |  | June 30, 2005

101

---





PEREGRINE SYSTEMS, INC.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  AND FINANCIAL STATEMENT SCHEDULE

PageCONSOLIDATED FINANCIAL STATEMENTSReports of Independent Registered Public Accounting Firm

F-2Consolidated Balance Sheets as of March 31, 2005 and 2004 (Successor Company)

F-6Consolidated Statements of Operations for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended July 18, 2003 and the Year Ended March 31, 2003
(Predecessor Company)

F-7Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended
July 18, 2003 and the Year Ended March 31, 2003 (Predecessor Company)

F-8Consolidated Statements of Cash Flows for the Year Ended March 31, 2005 and the 257 Days Ended March 31, 2004 (Successor Company) and the 109 Days Ended July 18, 2003 and the Year Ended March 31, 2003
(Predecessor Company)

F-9Notes to Consolidated Financial Statements

F-10FINANCIAL STATEMENT SCHEDULESchedule IIValuation and Qualifying Accounts

S-1


F-1

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of Peregrine Systems, Inc.:

We
were engaged to perform an integrated audit of Peregrine Systems, Inc.'s 2005 consolidated financial statements and of its internal control over financial reporting as of
March 31, 2005 in accordance with the standards of the Public Company Accounting Oversight Board (United States). We have audited the Company's consolidated financial statements for 2005 and
for the period from July 19, 2003 to March 31, 2004 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinion on the consolidated
financial statements, based on our audits of those consolidated financial statements, is presented below. However, as explained more fully below, the scope of our work was not sufficient to enable us
to express, and we do not express, an opinion on the effectiveness of the Company's internal control over financial reporting as of March 31, 2005.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Peregrine Systems, Inc. and its subsidiaries (Successor Company) at March 31, 2005 and 2004, and the results of their operations and their cash flows for the year
ended March 31, 2005 and the period from July 19, 2003 to March 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule, as of and for the periods referenced above, listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As
discussed in Notes 1 and 2 to the consolidated financial statements, the United States Bankruptcy Court for the District of Delaware confirmed the Company's Fourth Amended Plan of
Reorganization (the reorganization plan) on July 18, 2003. Confirmation of the reorganization plan resulted in the restructuring or extinguishment of claims against the Company that arose
before September 22, 2002 and substantially altered rights and interests of equity holders as provided for in the reorganization plan. The reorganization plan was substantially consummated on
August 7, 2003 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh-start reporting as of July 18, 2003.

Internal control over financial reporting

The Company has not reported on its assessment of the effectiveness of internal control over financial reporting. Because management did not report on its
assessment, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the effectiveness of the Company's internal control over financial reporting.

A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. Although management has not reported on its assessment

F-2

---



of
the Company's internal control over financial reporting as of March 31, 2005, management has identified the following material weaknesses as of March 31, 2005:



F-3

---





The
existence of one or more material weaknesses as of March 31, 2005 would preclude a conclusion that the Company's internal control over financial reporting was effective as of
that date. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and our disclaimer
of opinion regarding management's assessment and the effectiveness of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements.

/s/
PricewaterhouseCoopers LLP

San
Diego, California
June 29, 2005

F-4

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of Peregrine Systems, Inc.:

In
our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the results of operations and
cash flows of Peregrine Systems, Inc. and its subsidiaries (Predecessor Company) for the period from April 1, 2003 to July 18, 2003 and for the year ended March 31, 2003,
in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule, as of and for the period referenced above,
listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

As
discussed in Notes 1 and 2 to the consolidated financial statements, the Company filed a petition on September 22, 2002 with the United States Bankruptcy Court for the District
of Delaware for reorganization under the provisions of Chapter 11 of the Bankruptcy Court. The Company's Fourth Amended Plan of Reorganization was substantially consummated on August 7, 2003
and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh-start reporting.

/s/
PricewaterhouseCoopers LLP

San
Diego, California
December 17, 2004

F-5

---





PEREGRINE SYSTEMS, INC.  Consolidated Balance Sheets  (in thousands, except par value data)

|                                                  |                                                                                                                          | Successor Company                          |        
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | -------
|
|ASSETS                                            |                                                                                                                          |                                            |        
|Current Assets:                                   |                                                                                                                          |                                            |        
|                                                  | Cash and cash equivalents                                                                                                |                                            | $      
|                                                  | Cashrestricted                                                                                                          |                                            |        
|                                                  | Accounts receivable, net of allowance for doubtful accounts of $1,291 and $2,441, respectively                           |                                            |        
|                                                  | Deferred taxes                                                                                                           |                                            |        
|                                                  | Other current assets                                                                                                     |                                            |        
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total current assets                       |        
|Property and equipment, net                       |                                                                                                                          |                                            | 8,422  
|Identifiable intangible assets, net               |                                                                                                                          |                                            | 86,942 
|Goodwill                                          |                                                                                                                          |                                            | 184,835
|Investments and other assets                      |                                                                                                                          |                                            | 2,113  
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total assets                               |        
|                                                  |                                                                                                                          |                                            |        
|LIABILITIES & STOCKHOLDERS' EQUITY                |                                                                                                                          |                                            |        
|Current Liabilities:                              |                                                                                                                          |                                            |        
|                                                  | Accounts payable                                                                                                         |                                            | $      
|                                                  | Accrued expenses                                                                                                         |                                            |        
|                                                  | Current portion of deferred revenue                                                                                      |                                            |        
|                                                  | Current portion of notes payable                                                                                         |                                            |        
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total current liabilities                  |        
|                                                  |                                                                                                                          |                                            |        
|Non-current Liabilities:                          |                                                                                                                          |                                            |        
|                                                  | Deferred revenue, net of current portion                                                                                 |                                            |        
|                                                  | Notes payable, net of current portion                                                                                    |                                            |        
|                                                  | Deferred taxes                                                                                                           |                                            |        
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total non-current liabilities              |        
|                                                  |                                                                                                                          |                                            |        
|Commitments and ContingenciesNotes 11, 12 and 17 |                                                                                                                          |                                            |        
|Stockholders' Equity                              |                                                                                                                          |                                            |        
|                                                  | Preferred stock$0.0001 par value, 5,000 shares authorized, no shares issued or outstanding                              |                                            |        
|                                                  | Common stock$0.0001 par value, 100,000 shares authorized, 15,074 and 15,000 shares issued and outstanding, respectively |                                            |        
|                                                  | Additional paid-in capital                                                                                               |                                            |        
|                                                  | Subscriptions receivable                                                                                                 |                                            |        
|                                                  | Accumulated deficit                                                                                                      |                                            |        
|                                                  | Accumulated other comprehensive loss                                                                                     |                                            |        
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total stockholders' equity                 |        
|                                                  |                                                                                                                          |                                            |        
|                                                  |                                                                                                                          | Total liabilities and stockholders' equity |        
|                                                  |                                                                                                                          |                                            |        

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

F-6

---



PEREGRINE SYSTEMS, INC.  Consolidated Statements of Operations  (in thousands, except per share amounts)

|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|------------------------------------------------------------ | -------------------------------------------------------- | ---------------------------------- | ------- | ------- | ------- | ------- | ------ | ------- | -------
|
|
|Revenue:                                                     |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Licenses                                                 |                                    | $       | 64,647  |         | $       | 49,146 |         | $      
|                                                             | Maintenance                                              |                                    |         | 109,031 |         |         | 66,340 |         |        
|                                                             | Consulting and training                                  |                                    |         | 17,372  |         |         | 10,398 |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             |                                                          | Total revenue                      |         |         | 191,050 |         |        | 125,884 |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|Costs and Expenses:                                          |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Cost of licenses                                         |                                    |         | 1,507   |         |         | 1,437  |         |        
|                                                             | Cost of maintenance                                      |                                    |         | 18,722  |         |         | 11,883 |         |        
|                                                             | Cost of consulting and training                          |                                    |         | 18,149  |         |         | 10,989 |         |        
|                                                             | Sales and marketing                                      |                                    |         | 67,619  |         |         | 36,631 |         |        
|                                                             | Research and development                                 |                                    |         | 29,645  |         |         | 20,412 |         |        
|                                                             | General and administrative                               |                                    |         | 52,376  |         |         | 33,491 |         |        
|                                                             | Amortization of intangible assets                        |                                    |         | 23,218  |         |         | 16,211 |         |        
|                                                             | Restructuring, impairments and other                     |                                    |         | (1,096  | )       |         |       |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             |                                                          | Total operating costs and expenses |         |         | 210,140 |         |        | 131,054 |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|Operating (loss) income from continuing operations           |                                                          |                                    | (19,090 | )       |         | (5,170  | )      |         | 1,298  
|                                                             | Foreign currency transaction gains (losses), net         |                                    |         | 2,162   |         |         | 631    |         |        
|                                                             | Reorganization items, net                                |                                    |         | (1,567  | )       |         | (7,188 | )       |        
|                                                             | Interest income                                          |                                    |         | 1,455   |         |         | 1,179  |         |        
|                                                             | Interest expense                                         |                                    |         | (4,002  | )       |         | (4,623 | )       |        
|                                                             | Other income                                             |                                    |         | 944     |         |         |       |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|(Loss) income from continuing operations before income taxes |                                                          |                                    | (20,098 | )       |         | (15,171 | )      |         | 375,033
|                                                             | Income tax expense on continuing operations              |                                    |         | (5,302  | )       |         | (2,697 | )       |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|(Loss) income from continuing operations                     |                                                          |                                    | (25,400 | )       |         | (17,868 | )      |         | 373,937
|                                                             | Income from discontinued operations, net of income taxes |                                    |         |        |         |         |       |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|Net (loss) income                                            |                                                          | $                                  | (25,400 | )       | $       | (17,868 | )      | $       | 374,189
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|Net (loss) income per share, basic:                          |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | (Loss) income per share from continuing operations       |                                    | $       | (1.69   | )       | $       | (1.19  | )       | $      
|                                                             | Income per share from discontinued operations            |                                    |         |        |         |         |       |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Net (loss) income per share                              |                                    | $       | (1.69   | )       | $       | (1.19  | )       | $      
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Basic shares used in computation                         |                                    |         | 15,055  |         |         | 15,000 |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|Net (loss) income per share, diluted:                        |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | (Loss) income per share from continuing operations       |                                    | $       | (1.69   | )       | $       | (1.19  | )       | $      
|                                                             | Income per share from discontinued operations            |                                    |         |        |         |         |       |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Net (loss) income per share                              |                                    | $       | (1.69   | )       | $       | (1.19  | )       | $      
|                                                             |                                                          |                                    |         |         |         |         |        |         |        
|                                                             | Diluted shares used in computation                       |                                    |         | 15,055  |         |         | 15,000 |         |        
|                                                             |                                                          |                                    |         |         |         |         |        |         |        

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

F-7

---



PEREGRINE SYSTEMS, INC        Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss)        (in thousands)

|                                                                           |                                                                                                 | Number of
Shares
Outstanding |          | Common
Stock |     | Additional
Paid-In
Capital |   | Subscriptions
Receivable |            | Accumulated
Deficit |         | Unearned
Portion of
Deferred
Compensation |   | Treasury
Stock |           | Accumulated
Other
Comprehensive
Loss |         | Total
Stockholders'
Equity
(Deficit) |   | Comprehensive
Income (Loss) |       
|-------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------- | -------- | ------------ | --- | -------------------------- | - | ------------------------ | ---------- | ------------------- | ------- | ----------------------------------------- | - | -------------- | --------- | ------------------------------------ | ------- | ------------------------------------ | - | --------------------------- | ------
|Balance, March 31, 2002                                                    |                                                                                                 | 194,993                      |          | $            | 195 |                            | $ | 3,901,453                |            | $                   | (13,366 | )                                         | $ | (4,150,163     | )         | $                                    | (82,242 | )                                    | $ | (10,697                     | )     
|Equity adjustment from foreign currency translation                        |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Net income                                                                 |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   | 30,859         |           |                                      |        |                                      |   |                            |       
|Expiration of guaranteed value common stock arrangement                    |                                                                                                 |                             |          |              |    |                            |   | 56                       |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Stock issued under employee plans                                          |                                                                                                 | 245                          |          |              |    |                            |   | 1,143                    |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Settlement of subscriptions receivable                                     |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     | 12,135  |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Compensation expense related to restricted stock and options               |                                                                                                 | 1,700                        |          |              | 2   |                            |   | (28,486                  | )          |                     | 1,161   |                                           |   |               |           |                                      | 81,691  |                                      |   |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Balance, March 31, 2003                                                    |                                                                                                 | 196,938                      |          |              | 197 |                            |   | 3,874,166                |            |                     | (70     | )                                         |   | (4,119,304     | )         |                                      | (551    | )                                    |   | (10,697                     | )     
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Equity adjustment from foreign currency translation of Predecessor Company |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Net income of Predecessor Company                                          |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   | 374,189        |           |                                      |        |                                      |   |                            |       
|Collection of subscriptions receivable by Predecessor Company              |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     | 6       |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Compensation expense related to restricted stock of Predecessor Company    |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   |               |           |                                      | 551     |                                      |   |                            |       
|Application of fresh-start reporting:                                      |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|                                                                           | Cancellation of Predecessor Company common stock                                                |                              | (196,938 | )            |     | (197                       | ) |                          | (3,874,166 | )                   |         |                                          |   |                |          |                                      |         |                                     |   |                             | 10,697
|                                                                           | Elimination of Predecessor Company accumulated deficit and accumulated other comprehensive loss |                              |         |              |     |                           |   |                          |           |                     |         |                                          |   |                | 3,745,115 |                                      |         |                                     |   |                             |      
|                                                                           | Issuance of Successor Company common stock                                                      |                              | 15,000   |              |     | 2                          |   |                          | 269,998    |                     |         |                                          |   |                |          |                                      |         |                                     |   |                             |      
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Balance at July 18, 2003 Successor Company                                 |                                                                                                 | 15,000                       |          |              | 2   |                            |   | 269,998                  |            |                     | (64     | )                                         |   |               |           |                                      |        |                                      |   |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Equity adjustment from foreign currency translation of Successor Company   |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Net loss of Successor Company                                              |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   | (17,868        | )         |                                      |        |                                      |   |                            |       
|Stock issued under employee plans of Successor Company                     |                                                                                                 |                             |          |              |    |                            |   | 6                        |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Balance, March 31, 2004                                                    |                                                                                                 | 15,000                       |          |              | 2   |                            |   | 270,004                  |            |                     | (64     | )                                         |   | (17,868        | )         |                                      |        |                                      |   |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Equity adjustment from foreign currency translation                        |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Net loss                                                                   |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     |        |                                           |   | (25,400        | )         |                                      |        |                                      |   |                            |       
|Stock issued under employee plans                                          |                                                                                                 | 74                           |          |              |    |                            |   | 1,146                    |            |                     |        |                                           |   |               |           |                                      |        |                                      |   |                            |       
|Collection of subscriptions receivable                                     |                                                                                                 |                             |          |              |    |                            |   |                         |            |                     | 28      |                                           |   |               |           |                                      |        |                                      |   |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       
|Balance, March 31, 2005                                                    |                                                                                                 | 15,074                       |          | $            | 2   |                            | $ | 271,150                  |            | $                   | (36     | )                                         | $ | (43,268        | )         | $                                    |        |                                      | $ |                            |       
|                                                                           |                                                                                                 |                              |          |              |     |                            |   |                          |            |                     |         |                                           |   |                |           |                                      |         |                                      |   |                             |       

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

F-8

---





PEREGRINE SYSTEMS, INC.        Consolidated Statements of Cash Flows        (in thousands)

|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | ------- | ------- | ------ | ------- | --------
|
|
|Cash flow from operating activities:                                                                                      |                                                                                                    |                                                     |         |         |         |         |        |         |         
|(Loss) income from continuing operations                                                                                  |                                                                                                    | $                                                   | (25,400 | )       | $       | (17,868 | )      | $       | 373,937 
|Adjustments to reconcile (loss) income from continuing operations to net cash (used in) provided by operating activities: |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Depreciation and amortization                                                                      |                                                     |         | 27,563  |         |         | 20,762 |         |         
|                                                                                                                          | Non-cash restructuring, impairments and other                                                      |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Stock compensation expense                                                                         |                                                     |         | 839     |         |         |       |         |         
|                                                                                                                          | Non-cash reorganization items                                                                      |                                                     |         | (676    | )       |         | (1,968 | )       |         
|                                                                                                                          | Foreign currency transaction losses (gains), net                                                   |                                                     |         | (2,162  | )       |         | (631   | )       |         
|                                                                                                                          | Cash used to pay imputed interest portion of long-term debt                                        |                                                     |         | (1,056  | )       |         | (427   | )       |         
|                                                                                                                          | Gain on sale of investments                                                                        |                                                     |         | (1,096  | )       |         |       |         |         
|                                                                                                                          | Cash used to pay reorganization items                                                              |                                                     |         | (3,275  | )       |         | (1,614 | )       |         
|                                                                                                                          | Deferred taxes                                                                                     |                                                     |         | (79     | )       |         | 622    |         |         
|                                                                                                                          | Gain on collection of employee notes receivable                                                    |                                                     |         | (944    | )       |         |       |         |         
|Increase (decrease) in cash resulting from changes in:                                                                    |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Accounts receivable                                                                                |                                                     |         | 4,907   |         |         | (9,881 | )       |         
|                                                                                                                          | Other assets                                                                                       |                                                     |         | 4,313   |         |         | 10,709 |         |         
|                                                                                                                          | Accounts payable                                                                                   |                                                     |         | (2,451  | )       |         | (3,868 | )       |         
|                                                                                                                          | Accrued expenses                                                                                   |                                                     |         | 2,266   |         |         | (9,761 | )       |         
|                                                                                                                          | Deferred revenue                                                                                   |                                                     |         | (4,687  | )       |         | 18,860 |         |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          |                                                                                                    | Net cash (used in) provided by operating activities |         |         | (1,938  | )       |        | 4,935   |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Cash flow from investing activities:                                                                                      |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Collection of Remedy sale indemnification holdback                                                 |                                                     |         |        |         |         | 10,000 |         |         
|                                                                                                                          | Sale of investments and collection of notes receivable                                             |                                                     |         | 4,195   |         |         | 1,000  |         |         
|                                                                                                                          | Collection of notes receivable from employees                                                      |                                                     |         | 944     |         |         |       |         |         
|                                                                                                                          | Proceeds from sale of non-core product lines                                                       |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Purchases of property and equipment                                                                |                                                     |         | (4,558  | )       |         | (2,560 | )       |         
|                                                                                                                          | Proceeds from sales of property and equipment                                                      |                                                     |         | 310     |         |         |       |         |         
|                                                                                                                          | Purchases of marketable securities available for sale                                              |                                                     |         | (25,000 | )       |         |       |         |         
|                                                                                                                          | Proceeds from sale of marketable securities available for sale                                     |                                                     |         | 25,000  |         |         |       |         |         
|                                                                                                                          | Change in restricted cash                                                                          |                                                     |         | 356     |         |         | (1,869 | )       |         
|                                                                                                                          | Maturities of short-term investments                                                               |                                                     |         |        |         |         |       |         |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          |                                                                                                    | Net cash provided by investing activities           |         |         | 1,247   |         |        | 6,571   |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Cash flow from financing activities:                                                                                      |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Proceeds from debtor in possession financing                                                       |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Repayments of debtor in possession financing                                                       |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Advances from factored receivables                                                                 |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Repayments of factored receivables                                                                 |                                                     |         | (4,748  | )       |         | (7,107 | )       |         
|                                                                                                                          | Issuance of long-term debt                                                                         |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Repayment of long-term debt                                                                        |                                                     |         | (17,617 | )       |         | (7,350 | )       |         
|                                                                                                                          | Collection on subscriptions receivable                                                             |                                                     |         | 28      |         |         |       |         |         
|                                                                                                                          | Bank overdraft                                                                                     |                                                     |         |        |         |         |       |         |         
|                                                                                                                          | Issuance of common stock, employee plans                                                           |                                                     |         | 307     |         |         | 6      |         |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          |                                                                                                    | Net cash used in financing activities               |         |         | (22,030 | )       |        | (14,451 | )       
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Effect of exchange rate changes on cash                                                                                   |                                                                                                    |                                                     | 1,540   |         |         | 826     |        |         | 1,057   
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Net cash flows from discontinued operations                                                                               |                                                                                                    |                                                     |        |         |         |        |        |         | 2,565   
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Net (decrease) increase in cash and cash equivalents                                                                      |                                                                                                    |                                                     | (21,181 | )       |         | (2,119  | )      |         | (126,249
|Cash and cash equivalents, beginning of period                                                                            |                                                                                                    |                                                     | 105,946 |         |         | 108,065 |        |         | 234,314 
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Cash and cash equivalents, end of period                                                                                  |                                                                                                    | $                                                   | 84,765  |         | $       | 105,946 |        | $       | 108,065 
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Cash paid during the period for:                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Interest                                                                                           |                                                     | $       | 3,188   |         | $       | 2,797  |         | $       
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Income taxes                                                                                       |                                                     | $       | 5,062   |         | $       | 1,831  |         | $       
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|Supplemental Disclosure of Non-Cash Activities of Continuing Operations:                                                  |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Guaranteed value common stock (see Note 18)                                                        |                                                     |         |        |         |         |       |         |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         
|                                                                                                                          | Common stock issued for investments and investments exchanged for cancellation of deferred revenue |                                                     |         |        |         |         |       |         |         
|                                                                                                                          |                                                                                                    |                                                     |         |         |         |         |        |         |         

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

F-9

---





PEREGRINE SYSTEMS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Company Operations

Business

Peregrine Systems, Inc. (the Company or Peregrine) is a global provider of enterprise software. Peregrine's core business is providing information
technology asset and service management software solutions.

From
the Company's initial public offering in 1997 through the fiscal year ended March 31, 2002, Peregrine significantly expanded its product line through a series of
acquisitions, broadening its business beyond its original core market. The Company began a major restructuring in 2002 amid concerns about liquidity. The non-core Supply Chain Enablement
(Harbinger and Extricity) and Remedy businesses were sold in June 2002 and November 2002, respectively, and are treated as discontinued operations in the consolidated financial
statements. During the fiscal year ended March 31, 2003, Peregrine sold other non-core product lines, including products used in fleet management, facility management,
telecommunications management, and travel management. Peregrine's core software product suites, after divestiture of non-core products, are AssetCenter[nc_cad,176] and
ServiceCenter[nc_cad,176]. AssetCenter and ServiceCenter support two main business processes: asset management and service management. Typically, the assets managed with Peregrine's
products consist of information technology assets, such as computer and computer-networking hardware and software items, and other assets used to provide infrastructure to a business. The services
managed with Peregrine's products usually consist of the service delivery and support processes necessary to troubleshoot, support and maintain those same information technology and infrastructure
assets.

Bankruptcy Proceedings and Restructuring Activities

On September 22, 2002, Peregrine and its wholly-owned Peregrine Remedy, Inc. subsidiary (Remedy), filed voluntary petitions under Chapter 11 of the
U.S. Bankruptcy Code. The plan of reorganization of the Company (the Reorganization Plan) was confirmed by the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court) on
July 18, 2003 and it became effective on August 7, 2003. From September 22, 2002 until August 7, 2003, the Company operated the business as a
Debtor-in-Possession under the jurisdiction of the Bankruptcy Court.

As
a result of its bankruptcy filing under Chapter 11, the Company was subject to the provisions of American Institute of Certified Public Accountants Statement of Position
No. 90-7, "Financial Reporting of Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), for the reporting periods subsequent to September 22, 2002
through July 18, 2003. Pursuant to SOP 90-7, revenue, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization
of the business are reported separately as reorganization items.

Fresh-Start Reporting

In accordance with SOP 90-7, the Company adopted fresh-start reporting as of July 18, 2003 as the Company's emergence from Chapter 11
bankruptcy proceedings resulted in a new reporting basis. Under fresh-start reporting, the reorganization value of the entity is allocated to the entity's assets, based on fair values, and liabilities
are stated at the present value of amounts to be paid, determined at current interest rates. The effective date of the new entity was considered to be the close of business on July 18, 2003 for
financial reporting purposes. The fiscal periods prior to and including July 18, 2003 pertain to what is designated the "Predecessor Company," while the fiscal periods subsequent to
July 18, 2003 pertain to what is designated the "Successor Company." Where a financial statement item applies to both the Successor and Predecessor Companies, we refer to the Company. As a
result of the

F-10

---



implementation
of fresh-start reporting, the financial statements of the Successor Company after July 18, 2003 are not comparable to the Predecessor Company's financial statements for prior
periods and are separated by a black line to highlight this lack of comparability.

2.     Summary of Significant Accounting Policies

A summary of the significant accounting policies followed in the preparation of the Company's consolidated financial statements is as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of Peregrine and its wholly-owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.

Discontinued Operations

As more fully described in Note 3, the historic consolidated financial statements of the Predecessor Company reflect its Remedy and SCE businesses as
discontinued operations. The detailed results of operations and cash flows reflect only the results of continuing operations. Interest income and expense for discontinued operations relates to the
financial instruments held by the respective businesses.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company 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 revenue and expenses for the reporting
periods. Actual results could differ from the estimates made by management with respect to these items and other items that require management's estimates. These estimates and assumptions include, but
are not limited to, assessing the following: the recoverability of accounts receivable, goodwill and other intangible assets, internal use software development costs and deferred tax assets, the
determination of the worldwide income tax provision and associated liabilities, and the determination of whether fees for license revenue are fixed or determinable and collection is probable.

Reorganization Under Chapter 11

On September 22, 2002, Peregrine and Remedy filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. The Bankruptcy Court confirmed the
Reorganization Plan on July 18, 2003 and it became effective on August 7, 2003. From the Petition Date until August 7, 2003, the Company operated the business as a
Debtor-in-Possession under the jurisdiction of the Bankruptcy Court.

As
a result of its bankruptcy filing under Chapter 11, the Company was subject to the provisions of SOP 90-7 for the reporting periods subsequent to the Petition Date.
Pursuant to SOP 90-7, the financial statements have been prepared on a going concern basis that contemplates continuity of operations, realization of assets and liquidation of liabilities
in the ordinary course of business. The liabilities affected by the Reorganization Plan were reported at the estimated allowed amounts under the Reorganization Plan, even if they were ultimately
settled for lesser amounts. Revenue, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization of the business were reported
separately as reorganization items. Certain items directly associated with the Chapter 11 filing, primarily legal fees associated with the ongoing settlement of claims, will continue to be reported
separately subsequent to the adoption of fresh-start reporting. Interest expense during the Chapter 11 proceedings was only accrued to the extent that it was paid during the proceedings or it was an
allowed priority, secured or unsecured claim. For the 109 days

F-11

---



ended
July 18, 2003 and the year ended March 31, 2003, the Predecessor Company did not accrue contractual interest of $0.5 million and $1.7 million, respectively.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of Statement of Position No. 97-2, "Software Revenue Recognition," as amended
by SOP 98-4 and SOP 98-9 (SOP 97-2), and Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," as amended by SAB 104, issued by
the SEC. Peregrine's revenue is derived principally from software product licensing and related services. The Company's standard end-user license agreement provides for an initial fee for
product use in perpetuity. License fees are generally due upon the granting of the license. Maintenance revenue consists of fees for technical support and software updates. Consulting and training
revenue consists of fees earned for professional services provided to customers primarily on a time and material basis.

Revenue
from license agreements with direct customers is recognized when all of the following conditions are met: a non-cancelable license agreement has been signed; the
product has been delivered; there are no material uncertainties regarding customer acceptance; the fee is fixed or determinable; collection of the resulting receivable is deemed probable; risk of
concession is deemed remote; and no other significant obligations of the Company to the customer exist. In certain circumstances, the Company may grant extended payment terms. If a payment is due more
than ninety days after the license agreement is signed, the license fees are recognized as payments become due and payable provided all other conditions for revenue recognition are met. If provided in
a license agreement, acceptance provisions generally grant customers a right of refund only if the licensed software does not perform in accordance with its published specifications. The Company
believes the likelihood of non-acceptance in these situations is remote and generally recognizes revenue when all other criteria of revenue recognition are met. If the likelihood of
non-acceptance cannot be determined to be remote, revenue is recognized upon the earlier of receipt of written acceptance or when the acceptance period has lapsed.

Revenue
from maintenance services is recognized ratably over the term of the support period, which is generally one year. Consulting revenue is primarily related to installation and
implementation services for the Company's software products, which are most often performed on a time and material basis under separate service agreements. Consulting services are not usually
essential to the functionality of the software. Revenue from consulting and training services is recognized as the respective services are performed.

For
contracts with multiple obligations (e.g., current and future product delivery obligations, post-contract support or other services) the Company recognizes revenue using
the residual method. Under the residual method, the Company allocates revenue to the undelivered elements of the contract based on vendor-specific objective evidence of their fair value. This
objective evidence is the sales price of each element when sold separately or the annual renewal rate specified in the agreement for maintenance. The Company recognizes revenue allocated to
undelivered products when all other criteria for revenue recognition have been met.

The
Company also derives revenue from the sale of its software licenses and maintenance services through distributors. Revenue from sales made through distributors is recognized when the
distributors have sold the software licenses or services to their customers and the criteria for revenue recognition under SOP 97-2 are met. Revenue from maintenance services sold through
distributors is recognized ratably over the contractual period with the end user.

F-12

---



Deferred Revenue

Deferred revenue primarily relates to maintenance fees that have been billed by the Company in advance of the performance of these services. Revenue from
maintenance fees is recognized ratably over the term of the maintenance period, which is generally one year. In addition, certain license fees have been prepaid by customers and deferred by the
Company until all the required revenue recognition criteria have been satisfied (e.g., expiration of exchange rights or delivery of all licensed products). In addition, revenue related to prepayments
from third-party distributors is deferred until the associated product or service is sold through to the end-user.

Cost of Revenue

Cost of licenses consists primarily of third-party software royalties, product packaging, documentation and production and distribution costs. Cost of maintenance
services consists primarily of personnel, facilities and system costs related to technical support services. Cost of consulting and training services consists primarily of personnel, facilities and
system costs related to the delivery of consulting and training services to customers.

Business Risk and Concentrations of Credit Risk

Financial instruments, which may subject the Company to concentrations of credit risk, consist principally of trade and other receivables. Peregrine believes that
the concentration of credit risk with respect to trade receivables is further mitigated as its customer base consists primarily of large, well-established companies. The Company maintains
reserves for credit losses and such losses historically have been within its expectations.

The
performance of numerous third-party partners can also affect the Company's ability to collect receivables. In addition to selling directly to end-user customers,
Peregrine partners with various third parties in delivering its solutions to end-user customers. Third-party alliance partners work closely with the Company in delivering Peregrine's
solutions to a wide variety of customers. Sales associated with the Successor Company's partnering relationship with IBM accounted for approximately 16% and 18% of license revenue for the fiscal year
ended March 31, 2005 and the 257 days ended March 31, 2004, respectively. Sales associated with the Predecessor Company's partnering agreement with IBM accounted for 8% and 22% of
license revenue for the 109 days ended July 18, 2003 and the fiscal year ended March 31, 2003, respectively.

As
of March 31, 2005 and 2004, the Company had cash deposits in federally-insured financial institutions in excess of the federally-insured limits. Management believes the Company
is not exposed to significant risk due to the financial position of the depository institutions in which those deposits are held.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of ninety days or less from the date of purchase to be cash equivalents. Cash
equivalents primarily consist of overnight money market accounts, time deposits, commercial paper and government agency notes. The carrying amount reported for cash and cash equivalents approximates
its fair value. Time deposits, including certificates of deposit, amounted to $48.0 million and $47.0 million at March 31, 2005 and 2004, respectively.

The
Company had restricted cash of $4.3 million and $4.7 million at March 31, 2005 and 2004, respectively. The restricted cash was primarily used to secure certain
real property leases and certain other obligations.

F-13

---



Allowance for Doubtful Accounts

The Company makes estimates regarding the collectibility of its accounts receivable. The Company evaluates the adequacy of the allowance for doubtful accounts by
analyzing specific accounts receivable balances, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment cycles. Material differences may result in the
amount and timing of expense for any period if management were to make different judgments or utilize different estimates. If the financial condition of our customers deteriorates, resulting in an
impairment of their ability to make payments, additional allowances might be required. The Successor Company recognized a $1.1 million benefit and a $2.0 million benefit from the
reduction of the allowance for doubtful accounts for the fiscal year ended March 31, 2005 and the 257 days ended March 31, 2004, respectively. The Predecessor Company recognized a
$0.4 million and a $7.1 million benefit from the reduction of the allowance for doubtful accounts for the 109 days ended July 18, 2003 and the fiscal year ended
March 31, 2003, respectively.

Fair Value of Financial Instruments

The carrying value of certain of the Company's financial instruments, including other current assets, accounts payable and factor arrangements approximates fair
value because of their short maturities. The carrying value of the Company's $36.8 million of Senior Notes approximates fair value as of March 31, 2005.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives:

|Property and Equipment |  | Estimated Useful Life                         
|---------------------- |  | ----------------------------------------------
|Furniture and fixtures |  | 5 years                                       
|Equipment              |  | 3-5 years                                     
|Software               |  | 3 years                                       
|Leasehold improvements |  | Shorter of estimated useful life or lease term

Maintenance
and repairs are charged to operations as incurred. When assets are sold or otherwise disposed of the cost and related accumulated depreciation are removed from the accounts
and any gain or loss is included in operations for the applicable period.

Internal-use Software

Costs incurred to develop internal-use software during the application development stage are capitalized and reported at the lower of cost or fair
value. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation, and testing. Costs of significant upgrades and
enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs are
amortized using the straight-line method over three years.

We
assess potential impairment of capitalized internal-use software whenever events or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows that are expected to be generated by the asset. If
such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to sell.

F-14

---



Goodwill and Other Intangible Assets

The Company's only indefinite-lived intangible asset is goodwill, which was recognized on July 18, 2003 in accordance with the application of fresh-start
reporting (see Note 1). In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), the Company considers and
measures goodwill for impairment, if any, at least annually, and impairments are charged to the results of operations.

Intangible
assets that have definite lives consist of developed technology, trademarks and trade names, customer contracts, and customer lists and were also recognized on July 18,
2003 in accordance with fresh-start reporting (see Note 1). Intangible assets that have definite lives are reviewed for impairment whenever events or circumstances indicate that the carrying
value is not recoverable and exceeds its fair value.

Long-lived Assets

The Company evaluates potential impairment of long-lived assets to be held and used and long-lived assets to be disposed of in accordance
with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived Assets" (SFAS 144). SFAS 144 establishes procedures for review
of recoverability, and measurement of impairment, if necessary, of long-lived assets and certain identifiable intangibles held and used by an entity. SFAS 144 requires that those
assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable based on expected undiscounted cash flows
attributable to that asset grouping.

Investments

Investments are accounted for using the cost method, as the Company's ownership interest in each of the investments has been less than 20% and the Company does
not have significant influence. Investments are reviewed for impairment whenever events or circumstances indicate the carrying value is not recoverable.

At
March 31, 2005, the Company's investment amounts are not significant. The Company's investments were primarily in companies whose operations were not sufficient to establish
them as profitable. The Company has incurred impairments on some of these investments.

Capitalized Computer Software and Research and Development Costs

In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" (SFAS 86), software development costs are capitalized from the time the product's technological feasibility has been established until the product is released for sale to the general public.
The Company establishes technological feasibility in accordance with SFAS 86 using the working model method. During the three-year period ended March 31, 2005, no software
development costs were capitalized, as the costs incurred between achieving technological feasibility and product release were minimal.

Research
and development costs, including the design of product enhancements, are expensed as incurred and consist primarily of salaries, benefits and allocated overhead costs.

Advertising Costs

The Company expenses advertising costs as incurred. For the Successor Company, advertising costs totaled $5.5 million and $2.2 million for the
fiscal year ended March 31, 2005 and the 257 days ended March 31, 2004, respectively. The Predecessor Company had advertising costs of $1.0 million and

F-15

---



$3.4 million
for the 109 days ended July 18, 2003 and the fiscal year ended March 31, 2003, respectively.

Foreign Currency Translation

Assets and liabilities of the Company's foreign operations are translated into United States dollars at the exchange rate in effect at the balance sheet date, and
revenue and expenses are translated at the weighted-average exchange rate for each reporting period. Translation gains or losses of the Company's foreign subsidiaries are not included in operations
but are reported as other comprehensive income (loss). The functional currency of those subsidiaries is the primary currency in which the subsidiary operates. Gains and losses on transactions
denominated in other than the functional currency of the Company's foreign operations are included in the results of operations. Foreign currency transaction gains (losses) net consist primarily of
exchange rate gains or losses resulting from remeasurement of foreign-denominated short-term intercompany balances, as well as, third-party receivable and payable balances and cash
balances of the Company's operating entities into their functional currencies at period-end market rates.

Income Taxes

Deferred taxes are accounted for using the liability method as prescribed by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when, in the Company's opinion, it is more likely than not that some or all of the
deferred tax assets will not be realized (see Note 10).

Computation of Net Income (Loss) Per Share

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 128). SFAS 128 requires the Company to compute basic and diluted earnings per share data for all periods for which an income statement is presented. Basic earnings per share
are 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 the Company's equity and debt securities under the treasury stock method or the if-converted method.

For
the fiscal year ended March 31, 2005, the Successor Company's loss per share excludes the effect of approximately 0.3 million shares issuable under employee stock
options, because the options are anti-dilutive under the treasury stock method, as their exercise prices were greater than the average market price of the Company's common stock for that
period. In addition, the Successor Company's net loss per share for the fiscal year ended March 31, 2005 excludes the effects of approximately 0.2 million potentially dilutive shares
issuable under employee stock options, calculated using the treasury stock method, as such options would be anti-dilutive given the Company's net loss for the period.

For
the 257 days ended March 31, 2004, the Successor Company's diluted net loss per share excludes the effect of approximately 0.2 million shares issuable under
employee stock options, because the options are anti-dilutive under the treasury stock method, as their exercise prices were greater than the average market price of the Company's common
stock for that period. In addition, the Successor Company's diluted net loss per share for the 257 days ended March 31, 2004 excludes the effects of approximately 0.1 million
potentially dilutive shares, issuable under employee stock options, calculated

F-16

---



using
the treasury stock method, as such options would be anti-dilutive given the Company's net loss for the period.

For
the 109 days ended July 18, 2003, the Predecessor Company's diluted income per share from continuing operations and net income exclude the effect of approximately
12.4 million shares, issuable under employee stock options, as inclusion would be anti-dilutive under the treasury stock method, as their exercise prices were greater than the
average market price of the Company's common stock for the period.

A
reconciliation of the numerator and denominator for the basic and diluted income per share from continuing operations calculations for the Predecessor Company for the 109 days
ended July 18, 2003 is presented below (in thousands):

Predecessor Company109 Days Ended
July 18, 2003Numerator:Income from continuing operations for computation of basic income per share from continuing operations

$
373,937Add back interest expense on convertible subordinated notes


4,435Income from continuing operations for computation of diluted income per share from continuing operations

$
378,372Denominator:Weighted-average shares for computation of basic income per share from continuing operations


195,654Unvested restricted shares


1,284Incremental shares on assumed exercise of stock options, using the treasury stock method


564Incremental shares on assumed conversion of subordinated notes


10,800Weighted-average shares for computation of diluted income per share from continuing operations


208,302


For
the fiscal year ended March 31, 2003 the Predecessor Company's diluted net loss per share excludes the effect of approximately 20.1 million shares, issuable under
employee stock options because the options are anti-dilutive under the treasury stock method, as their exercise prices were greater than the average market price of the Company's common
stock for that period; and 10.8 million shares issuable upon conversion of the convertible subordinated notes due November 2007, because the convertible subordinated notes are
anti-dilutive under the if-converted method, due to the Company's net loss from continuing operations for the period.

Recapitalization

Pursuant to the Reorganization Plan, the Company was recapitalized effective August 7, 2003. In accordance with the Reorganization Plan,
15.0 million new shares were issued and 2.65 million shares were reserved for issuance under stock option plans. In accordance with SOP 90-7, historical shares and per share
amounts of the Predecessor Company have not been restated to reflect this recapitalization since the Successor Company is considered a new reporting entity.

F-17

---



Stock-Based Compensation

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including Financial Accounting Standards Board (FASB) Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: An
Interpretation of APB Opinion No. 25" to account for its fixed stock option plans. Under this method, deferred compensation is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), established accounting and
disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosure, an amendment of FASB Statement No. 123."

The
following table illustrates the effect on net (loss) income and net (loss) income per share if the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (in thousands, except per share data).

|                                                                                                                                            |                     |   |         |       |   |         |       |   |        
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------- | ----- | - | ------- | ----- | - | -------
|
|
|Net (loss) income as reported                                                                                                               |                     | $ | (25,400 | )     | $ | (17,868 | )     | $ | 374,189
|Add: Stock-based employee compensation expense included in reported net (loss) income net of related tax effects                            |                     |   | 839     |       |   |        |       |   | 551    
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |                     |   | (5,115  | )     |   | (1,731  | )     |   | (597   
|                                                                                                                                            |                     |   |         |       |   |         |       |   |        
|Pro forma net (loss) income                                                                                                                 |                     | $ | (29,676 | )     | $ | (19,599 | )     | $ | 374,143
|                                                                                                                                            |                     |   |         |       |   |         |       |   |        
|Net (loss) income per share:                                                                                                                |                     |   |         |       |   |         |       |   |        
|                                                                                                                                            | Basicas reported   |   | $       | (1.69 | ) | $       | (1.19 | ) | $      
|                                                                                                                                            | Basicpro forma     |   | $       | (1.97 | ) | $       | (1.31 | ) | $      
|                                                                                                                                            | Dilutedas reported |   | $       | (1.69 | ) | $       | (1.19 | ) | $      
|                                                                                                                                            | Dilutedpro forma   |   | $       | (1.97 | ) | $       | (1.31 | ) | $      

In
November 2002, the Predecessor Company completed the sale of its Remedy business (see Note 3), which accelerated the recognition of substantially all deferred
compensation charges related to stock options. The compensation charge included in reported net income for fiscal 2003 related to that acceleration totaled approximately $24.4 million.

Comprehensive Income (Loss)

Other comprehensive income (loss) is defined as the change in equity of a business enterprise from transactions and other events and circumstances from
non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities. Foreign currency translation adjustments are the Company's
only item giving rise to accumulated other comprehensive income (loss) for the periods presented. The Company presents other comprehensive income (loss) in its consolidated statements of stockholders'
equity (deficit) and comprehensive income

F-18

---



(loss).
Comprehensive loss for the fiscal year ended March 31, 2005 consists of the following (in thousands):

Fiscal Year
Ended
March 31, 2005Net (loss) income, as reported

$
(25,400
)Foreign currency translationcurrent period


(4,447
)Foreign currency translationprior periods


1,897Comprehensive (loss) income

$
(27,950
)


Foreign
currency translation for the fiscal year ended March 31, 2005 of $(4.4) million includes increases in goodwill and identifiable intangibles of $0.8 million
and $0.5 million, respectively, relating to the translation of intangible assets whose functional currency is other than the U.S. dollar.

During
fiscal 2005, the Company noted that goodwill and identifiable intangibles attributable to foreign entities but recorded at the parent company level were not remeasured in the
functional currencies of the entities to which they relate for periods subsequent to the Company's adoption of fresh-start
reporting (July 18, 2003). Comprehensive loss for the fiscal year ended March 31, 2005 includes $1.9 million which represents the cumulative effect of changes in foreign currency
exchange rates on remeasuring goodwill and identifiable intangible assets from the functional currencies of the entities to which they relate to the reporting currency of the U.S. dollar from
July 18, 2003 through March 31, 2004. For that period goodwill and intangible assets increased by $1.1 million and $0.8 million, respectively. The Company believes the
effect of the adjustment to goodwill and identifiable intangible assets, stockholders' equity and comprehensive income (loss) as of and for the individual and year-to-date
periods from July 18, 2003 through March 31, 2005 is not material. As a result of this adjustment, the accompanying consolidated balance sheet as of March 31, 2005 appropriately
reflects the translation effect resulting from the remeasurement in the respective functional currencies to the reporting currency, the U.S. dollar.

Recent Accounting Pronouncements

On December 16, 2004 the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment," (SFAS 123R) requiring that
the compensation cost relating to share-based payment transactions be measured and recognized in the financial statements using the fair value of the awards. This statement eliminates the alternative
to use APB 25's intrinsic value method of accounting that was provided in SFAS 123. Under APB 25, issuing stock options to employees generally resulted in no recognition of
compensation cost. SFAS 123R requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of
those awards (with limited exceptions). SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance based awards and
employee share purchase plans. SFAS 123R replaces SFAS 123 and supersedes APB 25. In April 2005 the Securities and Exchange Commission amended
Regulation S-X to amend the date for compliance with SFAS 123R to the first interim or annual reporting period of a registrant's first fiscal year beginning after
June 15, 2005. As a result the Company is required to adopt SFAS 123R on April 1, 2006. The Company is currently assessing the impact of SFAS 123R on its compensation
strategies and financial statements and determining which transition alternative it will elect. The Company believes the adoption of SFAS 123R may have a material effect on its operating
results if current compensation strategies are continued.

F-19

---



Reclassifications and Revisions

Certain amounts previously reported have been reclassified to conform to the current presentation, including the reporting of foreign currency transaction gains
(losses) separately from general and administrative expense and certain operating cash flow items.

3.     Discontinued Operations

During the fiscal years ended March 31, 2003 and 2002, the Company took several actions intended to raise cash, reduce expenses and improve operating
results by streamlining operations and eliminating non-core businesses. As a result, the Company sold its SCE and Remedy businesses. These businesses are treated as discontinued operations
in these consolidated financial statements.

SCE Business

In February 2002, Peregrine's Board of Directors approved management's plans to discontinue the operations and business of the Company's SCE business. In
accordance with Accounting Principles Board Opinion 30: "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" (APB 30), Peregrine has reported the results of operations of the SCE business as discontinued operations. The SCE business primarily comprised
assets acquired in the Harbinger and Extricity transactions and offered software applications and services that automated and integrated business-to-business relationships. In
June 2002, Peregrine sold all of the shares of its wholly-owned Peregrine Connectivity subsidiary (the SCE business) to PCI International, Inc. (PCI), an entity affiliated with Golden
Gate Capital LLC, for approximately $35 million in cash, before transaction costs, resulting in a loss on disposal of $47.8 million, including a $13.9 million accrual at
March 31, 2002 for the estimated fiscal 2003 loss from operations during the phase-out period. The Company also licensed to PCI certain intellectual property rights acquired in the
Extricity acquisition in connection with the sale of the SCE business.

Operating
results of SCE are presented below (in thousands):

Predecessor
CompanyYear Ended
March 31, 2003Revenue

$
19,575Impairments and amortization


Operating costs and expenses


(30,032
)Phase-out loss accrual


13,881Interest (expense) income, net


(41
)Income taxes


(45
)Income from operations


3,338Loss on disposal, net of income taxes of $0


(1,925
)Income from discontinued operations

$
1,413


F-20

---



Net
cash provided by (used in) activities of SCE is provided below (in thousands):

Predecessor Company109 Days
Ended
July 18, 2003

Year Ended
March 31, 2003Income from discontinued operations (including loss on disposal)

$


$
1,413Depreciation





Impairment and amortization of goodwill and intangibles





Loss on disposal of discontinued operations





1,925Proceeds from sales of discontinued operations





33,149Changes in operating assets and liabilities of discontinued operations


4,000


(41,735
)Cash used in financing activities





(647
)Net cash provided by (used in) discontinued operations

$
4,000

$
(5,895
)


Remedy Business

In September 2002, the Company entered into an agreement (Sale Agreement) with BMC pursuant to which BMC, subject to bid procedures approved by the
Bankruptcy Court, acquired the assets and assumed substantially all the liabilities of the Remedy business for $355 million, subject to adjustments as provided for in the Sale Agreement. In
November 2002, the sale of Remedy to BMC was approved by the Bankruptcy Court and completed. In June 2003, Peregrine and BMC agreed on a final adjusted sale price of $348 million.
In November 2003, as specified in the sales agreement, an indemnification holdback of $10 million of the sale's proceeds was placed into escrow by BMC and released to the Company.

Operating
results of Remedy are presented below (in thousands):

Predecessor Company109 Days
Ended
July 18, 2003

Year Ended
March 31, 2003Revenue

$
252

$
125,752Impairments and amortization





(22,991
)Operating costs and expenses





(109,790
)Interest (expense) income, net





(2,118
)Income taxes





(3,219
)Income (loss) from operating activities


252


(12,366
)Gain on disposal, net of income tax expense of $16,497





268,517Income (loss) from discontinued operations

$
252

$
256,151


Predecessor
Company revenue for the 109 days ended July 18, 2003 relates to the collection of a trade receivable that had extended payment terms.

In
connection with the Company's adoption of fresh-start reporting (see Note 1) remaining assets of $10 million consisting of the indemnification holdback was reclassified
to other assets and was collected during the 257 days ended March 31, 2004. Tax-related payables were reclassified to accrued liabilities.

F-21

---



Net
cash (used in) provided by activities of Remedy is provided below (in thousands):

Predecessor Company109 Days
Ended
July 18, 2003

Year Ended
March 31, 2003Income from discontinued operations (including gain on disposal)

$
252

$
256,151Depreciation





16,325Impairment and amortization of goodwill and intangibles





17,442Gain on disposal of discontinued operations





(268,517
)Proceeds from sales of discontinued operations





338,281Payment of purchase price adjustment on sale of discontinued operations


(7,224
)

Changes in operating assets and liabilities of discontinued operations


5,537


30,213Net cash (used in) provided by discontinued operations

$
(1,435
)
$
389,895


Summary of SCE and Remedy

The following is a summary of the components of the discontinued operations amounts presented in the financial statements (in thousands):

Predecessor Company
109 Days Ended July 18, 2003SCE

Remedy

TotalIncome from operating activities

$


$
252

$
252Income from discontinued operations

$


$
252

$
252Net cash provided by (used in) discontinued operations

$
4,000

$
(1,435
)
$
2,565


Predecessor Company
March 31, 2003SCE

Remedy

TotalIncome (loss) from operating activities

$
3,338

$
(12,366
)
$
(9,028
)(Loss) gain on disposal


(1,925
)

268,517


266,592Income from discontinued operations

$
1,413

$
256,151

$
257,564Net cash (used in) provided by discontinued operations

$
(5,895
)
$
389,895

$
384,000


F-22

---



4.     Goodwill

The following table summarizes changes in Successor Company goodwill during the fiscal year ended March 31, 2005 and the 257 days ended
March 31, 2004 (in thousands):

|Goodwill established upon application of fresh-start reporting as of July 18, 2003 |                                                                                                                                                                                    | $ | 184,129 |      
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | -----
|                                                                                   | Adjustments to fresh-start net assets, primarily to recorded tax assets and liabilities for contingencies that existed prior to application of fresh-start reporting (see Note 10) |   |         | (479 
|                                                                                   |                                                                                                                                                                                    |   |        
|Balance at March 31, 2004                                                          |                                                                                                                                                                                    |   | 183,650 |      
|                                                                                   | Adjustments to fresh-start net assets, primarily to recorded tax assets and liabilities for contingencies that existed prior to application of fresh-start reporting (see Note 10) |   |         | (750 
|                                                                                   | Increase due to changes in currency exchange rates (see Note 2)                                                                                                                    |   |         | 1,935
|                                                                                   |                                                                                                                                                                                    |   |        
|Balance at March 31, 2005                                                          |                                                                                                                                                                                    | $ | 184,835 |      
|                                                                                   |                                                                                                                                                                                    |   |        

5.     Balance Sheet Components

Other current assets of the Successor Company consist of the following (in thousands):

March 31, 2005

March 31, 2004Amounts due under installment contracts (recognized on balance sheet in connection with the application of fresh-start reportingsee Note 1)

$


$
4,961Refundable income taxes


217


1,993Prepaid expenses and other


8,670


6,441$
8,887

$
13,395


Property
and equipment, net of the Successor Company consist of the following (in thousands):

March 31, 2005

March 31, 2004Furniture and equipment

$
6,629

$
4,540Leasehold improvements


5,216


4,433Software


2,697


1,81514,542


10,788Less accumulated depreciation and amortization


(6,120
)

(3,281
)$
8,422

$
7,507


Depreciation
and amortization expense of property and equipment of the Successor Company totaled $3.3 million and $3.1 million for the fiscal year ended March 31,
2005 and the 257 days ended March 31, 2004, respectively. Depreciation and amortization expense of property and equipment of the Predecessor Company totaled $1.9 million and
$14.9 million for the 109 days ended July 18, 2003 and for the fiscal year ended March 31, 2003, respectively.

F-23

---



Identifiable
intangible assets of the Successor Company consist of the following at March 31, 2005 (in thousands):

|                           |  | Gross
Carrying
Amount |         | Change in
Currency
Exchange
Rates |   | Accumulated
Amortization |  | Net |         | Amortization
Period
|-------------------------- |  | --------------------- | ------- | --------------------------------- | - | ------------------------ |  | --- | ------- | -------------------
|Developed technology       |  | $                     | 53,400  |                                   | $ | 100                      |  | $   | (16,699 | )                  
|Trademarks and trade names |  |                       | 6,900   |                                   |   |                         |  |     | (2,350  | )                  
|Customer contracts         |  |                       | 33,600  |                                   |   | 900                      |  |     | (9,696  | )                  
|Customer lists             |  |                       | 31,200  |                                   |   | 271                      |  |     | (10,684 | )                  
|                           |  |                       |         |                                   |   |                          |  |     |         |                    
|                           |  | $                     | 125,100 |                                   | $ | 1,271                    |  | $   | (39,429 | )                  
|                           |  |                       |         |                                   |   |                          |  |     |         |                    

Amortization
expense of identified intangible assets of the Successor Company totaled $23.2 million and $16.2 million for the fiscal year ended March 31, 2005 and
the 257 days ended March 31, 2004, respectively.

Estimated
amortization expenses of identifiable intangible assets for the fiscal years ending March 31 are as follows (in thousands):

Year Ended March 31,2006

$
23,2722007


23,2722008


23,2722009


14,0902010


3,036$
86,942


Accrued
expenses of the Successor Company consist of the following (in thousands):

March 31, 2005

March 31, 2004Employee compensation

$
12,315

$
12,227Income taxes payable (see Note 3 and Note 10)

$
44,824

$
38,979Interest


348


435Restructuring (see Note 8)


86


1,125Professional fees


3,655


2,370Reorganization items (see Note 9)


2,344


5,343Other


6,070


4,975$
69,642

$
65,454


6.     Related Party Transactions

Agreement with Seneca Financial

Seneca Financial Group, Inc. (Seneca Financial) provided services to the equity committee, which represented the holders of Predecessor Company's common
stock in connection with the bankruptcy proceedings. James Harris is the founder and president of Seneca Financial and has been a director of Peregrine since August 2003. Pursuant to an
agreement with the equity committee, the Successor Company paid fees to Seneca Financial in the amount of $0.3 million for the 257 days ended March 31, 2004 and the Predecessor
Company paid professional fees of $0.5 million and $0.1 million for the 109 days ended July 18, 2003 and the fiscal year ended March 31, 2003, respectively, in
connection with services provided by Seneca Financial to the Equity Committee.

F-24

---



7.     Notes Payable

Notes payable of the Successor Company consist of the following at March 31, 2005 and 2004 (in thousands):

|                                                                                                                                                                                                                                                                                                                                                  |  | March 31, 2005 |        | March 31, 2004
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | --------------
|6.5% Senior Notes due 2007, unsecured, interest at 6.5%, payable in eight equal semi-annual principal payments plus interest in arrears beginning February 15, 2004 and concluding August 15, 2007                                                                                                                                                |  | $              | 36,750 |               
|Factor loans payable to banks, underlying Predecessor Company installment contracts pledged as collateral, non-interest bearing, net of imputed interest at 8% of $0.1 million at March 31, 2004, payable to banks
from proceeds of receivable collections                                                                                        |  |                |       |               
|General bankruptcy claims, unsecured, interest at applicable federal judgment rate, net of imputed interest of $0.7 million and $1.2 million at March 31, 2005 and 2004, respectively, at rates ranging from
6.7 to 8%, payable in four equal annual installments plus applicable interest beginning August 7, 2004 and concluding August 7, 2007 |  |                | 6,679  |               
|Motive settlement, unsecured, non-interest bearing, net of imputed interest at 8% of $0.3 million and $0.6 million at March 31, 2005 and 2004, respectively, payable in four annual installments of
$1.25 million, beginning August 7, 2004 and concluding August 7, 2007                                                                         |  |                | 3,389  |               
|Note payable to vendor, unsecured, interest at 5.9%, payable in quarterly principal and interest payments scheduled through January 2005                                                                                                                                                                                                          |  |                |       |               
|                                                                                                                                                                                                                                                                                                                                                  |  |                |        |               
|Total notes payable                                                                                                                                                                                                                                                                                                                               |  |                | 46,818 |               
|Less current portion                                                                                                                                                                                                                                                                                                                              |  |                | 17,811 |               
|                                                                                                                                                                                                                                                                                                                                                  |  |                |        |               
|Notes payable, net of current portion                                                                                                                                                                                                                                                                                                             |  | $              | 29,007 |               
|                                                                                                                                                                                                                                                                                                                                                  |  |                |        |               

Maturities
of notes payable are as follows (in thousands):

Year Ended March 31,2006

$
18,3982007


18,3982008


11,050Total


47,846Less: Amounts representing imputed interest


(1,028
)Total present value at March 31, 2005

$
46,818


6.5% Senior Notes due 2007

As part of the Reorganization Plan and in order to settle certain bankruptcy claims, the Company issued unsecured notes in the amount of $58.8 million. The
notes bear interest at 6.5% and require eight equal semi-annual principal payments, plus interest in arrears, beginning February 15, 2004 and concluding August 15, 2007. The
notes may be prepaid at any time; however, a premium of 2% is required if repayment occurs before February 15, 2006. The senior notes are general unsecured obligations, which rank senior in
right of payment to all existing and future subordinated indebtedness andpari passuin right of payment with all current and future unsubordinated
indebtedness. The note agreement requires the Company to make an offer to redeem the notes in the event of a change in control at 101% of the principal amount plus accrued and unpaid interest. The
note agreement also

F-25

---



restricts
the Company's ability to pay dividends, repurchase stock, incur additional indebtedness and sell assets.

Factor Loans

Beginning in 1999, Peregrine entered into accounts receivable financing facilities (Factoring Agreements) with several financial institutions (Factoring Banks).
Under these arrangements, the Factoring Banks extended the Company loans secured by certain Peregrine accounts receivable. The Company has treated these Factoring Agreements as secured borrowings. The
balances outstanding under the Factoring Agreements were $4.8 million, net of unamortized discounts of $0.1 million, at March 31, 2004 and were repaid in full during fiscal 2005.

The
discount was amortized to interest expense over the term of the related loan using the effective interest method. The amounts amortized were $0.1 million, $0.4 million,
$0.3 million and $6.8 million during the fiscal year ended March 31, 2005, the 257 days ended March 31, 2004, the 109 days ended July 18, 2003 and the
fiscal year ended March 31, 2003, respectively.

Bankruptcy Claims

As part of the Reorganization Plan and in order to settle certain bankruptcy claims, the Company agreed to make future settlement payments totaling
$9.8 million (excluding imputed interest). The claims are unsecured obligations of the Company and bear interest ranging from zero to the federal judgment rate. The payments are due annually
every August through 2007.

Motive Settlement

The Company agreed to pay $5.0 million as part of a settlement of a lawsuit filed by Motive Communications, Inc. in September 2002 against
Peregrine, Remedy and certain of the Company's former officers claiming, among other things, that it was fraudulently induced into licensing software to the Company (see Note 13).

Other

In June 2002, the Company entered into a loan and security agreement with Foothill Capital Corporation (Foothill Loan), acting as arranger and
administrative agent, and Ableco Finance LLC (an affiliate of Cerberus Capital Management), as lender. The arrangement included a term loan facility and a revolving loan facility. The term loan
facility was payable interest only on a monthly basis, with
the entire principal balance, together with all accrued but unpaid interest, due and payable on or before December 31, 2003. The term loan facility also provided for mandatory repayments from
the proceeds of asset dispositions, other than proceeds from the sale of the Company's Harbinger subsidiary to Golden Gate Capital LLC. The Company's payment obligations were secured by a lien on
substantially all of the assets of Peregrine and its subsidiaries that were parties to the agreements. The term loan facility allowed Peregrine to borrow as much as $56 million. Peregrine
borrowed the full amount available under the term loan facility and received proceeds of approximately $49 million after fees and expenses. It paid off these borrowings under the term loan
facility in September 2002, in connection with the sale of the Remedy business to BMC, as described below. The revolving loan facility was never activated.

In
connection with the Remedy sale, BMC provided an interim debtor-in-possession (DIP) financing facility to the Company for as much as $110 million in
borrowings. Of the $110 million, $10 million was reserved for any break-up fee due to BMC if the sale of Remedy was not consummated, and the Company was only permitted to
draw down $60 million of the balance of available borrowings until a sales bidding procedures order was entered by the Bankruptcy Court. To secure the Company's payment obligation under the
facility, BMC was granted first priority security

F-26

---



interests
and liens in substantially all of the Company's assets, subject to certain permitted liens including the Factoring Banks' liens in certain purchased accounts and, to a limited extent, the
liens for the Foothill Loan. BMC also provided emergency initial funding to the Company of $3.5 million on September 20, 2002. The Bankruptcy Court approved the DIP facility and the sale
of Remedy to BMC. The Company drew down approximately $54 million under the DIP facility, of which $36.9 million was used to satisfy in full the outstanding balance of the Foothill Loan
and $3.5 million was credited against the amount due under BMC's emergency pre-petition loan to the Company. The Company's obligations to BMC under the DIP facility were fully
satisfied as an offset against the purchase price for Remedy when the Remedy sale closed on November 20, 2002.

In
November and December of 2000, Peregrine issued $270 million principal amount of 5.5% convertible subordinated notes (Convertible Notes) due November 2007. Costs
incurred to issue the debt, including commissions, were capitalized as debt issuance costs and were being amortized to interest expense over the term of the related debt using the effective interest
method. As a result of the Company's Chapter 11 filing in September 2002, the unamortized balance of $5.4 million was charged to reorganization items in the consolidated statement
of operations (see Note 9). From the time the Company filed for bankruptcy protection in September 2002 until July 18, 2003, the Company did not pay its scheduled interest
payments. During this period the Company continued to accrue interest on the Convertible Notes not to exceed the allowed claim amount in bankruptcy proceedings. Under the Reorganization Plan, the
Company's obligations on the Convertible Notes were extinguished through the transfer to the holder of new 6.5% senior notes due 2007, cash and shares of the Company's new common stock.

8.     Restructuring, Impairments and Other

Restructuring, impairments and other consist of the following (in thousands):

|                                                                       |  |   |        |   |   |   |  |   |       
|---------------------------------------------------------------------- |  | - | ------ | - | - | - |  | - | ------
|
|
|Impairment of goodwill, identifiable intangible assets and investments |  | $ |       |   | $ |  |  | $ |      
|Gain on sale of investments                                            |  |   | (1,096 | ) |   |  |  |   | (1,239
|Gain on sale of non-core product lines                                 |  |   |       |   |   |  |  |   |      
|Loss from abandoned fixed assets                                       |  |   |       |   |   |  |  |   |      
|Loss from abandoned leases                                             |  |   |       |   |   |  |  |   |      
|Employee severance                                                     |  |   |       |   |   |  |  |   |      
|Stockholder litigation settlement                                      |  |   |       |   |   |  |  |   |      
|                                                                       |  |   |        |   |   |   |  |   |       
|                                                                       |  | $ | (1,096 | ) | $ |  |  | $ | (1,239
|                                                                       |  |   |        |   |   |   |  |   |       

The
Company invested in several companies with which it had business relationships for aggregate consideration of approximately $19.3 million during fiscal year 2002. These
investments are accounted for using the cost method because the Company does not have significant influence on the management of the companies in which it invested. The Company sold certain of these
investments during the 109 days ended July 18, 2003, which resulted in a gain of approximately $1.2 million.

In
accordance with fresh-start reporting, the Successor Company adjusted the carrying value of these investments to their fair value on July 18, 2003, which resulted in an
increase of $3.1 million to the carrying value. The carrying value of these investments totaled $3.2 million at March 31, 2004 and is included in investments and other assets in
the consolidated balance sheets.

F-27

---



In January 2005 the Company received a $4.2 million initial payment in connection with the sale of one of its cost-method investments and recognized a
$1.1 million gain on this sale in the fiscal 2005 fourth quarter. In addition to the $4.2 million initial payment received, the Company has rights to receive up to $0.5 million of
additional proceeds from the sale of this investment upon final resolution of purchase contingencies. Given the uncertainties surrounding the contingencies, amounts subsequently received, if any, will
be recorded as an additional gain on the sale in the period received.

For
each of the fiscal year ended March 31, 2005 of the Successor Company and the 109 days ended July 18, 2003 of the Predecessor Company, restructuring, impairments
and other represented a gain realized upon the sale of certain minority investments in other companies.

In
fiscal 2003, the Company significantly reduced its work force. As a result, the Company had substantial excess fixed assets and facilities, which it abandoned or sold for minimal
consideration. Fiscal 2003 restructuring, impairments and other expenses included charges of $34.7 million for the abandonment of fixed assets and a $0.9 million impairment charge for
identifiable intangible assets.

In
fiscal 2003, the Company sold the assets of its transportation (or fleet) management product line, its facility management product line, its telecommunication management product line
and its on-line travel booking system for approximately $7.4 million, $4.9 million, $2.6 million and $1.0 million, respectively, and recognized a total gain
from such sales of $15.3 million, which is included in restructuring, impairments and other in the consolidated statement of operations for the fiscal year ended March 31, 2003. The
revenue related to these non-core product lines is not material to the Company's consolidated results of operations.

During
fiscal 2003, the Company implemented a restructuring plan to reduce expenses in line with future revenue expectations and focus operations on the core market. Employee severance
charges include amounts paid to former employees of the Predecessor Company who were laid off in connection with the Company's downsizing. All employees receiving payments included in the employee
severance charge were terminated by March 31, 2003.

In
fiscal 2003, the Company also decided to abandon numerous leased facilities in both domestic and foreign locations and recorded a $33.3 million restructuring charge related to
abandoned leases. At March 31, 2003, the remaining restructuring accrual was $5.9 million, which related primarily to foreign lease settlements. In the twelve-month period ended
March 31, 2004, the Company paid or otherwise settled approximately $4.8 million of accrued lease termination costs, leaving a balance of $1.1 million in
the restructuring accrual at March 31, 2004. In fiscal 2005, the Company paid or otherwise settled approximately $1.0 million in lease termination liabilities.

For
the fiscal year ended March 31, 2003, the $18.8 million of stockholder litigation expenses of the Predecessor Company consisted of $3.2 million in cash to be
paid to a litigation trust for securities claimants, $12.2 million in fair value of shares of Successor Company common stock issued to securities claimants, and $3.4 million in fair
value of shares of Successor Company common stock to be issued to specified subordinated claimants, including former and current employees, officers and directors, to satisfy their indemnification
claims (see Note 17).

9.     Reorganization Items

As described in Note 1, on September 22, 2002, the Company and its Remedy subsidiary filed for voluntary protection from creditors under Chapter 11
of the United States Bankruptcy Code. As a result of the Company's Chapter 11 filing, its financial accounting was subject to the provisions of SOP 90-7 for the reporting periods
subsequent to September 22, 2002 through July 18, 2003. Pursuant to SOP 90-7, revenue, expenses (including professional fees), realized gains and losses, and provisions for
losses resulting from the reorganization of the business were reported separately as reorganization items. Reorganization items, net for the Successor Company for the fiscal year ended
March 31, 2005

F-28

---



consist
primarily of professional fees directly related to the bankruptcy filing, net of $0.7 million of gains on settlements with creditors. Reorganization items, net for the Successor Company
for the 257 days ended March 31, 2004 consist primarily of professional fees directly related to the bankruptcy filing. Reorganization items, net for the Predecessor Company consists of
the following (in thousands):

Predecessor Company109 Days
Ended
July 18, 2003

Year Ended
March 31, 2003Professional fees

$
(8,279
)
$
(12,125
)Reduction of previously accrued estimated lease exit cost adjusted to the allowed claim amount





21,405Write-off of debt issuance costs





(5,435
)Lease terminations





(4,303
)Employee retention and benefits


(6,302
)

Acceleration of deferred compensation expense


(499
)

Gains on settlements with creditors


35,393


Increase in basis of assets and liabilities (see Note 1)


358,508


$
378,821

$
(458
)


For
the 109 days ended July 18, 2003, the Predecessor Company recorded a net reorganization gain of $378.8 million. Of this gain, $358.5 million resulted from
the fair value adjustments to the Company's assets and liabilities with the adoption of fresh-start reporting. The Company also recognized a $35.4 million gain on its settlement with creditors
upon exiting bankruptcy proceedings. These gains were partially offset by costs directly related to the implementation of the Company's Reorganization Plan.

In
fiscal 2003, the Company recorded a net reorganization charge of $0.5 million. Net reorganization items include a $4.3 million provision for lease settlements of
abandoned rental space, charges of $12.1 million for professional fees directly related to the Chapter 11 proceeding and a $5.4 million write-off of debt issuance costs.
These charges were offset by a $21.4 million gain resulting from the reduction of a fiscal 2002 exit cost accrual for an abandoned facility to the allowed claim amount upon the Chapter 11
filing.

10.   Income Taxes

The geographic distribution of the (loss) income before income taxes from continuing operations is as follows (in
thousands):

Successor Company

Predecessor CompanyYear Ended March 31, 2005

257 Days Ended March 31, 2004

109 Days Ended July 18, 2003

Year Ended March 31, 2003Domestic

$
(26,529
)
$
(12,731
)
$
379,639

$
(159,913
)Foreign


6,431


(2,440
)

(4,606
)

(58,700
)Total

$
(20,098
)
$
(15,171
)
$
375,033

$
(218,613
)


F-29

---



Income
tax expense (benefit) from continuing operations consists of the following (in thousands):

|                                 |         | Successor Company |       | Predecessor Company |  
|-------------------------------- | ------- | ----------------- | ----- | ------------------- | -
|
|Current                          |         |                   |       |                     |  
|                                 | Federal |                   | $     | 221                 |  
|                                 | State   |                   |       | 206                 |  
|                                 | Foreign |                   |       | 4,954               |  
|                                 |         |                   |       |                     |  
|Total current expense            |         |                   | 5,381 |                     |  
|                                 |         |                   |       |                     |  
|Deferred                         |         |                   |       |                     |  
|                                 | Federal |                   |       |                    |  
|                                 | State   |                   |       |                    |  
|                                 | Foreign |                   |       | (79                 | )
|                                 |         |                   |       |                     |  
|Total deferred expense (benefit) |         |                   | (79   | )                   |  
|                                 |         |                   |       |                     |  
|Total income tax expense         |         | $                 | 5,302 |                     | $
|                                 |         |                   |       |                     |  

The
items accounting for the difference between income taxes computed at the federal statutory rate on (loss) income from continuing operations and the provision for income taxes on
continuing operations consists of the following (in thousands):

|                                                                        |  | Successor Company |        | Predecessor Company |  
|----------------------------------------------------------------------- |  | ----------------- | ------ | ------------------- | -
|
|Federal tax (benefit) expense at statutory rate of 34%                  |  | $                 | (6,833 | )                   | $
|State tax (benefit), net of federal effect                              |  |                   | (1,907 | )                   |  
|Effect of foreign earnings taxed at different rates                     |  |                   | 3,045  |                     |  
|Tax credits                                                             |  |                   | (958   | )                   |  
|Stock-based compensation                                                |  |                   |       |                     |  
|Non-deductible executive compensation                                   |  |                   | 483    |                     |  
|Non-deductible professional fees related to bankruptcy                  |  |                   | 724    |                     |  
|Gain on emergence from bankruptcy and adoption of fresh-start reporting |  |                   |       |                     |  
|Other permanent items                                                   |  |                   | 1,415  |                     |  
|Change in valuation allowance                                           |  |                   | 9,333  |                     |  
|                                                                        |  |                   |        |                     |  
|Total income tax expense                                                |  | $                 | 5,302  |                     | $
|                                                                        |  |                   |        |                     |  

U.S.
income taxes and foreign withholding taxes on certain undistributed earnings for some non-U.S. subsidiaries were not provided for because it has been and continues to be the
Company's intention to reinvest these earnings indefinitely in operations outside of the U.S. The Company is reviewing the potential impact of the one-time favorable foreign dividend provisions
enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004 (the "Jobs Act"). The Jobs Act creates a temporary incentive for U.S. corporations to repatriate earnings of
foreign subsidiaries by providing an elective 85% dividends received deduction for certain dividends paid during a specified period; for the Company, this would be applicable to its fiscal year 2006.
The deduction is subject to

F-30

---



numerous
limitations and requirements, including the adoption of a specific domestic reinvestment plan for the repatriated funds. The Company has not yet determined whether it will repatriate earnings
of some of its foreign subsidiaries under the Jobs Act but will decide within the timeframe the incentive is available. At March 31, 2005, unremitted earnings on which no deferred taxes have
been provided amount to approximately $37.3 million.

The
tax effects of temporary differences that give rise to the net deferred tax (liabilities) assets of the Successor Company are as follows (in
thousands):

March 31, 2005

March 31, 2004Deferred tax assets:Tax attribute carry forwards

$
79,840

$
76,887Intangible assets


30,607


33,730Deferred revenue


14,808


18,182Restructuring accruals





496Research and development credits


3,612


2,024Other


9,808


4,524Total gross deferred tax assets


138,675


135,843Deferred tax liabilities:Intangible assets


(25,505
)

(31,637
)Fixed assets


(822
)

(2,872
)Total gross deferred tax liabilities


(26,327
)

(34,509
)Total net deferred tax assets, before allowance


112,348


101,334Valuation allowance


(112,651
)

(103,318
)Net deferred tax liabilities

$
(303
)
$
(1,984
)


The
reorganization of the Company upon emergence from bankruptcy caused an ownership change under Section 382 of the Internal Revenue Code. Such ownership change resulted in
significant limitations being placed on the utilization of the Predecessor Company's pre-change tax attributes, including net operating loss carry forwards, capital loss carry forwards, tax credits
and certain built-in losses and effectively eliminated a substantial portion of the Predecessor Company's total pre-change tax attributes. For the year ended March 31, 2005 and forward, the
Company is limited to utilizing approximately $4.7 million (tax effected) of such pre-change tax attributes annually to offset any post-change income. Furthermore, should the Company cease
business (including sale of all its assets) prior
to August 7, 2005, the annual limitation of $4.7 million applicable to its pre-change tax attributes would be reduced retroactively to zero.

At
March 31, 2005, approximately $52.6 million, $62.5 million and $1.0 million of the federal tax loss, federal capital losses and federal tax credit carry
forwards, respectively, are post-change loss and credits and therefore are not subject to the annual limitation of Section 382. Additionally, approximately $56.4 million,
$62.5 million and $4.0 million of the state tax loss, state capital losses and state tax credit carry forwards, respectively, generated are post-change loss and credits, and therefore
are not subject to the annual limitation of Section 382. The capital losses are available to offset any capital gains generated in the next four taxable years.

Valuation
allowances in the amount set forth in the table above have been recorded based on management's determination that it is more likely than not that the deferred tax assets will
not be realized. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, if any, the valuation allowance will be reduced. As a result of the
adoption of fresh-start

F-31

---



reporting,
future reductions in the valuation allowance of $100.8 million as of July 18, 2003 will reduce goodwill if realized.

Due
to the adoption of fresh-start reporting, any adjustments to the Company's tax assets or liabilities for tax attributes that existed prior to the adoption of fresh-start reporting
are recorded as adjustments to goodwill. For the fiscal years ended March 31, 2004 and 2005 the Company recorded net reductions to goodwill totaling approximately $0.5 million and
$0.8 million, respectively, for adjustments to the Company's tax assets and liabilities for tax attributes that existed prior to the adoption of fresh-start reporting. These adjustments related
mainly to the receipt of refunds for pre-change tax losses and the recording of certain deferred tax assets that management has determined the Company will most likely realize in the future.

Although
in the process of completing its financial statement audit at that time, the Company filed its U.S. tax returns in a timely manner for the year ended March 31, 2002 based
upon the best available information it possessed as of the due date for such tax return. The Company sought a memorandum of understanding with the Internal Revenue Service ("IRS") pertinent to its
March 31, 2002 tax return in an attempt to obtain an advance waiver from the IRS of any penalties related to such return resulting from inaccurate or incomplete information caused by the use of
non-restated financial information to prepare the original tax return. The IRS declined to enter into the memorandum of understanding, but did acknowledge the Company's good faith effort and indicated
it would take the Company's financial difficulties under consideration if and when the tax return was selected for audit. For the fiscal years ended March 31, 2003 and 2004, financial statement
audits for those respective years were still ongoing at the time of the due dates of the returns. The Company timely filed its respective tax returns based on the best information available at the
time of the return due dates. Given the Company's good faith efforts to file timely tax returns and the IRS's response to its March 31, 2002 filing, no penalties have been accrued for financial
statement purposes pertinent to inaccuracies or
incompleteness caused by utilization of the best available financial information to prepare the original tax returns. The Company has amended its March 31, 2002 tax return and has adjusted the
original 2003 tax return net operating loss through disclosure on its 2004 tax return based upon the final financial information.

Because
of its size and the nature of its business, the Company is subject to routine tax compliance reviews by the IRS and other state and foreign taxing authorities, including
challenges to various positions the Company asserts. The Company has accrued for tax contingencies based upon its best estimate of the taxes ultimately expected to be paid and updates these accruals
over time as more information becomes available. A significant portion of the Company's taxes payable balance comprises liabilities for tax contingencies that have been recorded to address tax
exposures. The Company is currently undergoing several examinations by taxing authorities in various jurisdictions. While the Company believes it has established appropriate reserves for tax
contingencies, the taxing authorities may assert that the Company owes taxes in excess of the reserves it has established, which could have a material adverse effect on our results of operations,
financial position and liquidity. Upon resolution of tax contingencies related to pre-change tax attributes, settlement amounts less than amounts recorded at the date of the adoption of fresh-start
reporting will reduce goodwill, except for any interest expense recognized post-change which will be reversed through income.

11.   Commitments

The Successor Company leases certain buildings and equipment under non-cancelable operating lease agreements. The leases generally require the
Successor Company to pay all executory costs such as taxes, insurance and maintenance related to the leased assets. Certain of the leases contain provisions for periodic rate escalations to reflect
cost-of-living increases. Rent expense for such leases for the Successor Company totaled approximately $7.4 million and $4.5 million for the fiscal year ended
March 31, 2005 and for the 257 days ended March 31, 2004, respectively. Rent expense for the

F-32

---



Predecessor
Company totaled $2.4 million and $25.4 million, for the 109 days ended July 18, 2003 and for the fiscal year ended March 31, 2003, respectively.

Future
minimum lease payments under non-cancelable operating leases at March 31, 2005 are as follows (in thousands):

Fiscal Year Ended March 31,2006

$
6,4832007


6,1102008


5,9972009


6,0282010


5,268Thereafter


18,479Total minimum lease payments

$
48,365


12.   Guarantees

Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third
party's intellectual property rights. Certain of our customer agreements also include provisions indemnifying customers against liabilities in the event we breach confidentiality obligations or to the
extent we are responsible for certain other events. To date, we have not incurred any material costs as a result of such indemnification obligations and have not accrued any liabilities related to
such obligations in our consolidated financial statements.

Our
software license agreements also generally include a warranty that our software products will substantially operate as described in the applicable program documentation for a period
of one year after delivery. We also warrant that services we perform will be provided with a reasonable level of care and skill, in accordance with our description of the services and/or in a manner
consistent with industry standards. To date, we have not incurred any material costs associated with these warranties and have not accrued any liabilities related to such obligations in our
consolidated financial statements.

13.   Stockholders' Equity (Deficit)

Recapitalization

As described in Note 2, pursuant to the Reorganization Plan, the Company was recapitalized effective August 7, 2003. In accordance with the
Reorganization Plan, 15.0 million new shares were issued and 2.65 million shares were reserved for issuance under stock option plans. Historical shares and per-share amounts
of the Predecessor Company have not been restated to reflect this recapitalization because the Successor Company is considered a new reporting entity.

Preferred Stock

In accordance with the Reorganization Plan, the Successor Company authorized 5 million undesignated preferred shares at $0.0001 par value, none of which
were issued or outstanding at March 31, 2005 and 2004. The Board of Directors has the authority to issue the preferred stock in one or more series, and to fix the price, rights, preferences,
privileges, and restrictions, including dividend rights and rates, conversion and voting rights, and redemption terms and pricing without any further vote or action by the Company's shareholders.

F-33

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Dividend Restrictions

The note agreement governing the 6.5% Senior Notes due 2007 restricts the Company's ability to pay dividends. For example, the Company's ability to pay dividends
will depend upon, among other things, its level of indebtedness at the time of the proposed dividend or distribution, whether there is a default under the note agreement and the amount of dividends or
distributions made in the past.

Guaranteed Value Common Stock

In March 2002, the Company entered into an arrangement with a vendor, Motive Communications, Inc. (Motive) whereby the Company issued one million
common shares to partially settle a $27 million liability with Motive. Under the arrangement, Motive would sell the shares to third parties by September 30, 2002 and notify the Company
of the sales proceeds that would correspondingly reduce the Company's debt to Motive. Proceeds received by Motive upon sale of the shares to third parties by September 30, 2002, or if the
shares were not sold by that date, the market value of the shares as of September 30, 2002 were considered settled and would be recorded in stockholders' deficit with a corresponding reduction
of the Company's debt payable to Motive. As none of the shares were sold by September 30, 2002, the market value of the shares, or $0.1 million, was recorded in stockholders' deficit. On
January 19, 2003, the Company and Motive entered into a settlement agreement, which was part of the Reorganization Plan subsequently confirmed by the Bankruptcy Court. The settlement agreement
provided for a mutual release of claims in exchange for the Company's payment of $4.0 million in cash in August 2003 to Motive, the future payment of an additional $5.0 million to
Motive, without interest, in four equal annual installments beginning August 2004, the return to Motive of 1.7 million shares of Motive stock held by Peregrine and the return to
Peregrine of one million shares of Peregrine common stock held by Motive.

Subscriptions Receivable

At March 31, 2005 and 2004, the Company had approximately 3,000 and 5,000 shares, respectively, of common stock outstanding to employees for which it
accepted notes as consideration. The notes receivable outstanding have been recorded as a reduction of stockholders' equity (deficit). The employee arrangements include principal balances of
$0.04 million and $0.06 million at March 31, 2005 and 2004, respectively. For compensation expense purposes, the arrangements are accounted for as variable awards and compensation
expense (benefit) is recorded based on changes in the Company's stock price. Under these arrangements the Predecessor Company recognized a $1.2 million reduction of compensation expense during
the fiscal year ended March 31, 2003.

Treasury Stock

The Successor Company held no shares of treasury stock at March 31, 2005 and 2004. The Predecessor Company held approximately 0.5 million shares of
treasury stock at March 31, 2003.

Restricted Stock

During fiscal 2005, the Successor Company granted 40,000 shares of restricted new common stock. All of these shares were vested on the date of grant. The shares
were valued at a fair market value of $17.28 per share. The Successor Company recognized compensation expense of $0.8 million in fiscal 2005 for these shares.

During
fiscal 2003, the Predecessor Company granted 1.7 million shares of nontransferable Common Stock under restricted stock agreements to certain employees. The shares were
valued at a fair market value of $0.41 per share. The Predecessor Company recognized compensation expense of $0.6 million and $0.1 million during the 109 days ended
July 18, 2003 and in fiscal 2003, respectively, for these shares. All shares became fully vested due to the change in control of the Company pursuant to the Reorganization Plan.

F-34

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Stock Options

On June 13, 2003, the Company, as part of the Reorganization Plan, cancelled options to purchase approximately 16.2 million shares. Under the
Reorganization Plan, all options issued prior to July 8, 2002 were cancelled and options granted on or after July 8, 2002 to purchase approximately 3.9 million old common shares
were converted into options to purchase approximately 0.1 million new common shares under the 2003 Equity Incentive Plan. The Company reserved 2.7 million new common shares for issuance
under the 2003 Equity Incentive Plan and all other stock option plans were cancelled. At March 31, 2005 and 2004 there were 0.9 million and 0.7 million shares available for grant
under the 2003 Equity Incentive Plan, respectively.

In
addition to options, the 2003 Equity Incentive Plan allows for the award of cash and stock. The maximum number of shares available for issuance under the 2003 Equity Incentive Plan
was initially set at 2,650,000 shares, which number is automatically increased on January 1 of each year, beginning January 1, 2005 and continuing for 10 years, by a number
of shares equal to the lesser of: (i) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, (ii) 267,000 shares, and
(iii) a number set by the Board of Directors.

All
options granted pursuant to the plans have an exercise price determined by the Company's Board of Directors on a per-grant basis. In cases where the option exercise price
is lower than the fair value of the underlying shares at the date of grant, the Company records the intrinsic value of the award as deferred compensation and recognizes a compensation charge over the
vesting period of the award on a straight-line basis. Option grants generally have a term of seven to ten years and vest over four years.

F-35

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The
following table summarizes the Company's shares available for grant and outstanding stock options at March 31, 2005, 2004 and 2003 as well as changes during the periods then
ended (number of shares in thousands):

|                         |                            |        |        | Options Outstanding
|------------------------ | -------------------------- | ------ | ------ | -------------------
|
|Balances, March 31, 2002 |                            | 9,332  |        | 42,087             
|                         | Additional shares reserved |        | 7,878  |                    
|                         | Grants                     |        | (7,461 | )                  
|                         | Exercises                  |        |       |                    
|                         | Cancellations              |        | 29,420 |                    
|                         |                            |        |        |                    
|Balances, March 31, 2003 |                            | 39,169 |        | 20,070             
|                         | Cancellations              |        | 16,216 |                    
|                         |                            |        |        |                    
|Balances, July 18, 2003  |                            | 55,385 |        | 3,854              
|                         |                            |        |        |                    
|Recapitalization         |                            | 2,541  |        | 109                
|                         | Grants                     |        | (1,952 | )                  
|                         | Exercises                  |        |       |                    
|                         | Cancellations              |        | 130    |                    
|                         |                            |        |        |                    
|Balances, March 31, 2004 |                            | 719    |        | 1,930              
|                         | Additional shares reserved |        | 493    |                    
|                         | Grants                     |        | (637   | )                  
|                         | Restrictd shares granted   |        | (40    | )                  
|                         | Exercises                  |        |       |                    
|                         | Cancellations              |        | 339    |                    
|                         |                            |        |        |                    
|Balances, March 31, 2005 |                            | 874    |        | 2,198              
|                         |                            |        |        |                    

Information
about stock options outstanding at March 31, 2005 follows (number of shares in thousands):

|                 |  | Options Outstanding |  | Options Exercisable
|---------------- |  | ------------------- |  | -------------------
|
|$8.18 to $15.62  |  | 58                  |  | 7.34               
|$15.63 to $17.62 |  | 662                 |  | 8.81               
|$17.63 to $17.63 |  | 899                 |  | 8.52               
|$17.75 to $22.25 |  | 579                 |  | 9.12               
|                 |  |                     |  |                    
|                 |  | 2,198               |  | 8.73               
|                 |  |                     |  |                    

F-36

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The
fair value of each option during each year is estimated on the date of grant using the Black-Scholes model with the following weighted average assumptions (no options were granted
during the 109 days ended July 18, 2003):

Successor Company

Predecessor
CompanyYear Ended
March 31, 2005

257 Days Ended
March 31, 2004

Year Ended
March 31, 2003Risk-free interest rate

3.26
%
2.13
%
3.44
%Expected life (in years)

3.40

3.00

3.08Expected volatility

75
%
77
%
136
%Dividend yield

0
%
0
%
0
%




In 1997, the Predecessor Company's Board of Directors adopted, and the stockholders approved, the 1997 Employee Stock Purchase Plan (Purchase Plan) covering
substantially all employees. The Predecessor Company reserved 1.0 million shares of common stock for issuance under the Purchase Plan. The Purchase Plan enabled eligible employees to purchase
common stock at 85% of the lower of the fair market value of its common stock on the first or last day of each option purchase period, as defined in the plan. During fiscal 2003 the Predecessor
Company issued approximately 187,000 shares pursuant to the Purchase Plan. The Purchase Plan was cancelled in fiscal 2003 as part of the Reorganization Plan once the Predecessor Company had issued all
approved shares.

Prior
to the cancellation, the fair value of the purchase grants for the Employee Stock Purchase Plan is estimated on the date of grant using the Black-Scholes model with the following
weighted average assumptions:

Predecessor
CompanyYear Ended
March 31, 2003Risk-free interest rate

1.92
%Expected life (in years)

0.08Expected volatility

98
%Dividend yield

0
%


14.   Employee Benefit Plan

Peregrine has a 401(k) Plan (the Plan) covering substantially all U.S. employees. The Plan provides for savings and pension benefits and is subject to the
provisions of the Employee Retirement Income
Security Act of 1974. Those employees who participate in the Plan are entitled to contribute as much as 20% of their compensation, limited by IRS statutory contribution limits. In addition to employee
contributions, the Company may also contribute to the Plan by matching 25% of employee contributions. The Successor Company contributed $0.7 million and $0.2 million for the fiscal year
ended March 31, 2005 and the 257 days ended March 31, 2004, respectively. The Predecessor Company contributed $0.9 million to the Plan for the fiscal year ending
March 31, 2003. The Company discontinued its matching employee contributions program in June 2002 and re-instituted its matching employee contributions program in
January 2004.

15.   Segment and Geographic Information

Statement of Financial Accounting Standard No. 131, "Disclosures About Segments of an Enterprise and Related Information," establishes standards for the
reporting by public business

F-37

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enterprises
of information about product lines, geographic areas and major customers. The method used in determining what information to report is based on management organization of the operating
segments within the Company for making operational decisions and assessments of financial performance.

Beginning
in the second quarter of fiscal 2005 the Company changed its basis of segmentation from a single reporting segment to two reporting segments as a result of changes in the
manner in which management evaluates the performance of the business. This change was made possible by improvements in internal financial reporting. The two reportable operating segments are as
follows:



The
Company's Chief Executive Officer evaluates segment financial performance based on segment revenue only. The Company's Chief Executive Officer does not evaluate the financial
performance of each segment based on its respective operating income, assets or capital expenditures.

The
following table summarizes segment revenue for the fiscal year ended March 31, 2005, the 257 days ended March 31, 2004, the 109 days ended July 18,
2003 and the fiscal year ended March 31, 2003 (dollars in thousands):

Successor Company

Predecessor CompanyYear Ended
March 31, 2005

257 Days Ended
March 31, 2004

109 Days
Ended
July 18, 2003

Year Ended
March 31, 2003Segment revenueAmericas

$
103,740

$
68,318

$
32,043

$
146,461EMEA/AP


87,310


57,566


16,612


83,579Total

$
191,050

$
125,884

$
48,655

$
230,040% of total revenueAmericas


54
%

54
%

66
%

64
%EMEA/AP


46
%

46
%

34
%

36
%100
%

100
%

100
%

100
%


A
summary of Peregrine's goodwill and long-lived tangible assets by reportable segment is as follows (in thousands):

Americas

EMEA/AP

ConsolidatedYear ended March 31, 2005:Goodwill

$
169,700

$
15,135

$
184,835Long-lived tangible assets

$
6,942

$
1,480

$
8,422Year ended March 31, 2004:Goodwill

$
168,612

$
15,038

$
183,650Long-lived tangible assets

$
5,756

$
1,751

$
7,507


F-38

---



A
summary of Peregrine's revenue and long-lived tangible assets by geographic area is as follows (in thousands):

|                     |                                               | Americas |         | Europe,
Middle East
and Africa |        | Asia Pacific |       | Consoldiated
|-------------------- | --------------------------------------------- | -------- | ------- | ------------------------------ | ------ | ------------ | ----- | ------------
|Successor Company:   |                                               |          |         |                                |        |              |       |             
|                     | Revenue for year ended March 31, 2005         |          | 103,740 |                                | 79,533 |              | 7,777 |             
|                     | Revenue for the 257 days ended March 31, 2004 |          | 68,318  |                                | 51,753 |              | 5,813 |             
|                     | Long-lived tangible assets at March 31, 2005  |          | 6,942   |                                | 1,458  |              | 22    |             
|                     | Long-lived tangible assets at March 31, 2004  |          | 5,756   |                                | 1,692  |              | 59    |             
|Predecessor Company: |                                               |          |         |                                |        |              |       |             
|                     | Revenue for the 109 days ended July 18, 2003  |          | 32,043  |                                | 15,287 |              | 1,325 |             
|                     | Revenue for year ended March 31, 2003         |          | 146,461 |                                | 77,765 |              | 5,814 |             

16.   Quarterly Financial Data (Unaudited)

A summary of Peregrine's quarterly results for the fiscal year ended March 31, 2005, the 109 days ended July 18, 2003 and the 257 days
ended March 31, 2004 is as follows (in thousands, except per share data):

Successor Company
Year ended March 31, 2005First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterRevenue

$
40,174

$
47,934

$
55,231

$
47,711Total operating costs and expenses


51,260


49,549


54,892


54,439Operating (loss) income


(11,086
)

(1,615
)

339


(6,728
)Net (loss) income


(15,212
)

(3,678
)

1,905


(8,415
)Net (loss) income per share, basic(1)


(1.01
)

(0.24
)

0.13


(0.56
)Net (loss) income per share, diluted(1)


(1.01
)

(0.24
)

0.13


(0.56
)


F-39

---



|                                         |                                                    | Year ended March 31, 2004 |       
|---------------------------------------- | -------------------------------------------------- | ------------------------- | ------
|
|
|Revenue                                  |                                                    | $                         | 42,456
|Total operating costs and expenses       |                                                    |                           | 40,114
|Operating income (loss)                  |                                                    |                           | 2,342 
|Net (loss) income                        |                                                    |                           | (9,122
|Net (loss) income per share, basic(1):   |                                                    |                           |       
|                                         | (Loss) income per share from continuing operations |                           |       
|                                         | Income per share from discontinued operations      |                           |       
|                                         | Net (loss) income per share                        |                           |       
|Net (loss) income per share, diluted(1): |                                                    |                           |       
|                                         | (Loss) income per share from continuing operations |                           |       
|                                         | Income per share from discontinued operations      |                           |       
|Net (loss) income per share              |                                                    |                           | (0.05 

---

17.   Contingent Liabilities

Federal Government Investigations and Proceedings Relating to Historical Accounting Irregularities.In early 2002, the
Department of Justice and Securities and Exchange Commission opened investigations into Peregrine relating to the accounting improprieties that took place prior to 2002. In June 2003, the SEC
filed a civil action against Peregrine in the United States District Court for the Southern District of California alleging violations of the Securities Act of 1933 and the Securities Exchange Act of
1934 and the rules promulgated thereunder. In the same month, the Company entered into a settlement with the SEC, which was approved by the District Court, resolving the civil complaint. The SEC
separately withdrew the request for monetary damages and disgorgement in July 2003. Under the terms of the settlement, the Company agreed, among other things, to be enjoined from violating the
federal securities laws. Because the Company has not filed its SEC periodic reports on a timely basis, it has not been in compliance with the requirement of the settlement pertaining to refraining
from violating federal securities laws. To the Company's knowledge, the SEC is not considering a further enforcement action against it and the Company is not a target of any ongoing investigation, but
it can not be sure that a further enforcement action or criminal proceeding will not be brought against it. Responding to any such actions could be expensive and time-consuming for
management and could have an adverse effect on the Company's reputation and ability to generate sales.

Bankruptcy Reorganization; Claims Litigation.Approximately 1,200 general unsecured claims were filed against the Predecessor
Company based on events that took place prior to the bankruptcy filing.

The
Company began paying claims on the effective date of the Reorganization Plan and continues to pay as claims are settled, or otherwise resolved. Through May 31, 2005, in order
to resolve these claims the Company has paid or agreed to pay over time approximately $45.0 million in cash. As of

F-40

---



May 31,
2005, there were general unsecured claims asserted in the original aggregate face amount of approximately $0.5 million remaining to be resolved.

As
of March 31, 2005, the most material of the claims remaining to be resolved were unliquidated indemnity claims made by a former director, John J. Moores, and a former officer
and director, Richard Nelson. The claims sought reimbursement for defense expenses in connection with ongoing litigation relating to their affiliation with Peregrine. The claims were unliquidated,
because the claimants were continuing to incur defense expenses. In May 2005, the Company signed settlement agreements with Mr. Moores and Mr. Nelson to resolve their claims,
subject to Bankruptcy Court approval. The Moores and Nelson agreements were approved by the Bankruptcy Court on June 14,
2005 and June 21, 2005, respectively. The Company believes amounts accrued at March 31, 2005 are sufficient to resolve the claims.

Class 9.Class 9 under the Reorganization Plan comprises the Equity Class (i.e., holders, as of the effective
date of the plan, of the Predecessor Company's common stock), the Securities Class (i.e., purchasers of old common stock involved in a class action brought against the Predecessor Company that was
resolved in the Reorganization Plan, and the Indemnity Class (i.e., certain former employees, officers and directors with indemnity claims). Under the plan, Class 9 became entitled to receive
4,950,000 shares of new common stock, representing 33% of the 15,000,000 shares of new common stock issued on the effective date. Pursuant to the terms of the settlement among the Equity Class,
Securities Class, and Indemnity Class, 4,016,250 shares of new common stock (representing 26.8% of the total stock issued) were issued to the Equity Class, 708,750 shares of new common stock
(representing 4.7% of the total stock issued) were issued to the Litigation Trustee on behalf of the Securities Class, and 225,000 shares of new common stock (representing 1.5% of the total stock
issued) will be issued to the Indemnity Class to satisfy their claims.

An
additional 600,000 shares of new common stock (the "Class 7/9 Reserve Shares"), representing 4% of the 15,000,000 shares of new common stock issued on the effective date, are
required to be allocated between Class 7 and Class 9, based on the amount finally paid to resolve Class 8 general unsecured claims. The allocation is based on whether the amount
finally paid to resolve Class 8 claims falls below, within, or above the range of $49.0 million and $65 million, which were the estimates of Class 8 payments determined by
the various constituencies in the bankruptcy proceedings. Now that the Moores and Nelson settlements have been completed, the Company knows that the amount finally paid to resolve Class 8
claims will be below $49 million, so all of these 600,000 shares will be allocated to Class 9. As a result of the Class 9 settlement, the Equity Class will be entitled to receive
85%, or 510,000, of such shares and the Securities Class will be entitled to receive 15%, or 90,000, of such shares. The Company intends to distribute the Class 7/9 Reserve Shares as soon as
practicable.

Administrative Claims and Luddy v. Peregrine.Administrative claims are claims related to obligations the Company purportedly
incurred after it filed for bankruptcy law protection during the administrative period of the bankruptcy case. In order to be paid, administrative claims must meet certain requirements under the
bankruptcy plan and bankruptcy laws. The only material remaining administrative liability results from a complaint filed in May 2004 against the Company by the Company's former chief technology
officer, Frederic Luddy, in the Court of Chancery for the State of Delaware. Mr. Luddy's complaint alleged that Peregrine is required to advance or reimburse him for his defense expenses in
connection with ongoing civil litigation related to the Company's accounting improprieties, but to which the Company is not a party. In June 2004, the Company removed Mr. Luddy's
complaint from Delaware state court to the Bankruptcy Court. On November 10, 2004, the Bankruptcy Court found that it had jurisdiction to consider the complaint and the court granted in part
and denied in part the Company's motion to dismiss Mr. Luddy's complaint, without prejudice to the Company's right to renew the motion later after discovery and formal fact finding. Discovery
is scheduled to be completed by July 2005, but no trial date has been set. We believe Mr. Luddy's claims are without merit and we intend to vigorously defend against them. While the
outcome is not currently

F-41

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determinable,
in the opinion of management the matter will not materially affect our financial position, results of operations or liquidity.

Other Litigation

The Company is also involved in legal proceedings, claims, and litigation arising from the ordinary course of business. Although the ultimate results of these
legal proceedings, claims and litigation are not currently determinable, in the opinion of management these matters will not materially affect the Company's financial position, results of operations
or liquidity.

F-42

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Schedule II        PEREGRINE SYSTEMS, INC.        VALUATION AND QUALIFYING ACCOUNTS        (in thousands)

|                              |                                            | Balance at
Beginning
of Period |         | Charged
(Credited) to
Costs and
Expenses |   | Deductions |         | Other |         | Balance
at End
of Period
|----------------------------- | ------------------------------------------ | ------------------------------ | ------- | ---------------------------------------- | - | ---------- | ------- | ----- | ------- | ------------------------
|Year ended March 31, 2002     |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              | Allowances:                                |                                |         |                                          |   |            |         |       |         |                         
|                              | Trade receivables                          |                                | $       | 3,811                                    |   | $          | 8,446   |       | $       | (51                     
|                              | Notes receivable                           |                                |         | 9,679                                    |   |            | 11,589  |       |         | (18,104                 
|                              | Valuation allowance on deferred tax assets |                                |         | 190,131                                  |   |            | 359,455 |       |         |                        
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              |                                            | $                              | 203,621 |                                          | $ | 379,490    |         | $     | (18,155 | )                       
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|Year ended March 31, 2003     |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              | Allowances:                                |                                |         |                                          |   |            |         |       |         |                         
|                              | Trade receivables                          |                                | $       | 12,264                                   |   | $          | (7,131  | )     | $       | (453                    
|                              | Notes receivable                           |                                |         | 3,164                                    |   |            | 94      |       |         | (3,045                  
|                              | Valuation allowance on deferred tax assets |                                |         | 566,684                                  |   |            | 122,541 |       |         |                        
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              |                                            | $                              | 582,112 |                                          | $ | 115,504    |         | $     | (3,498  | )                       
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|109 days ended July 18, 2003  |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              | Allowances:                                |                                |         |                                          |   |            |         |       |         |                         
|                              | Trade receivables                          |                                | $       | 5,051                                    |   | $          | (417    | )     | $       | (7                      
|                              | Notes receivable                           |                                |         | 213                                      |   |            |        |       |         | (142                    
|                              | Valuation allowance on deferred tax assets |                                |         | 495,357                                  |   |            | (1,481  | )     |         |                        
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              |                                            | $                              | 500,621 |                                          | $ | (1,898     | )       | $     | (149    | )                       
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|257 days ended March 31, 2004 |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              | Allowances:                                |                                |         |                                          |   |            |         |       |         |                         
|                              | Trade receivables                          |                                | $       | 4,422                                    |   | $          | (2,021  | )     | $       | (271                    
|                              | Notes receivable                           |                                |         | 71                                       |   |            | (51     | )     |         | (20                     
|                              | Valuation allowance on deferred tax assets |                                |         | 100,821                                  |   |            | 2,497   |       |         |                        
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              |                                            | $                              | 105,314 |                                          | $ | 425        |         | $     | (291    | )                       
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|Year ended March 31, 2005     |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              | Allowances:                                |                                |         |                                          |   |            |         |       |         |                         
|                              | Trade receivables                          |                                | $       | 2,441                                    |   | $          | (1,116  | )     | $       | (90                     
|                              | Valuation allowance on deferred tax assets |                                |         | 103,318                                  |   |            | 9,333   |       |         |                        
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         
|                              |                                            | $                              | 105,759 |                                          | $ | 8,217      |         | $     | (90     | )                       
|                              |                                            |                                |         |                                          |   |            |         |       |         |                         

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S-1

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