<PAGE>

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

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998
                                       OR
/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________.

                        COMMISSION FILE NUMBER: 000-22209
                             PEREGRINE SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                          95-3773312
      (STATE OR OTHER JURISDICTION              (I.R.S. EMPLOYER
            OF INCORPORATION OR              IDENTIFICATION NUMBER)
             ORGANIZATION)                                   

                             12670 HIGH BLUFF DRIVE
                           SAN DIEGO, CALIFORNIA 92130
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (619) 481-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 
COMMON STOCK, $.001 PAR VALUE

        Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X NO

        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 the Form 10-K or any
amendment to this Form 10-K.

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing sale price of the Common Stock on May 31,
1998, as reported on the Nasdaq National Market, was approximately $186,241,113.
Shares of Common Stock held by each executive officer and director and by each
person who may be deemed to be an affiliate of the Registrant have been excluded
from this computation. This determination of affiliate status is not necessarily
a conclusive determination for other purposes. As of May 31, 1998, the
Registrant had 19,264,932 shares of Common Stock, $.001 par value, issued and
outstanding.

<PAGE>

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

                                EXPLANATORY NOTE

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

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

        This amendment to the Company's Annual Report on Form 10-K, which 
sets forth the Company's restated financial results for the period, does not 
otherwise attempt to update the information included herein beyond the 
original filing date of the report.

                                      TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>  <C>           <C>                                                                    <C>
PART I   ..............................................................................    3

     Item  1.      Business ...........................................................    3
     Item  2.      Properties..........................................................   10
     Item  3.      Legal Proceedings...................................................   10
     Item  4.      Submission of Matters to a Vote of Security Holders.................   11

PART II   .............................................................................   13

     Item  5.      Market for the Registrant's Common Equity and Related 
                   Stockholder Matters ................................................   13
     Item  6.      Selected Consolidated Financial Data................................   14
     Item  7.      Management's Discussion and Analysis of Financial Condition and 
                   Results of Operations...............................................   15
     Item  7A.     Quantitative and Qualitative Disclosures about  Market Risk.........   29
     Item  8.      Financial Statements and Supplementary Data.........................   29
     Item  9.      Changes in and Disagreements with Accountants on Accounting 
                   and Financial Disclosure............................................   29

PART III  .............................................................................   30

     Item  10.     Directors and Executive Officers of the Registrant..................   30
     Item  11.     Executive Compensation..............................................   30
     Item  12.     Security Ownership of Certain Beneficial Owners and Management......   30
     Item  13.     Certain Relationships and Related Transactions......................   30

PART IV   .............................................................................   31

     Item  14.     Exhibits, Financial Statements Schedules, and Reports on Form 8-K...   31

Signatures.............................................................................   34
</TABLE>

                                        2

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                                     PART I

ITEM 1.  BUSINESS

        THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES 
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN 
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY 
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH 
UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION 
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE 
IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT.

OVERVIEW

        Peregrine Systems, The Infrastructure Management Company, provides 
enterprise infrastructure management application software. The objective of 
the Company's infrastructure management strategy is to provide organizations 
control over their infrastructure assets and related information throughout 
the asset life cycle based on maximizing the availability of assets, 
minimizing investments and expenses, consolidating enterprise data, and 
interfacing to enterprise applications. The Company develops, markets, and 
supports, an integrated suite of applications that automates the management 
of complex, enterprise-wide information and infrastructure assets. 
SERVICECENTER and ASSETCENTER are designed to address the Consolidated 
Service Desk and asset management requirements of large organizations and can 
be deployed across all major hardware platforms and network operating systems 
and protocols. Each utilizes advanced client/server and intelligent agent 
technologies and a modular architecture. The SERVICECENTER and ASSETCENTER 
product suites are intended to provide organizations a single view of all the 
elements of their infrastructure, in order to optimize performance and 
minimize costs.

        The Company was incorporated in California in 1981 and reincorporated 
in Delaware in 1994. Unless the context otherwise requires, references in 
this report to "Peregrine" and the "Company" refer to Peregrine Systems, 
Inc., a Delaware corporation, its predecessor, Peregrine Systems, Inc., a 
California corporation, and its subsidiaries. The Company's executive offices 
are located at 12670 High Bluff Drive, San Diego, California 92130 and its 
telephone number is (619) 481-5000.

        The development of the market for the Company's products reflects an 
increasingly competitive business environment in which information technology 
and control over corporate infrastructure have become important sources of 
competitive advantage. Organizations rely heavily on information technology 
in efforts to improve operational efficiency, react more quickly to changes 
in the marketplace, and better understand and respond to customer needs. 
Information Technology ("IT") is an integral part of many core business 
functions, including plant management, inventory management, and customer 
billing, and is critical to many new tactical and strategic initiatives such 
as business process reengineering, supply chain management, and enhanced 
customer care.

        Most traditional IT management solutions have been designed to 
address a limited set of problems, principally problem tracking and problem 
resolution. These applications have been deployed on a departmental or 
divisional level or have otherwise taken a segmented approach to IT 
management that requires a specific and separate application to manage each 
component or system within the IT infrastructure and creates difficulty in 
integration with other third party IT applications. Similarly, management of 
infrastructure is limited to tools that assist in managing events or asset 
portfolios. The Company believes that its infrastructure management 
applications offer the first application suite with the capability to unite 
these two disciplines. SERVICECENTER provides an integrated and automated 
suite of seven applications, consisting of problem management, problem 
resolution, change management, inventory/configuration management, request 
management, work management and service level agreements. ASSETCENTER 
provides an integrated and automated suite of four applications, consisting 
of asset management (comprised of asset, warranty, and financial management), 
lease management, procurement management, and cost management.

        The Company believes that its future growth and profitability will
depend on a number of factors, including, among others, factors relating to the
quality of its products and to its ability to further penetrate existing 


                                        3
<PAGE>

markets and to penetrate new markets. In that regard, the Company's strategy 
is focused on maintaining and enhancing its technological position and the 
functionality of its products; developing an integrated product line of 
software applications to manage all aspects of the enterprise infrastructure, 
including management of IT, plant and facilities, communication resources and 
distribution systems; creating organizational awareness of the benefits to be 
obtained from an integrated approach to infrastructure management; broadening 
its target markets from the Fortune 500 to include smaller organizations 
worldwide comprising the Global 2000; expanding international sales; 
leveraging a product authorship model that rewards individual product 
developers based on sales of products developed by them; expanding its direct 
sales force and locations and increasing indirect sales opportunities; 
implementing and expanding existing programs aimed at improving customer 
relationships through information exchanges among the Company, existing 
customers, and prospective customers; and expanding its distribution channels 
through relationships with third party distributors, system integrators, and 
original equipment manufacturers.

PRODUCTS

        The Company's principal products are SERVICECENTER, a Consolidated 
Service Desk software solution that integrates seven management applications, 
or modules, on a common platform and ASSETCENTER, an asset management 
software solution that integrates four management applications on a common 
platform. SERVICECENTER and ASSETCENTER support most major computing 
platforms, including UNIX, Microsoft Windows 3.1, Windows 95, Windows NT, and 
Apple Macintosh. SERVICECENTER continues to be available on MVS. Each can be 
implemented readily without modification, or users can customize the 
applications, screen formats, databases or reports using the Company's Rapid 
Application Development ("RAD") environment, a fourth generation application 
language for SERVICECENTER or ASSETCENTER'S customization capabilities.

SERVICECENTER APPLICATIONS

PROBLEM MANAGEMENT. The problem management application automates the process 
of reporting and tracking specific problems or classes of problems associated 
with an enterprise network computing environment. Help desk personnel open 
problem tickets using templates specific to the class of problem reported.

PROBLEM RESOLUTION. The problem management application works together with 
the Company's IR EXPERT, a text search expert system that employs advanced 
technology to allow network operators to retrieve relevant information. This 
application assists in problem solving, based on prior solutions. The IR 
EXPERT reduces a user's question, or query, to a number of "terms," refining 
the query to fit knowledge in the database and can then search resolution 
databases using related terms. This application is self-learning, so the 
customer does not have to perform any work to keep the knowledge base up to 
date.

CHANGE MANAGEMENT. The change management application provides a functional 
framework for proposing, accepting, scheduling, approving, reviewing and 
coordinating network changes. Change management permits end-users to enter 
proposed changes to the production environment and then circulate those 
changes electronically for review and action. Change requests can be tracked 
and details can be added at any time to the initial specifications.

INVENTORY/CONFIGURATION MANAGEMENT. The inventory/configuration management 
application provides the service desk with a central repository of 
information about an organization's IT environment, including inventories of 
networked devices and applications as well as information concerning 
end-users. Easy access to inventory information permits the service desk to 
respond to end-user problems, to plan changes and services, and to create 
accurate reports about the network's status and environmental trends.

REQUEST MANAGEMENT. The request management application automates and tracks 
an organization's equipment and services ordering process from initial 
request through installation and follow-up. Using SERVICECENTER, an end-user 
identifies and orders products or services from a catalog of items. 
SERVICECENTER then consolidates requests, forwards orders through an 
organization's standard approval and order processing procedures, and 
consolidates orders by vendor. End-users can track the status of requests 
through SERVICECENTER at all times.


                                        4
<PAGE>

SERVICE LEVEL AGREEMENT MANAGEMENT. Service Level Agreement (SLA) Management 
is designed to simplify the task of SLA management by providing an automated, 
real-time view of SLA performance. It provides a single, centralized 
repository of SLA information and automated data feeds in network health and 
technician performance. It can also help prioritize problem resolution to 
ensure that SLA metrics are achieved.

WORK MANAGEMENT. Work Management is designed to help managers better balance 
the demands for service and support based on the priority of tasks and the 
skill set of the workforce. Work Management will automatically allocate 
unassigned or incomplete problem tickets to individuals. The manager can also 
assign new work, view progress on assigned items, or reassign work based on 
changing properties using the drag and drop interface.

ASSETCENTER is an application suite that of manages the portfolio of 
investments contained within an organization's infrastructure. ASSETCENTER 
automatically retrieves technical data and alarms/alerts from the most common 
network inventory and administration tools including Microsoft SMS, Tally 
Systems NetCensus, Hewlett Packard OpenView, and IBM Tivoli. ASSETCENTER also 
includes interfaces with enterprise resource planning (ERP) systems such as 
SAP AG, Oracle Corporation, PeopleSoft, Inc., and J.D. Edwards & Company. 
ASSETCENTER is a client/server, multi-platform and multi-database system, 
integrating advanced workflow functionality. ASSETCENTER manages financial 
information in any currency or currencies, including the euro.

ASSETCENTER APPLICATIONS

ASSET MANAGEMENT. The Asset Management application provides a comprehensive 
inventory of an organization's equipment, users, suppliers, and contracts. 
The application provides detailed descriptions of software licenses acquired 
and their associated rights in order to reconcile them with the software 
actually installed. Asset Management allows users to track assets throughout 
their life cycle, from the initial purchase request to retirement.

LEASE MANAGEMENT. Lease Management manages the contractual aspects of leasing 
and rental by returning, updating and renewing equipment through alarm and 
messaging features. The application also includes a wide range of methods for 
calculating lease terms and permits users to evaluate different financing 
alternatives.

PROCUREMENT MANAGEMENT. This application manages the acquisition of IT 
products including assets, consumables and services. Procurement Management 
covers the entire purchasing cycle: request, approval, estimate, issuance of 
purchase orders, delivery and receipt. The application allows users to set up 
authorization procedures as well as automatic reordering based on 
user-defined restocking criteria.

COST MANAGEMENT. Cost Management features analytic and budgetary functions 
that allow tracking, control, and allocation of IT related expenses. The 
application allows users to track costs related to each asset, including both 
capital and operational expenses (E.G., training, service calls) and to 
measure the costs of ownership for each asset. The application also allows 
users to compare accounting and physical inventories to determine the correct 
valuation of balance sheet assets.

OTHER NETWORK MANAGEMENT PRODUCTS

        The Company's network management solutions provide network 
information on a real-time basis. OPENSNA permits users to manage IBM SNA 
networks graphically from a SNMP-based management console, to determine 
network status, and to issue commands. STATIONVIEW and SERVERVIEW manage 
Novell NetWare, Microsoft Windows NT, and Compaq Insight Manager-based 
servers and workstations from SNMP-based management platforms.

PRODUCT DEVELOPMENT; PRODUCT AUTHORSHIP MODEL

        The Company believes that attracting and retaining talented software 
developers is an important component of the Company's product development 
activities. To this end, the Company has instituted a product authorship 
incentive program that rewards the Company's developers individually with 
commissions based on the market success of the applications designed, 
written, marketed and supported by them. The Company's product authorship 
program 


                                        5
<PAGE>

is designed to encourage the Company's developers to evaluate the 
effectiveness of a product in the actual user environment.

        The Company believes that the ability to deliver new and enhanced 
products to customers is a key success factor. The Company has historically 
developed its products through a consultative process with existing and 
potential customers. The Company expects that continued dialogue with such 
existing and potential customers may result in enhancements to existing 
products and the development of new products, including product suites 
designed for a specific market segment. The Company has in the past devoted 
and expects in the future to continue to devote a significant amount of 
resources to developing new and enhanced products. The Company currently has 
a number of product development initiatives underway. There can be no 
assurance that any enhanced products, new products or product suites will be 
embraced by existing or new customers. The failure of these products to 
achieve market acceptance would have a material adverse effect on the 
Company's business, results of operations, and financial condition.

        The Company's research and development expenditures in fiscal 1996, 
1997, and 1998 were $7.7 million, $5.9 million, and $8.4 million, 
respectively, representing 33%, 17%, and 14% of total revenues in the 
respective periods. See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations."

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

TECHNOLOGY

        The Company's products rely on a number of standard, commercially 
available technologies for relational database storage and retrieval and 
client/server communications. The Company's products are designed to support 
a range of implementations of infrastructure management applications and the 
Consolidated Service Desk within medium sized organizations to large 
enterprises. The Company has developed other technologies designed to provide 
a comprehensive environment to build, deploy, and customize a range of 
applications.

        The Company commenced integration of the SERVICECENTER and ASSETCENTER
product suites shortly after completion of the acquisition of Apsylog. The
Company has a phased plan for converging the technologies. The first phase,
completed in 1998, integrates SERVICECENTER and ASSETCENTER using a replication
scheme called the Peregrine Repository Interface Manager ("PRIM"). PRIM allows
SERVICECENTER and ASSETCENTER to manage simultaneously data describing
infrastructure assets as though they were in the same database. The Company's
product objective is to merge the technologies of the two product suites,
retaining the best technology from each and maintaining an upgrade path for
current customers.

THREE-TIERED ARCHITECTURE. The Company's database, business rules, and 
presentation technologies create a three-tiered client/server architecture 
intended to provide scalability and flexibility. The tiers are logically 
separated, allowing changes to the database design or the graphical interface 
to be made without requiring changes to the business rules or other related 
tiers.

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EASY CUSTOMIZATION/EXTENSION. In order to make the software fit the 
customers' needs, the Company's products provide a number of tools that 
enable customers to customize and extend SERVICECENTER and ASSETCENTER. The 
design of the database, the contents and appearance of the user interface, 
and the business rules can be modified using the Company's standard tools 
provided with the system.

RAPID APPLICATION DEVELOPMENT ENVIRONMENT. The Company has created a 
"fill-in-the-blanks" development environment for building and deploying 
applications. All SERVICECENTER applications are implemented using the 
Company's RAD environment. If a customer requires more extensive 
modification, the system can be customized by changing the applications 
provided by the Company or implementing new applications using the RAD 
environment.

DISTRIBUTED SERVICES. The Company has distributed a database technology that 
provides replication services and the capability to move work from one 
SERVICECENTER system to another. These services are database vendor 
independent and contain knowledge of the application schema.

ADAPTERS. The Company provides adapters to industry standard APIs, such as 
SMTP e-mail, and leading vendors products. These adapters expand the reach of 
the Company's products by allowing them to interact with other products 
currently in the customer's environment. The Company has also created 
adapters that permit the system to communicate using e-mail, beeper, fax and 
Lotus Notes. The adapters also provide communication with third party network 
management tools such as Hewlett Packard's OpenView, CA-Unicenter, Tivoli's 
TME, Cabletron Spectrum, Sun's SunNet Manager and others. In addition, the 
Company has created an open API permitting software developed by third 
parties, end-users or the Company's Professional Services group to be 
integrated into the system.

INTELLIGENT AGENTS. The Company provides intelligent agents that gather and 
feed information to SERVICECENTER. The agents provide automated inventory 
gathering and problem determination data for use in problem resolution and 
management of an IT environment. The agents permit help desk personnel to 
open, update, and close trouble tickets based on criteria provided by the 
customers.

JAVA CLIENT The Company plans to introduce a Java-based SERVICECENTER GUI 
client this year. The Java client duplicates the functionality of the 
SERVICECENTER GUI, allowing access to the entire SERVICECENTER system via the 
internet (world wide web).

SALES AND MARKETING

        The Company sells its software and services in both North America and 
internationally primarily through a direct sales force. In addition to the 
Company's San Diego headquarters, the North American sales force is located 
in the metropolitan areas of Atlanta, Chicago, Houston, San Francisco, New 
York, and Washington, D.C. The international sales force is located in the 
metropolitan areas of Amsterdam, Copenhagen, Frankfurt, London, Munich, and 
Paris. The Company's sales model focuses on telephone and network 
communications for product demonstrations and product sales. When necessary, 
however, the Company's sales force will also travel to customer locations and 
pursue a consultative sales process. In addition to its direct sales 
strategy, the Company is continuing to pursue indirect distribution channels. 
In the Pacific Rim and Latin America, the Company has established a network 
of channel partners. In North America, the Company has established a network 
of regional, national and strategic integrators. When sold through direct 
channels, the sales cycle for the product is typically six to nine months 
depending on a number of factors, including the size of the transaction and 
the level of competition which the Company encounters in its selling 
activities. This sales cycle is typically extended 90 days for product sales 
through indirect channels.

        In the last year, the Company has devoted significant resources to
restructuring and building its marketing organization. In the course of this
restructuring, the marketing organization has launched a new corporate marketing
strategy emphasizing the Company's objective to be the leading infrastructure
management solution worldwide. As part of its marketing strategy, the Company
has implemented the infrastructure management strategy throughout its marketing
programs such as seminars, monthly executive briefings, direct mailings,
industry trade shows, advertising and public relations. The Company plans to
continue to expand its marketing organization in an effort to broaden the
Company's market presence.

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        The Company has significantly increased the size of its sales force 
over the last year and expects to continue hiring sales personnel, both 
domestically and internationally, over the next twelve months. Competition 
for qualified sales personnel is intense in the software industry. The 
Company also expects to increase the number of its regional, national, and 
strategic integrators, domestically and internationally. Any failure by the 
Company to expand its direct sales force or other distribution channels could 
have a material adverse effect on the Company's business, results of 
operations and financial condition.

        The Company believes that its continued growth and profitability will 
require expansion of its international operations, particularly in Europe, 
Latin America, and the Pacific Rim. The Company intends to expand its 
international operations and enter additional international markets, either 
directly or through international distribution or similar arrangements, which 
will require significant management attention and financial resources. 
Competition for suitable distribution partners is intense in many markets 
outside North America. There can be no assurance that the Company will be 
successful in attracting and retaining qualified international distributors 
or that it will be successful in implementing direct sales programs in 
selected international markets. If the Company is unable to obtain qualified 
international distribution partners or is otherwise unable to successfully 
penetrate important international markets, the Company's business, results of 
operations, and financial condition could be materially and adversely 
affected.

        In addition, continued international expansion poses a number of 
risks associated with conducting business outside the United States, 
including fluctuations in currency exchange rates, longer payment cycles, 
difficulties in staffing and managing international operations, problems in 
collecting accounts receivable, seasonal reductions in business activity 
during the summer months in Europe and certain other parts of the world, 
increases in tariffs, duties, price controls, or other restrictions on 
foreign currencies, and trade barriers imposed by foreign countries, any of 
which could have a material adverse effect on the Company's business, 
operating results and financial condition. In addition, the Company has only 
limited experience in developing localized versions of its products and 
marketing and distributing its products internationally. There can be no 
assurance that the Company will be able to successfully localize, market, 
sell, and deliver its products internationally. The inability of the Company 
to expand its international operations successfully and in a timely manner 
could have a material adverse effect on the Company's business, results of 
operations, and financial condition.

PROFESSIONAL SERVICES AND CUSTOMER SUPPORT

        The Company's Professional Services group provides technical 
consulting and training to assist customers in implementing its products.

        The Company provides a range of consulting services. Basic consulting
services include analyzing user requirements and providing the customer with a
starter system that will quickly demonstrate significant benefits of its
products. More advanced consulting services include providing turn-key
implementations using the Company's Advanced Implementation Methodology, which
begins with a structured analysis to map the customer's business rules onto the
Company's service desk tools, continues with the technical design and
construction, and finishes with system roll out. Implementation assistance
frequently involves process reengineering and the development of interfaces
between the Company's products and legacy systems and other tools or systems.

        The Company offers training courses in the implementation and
administration of its products for a fee. On a periodic basis, the Company
offers product training at its facilities in San Diego and London for customers
and channel partners. Customer-site training is also available.

        The Company maintains a staff of customer service personnel, who provide
technical support and training, and periodic software updates to the Company's
customers and partners. The Company offers technical support services 24 hours a
day, seven days a week through its local offices in Europe and San Diego via
toll free lines. In addition to telephone support, the Company provides support
via fax, e-mail, and a Web server.


                                        8
<PAGE>

COMPETITION

        The market for the Company's products is highly competitive, 
fragmented, and subject to rapid technological change and frequent new 
product introductions and enhancements. Competitors vary in size and in the 
scope and breadth of the products and services offered. The Company 
encounters competition from a number of sources, including (i) providers of 
internal help desk software applications such as Remedy Corporation and 
Software Artistry, Inc. (now a division of Tivoli Systems, Inc. ("Tivoli")); 
(ii) customer interaction software companies such as Clarify Inc. and The 
Vantive Corporation, whose products include internal help desk applications; 
(iii) information technology and systems management companies such as 
International Business Machines Corporation ("IBM"), Computer Associates 
International, Inc. ("Computer Associates"), Network Associates, Inc. 
(recently formed as a result of the business combination of McAfee 
Associates, Inc. and Network General Corporation), and Hewlett-Packard 
Company ("Hewlett-Packard") through its recent acquisition of PROLIN; (iv) 
providers of asset management software; and (v) the internal information 
technology departments of those companies with help desk requirements. 
Because barriers to entry in the software market are relatively low, the 
Company anticipates additional competition from other established and 
emerging companies as the market for enterprise infrastructure management 
applications expands. In addition, current and potential competitors have 
established or may in the future establish cooperative relationships among 
themselves or with third parties or large software companies could acquire or 
establish alliances with smaller competitors of the Company. The Company 
expects software industry consolidation to occur in the future, and it is 
possible that new competitors or alliances among competitors may emerge and 
rapidly acquire significant market share. For example, the Company's ability 
to sell its products depends in part on their compatibility with and support 
by providers of system management products, including Tivoli, Computer 
Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have 
recently acquired providers of help desk software products. The decision of 
one or more providers of system management products to close their systems to 
competing vendors like the Company, or to bundle their infrastructure 
management and/or help desk software products with other products for 
enterprise licenses for promotional purposes or as part of a long-term 
pricing strategy, could have an adverse effect on the Company's ability to 
sell its products. Increased competition is likely to result in price 
reductions, reduced gross margins and loss of market share, any of which 
could have a material adverse effect on the Company's business, operating 
results and financial condition. Some of the Company's current and many of 
its potential competitors have significantly greater financial, technical, 
marketing and other resources than the Company. As a result, they may be able 
to respond more quickly to new or emerging technologies and changes in 
customer requirements or to devote greater resources to the development, 
promotion and sale of their products than the Company. There can be no 
assurance that the Company will be able to compete successfully against 
current and future competitors or that competitive pressures faced by the 
Company will not have a material adverse effect on the Company's business, 
operating results and financial condition.

        The Company believes that the principal competitive factors affecting 
its market include product features such as adaptability, scalability, 
ability to integrate with third party products, functionality, ease of use, 
product reputation, quality, performance, price, customer service and 
support, effectiveness of sales and marketing efforts and company reputation. 
Although the Company believes that it currently competes favorably with 
respect to such factors, there can be no assurance that the Company can 
maintain its competitive position against current and potential competitors, 
especially those with greater financial, marketing, service, support, 
technical, and other resources than the Company. In addition, the Company 
believes that its future financial performance will depend in large part on 
its success in developing an integrated product line of software applications 
to manage all aspects of the enterprise infrastructure, including management 
of IT, plant and facilities, communication systems, and distribution systems, 
and to create organizational awareness of the benefits to be obtained from an 
integrated approach to infrastructure management.

INTELLECTUAL PROPERTY

        The Company's success is heavily dependent upon proprietary 
technology. The Company relies primarily on a combination of copyright and 
trademark laws, trade secrets, confidentiality procedures and contractual 
provisions to protect its proprietary rights. The Company seeks to protect 
its software, documentation and other written materials under trade secret 
and copyright laws, which afford only limited protection. Despite precautions 
taken by the Company, it may be possible for unauthorized third parties to 
copy aspects of its current or future products or to 


                                        9
<PAGE>

obtain and use information that the Company regards as proprietary. In 
particular, the Company may provide its licensees with access to its data 
model and other proprietary information underlying its licensed applications. 
There can be no assurance that the Company's means of protecting its 
proprietary rights will be adequate or that the Company's competitors will 
not independently develop similar or superior technology. Policing 
unauthorized use of the Company's software is difficult and, while the 
Company is unable to determine the extent to which piracy of its software 
products exists, software piracy can be expected to be a persistent problem. 
In addition, the laws of some foreign countries do not protect the Company's 
proprietary rights to the same extent as do the laws of the United States. 
Litigation may be necessary in the future to enforce the Company's 
intellectual property rights, to protect the Company's trade secrets or to 
determine the validity and scope of the proprietary rights of others. Such 
litigation could result in substantial costs and diversion of resources and 
could have a material adverse effect on the Company's business, results of 
operations and financial condition.

        The Company is not aware that any of its software product offerings 
infringes the proprietary rights of third parties. There can be no assurance, 
however, that third parties will not claim infringement by the Company with 
respect to current or future products. The Company expects that software 
product developers will increasingly be subject to infringement claims as the 
number of products and competitors in the Company's industry segment grows 
and the functionality of products in different industry segments overlaps. 
Any such claims, with or without merit, could be time-consuming, result in 
costly litigation, cause product shipment delays or require the Company to 
enter into royalty or licensing agreements. Such royalty or licensing 
agreements, if required, may not be available on terms acceptable to the 
Company or at all, which could have a material adverse effect on the 
Company's business, results of operations and financial condition.

EMPLOYEES

        As of March 31, 1998, the Company employed 340 persons, including 110 
in sales and marketing, 49 in research and development, 32 in customer 
support, 69 in professional services, and 80 in finance and administration. 
Of the Company's employees, 118 are located in Europe and the remainder are 
located in North America. The Company believes that its future success will 
depend in part on its continued ability to attract, hire and retain qualified 
personnel. Competition for such personnel is intense, and there can be no 
assurance that the Company will be able to identify, attract, and retain such 
personnel in the future. None of the Company's employees is represented by a 
labor union (other than statutory unions required by law in certain European 
countries). The Company has not experienced any work stoppages and considers 
its relations with its employees to be good.

ITEM 2.  PROPERTIES

        The Company's principal administrative, sales, marketing, support, 
research and development and training functions are located at its 
headquarters facility in San Diego, California. The Company currently 
occupies 95,110 square feet of space in the San Diego facility, and the 
underlying leases extend through August 2003. Management believes that its 
current facilities are adequate to meet its needs through the next twelve 
months. An additional 13,310 square feet of leased space at the San Diego 
headquarters is subleased to JMI Services, Inc., an affiliate of the Company.

        The Company also leases office space for sales, marketing, and 
professional services staff in the metropolitan areas of Atlanta, Chicago, 
Houston, New York, San Francisco, and Washington, D.C. In Europe, the Company 
leases space in the metropolitan areas of Amsterdam, Copenhagen, Frankfurt, 
London, Munich, and Paris for European sales, customer support, professional 
services, and administration.

ITEM 3.  LEGAL PROCEEDINGS

        From time to time, the Company is party to various legal proceedings 
or claims, either asserted or unasserted, which arise in the ordinary course 
of business. Management has reviewed pending legal matters and believes that 
the resolution of such matters will not have a significant adverse effect on 
the Company's financial condition or results of operations.


                                        10
<PAGE>

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

        No matter was submitted to a vote of the Company's stockholders 
during the fourth quarter of the year ended March 31, 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth certain information concerning the
Company's executive officers as of March 31, 1998.

<TABLE>
<CAPTION>
             NAME               AGE                         POSITION
             ----               ---                         --------
<S>                             <C>  <C>
Stephen P. Gardner (1)........  44   President, Chief Executive Officer and Director
David A. Farley...............  42   Vice President, Finance, Chief Financial Officer and
                                     Director
David G. Fisher (2)...........  40   Vice President, Marketing
William G. Holsten............  61   Vice President, Professional Services
Gary  A. Hughes (3)...........  34   Vice President, Worldwide Customer Support
Frederic B. Luddy.............  43   Vice President, North American Research and
                                     Development
Richard T. Nelson.............  38   Vice President, Secretary, and General Counsel
Douglas S. Powanda............  41   Vice President, Worldwide Sales
Gilles Queru (4)..............  39   Vice President, Corporate Development
Steven S. Spitzer.............  39   Vice President, Channel Sales

</TABLE>

(1)     Mr. Gardner commenced acting as President and Chief Executive Officer
        and a member of the Board of Directors in April 1998.
(2)     Mr. Fisher resigned from such position in April 1998.
(3)     Mr. Hughes commenced acting as Vice President, Worldwide Customer
        Support in April 1998.
(4)     Mr. Queru commenced acting as Vice President, Corporate Development in
        April 1998.

        STEPHEN P. GARDNER has served as the Company's President and Chief 
Executive Officer and a member of the Board of Directors since April 1998. 
From January 1998 until April 1998, Mr. Gardner served as Executive Vice 
President and the Company's Principal Executive Officer. From May 1997 until 
January 1998, Mr. Gardner served as Vice President, Strategic Acquisitions. 
From May 1996 until May 1997, Mr. Gardner served as president of Thunder & 
Lightning Company, an internet software start-up company. From March 1995 
until May 1996, Mr. Gardner served as president of Alpharel, Inc., a document 
management software company. From March 1993 until March 1995, Mr. Gardner 
served as a vice president of Data General Corporation, a manufacturer of 
multiuser computer systems, peripheral equipment, communications systems, and 
related products. From October 1988 until March 1993, Mr. Gardner served in 
various capacities with Groupe Bull, and most recently as founder and 
president of its Integris Business Unit, a systems integration and software 
company owned by Groupe Bull of France.

        DAVID A. FARLEY has served as the Company's Vice President, Finance, 
and Chief Financial Officer and as a member of the Board of Directors since 
October 1995. Mr. Farley served as Secretary of the Company from October 1995 
until February 1997. From November 1994 to November 1995, Mr. Farley was Vice 
President, Finance, and Chief Financial Officer and a director of XVT 
Software Inc. ("XVT"), a development tools software company. From December 
1984 until October 1994, Mr. Farley held various accounting and financial 
positions at BMC Software, Inc., a vendor of software utilities for IBM 
mainframe computing environments, most recently as Chief Financial Officer 
and as a director.

        DAVID G. FISHER served as the Company's Vice President, Marketing 
from April 1996 until April 1998. From March 1993 to April 1996, Mr. Fisher 
was Vice President of Sales and Marketing for Restrac, Inc., a developer and 
vendor of recruitment and staffing software applications. From February 1991 
to March 1993, Mr. Fisher was Vice President of Worldwide Marketing for 
Continuum, Inc., a developer and vendor of insurance and banking software 
applications.


                                        11
<PAGE>

        WILLIAM G. HOLSTEN has served as the Company's Vice President, 
Professional Services since November 1995. From July 1994 until November 
1995, Mr. Holsten was Director of Professional Services for XVT. From August 
1992 until June 1994, he was a consultant with Engineering Software 
Solutions, a consulting firm co-owned by Mr. Holsten and a partner, which 
provided consulting services to XVT from May 1993 to June 1994. From October 
1984 to July 1992, Mr. Holsten held a variety of positions with Precision 
Visuals, Inc., a graphics software company, most recently as Director of 
Professional Services.

        GARY A. HUGHES has served as the Company's Vice President, Worldwide 
Customer Support since April 1998. From January 1998 until April 1998 Mr. 
Hughes served as Director of Worldwide Customer Support. From August 1997 
until January 1998 Mr. Hughes served as Manager, Systems Engineers. Mr. 
Hughes served as Alternate Channels Manager from October 1995 until August 
1997, Development Manager from December 1994 until October 1995, and Vice 
President, Customer Support from December 1993 until December 1994. Mr. 
Hughes joined the Company in July 1989 as a customer support representative 
and held various positions in the customer support department until December 
1994.

        FREDERIC B. LUDDY has served as the Company's Vice President, North 
American Research and Development and Chief Technology Officer since January 
1998. From October 1995 until January 1998, Mr. Luddy served as Product 
Architect for the Company's SERVICECENTER product suite. From April 1990 
until October 1995, Mr. Luddy served as a Product Author for the Company's 
SERVICECENTER product suite.

        RICHARD T. NELSON has served as the Company's General Counsel since 
November 1995, as Vice President since October 1996 and as Secretary since 
February 1997. From August 1991 until November 1995, Mr. Nelson was an 
associate in the Houston, Texas office of Jackson & Walker LLP, a law firm.

        DOUGLAS S. POWANDA has served as the Company's Vice President, 
Worldwide Sales since January 1998. From September 1995 until January 1998, 
Mr. Powanda served as Vice President, International Sales. From June 1994 
until September 1995, he served as the Company's Vice President, North 
American Sales. He was the Company's Director of Sales for Europe from 
September 1993 until June 1994, Regional Sales Manager from December 1992 to 
August 1993, and Senior Accounts Manager from February 1992 until December 
1992.

        GILLES QUERU has served as the Company's Vice President, Corporate 
Development since April 1998. Mr Queru joined the Company as President of 
Apsylog S.A. ("Apsylog") in September 1997 as a result of the Apsylog 
Acquisition. Mr. Queru founded Apsylog in 1987 and served as its Chief 
Executive Officer and Chairman of its Board of Directors until the Apsylog 
Acquisition. Prior to forming Apsylog, Mr. Queru held several management 
positions with Hewlett-Packard, a developer and manufacturer of computer and 
imaging product hardware.

        STEVEN S. SPITZER has served as the Company's Vice President, Channel 
Sales since August 1997. From 1986 until August 1997, Mr. Spitzer held 
various positions with FileNet Corporation, a provider of workflow, 
document-imaging, and electronic document management software solutions, most 
recently as Vice President, Channel Sales.


                                        12
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock has been traded on the Nasdaq National 
Market under the symbol "PRGN" since the Company's initial public offering in 
April 1997. The following table sets forth for the periods indicated, the 
high and low closing prices reported on the Nasdaq National Market. Prior to 
April 1997, there was no established public trading market for the Company's 
Common Stock.

<TABLE>
<CAPTION>
                                                                     HIGH      LOW
                                                                   -------   -------
      <S>                                                          <C>       <C>
      Fiscal Year Ended March 31, 1999:
         First Quarter (through June 26, 1998)..................   $28.000   $18.250
      Fiscal Year Ended March 31, 1998:
         Fourth Quarter.........................................   $19.125   $12.500
         Third Quarter..........................................    17.500    12.000
         Second Quarter.........................................    20.250    14.000
         First Quarter..........................................    15.625     8.500
</TABLE>

        As of May 31, 1998, the Company had issued and outstanding 19,264,932 
shares of its Common Stock held by 275 stockholders of record. The Company 
estimates that there are approximately 1,800 beneficial stockholders.

DIVIDEND POLICY

        The Company has never declared or paid cash dividends on its capital 
stock. The Company currently expects to retain future earnings, if any, for 
use in the operation and expansion of its business and does not anticipate 
paying any cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

        In November 1997, the Company issued an aggregate of 50,000 shares of 
Common Stock pursuant to a restricted stock agreement. The shares under this 
agreement vest incrementally over ten years, subject to earlier vesting over 
six years contingent upon the Company's achieving certain financial 
milestones. Those shares were subsequently registered for resale on Form 
S-8/S-3 in January 1998.


                                        13
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated financial data of the Company
presented below as of March 31, 1994, 1995, 1996, 1997, and 1998 and for each of
the years in the five-year period ended March 31, 1998, are derived from the
consolidated financial statements of Peregrine Systems, Inc. and its
subsidiaries, which financial statements have been audited by Arthur Andersen
LLP, independent public accountants. The consolidated financial statements as of
March 31, 1997 and 1998 and for each of the years in the three-year period ended
March 31, 1998, and the report of independent public accountants thereon, are
included elsewhere in this report. The selected consolidated financial data set
forth below is qualified in its entirety by, and should be read in conjunction
with, the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                             -------------------------------------------------------------------------
                                                                                                            (RESTATED)
                                               1994            1995            1996            1997            1998
                                             --------        --------        --------        --------        --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
  Revenues:
     Licenses .............................. $  6,714        $  9,137        $ 11,642        $ 20,472        $ 38,791
     Maintenance and services ..............    9,046          10,491          12,124          14,563          23,086
                                             --------        --------        --------        --------        --------
       Total revenues ......................   15,760          19,628          23,766          35,035          61,877
  Costs and expenses:
     Cost of licenses ......................      322             393             415             215             326
     Cost of maintenance and services ......    3,457           3,573           3,526           4,661          10,326
     Sales and marketing ...................    6,118           9,549          11,820          15,778          22,728
     Research and development ..............    4,670           7,089           7,742           5,877           8,394
     General and administrative ............    1,898           2,943           4,529           3,816           6,077
     Amortization of intangibles ...........        -               -               -               -           3,168
           Acquired in-process 
         research and development ..........        -               -               -               -           6,955
                                             --------        --------        --------        --------        --------
       Total costs and expenses ............   16,465          23,547          28,032          30,347          57,974
                                             --------        --------        --------        --------        --------
   Operating income (loss) .................     (705)         (3,919)         (4,266)          4,688           3,903
   Interest income (expense) and other .....      (30)          3,970            (286)           (478)            839
                                             --------        --------        --------        --------        --------
   Income (loss) from continuing
     operations before income taxes ........     (735)             51          (4,552)          4,210           4,742
     Income tax expense (benefit) ..........        -               -               -          (1,592)          5,358
                                             --------        --------        --------        --------        --------
   Income (loss) from continuing      
     operations ............................     (735)             51          (4,552)          5,802            (616)
   Loss from discontinued operations:
     Loss from operations ..................        -               -             781               -               -
     Loss on disposal ......................        -               -           1,078               -               -
                                             --------        --------        --------        --------        --------
       Loss from discontinued   
         operations ........................        -               -          (1,859)              -               -
                                             --------        --------        --------        --------        --------
   Net income (loss) ....................... $   (735)       $     51        $ (6,411)       $  5,802        $   (616)
                                             --------        --------        --------        --------        --------
                                             --------        --------        --------        --------        --------
   Net income (loss) per share diluted .....                                 $  (0.52)       $   0.39        $  (0.04)
                                                                             --------        --------        --------
                                                                             --------        --------        --------
   Shares used in per share calculation ....                                   12,331          14,964          17,380
                                                                             --------        --------        --------
                                                                             --------        --------        --------

                                                                             MARCH 31,    
                                             ------------------------------------------------------------------------
                                               1994            1995            1996            1997            1998
                                             --------        --------        --------        --------        --------
                                                                           (in thousands)
BALANCE SHEET DATA:
   Cash, cash equivalents, and              
     short-term investments ................ $    587        $     57        $    437        $    305        $ 21,977
   Working capital (deficit) ...............   (3,045)         (4,118)         (9,697)         (4,065)         23,779
   Total assets ............................    6,689           9,787          13,817          19,738          83,568
   Total debt ..............................    1,319           1,540           5,208           3,866           1,117
   Stockholders' equity (deficit) ..........   (2,859)         (2,197)         (8,450)         (2,849)         55,639

</TABLE>


                                        14
<PAGE>

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

        THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES 
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN 
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY 
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH 
UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION 
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE 
IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT.

OVERVIEW

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

        Since the release of SERVICECENTER in July 1995, and until the 
Apsylog Acquisition, SERVICECENTER accounted for substantially all of the 
Company's license revenues. Since the Apsylog Acquisition, SERVICECENTER and 
ASSETCENTER together have accounted for substantially all of the Company's 
license revenues. In addition, for the year ended March 31, 1998, over 85% of 
the Company's license sales of SERVICECENTER and ASSETCENTER have been 
attributable to UNIX and Windows NT platforms.

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

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

        The Company's revenues are derived from product licensing, 
maintenance and services. License fees are generally due upon the granting of 
the license and typically include a one-year maintenance period as part of 
the license agreement. The Company also provides ongoing maintenance 
services, which include technical support and product enhancements, for an 
annual fee based upon the current price of the product. In fiscal 1996, 1997, 
and 1998, maintenance and services revenues represented 51%, 42%, and 37% of 
total revenues, respectively. The Company has sold its original PNMS software 
to a sizable installed base of customers, many of whom have recently 
transitioned to SERVICECENTER. The Company's installed customer base has 
generated a consistent level of maintenance revenues. In fiscal 1996, 1997, 
and 1998, more than 90% of the Company's customers renewed their maintenance 
agreements.

        Revenues from license agreements are recognized currently, provided 
that all of the following conditions are met: a noncancelable license 
agreement has been signed, the product has been delivered, there are no 
material 

                                        15
<PAGE>

uncertainties regarding customer acceptance, collection of the resulting 
receivable is deemed probable, and no other significant vendor obligations 
exist. Revenues from post-contract support services are recognized ratably 
over the term of the support period, generally one year. Maintenance revenues 
which are bundled with license agreements are unbundled using vendor-specific 
objective evidence. Consulting revenues are primarily related to 
implementation services most often performed on a time and material basis 
under separate service agreements for the installation of the Company's 
products. Revenues from consulting and training services are recognized as 
the respective services are performed.

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

        The Company conducts business overseas in a number of foreign 
currencies, principally the British Pound, the Deutsche Mark and the French 
Franc. These currencies have been relatively stable against the U.S. dollar 
for the past several years. As a result, foreign currency fluctuations have 
not had a significant impact on the Company's revenues or results of 
operations. Although the Company currently derives no revenues from highly 
inflationary economies, the Company is expanding its presence in 
international markets outside Europe, including the Pacific Rim and Latin 
America, whose currencies have tended to fluctuate more relative to the U.S. 
Dollar. There can be no assurance that European currencies will remain stable 
relative to the U.S. dollar or that future fluctuations in the value of 
foreign currencies will not have a material adverse effect on the Company's 
business, operating results and financial condition. The Company has 
implemented a foreign currency forward hedging program. The hedging program 
consists primarily of using 30-day forward-rate currency contracts. Currency 
contracts are in accordance with SFAS No. 52 and receive hedge accounting 
treatment. Accordingly, to the extent properly hedged by obligations 
denominated in local currencies, the Company's foreign operations remain 
subject to the risks of future foreign currency fluctuations, and there can 
be no assurances that the Company's hedging activities will adequately 
protect the Company against such risk.

        To date the Company's Pacific Rim sales activity has not been 
material. Accordingly, the Company's operations and financial conditions have 
not been materially impacted by the recent Asian financial crisis.


                                        16
<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                MARCH 31,
                                                    -----------------------------------
                                                     1996           1997           1998
                                                    -----          -----          -----
<S>                                                 <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Revenues:
     Licenses ...................................    49.0%          58.4%          62.7%
     Maintenance and services ...................    51.0           41.6           37.3
                                                    -----          -----          -----
       Total revenues ...........................   100.0          100.0          100.0
  Costs and expenses:
     Cost of licenses ...........................     1.7            0.6            0.5
     Cost of maintenance and services ...........    14.9           13.3           16.7
     Sales and marketing ........................    49.7           45.0           36.7
     Research and development ...................    32.6           16.8           13.6
     General and administrative .................    19.1           10.9            9.8
     Amortization of intangible assets ..........     -              -              5.1
     Acquired in-process research and
       development ..............................     -              -             11.3
                                                    -----          -----          -----
       Total costs and expenses .................   118.0           86.6           93.7
                                                    -----          -----          -----
   Operating income (loss) ......................   (18.0)          13.4            6.3
   Interest income (expense) and other,
     net ........................................    (1.2)          (1.4)           1.3
                                                    -----          -----          -----
   Income (loss) from continuing
     operations before income taxes .............   (19.2)          12.0            7.6
   Income tax expense (benefit) .................     -             (4.5)           8.7
                                                    -----          -----          -----
   Income (loss) from continuing
     operations .................................   (19.2)          16.5           (1.1)
  Loss from discontinued operations:
     Loss from operations .......................    (3.3)           -              -
     Loss on disposal ...........................    (4.5)           -              -
                                                    -----          -----          -----
       Loss from discontinued operations ........    (7.8)           -              -
                                                    -----          -----          -----
   Net income (loss) ............................   (27.0)%         16.5%          (1.1)%
                                                    -----          -----          -----
                                                    -----          -----          -----
</TABLE>

FISCAL YEARS ENDED MARCH 31, 1996, 1997, AND 1998

REVENUES

        Total revenues were $23.8 million, $35.0 million, and $61.9 million 
in fiscal 1996, 1997, and 1998, respectively, representing year-to-year 
increases of 47% between 1996 and 1997 and 77% between 1997 and 1998.

LICENSES. License revenues were $11.6 million, $20.5 million, and $38.8 
million in fiscal 1996, 1997, and 1998, respectively, representing 49%, 58%, 
and 63% of total revenues in the respective periods. The increases in license 
revenues are attributable to increased demand for new licenses of 
SERVICECENTER (and following the Apsylog Acquisition, licenses for 
ASSETCENTER), additional seats purchased by existing SERVICECENTER customers, 
higher average transaction sizes, more effective corporate marketing 
programs, improved sales force productivity, expansion of the Company's 
domestic and international sales forces, and the effect of combining 
Apsylog's operations since the Apsylog Acquisition in September 1997.

MAINTENANCE AND SERVICES. Maintenance and services revenues were $12.1 
million, $14.6 million, and $23.1 million in fiscal 1996, 1997, and 1998, 
respectively, representing 51%, 42%, and 37% of total revenues in the 
respective periods. The dollar increases are attributable to renewals of 
maintenance agreements from the Company's expanded 


                                        17
<PAGE>

installed base of customers and maintenance revenues included as part of new 
licenses and an increased number of consulting engagements related to 
implementation of software from initial license agreements. COSTS AND EXPENSES

COST OF LICENSES. Cost of licenses revenues was $415,000, $215,000, and 
$326,000 for fiscal 1996, 1997, and 1998, respectively, representing 2%, 1%, 
and 1% of total license revenues in the respective periods.

COST OF MAINTENANCE AND SERVICES. Cost of maintenance and services revenues 
was $3.5 million, $4.7 million, and $10.3 million in fiscal 1996, 1997, and 
1998, respectively, representing 29%, 32%, and 45% of total maintenance and 
services revenues in the respective periods. The dollar and percentage 
increases in 1998 are attributable to an increase in customer support 
personnel and professional services personnel in connection with the 
corresponding increase in professional services revenue and the effect of 
combining Apsylog's operations since the Apsylog Acquisition in September 
1997. Cost of maintenance and services increased as a percentage of related 
revenues because of increased labor costs.

SALES AND MARKETING. Sales and marketing expenses were $11.8 million, $15.8 
million, and $22.7 million in fiscal 1996, 1997, and 1998, respectively, 
representing 50%, 45%, and 37% of total revenues in the respective periods. 
The dollar increases are attributable to the significant expansion of both 
the North American and international sales forces, increases in marketing 
personnel, the effect of combining Apsylog's operations since the Apsylog 
Acquisition in September 1997, and to moderate operating expense increases. 
Sales and marketing expenses have decreased as a percentage of total revenues 
from fiscal 1996 through fiscal 1998 as a result of revenues increasing at a 
faster rate. If the Company experiences a decrease in sales force 
productivity or for any other reason a decline in revenues, it is likely that 
operating margins will decline as well.

RESEARCH AND DEVELOPMENT. Research and development expenses were $7.7 
million, $5.9 million, and $8.4 million in fiscal 1996, 1997, and 1998, 
respectively, representing 33%, 17%, and 14% of total revenues in the 
respective periods. The dollar and percentage decreases from fiscal 1996 to 
fiscal 1997 are due primarily to the full year effect of the Company's 
divestiture of the entire mainframe software development portion of its 
business in October 1995. The dollar increase from fiscal 1997 to fiscal 1998 
is due primarily to the increased dollar amount of product author 
commissions, an increase in the number of personnel in the Research and 
Development department, and the effect of combining Apsylog's operations 
since the Apsylog Acquisition in September 1997. Research and development 
expenses have decreased as a percentage of total revenues from fiscal 1996 
through fiscal 1998 as a result of revenues increasing at a faster rate.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $4.5 
million, $3.8 million, and $6.1 million in fiscal 1996, 1997, and 1998, 
respectively, representing 19%, 11%, and 10% of total revenues in the 
respective periods. The dollar increase from 1997 to 1998 is attributable 
primarily to costs associated with administrative personnel additions to 
support growth and, management restructuring, and the effect of combining 
Apsylog's operations since the Apsylog Acquisition in September 1997. The 
decrease from fiscal 1996 to 1997 was attributable to the costs incurred in 
the fiscal 1996 management restructuring.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets amounted 
to $3.2 million, or 5% of total revenues, in fiscal year 1998, compared to 
zero in fiscal years 1996 and 1997. The fiscal 1998 amount is due to the 
amortization of intangible assets associated with the Apsylog Acquisition.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. Acquired in-process 
research and development costs of $7.0 million were incurred in the second 
quarter of the fiscal 1998 in connection with the Apsylog Acquisition and are 
therefore reflected in the fiscal year 1998 results. No acquired in-process 
research and development costs were incurred in fiscal years 1996 and 1997.


                                        18
<PAGE>

PROVISION FOR INCOME TAXES/INCOME TAX BENEFIT

        The Company did not incur any significant income taxes during fiscal 
1996 due to operating losses. In fiscal 1997, the Company recorded an income 
tax benefit of $1.6 million resulting from the utilization of a portion of 
the Company's available net operating loss carryforwards as an offset against 
taxable income. In fiscal 1998, the Company recorded an income tax expense of 
$5.4 million. As of March 31, 1997 and 1998, the Company had net operating 
loss carryforwards of approximately $290,000 and $8.5 million, respectively, 
for federal income tax purposes which expire beginning in 2004. Utilization 
of the net operating losses may be subject to annual limitations resulting 
from certain changes in ownership of the Company. At March 31, 1998, the 
Company also has foreign net operating loss carryforwards of approximately 
$5.8 million. The Company has recorded a valuation allowance to partially 
offset the carrying value of its net deferred tax assets due to uncertainty 
surrounding its realization. Management evaluates on a quarterly basis the 
recoverability of the deferred tax assets and the amount of the valuation 
allowance. At such time as it is determined that it is more likely than not 
that all or part of the deferred tax assets are realizable, the valuation 
allowance will be reduced accordingly. Any future decrease in the valuation 
allowance will be recorded as a reduction in goodwill.

DISCONTINUED OPERATIONS

        During fiscal 1996, the Company acquired XVT Software Inc. ("XVT"), 
substantially all of the outstanding equity of which was owned by the 
majority stockholder of the Company. In January 1996, the Company determined 
that maintaining an interest in XVT was not consistent with the Company's 
business strategy and adopted a plan to discontinue the operations of XVT. 
The Company incurred a loss from discontinued operations of XVT in fiscal 
1996 of $1.9 million.

IMPACT OF INFLATION

        The effect of inflation on the Company's financial position has not 
been significant to date.

LIQUIDITY AND CAPITAL RESOURCES

        Until April 1997, the Company financed its operations through bank 
borrowings and private sales of Common Stock. In fiscal 1996, the Company 
received net proceeds from bank borrowings of $3.7 million. In fiscal 1997, 
the Company's net repayments totaled $1.3 million. In fiscal 1997, the 
Company received proceeds of $700,000 from the sale of a product line. In 
fiscal 1996 and 1997, the Company invested cash in the amounts of $3.5 
million and $566,000, respectively, for purchases of property and equipment 
including computer hardware and software to support the Company's growing 
employee base and to relocate to its new San Diego headquarters and training 
facility. In fiscal 1996, the Company generated $584,000 in cash from 
operations, but a net cash use of $738,000 by a discontinued business 
resulted in an overall cash use by the Company of $154,000 in connection with 
operating activities. In fiscal 1997, the Company generated $3.2 million in 
cash from operations, which was reduced by a net cash use of $1.3 million by 
a discontinued business resulting in $1.9 million net cash provided from 
operations. In fiscal 1998, the Company generated $1.7 million in cash from 
operations, which was reduced by a net cash use of $170,000 by a discontinued 
business resulting in $1.5 million net cash provided by operations.

        In April 1997, the Company completed the initial public offering of 
its Common Stock, which resulted in net proceeds to the Company of $19.3 
million.

        The Company has a $5.0 million revolving credit line which expires 
July 31, 1998, pursuant to which there is no outstanding balance at March 31, 
1998. Borrowings under the line of credit bear interest at the bank's prime 
rate (8.5% at March 31, 1998). The line of credit is secured by accounts 
receivable, equipment, and certain other assets of the Company. The borrowing 
facility also provides for a foreign exchange facility, under which the 
maximum principal amount of foreign exchange transactions which may mature 
during any two day period is $2.0 million.


                                        19
<PAGE>

        The Company believes that the net proceeds from its initial public 
offering in April 1997, together with its current cash and short-term 
investments balances, cash available under its bank facilities and cash flow 
from operations will be sufficient to meet its working capital requirements 
for at least the next 12 months. Although operating activities may provide 
cash in certain periods, to the extent the Company experiences growth in the 
future, the Company anticipates that its operating and investing activities 
may use cash. Consequently, any such future growth may require the Company to 
obtain additional equity or debt financing, which may not be available on 
commercially reasonable terms or which may be dilutive.

YEAR 2000 RISKS

        Many currently installed computer systems and software products are 
coded to accept only two digit entries in the date code field. These date 
code fields will need to accept four digit entries to distinguish 21st 
century dates from 20th century dates. As a result, many companies' software 
and computer systems may need to be upgraded or replaced in order to comply 
with such Year 2000 requirements. Significant uncertainty exists in the 
software industry concerning the potential effects associated with such 
compliance.

        The Company utilizes third party equipment and software that may not 
be Year 2000 compliant and is conducting an internal audit of products 
provided by outside vendors to determine if such third party products are 
Year 2000 compliant. Although such audit is not yet completed, the Company 
has received assurances from suppliers of all third party software that the 
Company deems material to its business that such software is Year 2000 
compliant. Failure of such third party equipment or software to operate 
properly with regard to the Year 2000 and thereafter could require the 
Company to incur unanticipated expenses to remedy any problems, which could 
have a material adverse effect on its business, results of operations, and 
financial condition. If key systems, or a significant number of systems, were 
to fail as a result of Year 2000 problems or if the Company was to experience 
delays implementing Year 2000 compliant software products, the Company could 
incur substantial costs and disruption of its business, which would 
potentially have a material adverse effect on its results of operations and 
financial conditions.

        The Company is still assessing the impact the Year 2000 issue will 
have on its proprietary software products and internal information systems 
and will take appropriate corrective actions based on the results of such 
analyses. Management of the Company has not yet determined the costs related 
to achieving Year 2000 compliance but does not believe such costs will be 
material. To the extent the cost of achieving Year 2000 compliance are 
material, such costs will have a material adverse effect on its business, 
results of operations, and financial condition.

        In the ordinary course of its business, the Company tests and 
evaluates its own software products and believes that its software products 
are generally Year 2000 compliant, meaning that the use or occurrence of 
dates on or after January 1, 2000 will not materially affect the performance 
of such software products with respect to four digit date dependent data or 
the ability of such products to correctly create, store, process, and output 
information related to such data. There can be no assurances, however, that 
the Company will not subsequently learn that certain of its software products 
do not contain all necessary software routines and codes necessary for the 
accurate calculation, display, storage, and manipulation of data involving 
dates. In addition, in certain circumstances, the Company has warranted that 
the use or occurrence of dates on or after January 1, 2000 will not adversely 
affect the performance of its products with respect to four digit date 
dependent data or the ability to create, store, process, and output 
information related to such data. If any licensees experience Year 2000 
problems, such licensees could assert claims for damages.

        In addition, the purchasing patterns of customers and potential 
customers may be affected by Year 2000 issues. Many companies are expending 
significant resources to correct their current software systems for Year 2000 
compliance. These expenditures may result in reduced funds available to 
purchase software products such as those offered by the Company, which could 
have an adverse effect on the business, results of operations, and financial 
condition of the Company.


                                        20
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

        HISTORY OF OPERATING LOSSES. Through March 31, 1998, the Company has 
recorded cumulative net losses of approximately $16.4 million, including 
approximately $7.0 million related to the write-off of acquired in-process 
research and development in connection with the Apsylog Acquisition. In 
recent years, the product lines of both the Company and Apsylog have changed 
substantially. The Company's SERVICECENTER product, from which the Company 
derived substantially all of its license revenues until the acquisition of 
ASSETCENTER, only began shipping in mid-1995. Apsylog's ASSETCENTER product 
only began shipping in mid-1996. As a result, prediction of the Company's 
future operating results is difficult, if not impossible. Although the 
Company achieved profitability during the years ended March 31, 1997 and 1998 
(excluding the impact of the $7.0 million charge related to acquired 
in-process research and development in connection with the Apsylog 
Acquisition), there can be no assurance that the Company will be able to 
remain profitable on a quarterly or annual basis. In addition, the Company 
does not believe that the growth in revenues it has experienced in recent 
years is indicative of future revenue growth or future operating results.

        POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; LENGTHY SALES CYCLE; 
SEASONALITY. The Company's quarterly operating results have varied 
significantly in the past and may vary significantly in the future depending 
upon a number of factors, many of which are beyond the Company's control. 
These factors include, among others, (i) the ability of the Company to 
develop, introduce and market new and enhanced versions of its software on a 
timely basis; (ii) market demand for the Company's software; (iii) the size, 
timing and contractual terms of significant orders; (iv) the timing and 
significance of new software product announcements or releases by the Company 
or its competitors; (v) changes in pricing policies by the Company or its 
competitors; (vi) changes in the Company's business strategies; (vii) 
budgeting cycles of its potential customers; (viii) changes in the mix of 
software products and services sold; (ix) changes in the mix of revenues 
attributable to domestic and international sales; (x) the impact of 
acquisitions of competitors; (xi) seasonal trends; (xii) the cancellations of 
licenses or maintenance agreements; (xiii) product life cycles; (xiv) 
software defects and other product quality problems; (xv) and personnel 
changes. The Company has historically operated with little or no backlog and 
has often recognized a substantial portion of its revenues in the last month 
or weeks of a quarter. As a result, license revenues in any quarter are 
substantially dependent on orders booked and shipped in the last month or 
weeks of that quarter. Due to the foregoing factors, quarterly revenues and 
operating results are not predictable with any significant degree of 
accuracy. In particular, the timing of revenue recognition can be affected by 
many factors, including the timing of contract execution and delivery. The 
timing between initial customer contact and fulfillment of criteria for 
revenue recognition can be lengthy and unpredictable, and revenues in any 
given quarter can be adversely affected as a result of such unpredictability. 
In the event of any downturn in potential customers' businesses or the 
economy in general, planned purchases of the Company's products may be 
deferred or canceled, which could have a material adverse effect on the 
Company's business, operating results and financial condition.

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

        The Company's business has experienced and is expected to continue to
experience seasonality. The Company's revenues and operating results in its
December quarter typically benefit from purchase decisions made by the large
concentration of customers with calendar year-end budgeting requirements, while
revenues and operating 

                                        21
<PAGE>

results in the March quarter typically benefit from the efforts of the 
Company's sales force to meet fiscal year-end sales quotas. In addition, the 
Company is currently attempting to expand its presence in international 
markets, including Europe, the Pacific Rim and Latin America. International 
revenues comprise a significant percentage of the Company's total revenues, 
and the Company may experience additional variability in demand associated 
with seasonal buying patterns in such foreign markets. In particular, the 
quarter ended September 30 tends to reflect the effects of summer slowing of 
international business activity, particularly in Europe.

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

        DEPENDENCE ON MARKET ACCEPTANCE OF INFRASTRUCTURE MANAGEMENT SOFTWARE 
SOLUTIONS. Until recently, the Company's product strategy has focused on 
integrating a broad array of IT management applications with other 
traditional internal help desk applications to create an Enterprise Service 
Desk capable of managing multiple aspects of an enterprise's IT structure. In 
recent years, the Company's license revenues have derived principally from 
sales of its SERVICECENTER suite of IT management applications. In September 
1997, the Company broadened its IT infrastructure management product suite by 
acquiring ASSETCENTER, an asset management product line, through the Apsylog 
Acquisition. In addition, the Company has increased the functionality of 
SERVICECENTER to manage aspects of the enterprise infrastructure not 
necessarily related to IT. In May 1997, the Company announced that it had 
entered into a definitive agreement to acquire Innovative Tech Systems, Inc., 
a provider of facilities management software ("Innovative"). Innovative's 
product strategy has focused on providing building and facilities management 
software applications and its license revenues have consisted entirely of 
sales of its SPAN-FM applications suite. In acquiring Innovative, the Company 
intends to further broaden its product line beyond traditional IT 
infrastructure management to offer a more comprehensive product suite capable 
of managing a business enterprise's IT infrastructure, its physical plant and 
facilities, its communications infrastructure, and its distribution systems.

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

        INTEGRATION OF INNOVATIVE TECH SYSTEMS INTO THE COMPANY'S BUSINESS. The
acquisition of Innovative is anticipated to close in the Company's September
1998 quarter, subject to approval by shareholders of Innovative and certain
other conditions. The acquisition will require integration of two geographically
separated companies that have previously operated independently. The Company
believes that the acquisition will further its strategy to provide customers
with a complete infrastructure management software solution. No assurance can be
given that difficulties will not be encountered in integrating the product
offerings and operations of the Company, that the Company will successfully
complete and commercialize new products currently in development or develop any
new products, that the marketing, distribution, or other operational benefits
and efficiencies anticipated from integration of the respective businesses and
products of the Company will be achieved, or that employee morale 

                                        22
<PAGE>

will not be adversely affected as a result of the acquisition and the 
resulting integration. Such integration could result in a diversion of 
management's time and attention, which could have a material adverse effect 
on revenues and results of operations at either or both of the Company. The 
difficulties of integration may be increased by the necessity of coordinating 
geographically separated organizations or of integrating personnel with 
disparate business backgrounds and different corporate cultures. There can be 
no assurance that either Company will retain its key personnel, that the 
combined engineering teams will successfully cooperate and realize any 
technological benefits, that they will benefit from the broader distribution 
and marketing opportunities available through the Company or that the Company 
will benefit from the broader product offerings available, or that the 
Company will realize any of the other anticipated benefits of the 
acquisition. Any failure to integrate the businesses and technologies of the 
companies successfully or any failure to realize the anticipated benefits of 
the acquisition could have a material adverse effect on the business, results 
of operations, and financial condition of the Company.

        In addition, the public announcement or consummation of the 
acquisition could result in the cancellation, termination, or nonrenewal of 
arrangements with Innovative's suppliers, distributors, or customers, or the 
loss of certain key employees, or the termination of negotiations or delays 
in ordering by prospective customers of Innovative as a result of 
uncertainties that may be perceived to result from the acquisition. For 
example, customers or potential customers of Innovative who utilize 
enterprise service desk, asset management, or other infrastructure management 
software, including help desk software, marketed by competitors of Innovative 
could terminate or delay orders due to perceived uncertainties over 
Innovative's continued commitment to provide products and enhancements or 
support services for its products used in conjunction with such competing 
enterprise software. Any significant amount of cancellations, terminations, 
delays, or nonrenewals of arrangements with either company or loss of key 
employees or termination of negotiations or delays in ordering could have a 
material adverse effect on Innovative's business, results of operations, and 
financial condition of either company, particularly in the quarter ending 
July 31, 1998 and other near-term quarters.

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

        DEPENDENCE ON KEY PERSONNEL; ABILITY TO RECRUIT PERSONNEL. The 
Company's success will depend to a significant extent on the continued 
service of its senior management and certain other key employees of the 
Company, including selected sales, consulting, technical and marketing 
personnel. None of the Company's employees, including its senior management, 
is bound by an employment or non-competition agreement, and the Company does 
not maintain key man life insurance on any employee. The loss of the services 
of one or more of the Company's executive officers or key employees or the 
decision of one or more of such officers or employees to join a competitor or 
otherwise compete directly or indirectly with the Company could have a 
material adverse effect on the Company's business, operating results and 
financial condition. In addition, several of the Company's executive 
officers, including its President and Chief Executive Officer, Chief 
Financial Officer, and certain operating vice presidents, have been employed 
by the Company for a relatively short period of time. Since joining the 
Company, the new management team has devoted substantial effort in refocusing 
the Company's product, sales and marketing strategies. In connection with 
such changes, the Company restructured its sales and marketing departments, 
which

                                        23
<PAGE>

resulted in the replacement of a significant number of employees. Although 
management believes that this restructuring has benefited the Company, many 
of the Company's current employees have been with the Company for only a 
limited period of time.

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

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

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

        COMPETITION. The market for the Company's products is highly 
competitive, fragmented and subject to rapid technological change and 
frequent new product introductions and enhancements. Competitors vary in size 
and in the scope and breadth of the products and services offered. The 
Company encounters competition from a number of sources, including (i) 
providers of internal help desk software applications such as Remedy 
Corporation and Software Artistry, Inc. (now a division of Tivoli); (ii) 
customer interaction software companies such as Clarify Inc. and The Vantive 
Corporation, whose products include internal help desk applications; (iii) 
information technology and systems management companies such as IBM, Computer 
Associates, Network Associates, Inc. (recently formed as a result of the 
business combination of McAfee Associates, Inc. and Network General 
Corporation), and Hewlett Packard through its acquisition of PROLIN; (iv) 
providers of asset management software; and (v) the internal information 
technology departments of those companies with help desk requirements. 
Because barriers to entry in the software market are relatively low, the 
Company anticipates additional competition from other established and 
emerging companies as the market for enterprise infrastructure management 
applications expands. In addition, current and potential competitors have 
established or may in the future establish cooperative relationships among 
themselves or with third parties, or large software companies could acquire 
or establish alliances with smaller competitors of the Company. The Company 
expects software industry consolidation to continue in the future, and it is 
possible that new competitors or alliances among competitors may emerge and 
rapidly acquire significant market share. For example, the Company's ability 
to sell its products depends in part on their compatibility with and support 
by providers of system management products, including Tivoli, Computer 
Associates, and Hewlett Packard. Both Tivoli and Hewlett Packard have 
recently acquired providers of help desk software products. The decision of 
one or more providers of system management products to close their systems to 
competing vendors like the Company, or to bundle their infrastructure 
management and/or help-desk software products with other products for 
enterprise licenses for 

                                        24
<PAGE>

promotional purposes or as part of a long-term pricing strategy, could have 
an adverse effect on the Company's ability to sell its products. Increased 
competition, including increased competition as a result of acquisitions of 
help desk and other infrastructure management software vendors by system 
management companies, is likely to result in price reductions, reduced gross 
margins and loss of market share, any of which could have a material adverse 
effect on the Company's business, results of operations, and financial 
condition. Some of the Company's current and many of its potential 
competitors have significantly greater financial, technical, marketing and 
other resources than the Company. As a result, they may be able to respond 
more quickly to new or emerging technologies and changes in customer 
requirements or to devote greater resources to the development, promotion, 
and sale of their products than the Company. There can be no assurance that 
the Company will be able to compete successfully against current and future 
competitors or that competitive pressures faced by the Company will not have 
a material adverse effect on the Company's business, results of operations, 
and financial condition.

        MANAGEMENT OF GROWTH. The Company's business has grown substantially 
in recent periods, with total revenues increasing from $19.6 million in 
fiscal 1995 to $23.8 million in fiscal 1996 and to $35.0 million in fiscal 
1997, and to $61.9 million in fiscal 1998. If the Company is successful in 
achieving its growth plans, including the integration of Apsylog and 
Innovative Tech, such growth is likely to place a significant burden on the 
Company's operating and financial systems, resulting in increased 
responsibility for senior management and other personnel within the Company. 
The Company's ability to compete effectively and to manage future growth, if 
any, and its future operating results will depend in part on the ability of 
its officers and other key employees to implement and expand operational, 
customer support and financial control systems and to expand, train and 
manage its employee base. In particular, in connection with the acquisitions, 
the Company will be required to integrate additional personnel and to augment 
or replace Innovative's existing financial and management systems. Such 
integration could result in a disruption of operations of the Company and 
could adversely affect the financial results of the Company. There can be no 
assurance that the Company's existing management or any new members of 
management will be able to augment or improve existing systems and controls 
or implement new systems and controls in response to future growth, if any. 
The Company's failure to do so could have a material adverse effect on the 
Company's business, operating results and financial condition.

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

        INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS. International sales 
represented approximately 29% and 36% of the Company's total revenues in both 
fiscal 1997 and fiscal 1998, respectively. The Company currently has 
international sales offices in London, Paris, Frankfurt, Munich, Amsterdam 
and Copenhagen. The Company believes that its continued growth and 
profitability will require continued expansion of its international 
operations, particularly in Europe, Latin America and the Pacific Rim. 
Accordingly, the Company intends to expand its international operations and 
enter additional international markets, which will require significant 
management attention and financial resources. In addition, the Company's 
international operations are subject to a variety of risks associated with 
conducting business internationally, including fluctuations in currency 
exchange rates, longer payment cycles, difficulties in staffing and managing 
international operations, problems in collecting accounts receivable, 
seasonal reductions in business activity during the summer months in Europe 
and certain other parts of the world, increases in tariffs, duties, price 
controls or other restrictions on foreign currencies, and trade barriers 
imposed by foreign countries, any of which could have a material adverse 
effect on the Company's business, results of operations, and financial 
condition. In particular, recent instability in the Asian-Pacific economies 
and financial markets, could 

                                        25
<PAGE>

have an adverse effect on the Company's operating results in future quarters. 
In addition, the Company has only limited experience in developing localized 
versions of its products and marketing and distributing its products 
internationally and there can be no assurance that the Company will be able 
to successfully localize, market, sell and deliver its products 
internationally. The inability of the Company to expand its international 
operations successfully and in a timely manner could have a material adverse 
effect on the Company's business, results of operations and financial 
condition.

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

        ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION. On January 1, 
1999, certain member states of the European Economic Community (the "EEC") 
will fix their respective currencies to a new currency, the euro. On that 
day, the euro will become a functional legal currency within these countries. 
During the next three years, business in these EEC member states will be 
conducted in both the existing national currency, such as the French Franc or 
Deutsche Mark, and the euro. As a result, companies operating in or 
conducting business in EEC member states will need to ensure that their 
financial and other software systems are capable of processing transactions 
and properly handling these currencies, including the euro. The Company's 
ASSETCENTER product was originally developed for the European market and is 
capable of managing currency data measured in euros. The Company is still 
assessing the impact that the euro will have on its internal systems and the 
other products it sells, however. The Company will take appropriate 
corrective actions based on the results of such assessment. The Company has 
not yet determined the costs related to addressing this issue, and there can 
be no assurance that this issue and its related costs will not have a 
material adverse affect on the Company's business, results of operations, and 
financial condition.

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

        Software products as complex as those offered by the Company may 
contain errors that may be detected at any point in a product's life cycle. 
The Company has in the past discovered software errors in certain of its 
products and has experienced delays in shipment of products during the period 
required to correct these errors. There can be no assurance that, despite 
testing by the Company and by current and potential customers, errors will 

                                        26
<PAGE>

not be found, resulting in loss of, or delay in, market acceptance and sales, 
diversion of development resources, injury to their reputation, or increased 
service and warranty costs, any of which could have a material adverse effect 
on the business, results of operations, and financial condition of the 
Company.

        DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT. The 
success of the Company will be, heavily dependent upon proprietary 
technology. The Company relies primarily on a combination of copyright and 
trademark laws, trade secrets, confidentiality procedures and contractual 
provisions to protect its proprietary rights. The Company seeks to protect 
its software, documentation and other written materials under trade secret 
and copyright laws, which provide only limited protection. Despite 
precautions taken by the Company, it may be possible for unauthorized third 
parties to copy aspects of its current or future products or to obtain and 
use information that either regards as proprietary. In particular, the 
Company may provide its respective licensees with access to its data model 
and other proprietary information underlying its licensed applications. There 
can be no assurance that such means of protecting their proprietary rights 
will be adequate or that their competitors will not independently develop 
similar or superior technology. Policing unauthorized use of software is 
difficult and, while the Company is able to determine the extent to which 
piracy of its software products exists, software piracy can be expected to be 
a persistent problem. In addition, the laws of some foreign countries do not 
protect the proprietary rights of the Company to the same extent as do the 
laws of the United States. Litigation may be necessary in the future to 
enforce their intellectual property rights, to protect trade secrets or to 
determine the validity and scope of the proprietary rights of others. Such 
litigation could result in substantial costs and diversion of resources and 
could have a material adverse effect on the business, results of operations, 
and financial condition of any or all of the Company.

        The Company is not aware that any of its software product offerings 
infringes the proprietary rights of third parties. There can be no assurance, 
however, that third parties will not claim infringement with respect to 
current or future products of the Company. The Company expects that software 
product developers will increasingly be subject to infringement claims as the 
number of products and competitors in their industry segment grows and the 
functionality of products in different industry segments overlaps. Any such 
claims, with or without merit, could be time consuming, result in costly 
litigation, cause product shipment delays, or require the Company to enter 
into royalty or licensing agreements. Such royalty or licensing agreements, 
if required, may not be available on acceptable terms or at all, which could 
have a material adverse effect on the business, results of operations, and 
financial condition of the Company.

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

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

        EFFECT OF CERTAIN COMPANY CHARTER PROVISIONS; LIMITATION OF LIABILITY 
OF DIRECTORS; ANTITAKEOVER EFFECTS OF DELAWARE LAW. The Company is authorized 
to issue 5,000,000 shares of undesignated Preferred Stock. The Company Board 
has the authority to issue Preferred Stock in one or more series and to fix 
the price, rights, preferences, privileges and restrictions thereof, 
including dividend rights, dividend rates, conversion rights, voting rights, 
terms of redemption, redemption prices, liquidation preferences and the 
number of shares constituting a 

                                        27
<PAGE>

series or the designation of such series, without any further vote or action 
by Peregrine's stockholders. The issuance of Preferred Stock, while providing 
desirable flexibility in connection with possible acquisitions and other 
corporate purposes, could have the effect of delaying, deferring, or 
preventing a change in control of the Company without further action by the 
stockholders and may adversely affect the market price of the Common Stock 
and the voting and other rights of the holders of Common Stock. The issuance 
of Preferred Stock with voting and conversion rights may adversely affect the 
voting power of the holders of Common Stock, including the loss of voting 
control to others. The Company has no current plans to issue any shares of 
Preferred Stock.

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

        The Company is subject to Section 203 of the Delaware General 
Corporation Law (the "Antitakeover Law"), which regulates corporate 
acquisitions. The Antitakeover Law prevents certain Delaware corporations, 
including those whose securities are listed for trading on the Nasdaq 
National Market, from engaging, under certain circumstances, in a "business 
combination" with any "interested stockholder" for three years following the 
date that such stockholder became an interested stockholder. For purposes of 
the Antitakeover Law, a "business combination" includes, among other things, 
a merger or consolidation involving Peregrine and the interested stockholder 
and the sale of more than 10% of the Company's assets. In general, the 
Antitakeover Law defines an "interested stockholder" as any entity or person 
beneficially owning 15% or more of the outstanding voting stock of the 
Company and any entity or person affiliated with or controlling or controlled 
by such entity or person. A Delaware corporation may "opt out" of the 
Antitakeover Law with an express provision in its original certificate of 
incorporation or an express provision in its certificate of incorporation or 
bylaws resulting from amendments approved by the holders of at least a 
majority of the company's outstanding voting shares. The Company has not 
"opted out" of the provisions of the Antitakeover Law.

        VOLATILITY OF TRADING PRICES. The Company completed its initial 
public offering of Common Stock in April 1997, prior to which time no public 
market existed for the Company's Common Stock. The market price of the 
Company's Common Stock has been subject to significant price and volume 
fluctuations and are expected to continue to be subject to significant price 
and volume fluctuations pending the anticipated acquisition of Innovative. In 
addition, following the acquisition, the Company Common Stock can be expected 
to be subject to significant price and volume fluctuations. A number of 
factors could affect the market price of the respective Companies' securities 
before the acquisition and the market price of Company Common Stock after the 
acquisition. These factors include any shortfall in revenues or net income 
from revenues or net income expected by securities analysts; announcements of 
new products by one of the Companies or its competitors; quarterly 
fluctuations in financial results or the results of other software companies, 
including those of direct competitors of the Company or Innovative; changes 
in analysts' estimates of the Company's financial performance, the financial 
performance of competitors, or the financial performance of software 
companies in general; general conditions in the software industry; changes in 
prices for products of the Company or products of competitors; changes in 
revenue growth rates for the Company, or its competitors; sales of large 
blocks of Company Common Stock; and conditions in the financial markets in 
general. In addition, the stock market may from time to time experience 
extreme price and volume fluctuations, which particularly affect the market 
price for the securities of many technology companies and which have often 
been unrelated to the operating performance of the specific companies. There 
can be no assurance that market prices of the Company Common Stock will not 
experience significant fluctuations in the future.

                                        28
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information required by this Item is set forth in the Company's 
Financial Statements and Notes thereto beginning at page F-1 of this report.

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

        Not applicable.


                                        29
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by this item concerning executive officers 
of the Registrant is set forth in Part I of this report. 

         (a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth certain information concerning the 
executive officers of Peregrine and members of the Board of Directors of 
Peregrine (the "Peregrine Board") and their ages as of March 31, 1998:

<TABLE>
<CAPTION>

         NAME                        AGE                       POSITION
<S>                                  <C>        <C>
Stephen P. Gardner (1).............   44        President, Chief Executive Officer and Director
David A. Farley....................   43        Vice President, Finance, Chief Financial Officer and Director
William G. Holsten.................   61        Vice President, Professional Services
David G. Fisher (2)................   40        Vice President, Marketing
Gary A. Hughes (3).................   34        Vice President, Worldwide Customer Support
Frederic B. Luddy..................   43        Vice President, North America Research and Development
Richard T. Nelson..................   38        Vice President, Secretary and General Counsel
Douglas S. Powanda.................   41        Vice President, Worldwide Sales
Steven S. Spitzer..................   38        Vice President, Channel Sales
Gilles Queru.......................   39        Vice President, Corporate Development
John J. Moores (4).................   53        Chairman of the Peregrine Board
Christopher A. Cole................   44        Director
Richard A. Hosley II (4)...........   53        Director
Charles E. Noell III (4)(5)........   46        Director
Norris van den Berg (5)............   59        Director

</TABLE>

(1)      Mr. Gardner became Peregrine's President and Chief Executive Officer in
         April 1998. From January 1998 to April 1998, he served as Peregrine's
         President and Principal Executive Officer.

(2)      Mr. Fisher resigned as an executive officer of Peregrine effective in
         April 1998.

(3)      Mr. Hughes became an executive officer of Peregrine in April 1998.

(4)      Member of Compensation Committee.

(5)      Member of Audit Committee.

         STEPHEN P. GARDNER has served as Peregrine's President and Chief 
Executive Officer and as a member of the Peregrine Board since April 1998. 
From January1998 to April 1998, Mr. Gardner was Peregrine's Executive Vice 
President and Principal Executive Officer. From May 1997 to January 1998, Mr. 
Gardner served as Peregrine's Vice President, Strategic Acquisitions. From 
May 1996 until May1997, Mr. Gardner served as president of Thunder & 
Lightning Company, an Internet software start-up company. From 1995 until May 
1996 Mr. Gardner served as the president of Alpharel Inc., a document 
management software company. From1993 until 1995, Mr. Gardner served as a 
vice president of Data General Corporation, a manufacturer of multi-user 
computer systems, peripheral equipment, communications systems, and related 
products. From 1988 to 1993, Mr. Gardner served in various capacities with 
Groupe Bull, most recently as founder and president of its Integris Business 
Unit, a systems integration and software company owned by Groupe Bull of 
France. Mr. Gardner holds an A.B. in Geochemistry from Princeton University 
and an M.B.A. from Harvard University.

         DAVID A. FARLEY has served as Peregrine's Vice President, Finance, 
and Chief Financial Officer and as a member of the Peregrine Board since 
October 1995. Mr. Farley served as Secretary of Peregrine from October 1995 
until February 1997.From November 1994 to November 1995, Mr. Farley was Vice 
President, Finance, and Chief Financial Officer and a director of XVT 
Software Inc., a development tools software company ("XVT"). From December 
1984 until October 1994, Mr. Farley held various accounting and financial 
positions at BMC Software, Inc., a vendor of software system utilities for 
IBM mainframe computing environments ("BMC"), most recently as Chief 
Financial Officer and as a director. Mr. Farley holds a B.S. in Accounting 
from the University of Alabama.

         DAVID G. FISHER served as the Company's Vice President, Marketing 
from April 1996 until April 1998. From March 1993 to April 1996, Mr. Fisher 
was Vice President of Sales and Marketing for Restrac, Inc., a developer and 
vender of recruitment and staffing software applications. From February 1991 
to March 1993, Mr. Fisher was Vice President of Worldwide Marketing for 
Continuum, Inc., a developer and vendor of insurance and banking software 
applications.

         WILLIAM G. HOLSTEN has served as Peregrine's Vice President, 
Professional Services since November 1995. From July 1994 until November 
1995, Mr. Holsten was Director of Professional Services for XVT. From August 
1992 until June 1994, he was a consultant with Engineering Software 
Solutions, a consulting firm co-owned by Mr. Holsten and a partner, which 
provided consulting services to XVT from May 1993 to June 1994. From October 
1984 to July 1992, Mr. Holsten held a variety of positions with Precision 
Visuals, Inc., a graphics software company, most recently as Director of 
Professional Services. Mr. Holsten holds a B.A. in Mathematics from the 
University of California at Santa Barbara.

         GARY A. HUGHES has served as Peregrine's Vice President, Worldwide 
Customer Support since April 1998. Since joining Peregrine as a customer 
support representative in July 1990, Mr. Hughes has held a variety of 
positions with Peregrine, including, from January 1998 until April 1998, 
Peregrine's Director of Worldwide Customer Support; from August 1997 until 
January 1998, Peregrine's manager, Systems Engineers; from October 1995 until 
August 1997, Peregrine's Development Manager; and from December 1993 until 
December 1994, Peregrine's Vice President, Customer Support.

         FREDERIC B. LUDDY has served as Peregrine's Vice President, North 
American Research and Development, and Chief Technology Officer since January 
1998. Mr. Luddy has been with Peregrine since April 1990, serving as Product 
Architect for SERVICECENTER from October 1995 until January 1998 and as a 
Product Author prior to that time.

         RICHARD T. NELSON has served as Peregrine's General Counsel since 
November 1995, as its Vice President since October 1996 and as its Secretary 
since February 1997. From August 1991 until November 1995, Mr. Nelson was an 
associate in the Houston, Texas office of Jackson & Walker LLP, a law firm. 
Mr. Nelson holds a B.S. in Accounting from Bentley College and a J.D. from 
the University of Iowa College of Law.

         DOUGLAS S. POWANDA has served as Peregrine's Vice President, 
Worldwide Sales since January 1998. Mr. Powanda served as Peregrine's Vice 
President, International Sales from September 1995 to January 1998. From June 
1994 until September 1995, he served as Peregrine's Vice President, North 
American Sales. He was Peregrine's Director of Sales for Europe from 
September 1993 until June 1994, its Regional Sales Manager from December 1992 
to August 1993, and its Senior Accounts Manager from February 1992 until 
December 1992. Mr. Powanda holds a B.S. in Business Management from Trenton 
State University and an M.B.A. from Pepperdine University.

         STEVEN S. SPITZER has served as Peregrine's Vice President, Channel 
Sales since August 1997. From 1986 until August 1997, Mr. Spitzer held 
various positions with FileNet Corporation, a provider of workflow, 
document-imaging, and electronic document management software solutions, most 
recently as Vice President, Channel Sales. Mr. Spitzer holds a B.S. in 
Business Administration, Computer Sciences from Long Beach State University.

         GILLES QUERU has served as Peregrine's Vice President, Corporate 
Development since April 1998. Mr. Queru joined Peregrine in September 1997 as 
a result of Peregrine's acquisition of Apsylog S.A., through its parent 
company, United Software, Inc. Mr. Queru founded Apsylog in 1987 and served 
as its Chief Executive Officer and Chairman of its Board of Directors until 
the acquisition. Following the acquisition and until April 1998, he continued 
to serve as president of the wholly owned operating subsidiary of Peregrine 
that resulted from the merger. Prior to forming Apsylog, Mr. Queru held 
several management positions with Hewlett-Packard, a developer and 
manufacturer of computer and imaging product hardware. Mr. Queru is a 
graduate of Ecole Centrale de Lyon.

         JOHN J. MOORES has served as Chairman of the Peregrine Board since 
March 1990 and as a member of the Peregrine Board since March 1989. In 1980, 
Mr. Moores founded BMC and served as its President and Chief Executive 
Officer from 1980 to 1986 and as Chairman of its Board of Directors from 1980 
to 1992. Since December 1994, Mr. Moores has served as owner and Chairman of 
the Board of the San Diego Padres Baseball Club, L.P. and since September 
1991 as Chairman of the Board of JMI Services, Inc., a private investment 
company ("JMI Services"). Mr. Moores also serves as a director of Homegate 
Hospitality, Inc. Mr. Moores holds a B.S. in economics and a J.D. from the 
University of Houston. 

         CHRISTOPHER A. COLE has served as a member of the Peregrine Board 
since founding Peregrine in 1981. He also served as its President and Chief 
Executive Officer from 1986 until 1989. Since 1992, Mr. Cole has served as 
President and Chief Executive Officer of Questrel, Inc., a software 
development company. Mr. Cole holds an A.B. and an A.M. in Physics from 
Harvard University. 

         RICHARD A. HOSLEY II has served as a member of the Peregrine Board 
since January 1992. Prior to retiring from full-time employment, Mr. Hosley 
served as President and Chief Executive Officer of BMC. Mr. Hosley also 
serves as a director of Logic Works, Inc. and as a director and member of the 
compensation committee of Axent Technologies, Inc. Mr. Hosley holds a B.A. in 
Economics from Texas A&M University.

         CHARLES E. NOELL III has served as a member of the Peregrine Board 
since January 1992. Since January 1992, Mr. Noell has served as President and 
Chief Executive Officer of JMI Services, Inc., a private investment company, 
and as a General Partner of JMI Equity Fund, L.P., a venture capital 
investment firm ("JMI Equity Fund"). Mr. Noell also serves as a director of 
Expert Software, Inc. and Transaction Systems Architects, Inc. and as a 
director and member of the compensation committee of Homegate Hospitality, 
Inc. Mr. Noell holds a B.A. in History from the University of North Carolina 
at Chapel Hill and an M.B.A. from Harvard University.

         NORRIS VAN DEN BERG has served as a member of the Peregrine Board 
since January 1992. Mr. van den Berg has served as a General Partner of JMI 
Equity Fund since July 1991 and also serves as a member of the Board of 
Directors of Prism Solutions, Inc. Mr. van den Berg holds a B.A. in 
Philosophy and Mathematics from the University of Maryland.

         There are no family relationships among any executive officers or 
directors of Peregrine.

         (b) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended, 
requires the Company's officers and directors and persons who own more than 
10% of a registered class of the Company's equity securities to file reports 
of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the 
Securities and Exchange Commission (the "SEC"). Such officers, directors, and 
10% stockholders are also required by SEC rules to furnish the Company with 
copies of all Section 16(a) reports they file. Based solely on its review of 
the copies of such forms received by it, or written representations from 
certain reporting persons, the Company believes that during fiscal 1998, and 
with the exception of a Form 3 filed late inadvertently by Stephen P. 
Gardner, all executive officers and directors of the Company complied with 
all applicable filing requirements.

         ITEM 11. EXECUTIVE COMPENSATION

         (a) SUMMARY COMPENSATION TABLE

         The following table sets forth in summary form information 
concerning the compensation awarded to, earned by, or paid for services 
rendered to Peregrine in all capacities during the fiscal years ended March 
31, 1996, 1997, and 1998, respectively, by (i) Peregrine's President and 
Chief Executive Officer and (ii)Peregrine's next five most highly compensated 
executive officers whose salary and bonus for fiscal 1998 exceeded $100,000 
(collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                     LONG TERM COMPENSATION
                                                                                     ----------------------
                                                                                                   SECURITIES
                                  FISCAL        ANNUAL COMPENSATION (1)            RESTRICTED      UNDERLYING        ALL OTHER
NAME AND PRINCIPAL POSITION        YEAR        SALARY              BONUS          STOCK AWARDS      OPTIONS        COMPENSATION
-------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>              <C>                <C>              <C>             <C>
Stephen P. Gardner(2)..........    1998       $139,000         $ 210,000(8)       $775,000(15)      150,000        $ 5,156(18)
  President and                    1997       --               --                 --                --             --
  Chief Executive Officer          1996       --               --                 --                --             --

David A. Farley(3).............    1998        150,000           296,490(9)       --                --               3,337(19)
  Vice President, Finance,         1997        150,000           126,240          --                --               2,712
  and Chief Financial Officer      1996        120,000            73,146           468,000(16)      200,000        100,321

William G. Holsten(4)..........    1998         90,000           159,547(10)      --                 30,000          4,723(20)
  Vice President,                  1997         90,000           120,000          --                 50,000          4,481
  Professional Services            1996         90,000           201,574          --                100,000         35,387

Frederic B. Luddy(5)...........    1998        150,000           729,060(11)      --                 25,000          3,946(21)
  Vice President, North            1997        150,000           211,925          --                --               2,712
  American Research and            1996        150,000           133,920          --                 25,000          2,712
  Development

Douglas S. Powanda.............    1998        150,000           309,523(12)      --                 75,000          3,946(22)
  Vice President,                  1997        150,000           104,300          --                 50,000          2,885
  Worldwide Sales                  1996        106,000           179,127          --                --               7,704

FORMER EXECUTIVE OFFICERS

Alan H. Hunt(6)................    1998        187,500           560,336(13)      --                --              57,102(23)
  President and Chief              1997        225,000           225,160          --                --               4,862
  Executive Officer                1996        192,500           130,557           936,000(17)      400,000         16,968

Douglas F. Garn(7).............    1998        122,747           153,257(14)      --                --               7,845(24)
  Vice President, North            1997        150,000           197,324          --                200,000         18,788
  American Sales                   1996        --              --                 --                --             --

</TABLE>

(1)      Other than the salary and bonus described herein, Peregrine did not pay
         any executive officer named in the Summary Compensation Table any
         fringe benefits, perquisites or other compensation in excess of 10% of
         such executive officer's salary and bonus during either fiscal 1998,
         fiscal 1997, or fiscal 1996.

(2)      Mr. Gardner became Peregrine's President and Chief Executive Officer
         and a member of the Peregrine Board in April 1998. From January 1998 to
         April 1998, Mr. Gardner served as Peregrine's Executive Vice President
         and acting Chief Executive Officer and from May 1997 to January 1998 as
         Peregrine's Vice President, Strategic Acquisitions.

(3)      Mr. Farley became Peregrine's Vice President, Finance, and Chief
         Financial Officer in October 1995. Mr. Farley's salary and bonus for
         fiscal 1996 include amounts paid to him as Vice President, Finance, and
         Chief Financial Officer of XVT. Peregrine acquired XVT in October 1995.

(4)      Mr. Holsten became Peregrine's Vice President, Professional Services in
         November 1995. Mr. Holsten's salary and bonus for fiscal 1996 include
         amounts paid to him as Director, Professional Services, of XVT.

(5)      Mr. Luddy became Peregrine's Vice President, North American Research
         and Development in January 1998. Mr. Luddy's salary and bonus for
         fiscal 1998, 1997, and 1996 include amounts paid to him as Chief
         Architect of SERVICECENTER.

(6)      Mr. Hunt resigned as Peregrine's President and Chief Executive Officer
         in January 1998. Mr. Hunt's salary and bonus for fiscal 1996 include
         amounts paid to him as President and Chief Executive Officer of XVT.

(7)      Mr. Garn resigned as Peregrine's Vice President, North American Sales,
         in January 1998.

(8)      Bonus compensation for fiscal 1998 includes $50,000 earned in fiscal
         1998 to be paid in fiscal 1999.

(9)      Bonus compensation for fiscal 1998 includes $90,925 earned in fiscal
         1998 to be paid in fiscal 1999. Bonus compensation for fiscal 1997
         includes $156,240 earned in fiscal 1997 but paid in fiscal 1998. Bonus
         compensation for fiscal 1996 includes $35,000 earned in fiscal 1996 but
         paid in fiscal 1998.

(10)     Bonus compensation for fiscal 1998 includes $15,000 earned in fiscal
         1998 to be paid in fiscal 1999.

(11)     Bonus compensation for fiscal 1998 consists of (i) $555,519 of product
         authorship commission income earned and paid in fiscal 1998 and (ii)
         $173,541 of product authorship commission income earned in fiscal 1998
         to be paid in fiscal 1999. Bonus compensation for fiscal 1997 and 1996
         consists entirely of product authorship commissions.

(12)     Bonus compensation for fiscal 1998 consists of (i) $10,000 of bonus
         compensation and $195,053 of commission income earned and paid in
         fiscal 1998 and (ii) $115,570 of commission income earned in fiscal
         1998 to be paid in fiscal 1999. Bonus compensation for fiscal 1997
         consists of (i) $32,531 of bonus compensation and $26,769 of commission
         income earned and paid in fiscal 1997 and (ii) $34,000 of bonus
         compensation and $11,000 of commission income earned in fiscal 1997 but
         paid in fiscal 1998. Bonus compensation for fiscal 1996 consists of (i)
         $131,492 of bonus compensation and $4,725 of commission income earned
         and paid in fiscal 1996 and (ii) $37,351 of bonus compensation and
         $5,559 of commission income earned in fiscal 1996 but paid in fiscal
         1997.

(13)     Bonus compensation for fiscal 1997 includes $136,500 earned in fiscal
         1997 but paid in fiscal 1998. Bonus compensation for fiscal 1996
         includes $65,000 earned in fiscal 1996 but paid in fiscal 1997.

(14)     Bonus compensation for fiscal 1998 consists of $46,602 of bonus
         compensation and $106,646 in commission income. Bonus compensation for
         fiscal 1997 consists of (i) $68,426 of bonus compensation and $75,898
         of commission income earned and paid in fiscal 1997 and (ii) $33,000 of
         bonus compensation and $20,000 of commission income earned in fiscal
         1997 but paid in fiscal 1998.

(15)     In October 1997, Peregrine issued Mr. Gardner an aggregate of 50,000
         shares of Peregrine Common Stock pursuant to a restricted stock
         agreement. The closing sale price of Peregrine Common Stock on the
         Nasdaq National Market on October 31, 1997, the last trading date prior
         to the date of issuance, was $15.50. Such shares vest incrementally
         over ten years, subject to earlier vesting over six years contingent
         upon Peregrine's achieving certain financial milestones.

(16)     In November 1995, Peregrine issued Mr. Farley an aggregate of 200,000
         shares of Peregrine Common Stock pursuant to a restricted stock
         agreement in connection with his initial employment. The estimated fair
         value of such shares at the time of issuance was $2.34 per share. Such
         shares vest incrementally over ten years subject to earlier vesting
         over six years contingent upon Peregrine's achieving certain financial
         milestones.

(17)     In November 1995, Peregrine issued Mr. Hunt an aggregate of 400,000
         shares of Peregrine Common Stock pursuant to a restricted stock
         agreement in connection with his initial employment. The estimated fair
         value of such shares at the time of issuance was $2.34 per share.
         Pursuant to an agreement entered into with Mr. Hunt in connection with
         his resignation as Peregrine's President and Chief Executive Officer in
         January 1998, the shares of Peregrine Common Stock subject to such
         restricted stock agreement will continue to vest through March 31,
         1998.

(18)     Represents $281 in group life insurance excess premiums and $4,875 in
         matching contribution under Peregrine's 401(k) paid by Peregrine in
         fiscal 1998.

(19)     Represents $337, $337 and $84 in group life insurance excess premiums
         paid by Peregrine in fiscal 1998, 1997 and 1996, respectively; $3,000,
         $2,375 and $1,875 in matching contributions under Peregrine's 401(k)
         plan paid by Peregrine in fiscal 1998, 1997 and 1996, respectively; and
         $98,362 in relocation expenses paid by Peregrine in fiscal 1996.

(20)     Represents $2,317, $2,106 and $509 in group life insurance excess
         premiums paid by Peregrine in fiscal 1998, 1997 and 1996, respectively;
         $2,406, $2,375 and $594 in matching contributions under Peregrine's
         401(k) plan paid by Peregrine in fiscal 1998, 1997 and 1996,
         respectively; and $34,284 in relocation expenses paid by Peregrine in
         fiscal 1996.

(21)     Represents $337, $337 and $337 in group life insurance premiums paid by
         Peregrine in fiscal 1998, 1997 and 1996, respectively and $2,500,
         $2,375 and $2,375 in matching contributions under Peregrine's 401(k)
         plan paid by Peregrine in fiscal 1998, 1997 and 1996, respectively.

(22)     Represents $337, $337 and $248 in group life insurance excess premiums
         paid by Peregrine in fiscal 1998, 1997 and 1996, respectively; $3,609,
         $2,548 and $2,340 in matching contributions under Peregrine's 401(k)
         plan paid by Peregrine in fiscal 1998, 1997 and 1996, respectively; and
         $5,116 in relocation expenses paid by Peregrine in fiscal 1996.

(23)     Represents $1,114, $1,084 and $238 in group life insurance excess
         premiums paid by Peregrine in fiscal 1998, 1997 and 1996, respectively;
         $2,628, $3,778 and $844 in matching contributions under Peregrine's
         401(k) plan paid by Peregrine in fiscal 1998, 1997 and 1996,
         respectively; $37,500 and $15,860 in consulting services and accrued
         vacation payments, respectively, paid by Peregrine in fiscal 1998; and
         $15,886 in relocation expenses paid by Peregrine in fiscal 1996.
         Amounts paid for consulting were made in accordance with the terms of
         Mr. Hunt's severance arrangements with the Company.

(24)     Represents $163 and $218 in group life insurance excess premiums paid
         by Peregrine in fiscal 1998 and 1997, respectively; $896 and $4,604 in
         matching contributions under Peregrine's 401(k) plan paid by Peregrine
         in fiscal 1998 and 1997, respectively; $6,786 in accrued vacation
         payments paid by Peregrine in fiscal 1998; and $13,966 in relocation
         expenses paid by Peregrine in fiscal 1997.

         (b) OPTION GRANTS IN FISCAL YEAR 1998

         The following table sets forth certain information relating to stock 
options awarded to the Named Executive Officers during the fiscal year ended 
March 31,1998. All such options were awarded under Peregrine's 1994 Stock 
Option Plan(the "1994 Plan").

<TABLE>
<CAPTION>
                                                                                                          POTENTIAL
                                                                                                       REALIZABLE VALUES
                                                                                                       AT ASSUMED ANNUAL
                                  NUMBER OF     PERCENT OF                                            RATES OF STOCK PRICE
                                 SECURITIES    TOTAL OPTIONS                                            APPRECIATION FOR
                                 UNDERLYING     GRANTED TO           EXERCISE                           OPTION TERM (1)
                                  OPTIONS      EMPLOYEES IN         PRICE PER        EXPIRATION      ---------------------
NAME                              GRANTED     FISCAL 1998 (2)     SHARE (3) (4)       DATE (5)         5%            10%
--------------------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>                 <C>                <C>           <C>           <C>
CURRENT EXECUTIVE OFFICERS
Stephen P. Gardner............    100,000         7.47%              $ 9.00          05/12/07       $566,005    $1,434,368
                                   50,000         3.74                12.50          01/23/08        393,059       996,089
David A. Farley...............    --              --                 --              --             --          --
William G. Holsten............     30,000         2.24                18.00          03/31/08        339,603       860,621
Frederic B. Luddy.............     25,000         1.87                12.50          01/23/08        196,530       498,045
Douglas S. Powanda............     75,000         5.6                 12.50          01/23/08        589,589     1,494,134

FORMER EXECUTIVE OFFICERS
Alan H. Hunt..................    --              --                 --              --             --          --
Douglas F. Garn...............    --              --                 --              --             --          --

</TABLE>

 (1)     Potential realizable value is based on the assumption that the
         Peregrine Common Stock appreciates at the annual rate shown (compounded
         annually) from the date of grant until the expiration of the ten year
         option term. These numbers are calculated based on the requirements
         promulgated by the Commission and do not reflect Peregrine's estimate
         of future prices for Peregrine Common Stock.

 (2)     Based on options to acquire 1,338,000 shares granted under Peregrine's
         1994 Stock Option Plan during fiscal 1998. All options granted to the
         Peregrine Named Executive Officers during fiscal 1998 are governed by
         Peregrine's 1994 Stock Option Plan.

 (3)     Options were granted at an exercise price equal to the closing sales of
         the Peregrine Common Stock on the date of grant as reported by the
         Nasdaq National Market.

 (4)     Exercise price may be paid in cash, check, by delivery of already-owned
         shares of Peregrine Common Stock subject to certain conditions, or
         pursuant to a cashless exercise procedure under which the optionee
         provides irrevocable instructions to a brokerage firm to sell the
         purchased shares and to remit to Peregrine, out of the sale proceeds,
         an amount equal to the exercise price plus all applicable withholding
         taxes.

 (5)     Twenty-five percent (25%) of the shares issuable upon exercise of
         options granted under Peregrine's 1994 Stock Option Plan become vested
         on the first anniversary of the date of grant, and the remaining shares
         vest over three years at the rate of 6.25% of the shares subject to
         option at the end of each three-month period thereafter.

         (c) AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
             OPTION VALUES

         The following table sets forth certain information regarding the 
exercise of options by the Peregrine Named Executive Officers during the 
fiscal year ended March 31, 1998 and stock options held as of March 31, 1998 
by the Named Executive Officers.

<TABLE>
<CAPTION>

                                                                                                      VALUE OF UNEXERCISED
                                                                  NUMBER OF SECURITIES              IN-THE-MONEY OPTIONS AT
                                                                 UNDERLYING UNEXERCISED                MARCH 31, 1998 (2)
                                  SHARES          VALUE         OPTIONS AT MARCH 31, 1998         ----------------------------
                                 ACQUIRED        REALIZED   -----------------------------------   EXERCISABLE    UNEXERCISABLE
NAME                           ON EXERCISE       ($) (1)    EXERCISABLE (#)   UNEXERCISABLE (#)       ($)             ($)
------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>        <C>               <C>                 <C>            <C>

CURRENT EXECUTIVE OFFICERS

Stephen P. Gardner............  --              --            --                 150,000           --             1,343,750
David A. Farley...............  112,500         1,202,375     --                  87,500           --             1,468,688
William G. Holsten............   25,000           291,500      47,819            108,125             800,848      1,345,078
Frederic B. Luddy.............  --              --             81,250             43,750           1,463,681        477,844
Douglas S. Powanda............   25,101           362,217     122,399            127,500           2,069,467      1,378,088

FORMER EXECUTIVE OFFICERS
Alan H. Hunt..................  --              --            225,000            175,000           3,776,625      2,937,375
Douglas F. Garn...............   87,500         1,316,188     --                 112,500           --             1,888,318

</TABLE>

(1)      Based on the fair market value of Peregrine Common Stock on the date of
         exercise minus the exercise price.

(2)      Amounts reflecting gains on outstanding stock options are based on the
         closing price of Peregrine Common Stock on March 31, 1998 of $19.125.

(3)      In April 1998, Mr. Hunt exercised options to purchase an aggregate of
         185,000 shares of Peregrine Common Stock which resulted in an aggregate
         realized value of $4,238,968.

(4)      In May 1998, Mr. Garn exercised options to purchase 12,500 shares of
         Peregrine Common Stock which resulted in an aggregate realized value of
         $245,750.

         (d)      EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

         Peregrine does not currently have any employment contracts in effect 
with any Named Executive Officer. Peregrine and certain Named Executive 
Officers are parties to separate agreements relating to restricted stock 
issuances, severance arrangements and consulting arrangements.

         Peregrine and David A. Farley, its Chief Financial Officer and a 
member of the Peregrine Board, are parties to a restricted stock agreement 
dated November 1, 1995 pursuant to which Peregrine issued Mr. Farley 200,000 
shares of Peregrine Common Stock. Peregrine and Stephen P. Gardner, its 
President and Chief Executive Officer and a member of the Peregrine Board, 
are parties to a similarly structured restricted stock agreement dated 
November 1, 1997 pursuant to which Peregrine issued Mr. Gardner 50,000 shares 
of Peregrine Common Stock. The shares issued to each of Messrs. Farley and 
Gardner vest incrementally over ten years, subject to earlier vesting over 
six years contingent upon Peregrine's achieving certain financial milestones. 
The restricted stock agreements permit Messrs. Farley or Gardner to surrender 
shares subject to their respective restricted stock agreements to satisfy 
withholding tax obligations that arise as the shares vest. Accordingly, in 
connection with the vesting of 8,333 shares of his restricted stock in April 
1998, Mr. Gardner surrendered 2,955 shares to satisfy withholding tax 
obligations. In the event of a merger or change in control of Peregrine, all 
such shares will become automatically vested.

         Peregrine is also party to a restricted stock agreement dated 
November 1,1995 with Alan H. Hunt, who resigned in January 1998 as 
Peregrine's President and Chief Executive Officer and as a member of the 
Peregrine Board. Pursuant to the restricted stock agreement with Mr. Hunt, 
Peregrine issued Mr. Hunt 400,000 shares of Peregrine Common Stock. Such 
shares were to vest incrementally over ten years, subject to earlier vesting 
over six years contingent upon Peregrine achieving certain financial 
milestones. In connection with the vesting of 66,000 shares in each of April 
1997 and April 1998, Mr. Hunt surrendered 28,296 and 27,296 shares, 
respectively, to satisfy withholding tax obligations as permitted by his 
restricted stock agreement. In January 1998, in connection with his 
resignation, Peregrine and Mr. Hunt entered a separate agreement pursuant to 
which Peregrine retained Mr. Hunt as a consultant through January 1999 at a 
monthly fee of $18,750. In addition, the agreement provides that options held 
by Mr. Hunt to acquire 215,000 shares of Peregrine Common Stock will continue 
to vest through January 1999 (such that 115,000 shares would be fully vested 
as of January 31, 1999) and remain exercisable until May 1, 1999. In 
addition, the shares subject to the restricted stock agreement between 
Peregrine and Mr. Hunt will also continue to vest through March 31, 1999 
(such that 142,408 shares will be vested on March 31, 1999, subject to 
Peregrine's achieving the financial milestones set forth in the original 
restricted stock agreement). In connection with his resignation, Mr. Hunt 
also agreed not to engage in any activities that are competitive with those 
of Peregrine for a period of three years ending January 2001.

         In connection with his resignation as Peregrine's Vice President, 
North American Sales in January 1998, Douglas F. Garn and Peregrine entered 
into an agreement whereby Mr. Garn agreed not to engage in activities that 
are competitive with those of Peregrine for a period of one year ending 
January 1999. Pursuant to the terms of Mr. Garn's agreement, Peregrine has 
agreed that the options under Peregrine's 1994 Stock Option Plan to acquire 
12,500 shares of Peregrine Common Stock held by Mr. Garn will continue to 
vest until July 1, 1998(such that such options would be vested with respect 
to all 12,500 shares at such date) and remain exercisable until September 29, 
1998.

          Under the 1994 Plan, in the event of a merger or a change in 
control of Peregrine, vesting of options outstanding under the 1994 Plan will 
automatically accelerate such that outstanding options will become fully 
exercisable, including with respect to shares for which such options would be 
otherwise unvested.

         (e) DIRECTOR COMPENSATION

         Peregrine reimburses each member of the Peregrine Board for 
out-of-pocket expenses incurred in connection with attending Board meetings. 
No member of the Peregrine Board currently receives any additional cash 
compensation. In May 1992, Peregrine granted each of directors Christopher A. 
Cole, Richard A. Hosley II, Charles E. Noell III and Norris van den Berg 
options to acquire 45,000 shares of Common Stock under Peregrine's 1991 
Nonqualified Stock Option Plan at an exercise price of $1.34, the per share 
fair market value of Peregrine Common Stock on the date of grant. All such 
options vested in annual installments over four years, are now fully 
exercisable, and expire if not exercised prior to May 2002. In addition, in 
December 1990, Peregrine granted Christopher A. Cole an option to acquire 
225,000 shares of Peregrine Common Stock under Peregrine's Nonqualified Stock 
Option Plan at an exercise price of $0.51 per share, the per share fair 
market value of Peregrine Common Stock on the date of grant. Following Mr. 
Cole's resignation as an executive officer of Peregrine and in consideration 
of his continuing service as a member of the Peregrine Board, Peregrine 
extended the exercisability of such option with respect to 56,250 vested 
shares for so long as Mr. Cole remains a member of the Peregrine Board but no 
later than December 2000.

         Peregrine's 1997 Director Option Plan (the "Director Plan") provides 
that options will be granted to non-employee directors, other than 
non-employee directors who hold or are affiliated with a holder of three 
percent or more of the outstanding Peregrine Common Stock, pursuant to an 
automatic nondiscretionary grant mechanism. Each new non-employee director is 
automatically granted an option to purchase 25,000 shares of Peregrine Common 
Stock at the time he or she is first elected to the Peregrine Board. Each 
non-employee director will subsequently be granted an option to purchase 
5,000 shares of Peregrine Common Stock at each annual meeting of stockholders 
beginning with the 1998 Annual Meeting of Stockholders. Each such option will 
be granted at the fair market value of the Peregrine Common Stock on the date 
of grant. Options granted to non-employee directors under the Director Plan 
will become exercisable over four years, with 25% of the shares vesting after 
one year and the remaining shares vesting in quarterly installments 
thereafter.

         (f) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Compensation Committee is responsible for determining salaries, 
incentives and other forms of compensation for directors, officers and other 
employees of Peregrine and administers various incentive compensation and 
benefit plans. The Compensation Committee consists of directors Richard A. 
Hosley II, John J. Moores and Charles E. Noell III. Stephen P. Gardner, 
Peregrine's President, Chief Executive Officer and a member of the Peregrine 
Board, participates in all discussions and decisions regarding salaries and 
incentive compensation for all employees and consultants of Peregrine, except 
that he is excluded from discussions regarding his own salary and incentive 
compensation. No interlocking relationship exists between any member of the 
Peregrine Compensation Committee and any member of any other company's board 
of directors or compensation committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the 
beneficial ownership of the Peregrine Common Stock by (i) each person or 
entity who is known by Peregrine to own beneficially 5% or more of the 
outstanding Peregrine Common Stock; (ii) each member of the Peregrine Board; 
(iii) each of the Named Executive Officers; and (iv) all current directors 
and executive officers of Peregrine as a group. All information contained in 
the table below is based on beneficial ownership as of May 31, 1998.

<TABLE>
<CAPTION>
                                                                                           SHARES OF COMMONS STOCK
                                                                                              BENEFICIALLY OWNED
                                                                                        -----------------------------
                                                                                                          PERCENTAGE
NAME AND ADDRESS (1)                                                                     NUMBER          OWNERSHIP(2)
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
PRINCIPAL STOCKHOLDERS
Putnam Investments, Inc. (3) ......................................................     1,063,401            5.5%
  One Post Office Square
  Boston, Massachusetts 02109

CURRENT EXECUTIVE OFFICERS AND DIRECTORS

Stephen P. Gardner (4).............................................................       77,045              *
David A. Farley (5)................................................................      504,408              2.6
William G. Holsten (6).............................................................       78,194              *
Frederic B. Luddy (7)..............................................................       83,674              *
Douglas S. Powanda (8).............................................................       71,150              *
John J. Moores (9).................................................................    9,524,167             49.4
Norris van den Berg (10)...........................................................      102,336              *
Christopher A. Cole (11)...........................................................      630,821              3.3
Richard A. Hosley II (12)..........................................................    --                     *
Charles E. Noell III (13)..........................................................       99,587              *

All current executive officers and directors as a group (14 persons) (14)..........   11,123,244             58.6%

FORMER EXECUTIVE OFFICERS

Alan H. Hunt (15)..................................................................     409,408               2.1
Douglas F. Garn (16)...............................................................      12,500               *

</TABLE>

         * Less than 1%

(1)      The persons named in the table above have sole voting and investment
         power with respect to all shares of Peregrine's Common Stock shown as
         beneficially owned by them, subject to applicable community property
         laws, and to the information contained in footnotes to this table.
         Unless otherwise indicated, the address for each listed stockholder is
         c/o Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego,
         California 92130.

(2)      Applicable percentage ownership is based on 19,264,932 shares of
         Peregrine Common Stock outstanding as of May 31, 1998. Beneficial
         ownership is determined in accordance with the rules of the Securities
         and Exchange Commission and generally includes voting or investment
         power with respect to securities subject to community property laws,
         where applicable. Shares of Peregrine's Common Stock subject to options
         that are presently exercisable or exercisable within 60 days of May 31,
         1998 are deemed to be beneficially owned by the person holding such
         options for the purpose of computing the percentage ownership of such
         person but are not treated as outstanding for the purpose of computing
         the percentage ownership of any other person. To the extent that any
         shares are issued upon exercise of options, warrants or other rights to
         acquire Peregrine's capital stock that are presently outstanding or
         granted in the future or reserved for future issuance under Peregrine's
         stock plans, there will be further dilution to new investors.

(3)      Based solely on a Schedule 13G, dated January 16, 1998, filed with the
         Commission on January 21, 1998.

(4)      Includes 25,000 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998 and 47,045 shares
         subject to a restricted stock agreement. Mr. Gardner is Peregrine's
         President and Chief Executive Officer and a member of the Peregrine
         Board.

(5)      Includes 200,000 shares subject to a restricted stock agreement. Mr.
         Farley is Peregrine's Vice President, Finance, and Chief Financial
         Officer and a member of the Peregrine Board.

(6)      Includes 57,194 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. Mr. Holsten is
         Peregrine's Vice President, Professional Services.

(7)      Includes 81,250 shares of Peregrine Common stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. Mr. Luddy is
         Peregrine's Vice President, North American Research and Development.

(8)      Includes 71,149 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. Mr. Powanda is
         Peregrine's Vice President, Worldwide Sales.

(9)      Includes 3,623,700 shares held by Mr. Moores as trustee under various
         trusts, substantially all of which were established for members of Mr.
         Moores's family. Mr. Moores is Chairman of the Peregrine Board.

(10)     Includes 45,000 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. Mr. van den Berg is
         a member of the Peregrine Board.

(11)     Mr. Cole is a member of the Peregrine Board.

(12)     Mr. Hosley is a member of the Peregrine Board.

(13)     Includes 45,000 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. Mr. Noell is a
         member of the Peregrine Board.

(14)     Includes 391,125 shares of Peregrine Common Stock issuable upon
         exercise of outstanding stock options which are presently exercisable
         or will become exercisable within 60 days of May 31, 1998.

(15)     Includes 65,000 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998 and 344,408 shares
         subject to a restricted stock agreement. In connection with his
         resignation as Peregrine's President and Chief Executive Officer in
         January 1998, Mr. Hunt and Peregrine entered into an agreement pursuant
         to which 215,000 shares of Peregrine Common Stock subject to options
         held by Mr. Hunt will continue to vest through January 1999 (such that
         115,000 shares would be fully vested as of January 31, 1999 assuming
         Mr. Hunt does not elect to exercise any additional vested options prior
         to such time) and remain exercisable until May 1, 1999. In addition,
         344,408 shares of Peregrine Common Stock subject to Mr. Hunt's
         restricted stock agreement will continue to vest through March 31, 1998
         (such that 142,408 shares will be fully vested on March 31, 1998).

(16)     Includes 12,500 shares of Peregrine Common Stock issuable upon exercise
         of outstanding stock options which are presently exercisable or will
         become exercisable within 60 days of May 31, 1998. In connection with
         his resignation as Peregrine's Vice President, North American sales in
         January 1998, Mr. Garn and Peregrine entered into an agreement pursuant
         to which 12,500 shares of Peregrine Common Stock subject to outstanding
         options held by Mr. Garn will continue to vest through July 1, 1998
         (such that all 12,500 shares will be fully vested as of July 1, 1998)
         and remain exercisable until September 29, 1998.

ITEM 13. CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS

         John J. Moores, chairman of the Peregrine Board and the majority 
stockholder of Peregrine, was party to a Continuing and Unconditional 
Guaranty dated November 13, 1995 (as subsequently amended) with NationsBank 
of Texas, N.A., pursuant to which Mr. Moores guaranteed Peregrine's 
obligations under its bank line of credit agreement and term loan with 
NationsBank. Both the credit line and term loan were repaid from proceeds of 
Peregrine's April 1997 initial public offering, and Peregrine terminated the 
line of credit agreement in September 1997. Peregrine's current line of 
credit agreement with another bank is not guaranteed by Mr. Moores.

         Peregrine and JMI Services, Inc., an investment management company 
("JMI Services"), are parties to a sublease pursuant to which Peregrine 
subleases approximately 13,310 square feet of office space at its San Diego 
head quarters to JMI Services. The term of the sublease is from June 1, 1996 
through October 21, 2003. The sublease provides for initial monthly rental 
payments of $16,638 to increase by $666 per month on each anniversary of the 
sublease. Mr. Moores serves as Chairman of the Board of JMI Services, and 
Charles E. Noell, III, a member of the Peregrine Board, serves as JMI 
Services' President and Chief Executive Officer. Peregrine believes that the 
terms of the sublease are at competitive market rates.

         Peregrine leases a suite at San Diego's Qualcomm Stadium at 
competitive rates and on an informal basis from the San Diego Padres Baseball 
Club, L.P. (the "Padres"). Mr. Moores has served as owner and Chairman of the 
Board of the Padres since December 1994. Peregrine's annual payments for such 
suite total approximately $45,000.

         From October 1993 through September 1994, Peregrine made various 
short-term advances to Frederic B. Luddy, Peregrine's Vice President North 
American Research and Development, totaling approximately $360,000. The 
advances were non-interest bearing and were paid back each pay period, 
beginning in March 1994, at the rate of one half of Mr. Luddy's product 
authorship commission amount payable for that pay period. On January 15, 
1998, the final installment was made, and the advance was repaid in full.

         Pursuant to an Acquisition Agreement dated November 29, 1995 among 
Peregrine, Skunkware, Inc. ("Skunkware") and Peregrine/Bridge Transfer 
Corporation, at the time a database software subsidiary of Peregrine 
("PBTC"),Peregrine sold all the outstanding shares of PBTC to Skunkware. 
Under the Acquisition Agreement, Peregrine receives a royalty on certain 
license sales of PBTC and provides certain computer and administrative 
resources to PBTC for a monthly fee of $37,500. JMI Equity Fund L.P. ("JMI 
Equity Fund") is the controlling stockholder of Skunkware. Mr. Noell and 
Norris van den Berg, a member of the Peregrine Board, are general partners of 
JMI Equity Fund, and Mr. Moores is a limited partner of JMI Equity Fund.

         Peregrine is a party to restricted stock agreements with Messrs. 
Farley, Gardner and Hunt pursuant to which Peregrine has issued an aggregate 
of 650,000 shares of Peregrine's Common Stock. Such agreements are described 
in Item 11(d) of this report. 

         Peregrine has entered into certain agreements with Alan H. Hunt and 
Douglas F. Garn relating to their resignation as officers of Peregrine as 
described in Item 11(d) of this report.


                                        30
<PAGE>

                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)     1.  FINANCIAL STATEMENTS

        The following restated financial statements are filed as part of this 
        Report:

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
        <S>                                                                               <C>
        Report of Independent Public Accountants................................          F-2
        Consolidated Balance Sheets.............................................          F-3
        Consolidated Statements of Operations...................................          F-4
        Consolidated Statements of Stockholders' Equity (Deficit)...............          F-5
        Consolidated Statements of Cash Flows...................................          F-6
        Notes to Consolidated Financial Statements..............................          F-8
</TABLE>

        2.  FINANCIAL STATEMENT SCHEDULES

        Schedules not listed above have been omitted because the information
        required to be set forth therein is not applicable or is shown in the
        financial statements or notes thereto.

        3.  EXHIBITS

        EXHIBIT NO.   EXHIBIT TITLE
        -----------   -------------
        2.1    (h)    Agreement and Plan of Reorganization by and among
                      Peregrine Systems, Inc., Homer Acquisition Corporation and
                      Innovative Tech Systems, Inc., dated as of May 7, 1998.
        3.1    (c)    Amended and Restated Certificate of Incorporation filed
                      with the Secretary of State of Delaware on February 11,
                      1997.
        3.2    (c)    Bylaws, as amended.
        4.1    (c)    Specimen Common Stock Certificate.
        9.1    (h)    Form of Voting Agreement between Peregrine Systems, Inc.
                      and certain shareholders of Innovative Tech Systems, Inc.,
                      dated as of May 7, 1998.
        10.1   (c)    Nonqualified Stock Option Plan, as amended, and forms of
                      Stock Option Agreement and Stock Buy-Sell Agreement.
        10.2   (c)    1991 Nonqualified Stock Option Plan, as amended, and forms
                      of Stock Option Agreement and Stock Buy-Sell Agreement.
        10.3   (d)    1994 Stock Option Plan, as amended through February 6,
                      1997, including 1995 Stock Option Plan for French
                      Employees.
        10.4   (d)    Form of Stock Option Agreement under 1994 Stock Option
                      Plan, as amended through February 6, 1997.
        10.5   (d)    1997 Employee Stock Purchase Plan and forms of
                      participation agreement thereunder.
        10.6   (d)    1997 Director Option Plan.
        10.7   (c)    Form of Indemnification Agreement for directors and
                      officers.
        10.8   (e)    Credit Agreement dated as of July 1, 1997 by and between
                      the Registrant and Wells Fargo Bank, N.A.
        10.9   (c)    Sublease between the Registrant and JMI Services, Inc.
        10.10  (c)    Lease between the Registrant and the Mutual Life Insurance
                      Company of New York dated October 26, 1994, as amended in
                      August 1995, and Notifications of Assignment dated June
                      14, 1996 and December 9, 1996 for the Registrant's
                      headquarters at 12670 High Bluff Drive, San Diego, CA.
        10.11  (c)    Lease between the Registrant and the Mutual Life Insurance
                      Company of New York dated October 26, 1994, as amended in
                      August 1995, and Notification of Assignment dated December
                      9, 1996 for the Registrant's headquarters at 12680 High
                      Bluff Drive, San Diego, CA.


                                        31
<PAGE>

        10.14  (c)    XVT Stock Option Agreement dated January 18, 1995 between
                      the Registrant and Christopher Cole, as amended on October
                      3, 1996.
        10.15  (d)    Restricted Stock Agreement dated November 1, 1995 between
                      the Registrant and Alan Hunt.
        10.16  (d)    Restricted Stock Agreement dated November 1, 1995 between
                      the Registrant and David Farley.
        10.17  (c)    Stock Option Agreement dated as of December 7, 1990
                      between the Registrant and Christopher Cole as amended on
                      October 26, 1995.
        10.18  (c)    Form of Stock Option Agreement under 1995 Stock Option
                      Plan for French Employees.
        10.19  (c)    Form of Stock Option Agreement under 1997 Director Option
                      Plan.
        10.20  (h)    Nonsolicitation and Non-Hiring Agreement between the
                      Registrant and Douglas F. Garn, dated January 8, 1998.
        10.21  (g)    Certificate of Amendment, dated November 3, 1997, for
                      amendment of the 1994 Stock Option Plan.
        10.22  (b)    Executive Officer Incentive Program and Form of Restricted
                      Stock Agreement.
        10.23  (f)    Severance Settlement Agreement and Release of Claims
                      between the Registrant and Alan H. Hunt, dated January 30,
                      1998.
        21.1   (h)    List of Subsidiaries of the Registrant.
        23.1A  (a)    Consent of Arthur Andersen, LLP, Independent Public
                      Accountants.
        24.1   (h)    Power of Attorney.
        24.2   (a)    Power of Attorney (see page 35).
        27.1   (a)    Financial Data Schedule.

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

(a)     Filed herewith.
(b)     Incorporated by reference to the exhibit bearing the same number filed
        with the Registrant's Registration Statement on Form S-1 (Registration
        No. 333-39891), which the Securities and Exchange Commission declared
        effective on November 19,1997.
(c)     Incorporated by reference to the exhibit bearing the same number filed
        with the Registrant's Registration Statement on Form S-1 (Registration
        No. 333-21483), which the Securities and Exchange Commission declared
        effective on April 8, 1997.
(d)     Incorporated by reference to the exhibit bearing the same number filed
        with the Registrant's Annual Report on Form 10-K for the Year ended
        March 31, 1997.
(e)     Incorporated by reference to the exhibit bearing the same number filed
        with the Registrant's original Quarterly Report on Form 10-Q for the
        quarter ended September 30, 1997.
(f)     Incorporated by reference to the exhibit bearing the same number field
        with the Registrant's original Quarterly Report on Form 10-Q for the
        quarter ended December 31, 1997.
(g)     Incorporated by reference to Exhibit 10.23 filed with the Registrant's
        Registration Statement on Form S08, which became effective upon its
        filing on January 22, 1998.
(h)     Filed with the Registrant's original Annual Report on Form 10-K for the
        year ended March 31, 1998.

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

(b)     REPORTS ON FORM 8-K

        The Company did not file a Current Report on Form 8-K during the last
        quarter of the period covered by this report.

(c)     EXHIBITS

        See Item 14(a)(3) above.


                                        32
<PAGE>

(d)     FINANCIAL STATEMENT SCHEDULES

        See Item 14(a)(2) above.


                                        33
<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to its annual report on Form 10-K to
be signed on its behalf by the undersigned thereunto duly authorized in the City
of San Diego, California, this 21st day of April, 1999.

        PEREGRINE SYSTEMS, INC.


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


        PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT ON FORM 10-K/A HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE
FOLLOWING PERSONS AND IN THE CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>

         Signature                                  Title                              Date
         ---------                                  -----                              ----
<S>                                <C>                                               <C>
      /s/ Stephen P. Gardner*      President, Chief Executive Officer,               April 21, 1999
   ----------------------------    and Director (Principal Executive Officer)
        (Stephen P. Gardner)

     /s/ David A. Farley           Vice President, Finance, Chief                    April 21, 1999
   ----------------------------    Financial Officer (Principal
       (David A. Farley)           Financial and Accounting Officer)

     /s/ John J. Moores*           Chairman of the Board of Directors                April 21, 1999
   ----------------------------    
       (John J. Moores)

     /s/ Christopher A. Cole*      Director                                          April 21, 1999
   ----------------------------    
      (Christopher A. Cole)

     /s/ Richard A. Hosley II*     Director                                          April 21, 1999
   ----------------------------    
      (Richard A. Hosley II)

     /s/ Charles E. Noell III*     Director                                          April 21, 1999
   ----------------------------    
       (Charles E. Noell III)

     /s/ Norris van den Berg*      Director                                          April 21, 1999
   ----------------------------    
      (Norris van den Berg)

</TABLE>

* By /s/ David A. Farley
     --------------------------    
      (David A. Farley)
      (Attorney-in-fact)

                                        34

<PAGE>

                               POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE 
APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS STEPHEN P. GARDNER AND DAVID A. 
FARLEY AND EACH OF THEM ACTING INDIVIDUALLY, AS HIS OR HER ATTORNEY-IN-FACT, 
EACH WITH FULL POWER OF SUBSTITUTION, FOR HIM OR HER IN ANY AND ALL 
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REPORT ON FORM 10-K, AND 
TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION 
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION.

        PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, 
THIS REPORT ON FORM 10-K/A HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE 
FOLLOWING PERSONS AND IN THE CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>

        Signature                               Title                 Date
        ---------                               -----                 ----
   <S>                                         <C>               <C>
  /s/ Thomas G. Watrous, Sr.                   Director          April 21, 1999
   ----------------------------    
     (Thomas G. Watrous, Sr.)
</TABLE>






                                        35
<PAGE>


                             PEREGRINE SYSTEMS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Report of Independent Public Accountants..........................................       F-2
Consolidated Balance Sheets.......................................................       F-3
Consolidated Statements of Operations.............................................       F-4
Consolidated Statements of Stockholders' Equity (Deficit).........................       F-5
Consolidated Statements of Cash Flows.............................................       F-6
Notes to Consolidated Financial Statements........................................       F-8
</TABLE>




                                        F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Peregrine Systems, Inc.:

        We have audited the accompanying consolidated balance sheets of 
Peregrine Systems, Inc. (a Delaware corporation) and subsidiaries as of March 
31, 1997 and 1998, and the related consolidated statements of operations, 
stockholders' equity (deficit) and cash flows for each of the three years in 
the period ended March 31, 1998. 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 in accordance with generally accepted 
auditing standards. 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 includes examining, on a test 
basis, evidence supporting the amounts and disclosures in the financial 
statements. An audit also includes assessing the accounting principles used 
and significant estimates made by management, as well as evaluating the 
overall financial statement presentation. We believe that our audits provide 
a reasonable basis for our opinion.

        The financial statements referred to above as of March 31, 1998 and 
for the year then ended have been restated (See Notes 1 and 2).

        In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of Peregrine 
Systems, Inc. and subsidiaries as of March 31, 1997 and 1998, and the results 
of their operations and their cash flows for each of the three years in the 
period ended March 31, 1998, in conformity with generally accepted accounting 
principles.

                                       ARTHUR ANDERSEN LLP



San Diego, California
April 22, 1998 (except with 
respect to the matters in Notes 2 
and 10, as to which the dates are 
March 10, 1999 and May 7, 1998, 
respectively)




                                        F-2
<PAGE>

                             PEREGRINE SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                          RESTATED - SEE NOTE 1
                                                                          ---------------------
                                                                                  MARCH 31,   
                                                                         ------------------------
                                                                           1997            1998
                                                                         --------        --------
<S>                                                                      <C>             <C>
                                     ASSETS
Current Assets:
Cash and cash equivalents .............................................. $    305        $ 14,950
Short-term investments .................................................        -           7,027
Accounts receivable, net of allowance for doubtful
     accounts of $220 and $485, respectively ...........................   10,191          16,761
Financed receivables ...................................................    1,182               -
Deferred tax assets ....................................................    1,752           7,297
Other current assets ...................................................      924           2,905
                                                                         --------        --------
       Total current assets ............................................   14,354          48,940
Property and equipment, net ............................................    4,364           5,455
Intangible assets, net and other .......................................    1,020          29,173
                                                                         --------        --------
                                                                         $ 19,738        $ 83,568
                                                                         --------        --------
                                                                         --------        --------
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
   Bank line of credit ................................................. $  1,974             $ -
   Accounts payable ....................................................      916           2,337
   Accrued expenses ....................................................    6,249          11,103
   Deferred revenue ....................................................    8,419          11,570
   Current portion of long-term debt ...................................      497             151
   Current portion of capital lease obligation .........................      364               -
                                                                         --------        --------
     Total current liabilities .........................................   18,419          25,161
Long-term debt, net of current portion .................................    1,395             966
Deferred revenue, net of current portion ...............................    2,773           1,802
                                                                         --------        --------
       Total liabilities ...............................................   22,587          27,929
                                                                         --------        --------
  Stockholders' Equity (Deficit):
   Preferred stock, $0.001 par value, 5,000,000 shares
     authorized, no shares issued or outstanding .......................        -               -
   Common stock, $0.001 par value, 50,000,000 shares
     authorized, 12,920,000 and 18,790,000 shares issued
     and outstanding, respectively .....................................       13              19
   Additional paid-in capital ..........................................   15,081          74,351
   Accumulated deficit .................................................  (15,807)        (16,423)
   Unearned portion of deferred compensation ...........................   (1,748)         (1,493)
   Cumulative translation adjustment ...................................     (388)           (553)
   Treasury stock (at cost) ............................................        -            (262)
                                                                         --------        --------
       Total stockholders' equity (deficit) ............................   (2,849)         55,639
                                                                         --------        --------
                                                                         $ 19,738        $ 83,568
                                                                         --------        --------
                                                                         --------        --------
</TABLE>

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


                                        F-3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                RESTATED - SEE NOTE 1
                                                                ---------------------
                                                                YEAR  ENDED MARCH 31,
                                                       ----------------------------------------
                                                         1996            1997            1998
                                                       --------        --------        --------
<S>                                                    <C>             <C>             <C>
Revenues:
   Licenses........................................    $ 11,642        $ 20,472        $ 38,791
   Maintenance and services........................      12,124          14,563          23,086
                                                       --------        --------        --------
     Total revenues................................      23,766          35,035          61,877
                                                       --------        --------        --------
Costs and Expenses:
   Cost of licenses................................         415             215             326
   Cost of maintenance and services................       3,526           4,661          10,326
   Sales and marketing.............................      11,820          15,778          22,728
   Research and development........................       7,742           5,877           8,394
   General and administrative......................       4,529           3,816           6,077
    Amortization of intangible assets..............           -               -           3,168
    Acquired in-process research and development...           -               -           6,955
                                                       --------        --------        --------
     Total costs and expenses......................      28,032          30,347          57,974
                                                       --------        --------        --------
     Operating income (loss).......................      (4,266)          4,688           3,903
Interest income (expense) and other................        (286)           (478)            839
                                                       --------        --------        --------
Income (loss) from continuing operations before
   income taxes....................................      (4,552)          4,210           4,742
Income tax expense (benefit).......................           -          (1,592)          5,358
                                                       --------        --------        --------
Income (loss) from continuing operations...........      (4,552)          5,802            (616)
                                                       --------        --------        --------
Loss from discontinued business:
     Loss from operations..........................         781               -               -
     Loss from disposal............................       1,078               -               -
                                                       --------        --------        --------
Loss from discontinued business....................      (1,859)              -               -
                                                       --------        --------        --------
     Net Income (loss).............................    $ (6,411)       $  5,802        $   (616)
                                                       --------        --------        --------
                                                       --------        --------        --------

Net income (loss) per share - basic:
Income (loss) from continuing operations...........    $  (0.37)       $   0.45        $  (0.04)
Loss from discontinued operations..................       (0.15)              -               -
                                                       --------        --------        --------
Net income (loss) per share........................    $  (0.52)       $   0.45        $  (0.04)
                                                       --------        --------        --------
                                                       --------        --------        --------
Weighted average common shares outstanding.........      12,331          12,920          17,380
                                                       --------        --------        --------
                                                       --------        --------        --------
Net income (loss) per share - diluted:
Income (loss) from continuing operations...........    $  (0.37)       $   0.39        $  (0.04)
Loss from discontinued operations..................       (0.15)              -               -
                                                       --------        --------        --------
Net income (loss) per share........................    $  (0.52)       $   0.39        $  (0.04)
                                                       --------        --------        --------
                                                       --------        --------        --------
Weighted average common and common equivalent
   shares outstanding..............................      12,331          14,964          17,380
                                                       --------        --------        --------
                                                       --------        --------        --------
</TABLE>

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


                                        F-4
<PAGE>

                             PEREGRINE SYSTEMS, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                          NUMBER                        ADDITIONAL                     
                                         OF SHARES         COMMON        PAID-IN         ACCUMULATED   
                                        OUTSTANDING         STOCK        CAPITAL           DEFICIT     
                                        -----------        ------       ----------       -----------   
<S>                                     <C>                <C>          <C>              <C>
Balance, March 31, 1995 .............      10,237          $ 10          $  9,044          $(11,273)   
   Net loss .........................           -             -                 -            (6,411)   
   Issuance of shares for XVT               2,018             2             3,923            (3,925)   
   Issuance of common stock .........          43             -                43                 -    
   Restricted stock shares ..........         600             1             1,403                 -    
     granted                                                                                           
   Equity adjustment from                                                                              
     foreign currency translation               -             -                 -                 -    
                                           ------           ---          --------          --------    
Balance, March 31, 1996 .............      12,898            13            14,413           (21,609)   
   Net income .......................           -             -                 -             5,802    
   Issuance of common stock .........          22             -                37                 -    
   Compensation expense related                                                                        
     to restricted stock and options.           -             -                 -                 -    
   Deferred compensation                                                                               
     related to options granted .....           -             -               631                 -    
   Equity adjustment from                                                                              
     foreign currency translation ...           -             -                 -                 -    
                                           ------           ---          --------          --------    
Balance, March 31, 1997 .............      12,920            13            15,081           (15,807)   
   Net loss (restated--Note 1).......           -             -                 -              (616)   
   Issuance of common stock in                                                                         
     IPO, net of issuance costs                                                                        
     of $1,181 ......................       2,300             2            18,069                 -    
 Stock options exercised and                                                                           
     restricted stock granted                                                                          
     (net)...........................       1,654             2             2,792                 -    
     Stock issued for Apsylog                                                                          
     acquisition ....................       1,916             2            30,504                 -    
     Stock option tax benefit .......           -             -            7, 905                 -    
     Compensation expense                                                                              
     related to restricted                                                                             
           stock and options ........           -             -                 -                 -    
   Deferred compensation                                                                               
     related to options granted .....           -             -                 -                 -    
     Stock repurchased ..............           -             -                 -                 -    
   Equity adjustment from                                                                              
     foreign currency translation ...           -             -                 -                 -    
                                           ------           ---          --------          --------    
Balance, March 31, 1998 
  (restated--Note 1).................      18,700          $ 19          $ 74,351          $(16,423)   
                                           ------           ---          --------          --------    
                                           ------           ---          --------          --------     

<CAPTION>

                                       UNEARNED                                                 TOTAL       
                                      PORTION OF          CUMULATIVE                          STOCKHOLDERS' 
                                       DEFERRED           TRANSLATION       TREASURY            EQUITY      
                                     COMPENSATION         ADJUSTMENT          STOCK            (DEFICIT)    
                                     ------------         -----------       --------          ------------  
<S>                                  <C>                  <C>               <C>               <C>
Balance, March 31, 1995 .............   $     -              $  22            $   -           $ (2,197)     
   Net loss .........................         -                  -                -             (6,411)     
   Issuance of shares for XVT                 -                  -                -                  -      
   Issuance of common stock .........         -                  -                -                 43      
   Restricted stock shares ..........    (1,404)                 -                -                  -      
     granted                                                                                                
   Equity adjustment from                                                                                   
     foreign currency translation             -                115                -                115      
                                        -------              -----           -------           -------      
Balance, March 31, 1996 .............    (1,404)               137                -             (8,450)     
   Net income .......................         -                  -                -              5,802      
   Issuance of common stock .........         -                  -                -                 37      
   Compensation expense related                                                                             
     to restricted stock and options.       287                  -                -                287      
   Deferred compensation                                                                                    
     related to options granted .....      (631)                 -                -                  -      
   Equity adjustment from                                                                                   
     foreign currency translation ...         -               (525)               -               (525)     
                                        -------              -----           -------           -------      
Balance, March 31, 1997 .............    (1,748)              (388)               -             (2,849)     
   Net loss (restated--Note 1).......         -                  -                -               (616)     
   Issuance of common stock in                                                                              
     IPO, net of issuance costs                                                                             
     of $1,181 ......................         -                  -                -             18,071      
 Stock options exercised and                                                                                
     restricted stock granted                                                                               
     (net)...........................         -                  -                -              2,794      
     Stock issued for Apsylog                                                                               
     acquisition ....................         -                  -                -             30,506      
     Stock option tax benefit .......         -                  -                -              7,905      
     Compensation expense                                                                                   
     related to restricted                                                                                  
           stock and options ........       414                  -                -                414      
   Deferred compensation                                                                                    
     related to options granted .....      (159)                 -                -               (159)     
     Stock repurchased ..............         -                  -             (262)              (262)     
   Equity adjustment from                                                                                   
     foreign currency translation ...         -               (165)               -               (165)     
                                        -------              -----           -------           -------      
Balance, March 31, 1998 
  (restated--Note 1).................  $ (1,493)             $(553)           $(262)          $ 55,639      
                                        -------              -----           -------           -------      
                                        -------              -----           -------           -------      
</TABLE>

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


                                        F-5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 RESTATED - SEE NOTE 1
                                                                                 ---------------------
                                                                                   YEAR ENDED MARCH 31,
                                                                           -------------------------------------
                                                                             1996         1997           1998
                                                                           --------      --------       -------
<S>                                                                        <C>           <C>            <C>
Cash flows from operating activities:
   Net income (loss) ...........................................           $ (6,411)     $  5,802       $  (616)
  Adjustments to reconcile net income (loss) to net cash,
     excluding
    effects of acquisitions, provided by (used in) operating
     activities:
        Depreciation and amortization ..........................              1,540         1,838         4,901
     Loss from discontinued business ...........................              1,859             -             -
     Gain on sale of fixed assets ..............................                (93)            -             -
     Charge for acquired research and development ..............                  -             -         6,955
      Increase (decrease) in cash resulting from changes in:
       Accounts receivable .....................................             (2,416)       (3,936)       (7,164)
       Financed receivables ....................................                  -        (1,182)        1,182
       Deferred tax assets .....................................                  -        (1,752)       (5,545)
       Other current assets ....................................                311          (163)       (1,116)
       Accounts payable ........................................                714          (499)          674
       Accrued expenses ........................................              2,464         2,458           512
       Deferred revenue ........................................              2,364         1,381         1,361
       Other ...................................................                252          (705)          534
                                                                           --------      --------       -------
                                                                                584         3,242         1,678
                                                                           --------      --------       -------
         Net cash used by discontinued business ................               (738)       (1,303)         (170)
                                                                           --------      --------       -------
         Net cash provided by (used in) operating activities ...               (154)        1,939         1,508
                                                                           --------      --------       -------
Cash flows from investing activities:          
   Purchases of short-term investments .........................                  -             -       (45,732)
   Maturities of short-term investments ........................                  -             -        38,705
   Purchases of property and equipment .........................             (3,516)         (566)       (2,427)
   Proceeds from sale of product line ..........................                  -           700             -
     Proceeds from sale of subsidiary and fixed assets, net ....                653             -             -
   Cash acquired in acquisition ................................                  -             -           582
                                                                           --------      --------       -------
        Net cash provided by (used in) investing activities ....             (2,863)          134        (8,872)
                                                                           --------      --------       -------
Cash flows from financing activities:
   Proceeds (repayment) on bank line of credit, net ............              1,514          (855)       (3,387)
   Proceeds from long-term debt ................................              3,508           287             -
   Repayments of long-term debt ................................             (1,354)         (774)       (2,541)
   Issuance of common stock ....................................                 15            37        28,770
    Treasury stock purchased ...................................                  -             -          (262)
   Principal payments under capital lease obligation ...........               (401)         (375)         (406)
                                                                           --------      --------       -------
         Net cash provided by (used in) financing activities ...              3,282        (1,680)       22,174
                                                                           --------      --------       -------
Effect of exchange rate changes on cash ........................                115          (525)         (165)
                                                                           --------      --------       -------
Net increase (decrease) ........................................                380          (132)       14,645
Cash and cash equivalents, beginning of year ...................                 57           437           305
                                                                           --------      --------       -------
Cash and cash equivalents, end of year .........................           $    437      $    305      $ 14,950
                                                                           --------      --------       -------
                                                                           --------      --------       -------
</TABLE>

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


                                        F-6

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED MARCH 31,
                                                                               -------------------------------
                                                                                 1996        1997       1998
                                                                               -------     -------    --------
<S>                                                                            <C>         <C>        <C>
Supplemental Disclosure of Cash Flow Information:                            
  Cash paid during the year for:                                             
     Interest ............................................................     $   389     $   400    $     38
     Income taxes ........................................................     $    36     $    27    $    622
Supplemental Disclosure of Noncash Investing and Financing Activities:                                        
     Stock issued and other noncash consideration for acquisition.........     $ 3,925     $     -    $ 38,617
</TABLE>


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





                                        F-7
<PAGE>

                             PEREGRINE SYSTEMS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


THE COMPANY

        Peregrine Systems, Inc. ("Peregrine" or the "Company") is a leading
provider of Infrastructure Management solutions. Infrastructure Management
unites the unique disciplines of the Consolidated Service Desk and Enterprise
Asset Management through utilizing common shared data. The Company develops,
markets, and supports SERVICECENTER and ASSETCENTER. SERVICECENTER is an
integrated suite of applications that automates the management of complex,
enterprise-wide information technology ("IT") infrastructures. ASSETCENTER is an
application suite that adds the essential dimension of managing the portfolio of
investments contained within an organization's infrastructure. These product
suites are designed to meet the IT infrastructure management requirements of
large organizations and are distinguished by their breadth of functionality and
their ability to be deployed across all major hardware platforms and network
operating systems and protocols. The Company sells its software and services in
both North America and internationally through both a direct sales force and
through business partnerships.

PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of 
Peregrine Systems, Inc. and its wholly owned subsidiaries. All significant 
intercompany accounts and transactions have been eliminated.

BASIS OF PRESENTATION

        The accompanying restated consolidated balance sheet as of March 31, 
1998, and related statements of operations, stockholders' equity (deficit), 
and cash flows for the year then ended have been restated to reflect a change 
in the original accounting for the purchase price allocation related to the 
September 19, 1997 acquisition of United Software ("United Software" or 
"Apsylog"). (See Note 2).

                                  F-8
<PAGE>


        The following table presents the previously reported and restated 
condensed consolidated statements of operations for the year ended March 31, 
1998.

<TABLE>
<CAPTION>


STATEMENT OF OPERATIONS                           TWELVE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.)            MARCH 31, 1998
                                                     --------------
                                                 MARCH 31,     MARCH 31,
                                                   1998          1998
                                               ------------   ------------
                                               (As reported)   (Restated)
<S>                                            <C>            <C> 
Total revenues                                   $ 61,877      $ 61,877
Costs and expenses                                 47,851        47,851
                                                 --------      --------
Income from operations excluding acquired
   in-process research and development 
   costs and amortization of purchased 
   intangible assets                               14,026        14,026
Amortization of purchased intangible 
     assets                                           386         3,168
                                                 --------      --------
Income from operations excluding acquired
     in-process research and development
     costs                                         13,640        10,858
Acquired in-process research and development
     costs                                         34,775         6,955
                                                 --------      --------
Income (loss) from operations                     (21,135)        3,903
Other income, net                                     839           839
Income tax expense                                  5,358         5,358
                                                 --------      --------
Net income (loss)                                $(25,654)     $   (616)
                                                 --------      --------
                                                 --------      --------
Basic net income (loss) per share                $  (1.48)     $  (0.04)
Diluted net income (loss) per share              $  (1.48)     $  (0.04)
</TABLE>

USE OF ESTIMATES

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

REVENUE RECOGNITION

        The Company generates revenues from licensing the rights to use its
software products primarily to end users. The Company also generates revenues
from post-contract support (maintenance), consulting and training services
performed for customers who license its products.

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

        Cost of license revenues consists primarily of amounts paid to
third-party vendors, product media, manuals, packaging materials, personnel and
related shipping costs. Cost of maintenance and services revenues consists
primarily of salaries, benefits, and allocated overhead costs incurred in
providing telephone support, consulting services, and training to customers.

                                  F-9
<PAGE>


        Deferred revenue primarily relates to customer support fees, which have
been paid by customers in advance of the performance of these services.

BUSINESS RISK AND CONCENTRATIONS OF CREDIT RISK

        Financial instruments which potentially subject the Company to
concentrations of credit risk principally consist of trade and other
receivables. The Company performs ongoing credit evaluations of its customers
financial condition. Management believes that the concentration of credit risk
with respect to trade receivables is further mitigated as the Company's customer
base consists primarily of Fortune 1000 companies. The Company maintains
reserves for credit losses and such losses historically have been within
management expectations.

        A significant portion of the Company's revenues are from its
SERVICECENTER and ASSETCENTER products and related services. Any factor
adversely affecting the pricing of, demand for or market acceptance of these
products could have a material adverse effect on the Company's business,
financial condition and results of operations.

CASH AND CASH EQUIVALANTS

        The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
primarily consist of overnight repurchase agreements and money market accounts.
The carrying amount reported for cash and cash equivalents approximates its fair
value.

SHORT-TERM INVESTMENTS

        The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). Short-term
investments consist of tax-exempt municipal auction rate preferred stock with
original maturities at date of purchase beyond three months and less than twelve
months. These securities are classified as held-to-maturity and are carried at
amortized cost. The amount of gross unrealized gains or gross unrealized losses
were not significant.

FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses
approximates fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its notes payable, capital lease obligations and borrowings under the
Company's line of credit approximates fair value.

FINANCED RECEIVABLES

        Financed receivables represent trade accounts receivable for which the
original payment terms extend beyond the Company's customary net 45 payment
terms. These receivables are substantially all due within the next twelve
months. Amounts due greater than one year from the balance sheet date are
included in other assets in the accompanying consolidated financial statements.
The majority of these long-term receivables relate to items included in
long-term deferred revenues.

PROPERTY AND EQUIPMENT

        Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over estimated useful lives,
generally three to five years for furniture and equipment. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the useful lives of the assets or the terms of the related leases.

                                  F-10
<PAGE>

        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.

LONG-LIVED ASSETS

        The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 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 No. 121 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. SFAS No. 121 also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less estimated selling
costs. As of March 31, 1998, management believes that there has not been any
impairment of the Company's long-lived assets or other identifiable intangibles.

INTANGIBLE ASSETS

        Intangible assets are comprised of purchase price in excess of 
identifiable assets associated with the Company's acquisitions. Intangible 
assets are carried at cost less accumulated amortization of $3.2 million, 
which is being amortized on a straight line basis over five years.

CAPITALIZED COMPUTER SOFTWARE

        In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", 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. During the three years in the period
ended March 31, 1998, 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.

FOREIGN CURRENCY TRANSLATION AND RISK MANAGEMENT

        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 average
exchange rate for the period. Translation gains or losses of the Company's
foreign subsidiaries are not included in operations but are reported as a
separate component of stockholders' equity (deficit). The functional currency of
those subsidiaries is the primary currency in which the subsidiary operates.
Gains and losses on transactions in denominations other than the functional
currency of the Company's foreign operations, while not significant in amount,
are included in the results of operations.

        The Company enters into forward exchange contracts to minimize the
short-term impact of foreign currency fluctuations on assets and liabilities
denominated in currencies other than the functional currency of the reporting
entity. All foreign exchange forward contracts are designated as and effective
as a hedge and are inversely correlated to the hedged item as required by
generally accepted accounting principles.

        Gains and losses on the contracts are included in other income and
offset foreign exchange gains or losses from the revaluation of intercompany
balances or other current assets and liabilities denominated in currencies other
than the functional currency of the reporting entity.

INCOME TAXES

        Deferred taxes are provided utilizing the liability method as prescribed
by SFAS No. 109, "Accounting for Income Taxes," whereby deferred tax assets are
recognized for deductible temporary differences and operating loss

                                  F-11
<PAGE>

carryforwards, 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 opinion of management, it is more likely 
than not that some portion or all of the deferred tax assets will not be 
realized.

COMPUTATION OF NET INCOME (LOSS) PER SHARE

        Effective fiscal year 1998, the Company retroactively adopted the 
provisions of Statement of Financial Accounting Standards No. 128 ("SFAS No. 
128"), "Earnings per share." SFAS No.128 requires companies to compute net 
income (loss) per share under two different methods, basic and diluted per 
share data for all periods for which an income statement is presented. Basic 
earnings per share was computed by dividing net income (loss) by the weighted 
average number of common shares outstanding during the period. Diluted 
earnings per share reflects the potential dilution that could occur if the 
income were divided by the weighted-average number of common shares and 
potential common shares from outstanding stock options for the year ended 
March 31, 1997. Potential common shares were calculated using the treasury 
stock method and represent incremental shares issuable upon exercise of the 
Company's outstanding options. For the years ended March 31, 1998 and March 
31, 1996, the diluted loss per share calculation excludes effects of 
outstanding stock options as such inclusion would be anti-dilutive. The 
following table provides reconciliation of numerators and denominators used 
in calculating basic and diluted earnings per share for the prior three years.

<TABLE>
<CAPTION>

                                                                
                                                            For the Years Ended March 31,
                                                         -----------------------------------
                                                           1996          1997         1998
                                                                                   (Restated)
                                                         --------      --------     --------
<S>                                                      <C>           <C>          <C>
Net income (loss)                                        $ (6,411)     $  5,802     $   (616)
                                                         --------      --------     --------
                                                         --------      --------     --------
BASIC EARNINGS PER SHARE:
      Income (loss) available to common shareholders ... $ (6,411)     $  5,802     $   (616)
      Weighted average common shares outstanding .......   12,331        12,920       17,380
                                                         --------      --------     --------
Basic earnings (loss) per share ........................ $  (0.52)     $   0.45     $  (0.04)
                                                         --------      --------     --------
                                                         --------      --------     --------

DILUTED EARNINGS PER SHARE:
      Income (loss) available to common shareholders ... $ (6,411)     $  5,802     $   (616)
                                                         --------      --------     --------
                                                         --------      --------     --------
      Weighted average common shares outstanding .......   12,331        12,920       17,380
      Common stock options outstanding (unless 
       anti-dilutive)...................................        -         2,044            -
                                                         --------      --------     --------
Total weighted average common shares and equivalents ...   12,331        14,964       17,380
                                                         --------      --------     --------
Diluted earnings (loss) per share ...................... $  (0.52)     $   0.39     $  (0.04)
                                                         --------      --------     --------
                                                         --------      --------     --------
</TABLE>

                                  F-12
<PAGE>

DISCONTINUED OPERATIONS

        During fiscal 1996, the Company acquired XVT Software Inc. ("XVT"), 
substantially all of the outstanding equity of which was owned by the 
majority stockholder of the Company. In January 1996, the Company determined 
that maintaining an interest in XVT was not consistent with the Company's 
business strategy and adopted a plan to discontinue the operations of XVT. 
The Company incurred a loss from discontinued operations of XVT in fiscal 
1996 of $1.9 million.

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive 
Income," which establishes standards for reporting and display of 
comprehensive income and its components (revenue, expense, gains, and losses) 
in a full set of general-purpose financial statements. The Company will adopt 
SFAS No. 130 in fiscal year 1999. Management believes the adoption of SFAS 
No. 130 will not have a material effect on its consolidated financial 
statements.

        In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," regarding operating segments. SFAS
No. 131, which is based on the management approach to segment reporting,
establishes requirements to report entity-wide disclosures about products and
services, major customers, and material countries in which the entity holds
assets and reports revenue. SFAS No. 131 requires limited segment data on a
quarterly basis. The Company will adopt SFAS No. 131 in the first quarter in
fiscal year 1999. Management believes the adoption of SFAS No. 131 will not have
a material effect on its consolidated financial statements.

        In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The Company will adopt SOP 97-2 in
its fiscal year 1999. The Company anticipates that SOP 97-2 will not have a
material impact on its consolidated financial statements.

        In March 1998, the American Institute of Certified Public Accountants,
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance
concerning the capitalization of costs related to such software. The Company
will adopt SOP 98-1 in its fiscal year 2000. The Company anticipates that SOP
98-1 will not have a material impact on its consolidated financial statements.

        In April 1998, the American Institute of Certified Public Accountants
issued AICPA Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities." This Statement provides guidance on the financial
reporting of start-up costs and organization costs and requires that such costs
of start-up activities be expensed as incurred. The Company will adopt SOP 98-5
in its fiscal year 2000. The Company has not yet determined the impact, if any,
the adoption of the accounting and disclosure provisions of SOP 98-5 will have
on the Company's financial statements, results of operations or related
disclosure thereto.

2.  ACQUISITION

        In September 1997, the Company completed the acquisition of all of 
the outstanding stock of United Software, Inc., a developer of decision 
software solutions designed for asset management. The consideration given for 
the stock of United Software included 1,916,220 shares of Peregrine Systems 
common stock valued at $15.92 per share or $30,506,000 plus an additional 
$8,111,000 of expenses directly related to the acquisition and assumption of 
net liabilities of United Software. 

        The transaction was accounted for under the purchase method of 
accounting and, accordingly, the assets, including in-process research and 

                                  F-13
<PAGE>

development, and liabilities, were recorded based on their fair values at the 
date of acquisition and the results of operations for Apsylog have been 
included in the financial statements for the periods subsequent to 
acquisition. The Company allocated the fair values of the assets acquired 
between acquired in-process research and development, developed technology 
and purchase price in excess of identifiable assets. The results of the 
allocation of values between the assets are as follows:

<TABLE>
<CAPTION>

        Assets                                          Fair Market Value
        ------                                          -----------------
                                                         (in thousands)
<S>                                                     <C>
Acquired In-Process Research & Development                   $ 6,955
Purchase price in excess of identifiable assets               31,684
                                                             -------
Total                                                        $38,639
                                                             -------
                                                             -------
</TABLE>

        As a result of the recently promulgated guidance by the SEC regarding 
its accepted valuation methodology for determining in-process research and 
development costs, on March 10, 1999, the Company announced an anticipated 
adjustment to the purchase price originally reported. The adjusted value of 
the acquired in-process technology was computed using a discounted cash flow 
analysis on the anticipated income stream of the related product sales. The 
value assigned to acquired in-process technology was determined by estimating 
the costs to develop the purchased in-process technology into commercially 
viable products, estimating the resulting net cash flows from the projects 
and discounting the net cash flows to their present value.

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

        With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of Innovative prior to
the close of the acquisition. Following is the estimated completion percentage,
estimated technology life and projected introduction date:

<TABLE>
<CAPTION>

                                         Percent       Technology        Introduction
In-Process Technology                   Completed         Life              Dates
---------------------                   ---------      ----------        ------------
<S>                                     <C>            <C>               <C>
Next-generation Apsylog                    38%           5 years           2Q/1999
</TABLE>

        The technology development projects under development at the time of 
the acquisition included the development of a leasing module, incorporating 
advanced reporting capabilities, providing a new user interface and 
mail/action improvements, enhancing contract management, and improving 
response time. This will involve reconstructing certain aspects of the 
software architecture of the existing products to achieve complete 
compatibility, as well as developing new technology for adding the desired 
functionality. No assurance can be given, however, that the underlying 
assumptions used to estimate expected product sales, development costs or 
profitability, or the events associated with such projects, will transpire as 
estimated. The Company currently believes that actual results have been 
consistent with forecasts with respect to acquired in-process revenues. 
Because the Company does not account for expenses by product, it is not 
possible to determine the actual expenses associated with the acquired 
technologies. However, the Company believes that expenses incurred to date 
associated with the development and integration of the acquired in-process 
research and development projects are approximately consistent with the 
Company's previous estimates.

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

                                  F-14
<PAGE>

expenses by product, it is not possible to determine the actual expenses 
associated with the acquired technologies. However, the Company believes that 
expenses incurred to date associated with the development and integration of 
the acquired in-process research and development projects are approximately 
consistent with the Company's previous estimates.

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

        The following table presents the unaudited pro forma results assuming
the Company had acquired United Software at the beginning of fiscal years 1997
and 1998, respectively. Net income and diluted earnings per share amounts have
been adjusted to exclude the write-off of acquired in process research and
development of $7.0 million and include the goodwill amortization of $6.3
million for the twelve months ended March 31, 1997 and 1998. This information
may not necessarily be indicative of the future combined results of the Company.

<TABLE>
<CAPTION>
                                        (IN THOUSANDS EXCEPT PER SHARE DATA)
                                            FOR THE YEARS ENDED MARCH 31,
                                                   1997         1998
                                                  -------     --------
      <S>                                         <C>         <C>
      Revenues .....................              $41,503      $63,171
      Net income ...................              $(5,210)     $ 2,460
      Diluted earnings per share ...              $ (0.40)     $  0.14
      Basic earnings per share .....              $ (0.40)     $  0.13
</TABLE>

3. BALANCE SHEET COMPONENTS

      Other current assets consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                     MARCH 31,
                                                -------------------
                                                  1997         1998
                                                 -------     --------
      <S>                                        <C>         <C>
      Prepaid expenses and other .............   $  326       $2,661
      Employee advances ......................      198          244
      Receivable from sale of product line ...      400            -
                                                 -------      -------
                                                 $  924       $2,905
                                                 -------      -------
                                                 -------      -------
</TABLE>
    Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                      MARCH 31,
                                                 -------------------
                                                  1997         1998
                                                 -------     --------
      <S>                                        <C>         <C>
          Furniture and equipment ............   $7,319      $10,219
          Leasehold improvements .............    1,963        2,249
                                                 ------      -------
                                                  9,282       12,468
          Less accumulated depreciation ......   (4,918)      (7,013)
                                                 ------      -------
                                                 $4,364      $ 5,455
                                                 ------      -------
                                                 ------      -------
</TABLE>
      Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                      MARCH 31,
                                                 ------------------
                                                  1997         1998
                                                 ------       ------
          <S>                                    <C>          <C>
          Employee compensation ..............   $1,631      $ 2,745
          Commissions ........................    2,499        3,494
          Other ..............................    2,119        4,864
                                                 ------      -------
                                                 $6,249      $11,103
                                                 ------      -------
                                                 ------      -------
</TABLE>

                                 F-15
<PAGE>

4. DEBT

LINE OF CREDIT

        Effective July 1, 1997, the Company entered into an agreement for a line
of credit facility that provides for maximum borrowings of $5.0 million and
expires on July 31, 1998. Borrowings under the line of credit bear interest at
the bank's prime rate (8.5% at March 31, 1998). The line of credit is
collateralized by the Company's accounts receivable, equipment, and certain
other assets. In addition, the debt agreement contains certain covenants, the
most significant of which places certain restrictions on future borrowings and
acquisitions above specified levels. The Company is required to maintain certain
financial ratios and minimum equity balances. The agreement also provides for a
foreign exchange facility, under which the maximum principal amount of foreign
exchange transactions which may mature during any two day period is $2.0
million. The Company did not have an outstanding balance on the line of credit
at March 31, 1998.

LONG-TERM DEBT

        Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    MARCH 31,
                                                                             -------------------------
                                                                             1997              1998
                                                                             ------            -------
<S>                                                                          <C>               <C>
Note payable to bank. Note secured by trade receivables, fixed
   assets and guaranteed by the majority stockholder. Interest at
   prime (8.5% as of March 31, 1997). Equal monthly installments of
   principal of $37 plus interest, repaid in 1998 .........................  $ 1,612           $     -
Note payable to lessor. Unsecured; interest at 8%. Monthly payments
   of principal and interest of $4.2 through November 2003 ................      234               227
French Government Agency loans.  Interest of up to 6.55%, due in
     2000 .................................................................        -               762
Other .....................................................................       46               128
                                                                             --------          --------
                                                                               1,892             1,117
Less current portion ......................................................     (497)             (151)
                                                                             --------          --------
                                                                             $ 1,395           $   966
                                                                             --------          --------
                                                                             --------          --------
</TABLE>

        Scheduled principal payments on long-term debt due as of March 31, 1998
are as follows (in thousands):

<TABLE>
<S>                                                                                     <C>
1999......................................................................             $  151
2000......................................................................                808
2001......................................................................                 39
2002......................................................................                 43
2003......................................................................                 47
2004......................................................................                 29
                                                                                       ------
                                                                                       $1,117
                                                                                       ------
                                                                                       ------
</TABLE>

5. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                     MARCH 31,
                                             -------------------------
                                               1997             1998
                                             -------           -------
<S>                                          <C>               <C>
Deferred tax assets:
   Net operating loss carryforwards .......  $ 1,356           $ 5,497
   Deferred maintenance revenue ...........    1,148             1,452
   Other ..................................      960             1,324
                                             -------           -------
                                               3,464             8,273
Deferred tax liabilities:
   Depreciation ...........................     (295)             (168)
   Deferred revenue .......................     (160)                -
                                             -------           -------
                                               3,009             8,105
Valuation allowance .......................   (1,257)             (808)
                                             -------           -------
Net deferred tax assets ...................  $ 1,752           $ 7,297
                                             -------           -------
                                             -------           -------
</TABLE>

                                 F-16
<PAGE>

        As of March 31, 1998, the Company had net operating loss carryforwards
of approximately $8.5 million for domestic federal and state income tax
reporting purposes, which expire beginning in 2004. In certain circumstances, as
specified in the Internal Revenue Code, a fifty percent or more ownership change
by certain combinations of the Company's stockholders during any three year
period could result in a limitation on the Company's ability to utilize portions
of its domestic net operating loss carryforwards. The Company currently has net
operating loss carryforwards of approximately $1.2 million that may be subject
to these limitations. As of March 31, 1998, the Company also has foreign net
operating loss carryforwards of approximately $5.8 million. See Note 9 for a
table of foreign and domestic components of operating income (loss).

        A valuation allowance in the amount set forth in the table above has
been recorded to properly reflect a portion of the deferred tax assets due to
uncertainties surrounding its realization. The current valuation allowance
relates to assets acquired in the Company's acquisition of United Software, Inc.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the amount of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowance will be reduced. Any future decrease in the
valuation allowance will be recorded as a reduction to goodwill.

        A reconciliation of expected income taxes using the statutory federal
income tax rate to the effective income tax provision is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                              ---------------------------------------------
                                                 1996           1997        1998     RATE
                                               -------        -------     -------   ------
<S>                                            <C>            <C>         <C>       <C>
Federal tax at the statutory rate..........    $(2,180)          $ 980     $ 4,923    34.00 %
State tax, net of federal benefit..........       (385)            173         869     6.00 %
Foreign losses (not benefited).............         418              -           -       -
Other......................................         227            140          16     0.11 %
Change in valuation allowance..............       1,920         (2,885)       (449)   (3.10)%
                                                -------        -------      ------    -----
Total income tax provision.................     $     -        $(1,592)     $5,359    37.01 %
                                                -------        -------      ------    -----
                                                -------        -------      ------    -----
</TABLE>


         The amounts stated in the table above for the year ended March 31, 1998
exclude a $34,775,000 expense for acquired in-process research and development
relating to the Company's acquisition of United Software, Inc.

The income tax provision (benefit) consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                          MARCH 31,
                                   -------------------------
                                     1997              1998
                                   -------           -------
<S>                                <C>               <C>
Current
   Federal ......................  $    76           $ 5,197
   State ........................       84             1,017
                                   -------           -------
Total current ...................      160             6,214
                                   -------           -------
Deferred
   Federal ......................   (1,523)             (728)
   State ........................     (229)             (128)
                                   -------           -------
Total deferred ..................   (1,752)             (856)
                                   -------           -------
Total provision (benefit) .......  $(1,592)          $ 5,358
                                   -------           -------
                                   -------           -------
</TABLE>

        The Company realizes an income tax benefit from the exercise or early
disposition of certain stock options. This benefit results in a decrease in
current income taxes payable and an increase in additional paid-in capital. The
amount of this benefit for the year ended March 31, 1998 was $7,905,000.

                                 F-17
<PAGE>

6. COMMITMENTS AND CONTINGENCIES

        The Company leases certain buildings and equipment under noncancelable
operating lease agreements. The leases generally require the 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 totaled
approximately $1,961,000, $2,051,000 and $2,565,000 in fiscal 1996, 1997, and
1998, respectively.

        Future minimum lease payments under noncancelable operating leases, at
March 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  OPERATING
                                                                   LEASES
                                                                  ---------
<S>                                                               <C>
1999...........................................................   $ 2,407
2000...........................................................     2,286
2001...........................................................     2,278
2002...........................................................     2,381
2003...........................................................     2,448
Thereafter.....................................................     1,543
                                                                  --------
     Total minimum lease payments..............................   $13,343
                                                                  --------
                                                                  --------
</TABLE>
        The Company subleases office space at its corporate headquarters to an
affiliated company. The term of the sublease is from June, 1996 to October, 2003
and requires monthly rental payments of approximately $17,000.

        The Company pays commissions to employees who have authored certain of
the Company's products based on a percentage of the respective product's sales.
Commissions paid under such agreements are included in research and development
expense in the accompanying consolidated statements of operations and were
approximately $600,000, $1,100,000, and $1,700,000 for fiscal 1996, 1997, and
1998, respectively.

        The Company is involved in various legal proceedings and claims arising
in the ordinary course of business, none of which, in the opinion of management,
is expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.

7. STOCKHOLDERS' EQUITY

PREFERRED STOCK

        The Company has authorized 5,000,000, $0.001 par value, undesignated
preferred shares, none of which were issued or outstanding at March 31, 1997 and
1998. 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 stockholders.

STOCK OPTIONS

        The Company has three stock option plans, the Nonqualified Stock Option
Plan ("1990 Plan"), the 1991 Nonqualified Stock Option Plan ("1991 Plan"), and
the 1994 Stock Option Plan ("1994 Plan").

        The Company may no longer grant options under the 1990 and 1991 Plans.
The Company may grant up to 4,990,000 options under the 1994 Plan. Under the
Plans, the option exercise price is determined by the Board of Directors on a
per-grant basis, but shall not be less than fair market value. Option grants
under all three stock option plans generally vest over four years. During
December 1996, the Company recorded $631,000 in deferred compensation related to
the grant of 185,000 options. This deferred compensation is being amortized on a
straight line basis to expense over the options' four year vesting period.

                                 F-18
<PAGE>

        A summary of the status of the Company's three stock option plans at
March 31, 1996, 1997, and 1998 as well as changes during the periods then ended
is as follows:
<TABLE>
<CAPTION>
                                                WEIGHTED                    WEIGHTED                    WEIGHTED
                                     SHARES     AVERAGE          SHARES     AVERAGE          SHARES     AVERAGE
                                      (000)  EXERCISE PRICE       (000)  EXERCISE PRICE      (000)   EXERCISE PRICE
                                     -----------------------     ----------------------     --------------------------
                                         MARCH 31, 1996               MARCH 31, 1997               MARCH 31, 1998
                                     -----------------------     ----------------------     --------------------------
<S>                                  <C>      <C>                <C>      <C>               <C>       <C>
Outstanding, beginning
   of year ........................  3,041.2      $   1.42        3,597.4      $   1.79       4,061.3      $    2.08
                                     -------      --------        -------      --------      --------      ---------
Granted ...........................  1,440.4          2.37          989.9          3.24       1,628.8          13.59
Exercised .........................    (30.0)         1.01          (22.8)         1.64      (1,806.2)          1.50
Canceled ..........................   (854.2)         1.18         (503.2)         1.4         (285.5)         12.25
                                     -------      --------        -------      --------      --------      ---------
Outstanding, end of year ..........  3,597.4      $   1.79        4,061.3      $   2.08       3,598.4      $    6.77
                                     -------      --------        -------      --------      --------      ---------
                                     -------      --------        -------      --------      --------      ---------
Exercisable, end of year ..........  1,786.0      $   1.34        2,171.7      $   1.48       1,160.5      $    2.07
                                     -------      --------        -------      --------      --------      ---------
                                     -------      --------        -------      --------      --------      ---------
Weighted average fair
   value of options granted .......               $      -                     $      -                    $    7.64
                                                  --------                     --------                    ---------
                                                  --------                     --------                    ---------
</TABLE>

        Because certain of the options awarded to date have been granted at
significant premiums, under the minimum value pricing model the options were
determined to collectively have no value. As a result, had compensation cost for
stock options granted during the years ended March 31, 1996 and 1997 been
determined consistent with SFAS No. 123, the Company's net income (loss) and
related per share amounts on a pro forma basis would not be materially different
as the per share amounts reported in the accompanying consolidated statements of
operations for the years ended March 31, 1996 and 1997.

        Compensation cost for stock options granted during the year ended March
31, 1998 determined consistent with SFAS No. 123 would have reduced the
Company's net income and related per share amounts on a pro-forma basis by $1.3
million and $0.07, respectively. The fair value of each option grant is
estimated using the minimum value method of option pricing model with the
following assumptions used in fiscal 1998: weighted average risk-free interest
rate of 6.11 percent; volatility of 63.06 percent; expected dividend yields of
0.00 percent; and an expected life of 4 years.

RESTRICTED STOCK

        During fiscal 1996, the Company granted 600,000 shares of
nontransferable common stock under restricted stock agreements to certain
employees. These shares were valued at a fair value of $2.34. The restrictions
lapse on the shares ten years from the date of grant or, if the Company achieves
certain objectives for earnings growth from fiscal 1997 through fiscal 2002, or,
on a change in control of the Company. The unearned portion of restricted stock
is included in stockholders' deficit and is being amortized as compensation
expense on a straight-line basis over the vesting period. During fiscal 1998,
202,000 of the above shares were canceled.

        During the fiscal year 1998, the Company granted an additional 50,000
shares of nontransferrable common stock under restricted stock agreements valued
at $12.625. These shares vest over a six-year term and are currently being
amortized as compensation expense over this term.

1997 EMPLOYEE STOCK PURCHASE PLAN

        In February 1997, the Board adopted, and the stockholders approved, the
1997 Employee Stock Purchase Plan ("Purchase Plan"). The Company has reserved
250,000 shares of common stock for issuance under the Purchase Plan. The
Purchase Plan enables eligible employees to purchase common stock at 85% of the
lower of the fair market value of the Company's common stock on the first or
last day of each option purchase period, as defined. No shares were issued under
the Purchase Plan during fiscal 1997 and 35,000 shares were issued under the
Purchase Plan during fiscal 1998.

                                 F-19
<PAGE>

DIRECTOR OPTION PLAN

        In February 1997, the Board adopted, and the stockholders approved, the
1997 Director Option Plan ("Director Plan"). The Company has reserved 150,000
shares of common stock for issuance under the Director Plan. The Director Plan
provides an initial grant of options to purchase 25,000 shares of common stock
to each new eligible outside director of the Company upon election to the Board.
In addition, commencing with the 1998 Annual Stockholders meeting, such eligible
outside directors are granted an option to purchase 5,000 shares of common stock
at each annual meeting. The exercise price per share of all options granted
under the Director Plan will be equal to the fair market value of the Company's
common stock on the date of grant. Options may be granted for periods up to ten
years and generally vest over four years. No grants were made under the Director
Plan in fiscal 1997 and 1998.

8. EMPLOYEE BENEFIT PLAN

        The Company has a 401(k) Employee Savings Plan ("Plan") covering
substantially all 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 make
contributions of up to 20 percent of their compensation, limited by IRS
statutory contribution limits. In addition to employee contributions, the
Company also contributes to the Plan by matching 25% of employee contributions.
Amounts contributed to the Employee Savings Plan by the Company during fiscal
1996, 1997 and 1998 were $203,000, $189,000, and $200,000 respectively.

9. GEOGRAPHIC OPERATIONS

        The Company operates exclusively in the computer software industry. A
summary of the Company's continuing operations by geographic area is presented
below:

<TABLE>
<CAPTION>

                                  UNITED         EUROPE &
                                  STATES           OTHER      CONSOLIDATED
                                 --------        ---------    ------------
<S>                              <C>             <C>          <C>
Year ended March 31, 1996
   Revenues ...................  $ 16,818        $  6,948       $ 23,766
   Operating profit (loss) ....    (5,010)            458         (4,552)
   Identifiable assets ........     9,427           4,390         13,817

Year ended March 31, 1997
   Revenues ...................  $ 24,925        $ 10,110       $ 35,035
   Operating profit (loss) ....     3,513             697          4,210
   Identifiable assets ........    14,353           5,385         19,738

Year ended March 31, 1998 (as
 restated)
   Revenues ...................  $ 39,512        $ 22,365       $ 61,877
   Operating profit (loss) ....      (772)          5,514          4,742
   Identifiable assets ........    72,434          11,134         83,568
</TABLE>

10.  SUBSEQUENT EVENT

        On May 7, 1998, the Company announced a definitive merger agreement with
Innovative Tech Systems, Inc. to acquire all its outstanding common stock. The
merger has been approved by the Board of Directors of both companies and is
subject to approval by the shareholders of Innovative Tech Systems. Under the
agreement, Innovative Tech Systems shareholders will receive 0.2341 shares of
Peregrine stock for each share of Innovative stock. Based on market values of
the outstanding stock values of both companies on May 7, consideration given for
the acquisition would be $72.9 million plus acquisition related costs. The
acquisition will be accounted for as a purchase and the Company expects to take
a charge related to the purchase of in-process research and development, of
substantially all of the acquisition price. It is anticipated that the
transaction will be completed during the quarter ending September 30, 1998.

                                 F-20