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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 000-22209

PEREGRINE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act: None

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

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

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

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

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

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

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

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

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

        None.

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

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GENERAL

        Forward-Looking Statements.    This report contains forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934. These statements include, among other things, statements concerning our future operations, financial condition and prospects, and business strategies. The words "believe," "expect," "anticipate," "intend," "seek," "will," and other similar expressions generally identify forward-looking statements. These forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition or results of operations to differ materially from our historical results or currently anticipated results. Readers should carefully review the forward-looking statements included in this report under the captions "Introduction," "Risk Factors," beginning on page 49 of this report, "Management's Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources," beginning on page 45 of this report, and elsewhere in or incorporated by reference into this report.

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

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

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

ITEM 1. BUSINESS

OVERVIEW

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

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

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

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Asset Tracking, to discover, track, and consolidate hardware, software, and network assets throughout the enterprise;



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Expense Control, to enable organizations to avoid unnecessary regulatory penalties, institute entitlement procedures, manage contracts, and initiate cost-center budgeting; and



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Process Automation, to enable information technology organizations to implement automated operational, financial, and compliance-driven processes across multiple applications.

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

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Service Establishment, to enable information technology organizations to centralize service management functions in a consolidated service desk that utilizes a common knowledge base and unique Active CMDB™ (configuration management data base);



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Service Control, to enhance control over IT services by eliminating problems at their source, automating routine requests, and using metrics to actively manage operational performance; and



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Service Alignment, to ensure services align with customer needs by managing to specified services levels, increasing responsiveness to routine requests, and identifying infrastructure weaknesses before they become a problem.

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

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

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Discovery;



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IT Business Analytics;



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Self Service; and



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Integration.

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

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

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our Outsourcing solution will help customers evaluate their information technology outsourcing options as well as manage and measure the effectiveness of their outsourcing relationships by comparing costs and monitoring service levels and system availability across their entire support infrastructure; and



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our Business Continuity solution will help organizations define and automate the process of transferring critical IT infrastructure, operations, and services from one location to another should the need arise. This solution automatically sets in motion the workflow and logistics to move people, assets, systems, and processes wherever they need to go to keep business running smoothly.

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

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

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

Industry Background

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

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Products

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

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

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

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

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

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

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

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

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

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

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

Technology

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

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

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

Product Licensing

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

Customer Support and Maintenance Services

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

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Professional and Educational Services

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

        The basic consulting services we offer include:

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Analysis of user requirements and integrating basic functions that will demonstrate the benefits of our products;



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Comprehensive upgrade planning and execution to enable cost-effective software version migrations to our most-current products;



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Pre-packaged offerings that address specific customer requirements with best-practice, repeatable procedures; and



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Peregrine ValuePath services aligned with our asset and service management solutions, including:



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Guide—a set of "tell me how to do it" implementation and integration plans based on our best-practice experience;



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Unlock—a set of packaged and ad hoc service offerings that combine sets of best-practices deliverables to help customers realize value faster; and



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Thrive—continuing services, including maintenance, education and training, technical account managers, and tailoring reviews, which help customers keep their systems at their highest productivity levels and improve customer satisfaction, as they lower our total cost of support and maintain customer readiness to buy more software and services.

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

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

Product Development

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

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

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Sales and Marketing

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

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

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

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

Customers

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

Competition

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

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

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

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Product functionality;



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Price and cost effectiveness;



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Product performance;



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Quality of support and professional services; and



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Company reputation.

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

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

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

Seasonality

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

Segment and Geographic Financial Information

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

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

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Americas, which includes our U.S. operations as well as our operations in Canada, Mexico and South America; and



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EMEA/AP, which includes our operations in Europe, the Middle East, Africa and the Asia Pacific Region.

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

Intellectual Property

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

Employees

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

ITEM 2. PROPERTIES

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

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ITEM 3. LEGAL PROCEEDINGS

Federal Government Investigations and Proceedings Pertaining to Historical Accounting Irregularities

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

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

•

Be enjoined from violating federal securities laws;



•

Comply on an accelerated basis with the rules regarding management's reporting on internal control over financial reporting in accordance with the Sarbanes-Oxley Act of 2002;



•

Retain an internal auditor to assist with the accurate reporting of our financial results;



•

Establish a corporate compliance program and retain a compliance officer to perform a continuous review of the effectiveness of our governance systems;



•

Commence a training program for our officers and employees to prevent violations of federal securities laws; and



•

Make a public statement that fully and accurately disclosed the condition of our internal control structure and our procedures for financial reporting on the effective date of our reorganization plan.

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

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

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

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

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

Peregrine Litigation Trustee Action to Which Peregrine is Not a Party

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Litigation Regarding the Latham Report

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

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

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

Other Litigation

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

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

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

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

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

Our Recapitalization

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

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

Dividends

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

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

EQUITY COMPENSATION PLAN INFORMATION

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

(1)

Consists of options to purchase 1,973,525 shares of new common stock under our 2003 Equity Incentive Plan, which includes options to purchase 60,970 shares of new common stock which were originally issued under our 1994 Stock Option Plan and adjusted in connection with our reorganization plan. In connection with our reorganization plan, our 1994 Stock Option Plan was amended and restated to become our 2003 Equity Incentive Plan. Other than the surviving options to purchase 60,970 shares of new common stock, all options issued under the 1994 Stock Option Plan were canceled.

(2)

In addition to options, our 2003 Equity Incentive Plan allows for the award of cash and stock. Of the shares available under the 2003 Equity Incentive Plan, there is no limit on the number of shares that can be allocated to awards other than option awards. The maximum number of shares that are available for issuance under our 2003 Equity Incentive Plan is automatically increased on January 1 of each year, beginning January 1, 2005 and continuing for 10 years, by a number of shares equal to the lesser of: (i) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, (ii) 267,000 shares, and (iii) a number set by the Board of Directors. From April 1, 2004 through March 31, 2005, we granted options to purchase an additional 676,500 shares of our new common stock, of which 452,000 shares were granted under our 2003 Equity Incentive Plan and 224,500 were granted outside our 2003 Equity Incentive Plan. As of March 31, 2005, options to purchase 874,259 shares of new common stock were remaining and available for issuance under our 2003 Equity Incentive Plan, excluding the outstanding options granted through March 31, 2005 under the plan.

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(3)

Represents options to purchase 224,500 shares of new common stock that were granted to eight employees. The material features of these options are comparable to the terms and conditions of options granted under our 2003 Equity Incentive Plan. The exercise prices of the options are $16.00 for five employees and $17.40, $20.20 and $21.50 for each of the remaining three employees, generally representing either the closing price at the time of the grant or the average bid and ask prices on the date of grant. The options vest with respect to 25% of the option shares on the first anniversary of the option grant date and at the rate of 2.0833% per month thereafter. In the event of a change in control, vesting will accelerate for as many as 150,000 of the shares underlying the options. In the event of a change of control followed by the termination of employment of the individuals holding the options within one year after the change of control, vesting will accelerate on as many as an additional 65,000 shares underlying the options.

RECENT SALES OF UNREGISTERED SECURITIES

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

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

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

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

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(1)

The working capital deficit as of March 31, 2003 includes $427.7 million of liabilities subject to compromise. The term liabilities subject to compromise refers to liabilities incurred prior to the commencement of the Chapter 11 proceedings except for those that were not expected to be impaired under our reorganization plan. These amounts represented our estimate of known and potential pre-petition claims to be resolved in connection with the Chapter 11 proceedings. These claims were subject to future adjustments during the bankruptcy proceedings. Adjustments resulted from settlements, such actions of the Bankruptcy Court as reclassification of claims, rejection of executory contracts and unexpired leases, the determination of the value of any collateral securing claims, proofs of claim or other events. Payment terms for these amounts were established in connection with the Chapter 11 proceedings. Liabilities subject to compromise at July 18, 2003 were settled or reclassified to appropriate financial statement captions based on the settlement terms specified in our reorganization plan.

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

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

OVERVIEW

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

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

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

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

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

•

Accelerating the process of reducing our operating costs;



•

Obtaining third-party funding arrangements;



•

Selling non-core assets to fund ongoing operations; and



•

Managing the business to conserve cash.

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

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

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

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

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

•

Revenue Recognition;



•

Allowance for Doubtful Accounts;



•

Accounting for Income Taxes;



•

Legal Contingencies;



•

Fresh-Start; and



•

Valuation of Long-Lived Assets.

Revenue Recognition

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

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

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

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

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

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

Allowance for Doubtful Accounts

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

Accounting for Income Taxes

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

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

Legal Contingencies

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

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

Fresh-Start

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

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

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

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

Valuation of Long-Lived Assets

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

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

•

Significant underperformance relative to historical or projected future operating results;



•

Significant changes in the manner of use of the assets or the strategy for our overall business;



•

Significant decrease in the market value of the assets; and



•

Significant negative industry or economic trends.

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

REVENUE

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

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

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

Licenses

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

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

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

Maintenance

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

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

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

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

Consulting and Training

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

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

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

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

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Revenue by Segment

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

•

Americas, which includes our U.S. operations as well as our operations in Canada, Mexico and South America; and



•

EMEA/AP, which includes our operations in Europe, the Middle East, Africa and the Asia Pacific Region.

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

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

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

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

COSTS AND EXPENSES

Cost of Licenses

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

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

Cost of Maintenance

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

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

Cost of Consulting and Training

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

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

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Sales and Marketing

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

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

Research and Development

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

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

General and Administrative

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

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

Amortization of Intangible Assets

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

Restructuring and Other

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

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

Foreign Currency Transaction Gains (Losses), Net

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

Reorganization Items, Net

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

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

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

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

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Interest Income

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

Interest Expense

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

Other Income

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

Income Taxes

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

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

Discontinued Operations

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

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

REVENUE

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

Predecessor Company

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

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Successor Company

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

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

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

Licenses

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

Predecessor Company

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

Successor Company

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

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

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

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

Maintenance

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

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

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

Predecessor Company

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

Successor Company

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

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

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

Consulting and Training

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

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

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

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

Revenue by Segment

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

•

Americas, which includes our U.S. operations as well as our operations in Canada, Mexico and South America; and



•

EMEA/AP, which includes our operations in Europe, the Middle East, Africa and the Asia Pacific Region.

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