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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-2222209
PEREGRINE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3773312
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(858) 481-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
YES X NO
-- --
The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of June 30, 1999 was 49,666,638.
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PEREGRINE SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
March 31, 1999........................................................................ 3
Condensed Consolidated Statements of Operations for the Three Months Ended
June 30, 1999 and 1998 (unaudited).................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 1999 and 1998 (unaudited).................................................... 5
Notes to condensed Consolidated Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders.................................... 19
Item 6. Exhibits and Reports on Form 8-K....................................................... 19
Signatures....................................................................................... 20
</TABLE>
2
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PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEREGRINE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1999
--------- ---------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash, cash equivalents, and short-term investments..................... $ 23,545 $ 18,097
Accounts receivable, net of allowance for doubtful accounts of $1,248
and $1,355, respectively......................................... 38,947 43,737
Other current assets................................................... 16,168 18,461
------ ------
Total current assets............................................. 78,660 80,295
Property and equipment, net............................................ 15,895 18,206
Intangible assets and other, net....................................... 113,158 129,373
------- -------
$207,713 $227,874
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 6,795 $ 7,045
Accrued expenses.................................................... 26,460 23,594
Deferred revenue.................................................... 20,048 21,923
Current portion of long-term debt................................... 55 52
----------- -----------
Total current liabilities........................................ 53,358 52,614
Long-term debt, net of current portion................................. 594 554
Deferred revenue, net of current portion............................... 2,980 2,434
----- -----
Total liabilities................................................ 56,932 55,602
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Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no
shares issued or outstanding..................................... - -
Common stock, $0.001 par value, 200,000,000 shares authorized,
48,553,000 and 49,666,638 shares issued and outstanding,
respectively..................................................... 49 50
Additional paid-in capital.......................................... 193,787 221,574
Accumulated deficit................................................. (39,793) (44,634)
Unearned portion of deferred compensation........................... (1,019) (933)
Cumulative translation adjustment................................... (518) (775)
Treasury stock, at cost............................................. (1,725) (3,010)
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Total stockholders' equity..................................... 150,781 172,272
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$207,713 $227,874
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
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PEREGRINE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------
1998 1999
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<S> <C> <C>
Revenues:
Licenses.............................................................. $13,882 $32,092
Services.............................................................. 7,868 19,513
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Total revenues..................................................... 21,750 51,605
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Costs and Expenses:
Cost of licenses...................................................... 71 443
Cost of services...................................................... 4,455 12,236
Sales and marketing................................................... 8,142 19,101
Research and development.............................................. 2,393 5,450
General and administrative............................................ 1,787 3,878
Amortization of intangible assets..................................... 1,584 7,791
Acquired in-process research and development costs.................... - 4,194
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Total costs and expenses........................................... 18,432 53,093
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Income (loss) from operations............................................ 3,318 (1,488)
Interest income, net................................................. 260 86
---------- --------
Income (loss) from operations before income taxes........................ 3,578 (1,402)
Income taxes............................................................. 1,742 3,439
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Net income (loss)..................................................... $ 1,836 $(4,841)
======== =======
Net income (loss) per share - basic:
Net income (loss) per share........................................... $ 0.05 $ (0.10)
========== ========
Shares used in computation............................................ 38,470 49,646
========= ========
Net income (loss) per share - diluted:
Net income (loss) per share........................................... $ 0.04 $ (0.10)
========== ========
Shares used in computation............................................ 40,956 49,646
========== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
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PEREGRINE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1999
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<S> <C> <C>
Cash flow from operating activities:
Net income (loss).......................................... $ 1,836 $ (4,841)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 2,045 8,473
Acquired in-process research and development costs......... - 4,194
Increase (decrease) in cash resulting from changes, net of
business acquired, in:
Accounts receivable................................. (1,168) (4,143)
Other current assets................................ (2,148) (2,230)
Accounts payable...................................... 2,014 108
Accrued expenses...................................... (189) (7,032)
Deferred revenue...................................... (1,271) 680
Other current assets.................................. 28 (1,035)
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Net cash provided by (used in) operating activities 1,147 (5,826)
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Cash flows from investing activities:
Purchases of short-term investments..................... (27,573) -
Maturities of short-term investments.................... 26,800 2,000
Purchases of property and equipment..................... (2,191) (2,551)
Equity investments and other............................ - (451)
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Net cash used in investing activities............. (2,964) (1,002)
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Cash flows from financing activities:
Repayments of long-term debt............................ (417) (43)
Issuance of common stock................................ 1,356 4,965
Treasury stock purchased................................ (809) (1,285)
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Net cash provided by financing activities............. 130 3,637
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Effect of exchange rate changes on cash....................... (47) (257)
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Net (decrease) in cash and cash equivalents................... (1,734) (3,448)
Cash and cash equivalents, beginning of period................ 14,950 21,545
--------- -------
Cash and cash equivalents, end of period...................... $13,216 $18,097
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest............................................ $ 5 $ 7
Income taxes........................................ $ 20 $ 84
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
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PEREGRINE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of June 30,
1999, the condensed consolidated statements of operations for the three month
periods ended June 30, 1999 and 1998, and the condensed consolidated statements
of cash flows for the three month periods ended June 30, 1999 and 1998 have been
prepared by Peregrine Systems, Inc. (unless otherwise noted, "Peregrine," "we,"
"PSI," "us," or "our" refers to Peregrine Systems, Inc.) and have not been
audited. These financial statements, in our opinion, include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position, results of operations and cash flows for all periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto included in our Annual Report on Form
10-K filed for the year ended March 31, 1999, which provides further information
regarding Peregrine's significant accounting policies and other financial and
operating information. Interim operating results are not necessarily indicative
of operating results for the full year or any other future period. The
consolidated condensed financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
NOTE 2. EARNINGS PER SHARE
Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding. Diluted net income (loss) per share
is computed using the weighted average number of common shares and common share
equivalents outstanding during the period. Dilutive common share equivalents
consist of employee stock options using the treasury stock and dilutive
if-converted methods.
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
1998 1999
-------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Numerator:
Net income (loss)....................................................... $ 1,836 $ (4,841)
======= ========
Denominator:
Denominator for basic net income (loss) per share, weighted average shares 38,470 49,646
Effect of dilutive securities:
Employee stock options................................................... 2,486 -
------- --------
Dilutive potential common shares......................................... 40,956 49,646
Denominator for diluted net income (loss) per share...................... 40,956 49,646
====== =======
Net income (loss) per share - basic...................................... $ 0.05 $ (0.10)
======= =========
Net income (loss) per share - diluted.................................... $ 0.04 $ (0.10)
======= =========
</TABLE>
6
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NOTE 3. ACQUISITION
On April 2, 1999, we completed the acquisition of F.Print UK Ltd.
("FPrint"), a developer of desktop inventory and asset discovery software.
Peregrine issued 754,231 shares of our common stock and $1.3 million in cash for
all of the outstanding shares of FPrint for a total purchase price, including
merger costs, of $26.2 million. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the assets, including acquired
in-process research and development costs, and liabilities, were recorded based
on their fair values at the date of acquisition. The results of FPrint's
operations have been included in our financial statements for the period
subsequent to acquisition and did not have a material impact on Peregrine's
results of operations.
NOTE 4. SUBSEQUENT EVENT
In July 1999, we entered into a $20 million senior credit facility for
a term of three years with a syndicate of financial institutions. Borrowings
under the credit facility will be secured by substantially all assets and shall
bear interest at a rate equal to LIBOR plus the applicable margin rate. The
proceeds of the senior credit facility shall be used for general corporate
purposes, including acquisitions.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THIS "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS REPORT.
OVERVIEW
Peregrine develops, markets, and supports an integrated suite of
applications that automates the management of complex, enterprise-wide
information and infrastructure assets.
During fiscal 1998, we determined that customer needs required a more
comprehensive solution for control and management of their infrastructure
assets, including availability of assets, minimizing investments and expense,
consolidating data, and interfacing to enterprise applications. Accordingly, we
refocused our marketing strategy and product positioning to focus on this
Infrastructure Management strategy. Our focus on the Infrastructure Management
strategy, rapid growth, and acquisitions have resulted in continuing efforts to
redefine the product development strategy, establish a comprehensive marketing
strategy, and strengthen our financial and budgeting processes.
Executing on that strategy, in September 1997 we acquired United
Software, Inc., including its wholly-owned subsidiary Apsylog S.A. ("Apsylog").
During fiscal 1999, we continued to execute on our Infrastructure Management
strategy, making several strategic acquisitions to expand our product offerings.
In July 1998, we acquired Innovative Tech Systems, Inc. ("Innovative") providing
us with software products and experience to address facilities infrastructure
management. In September 1998, we completed the acquisition of certain
technology and other assets and liabilities from International Software
Solutions and related persons and entities (collectively "ISS"), expanding our
information technology infrastructure management offerings. In March 1999, we
entered into the fleet infrastructure management market with the acquisition of
Prototype, Inc. ("Prototype"). Peregrine's software products are currently
available on most major computer operating platforms, however for the past two
years over 85% of our license sales have been attributable to UNIX and Windows
NT platforms.
Our revenues are derived from product licensing and services. Services
are comprised of maintenance, professional services, and training. License fees
are generally due upon the granting of the license and typically include a
one-year maintenance period as part of the license agreement. We also provide
ongoing maintenance services, which include technical support and product
enhancements, for an annual fee.
Revenues from license agreements are recognized currently, provided
that all of the following conditions are met: a noncancelable license agreement
has been signed, the product has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from post-contract
support services are recognized ratably over the term of the support period,
generally one year. Maintenance revenues which are bundled with license
agreements are unbundled using vendor-specific objective evidence. Consulting
revenues are primarily related to implementation services most often performed
on a time and material basis under separate service agreements for the
installation of Peregrine's products. Revenues from consulting and training
services are recognized as the respective services are performed.
A substantial portion of our license revenue is derived from the sale
of our Infrastructure Management applications and is expected to account for a
substantial portion of revenues for the foreseeable future. As a result, our
future operating results are dependent upon continued market acceptance of the
Infrastructure Management strategy and applications, including future product
enhancements. Factors adversely affecting the pricing of, demand for or market
acceptance of the Infrastructure Management applications, such as competition or
technological change, could have a material adverse effect on our business,
operating results, and financial condition.
8
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We conduct business overseas in a number of foreign currencies,
principally in Europe. These currencies have been relatively stable against the
U.S. dollar for the past several years. We currently derive no material revenues
from highly inflationary economies, we are expanding our presence in
international markets outside Europe, including the Pacific Rim and Latin
America, whose currencies have tended to fluctuate more relative to the U.S.
Dollar. There can be no assurance that European currencies will remain stable
relative to the U.S. dollar or that future fluctuations in the value of foreign
currencies will not have a material adverse effect on our business, operating
results and financial condition. Currently, we mitigate our currency risks
through our foreign currency forward hedging program. The hedging program
consists primarily of using forward-rate currency contracts of approximately one
month in length to minimize the short-term impact of foreign currency
fluctuations. Currency contracts are in accordance with SFAS No. 52 and receive
hedge accounting treatment. Accordingly, to the extent properly hedged by
obligations denominated in local currencies, our foreign operations remain
subject to the risks of future foreign currency fluctuations, and there can be
no assurances that our hedging activities will adequately protect Peregrine
against such risk.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
consolidated statements of operations data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
1998 1999
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................................... 63.8% 62.2%
Services............................................... 36.2 37.8
----- -----
Total revenues....................................... 100.0 100.0
----- -----
Costs and expenses:
Cost of licenses....................................... 0.4 0.9
Cost of services....................................... 20.5 23.7
Sales and marketing.................................... 37.4 37.0
Research and development............................... 11.0 10.6
General and administrative............................. 8.2 7.5
Amortization of intangible assets...................... 7.3 15.1
Acquired in-process research and development costs..... - 8.1
----- -----
Total costs and expenses............................. 84.8 102.9
----- -----
Income (loss) from operations............................. 15.2 (2.9)
Interest income, net...................................... 1.2 0.2
----- -----
Income (loss) from operations before income taxes......... 16.4 (2.7)
----- -----
Income tax................................................ 8.0 6.7
----- -----
Net income (loss)......................................... 8.4% (9.4)%
----- -----
----- -----
</TABLE>
THREE MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
REVENUES
Total revenues were $51.6 million and $21.8 million in the first
quarter of fiscal 2000 and 1999, respectively, representing a period-to-period
increase of 137%.
LICENSES. License revenues were $32.1 million and $13.9 million in the
first quarter of fiscal 2000 and 1999, respectively, representing 62% and 64% of
total revenues in the respective periods. The increases in license revenues are
attributable to increased demand for new licenses of our Infrastructure
Management applications, additional application seats purchased by existing
customers, additional applications purchased by existing customers, higher
average transaction sizes, more effective corporate marketing programs, the
expansion of our domestic and international sales forces, and acquisitions.
9
<PAGE>
SERVICES. Services revenues were $19.5 million and $7.9 million in the
first quarter of fiscal 2000 and 1999, respectively, representing 38% and 36% of
total revenues in the respective periods. The percentage and dollar increases
are primarily attributable to an increased number of consulting engagements
related to implementation of software from initial license agreements.
COSTS AND EXPENSES
COST OF LICENSES. Cost of licenses were $443,000 and $71,000 in the
first quarter of fiscal 2000 and 1999, respectively, each representing less than
1% of total license revenues in the respective periods.
COST OF SERVICES. Cost of services revenues were $12.2 million and $4.5
million in the first quarter of fiscal 2000 and 1999, respectively, representing
63% and 57% of total service revenues in the respective periods. The dollar
increase is primarily attributable to an increase in professional services
personnel. Cost of services increased as a percentage of related revenues due
largely to a greater percentage growth in lower margin consulting revenue
compared to support revenue.
SALES AND MARKETING. Sales and marketing expenses were $19.1 million
and $8.1 million in the first quarter of fiscal 2000 and 1999, respectively,
representing 37% of total revenues in both periods. The dollar increase in sales
and marketing expenses is attributable to the significant expansion of both the
North American and international sales forces, increase in marketing personnel,
the effect of combining the sales and marketing operations of the acquisitions
made during fiscal 2000 and 1999, and the effect of moderate operating expense
increases. If we experience a decrease in sales force productivity or for any
other reason a decline in revenues, it is likely that operating margins will
decline as well.
RESEARCH AND DEVELOPMENT. Research and development expenses were $5.5
million and $2.4 million in the first quarter of fiscal 2000 and 1999,
respectively, representing 11% of total revenues in both periods. The dollar
increase from the first quarter of fiscal 1999 to the first quarter of fiscal
2000 is due primarily to an increase in the number of personnel conducting
research and development and quality assurance efforts.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.9 million and $1.8 million in the first quarter of fiscal 2000 and 1999,
respectively, representing 8% of total revenues in both periods. The dollar
increase from fiscal 1999 to 2000 is primarily attributable to costs associated
with administrative personnel additions to support our growth.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles of $7.8
million and $1.6 million were incurred in the first quarter of fiscal 2000 and
1999, respectively, representing 15% and 7% of total revenues in the respective
periods. The dollar and percentage increases are attributable to the
amortization of intangible assets which relate to acquisitions made during
fiscal 2000 and 1999.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. The acquired
in-process research and development costs of $4.2 million incurred in the first
quarter of fiscal 2000 relate to the acquisition of FPrint.
PROVISION FOR INCOME TAXES
Income tax expense for the first fiscal quarter of 2000 amounted to
$3.4 million compared with $1.7 million in the comparable quarter of fiscal
1999. This increase results from the $5.4 million dollar increase in income
before taxes and excluding acquired in-process research and development costs
and amortization of intangibles. Excluding the effect of the amortization of
intangible assets and acquired in-process research and development costs, the
effective tax rates for the first quarters of fiscal 2000 and fiscal 1999 were
33% and 34%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our decrease in cash from March 1999 to June 1999 was primarily
attributable to capital expenditures for infrastructure associated with our
growth, acquisitions, and other equity investments. Separately, future lease
commitments totaling $124 million for our recently signed campus leases will
commence prior to fiscal year end. The leases and commitments cover an
approximately twelve year period.
10
<PAGE>
During July 1999 we entered into a $20 million senior credit facility
for a term of three years with a syndicate of financial institutions. The
facility is available for general corporate purposes including acquisitions. We
believe that our current cash, short-term investments, cash flow from
operations, and the available facility will be sufficient to meet our working
capital requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent we experience
growth in the future, our operating and investing activities may use cash.
Consequently, any such future growth may require us to obtain additional equity
or debt financing, which may not be available on commercially reasonable terms
or which may be dilutive.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING
STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE EVENTS. THESE
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:
HISTORY OF OPERATING LOSSES. Through June 30, 1999, we have recorded
cumulative net losses of approximately $44.6 million, including approximately
$37.2 million related to the write-off of acquired in-process research and
development in connection with acquisitions. Our applications have changed
substantially since the mid-1990s. In addition, we have acquired or developed a
significant number of applications bringing our total number of applications to
in excess of 20 in the last three years. As a result, prediction of our future
operating results is difficult, if not impossible. Although we achieved
profitability during the years ended March 31, 1998 and 1999 (excluding the
impact of the $33.0 million charge related to acquired in-process research and
development in connection with the acquisitions), there can be no assurance that
we will be able to remain profitable on a quarterly or annual basis. In
addition, we do not believe that the growth in revenues we have experienced in
recent years is indicative of future revenue growth or future operating results.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; LENGTHY SALES CYCLE;
SEASONALITY. Our quarterly operating results have varied significantly in the
past and may vary significantly in the future depending upon a number of
factors, many of which are beyond our control. These factors include, among
others, our ability to develop, introduce and market new and enhanced versions
of our software on a timely basis; market demand for the Company's software; the
size, timing and contractual terms of significant orders; the timing and
significance of new software product announcements or releases by Peregrine or
our competitors; changes in our pricing policies or out competitors; changes in
our business strategies; budgeting cycles of our potential customers; changes in
the mix of software products and services sold; reliance on indirect sales
forces like systems integrators and channels; changes in the mix of revenues
attributable to domestic and international sales; the impact of acquisitions of
competitors; seasonal trends; the cancellations of licenses or maintenance
agreements; product life cycles; software defects and other product quality
problems; and personnel changes. We have often recognized a substantial portion
of our revenues in the last month or weeks of a quarter. As a result, license
revenues in any quarter are substantially dependent on orders booked and shipped
in the last month or weeks of that quarter. Due to the foregoing factors,
quarterly revenues and operating results are not predictable with any
significant degree of accuracy. In particular, the timing of revenue recognition
can be affected by many factors, including the timing of contract execution and
delivery. The timing between initial customer contact and fulfillment of
criteria for revenue recognition can be lengthy and unpredictable, and revenues
in any given quarter can be adversely affected as a result of such
unpredictability. In the event of any downturn in potential customers'
businesses or the economy in general, planned purchases of our products may be
deferred or canceled, which could have a material adverse effect on our
business, operating results and financial condition.
The license of our software generally requires us to engage in a sales
cycle that typically takes approximately six to nine months to complete. The
length of the sales cycle may vary depending on a number of factors over which
we may have little or no control, including the size of the transaction and the
level of competition which we encounter in our selling activities. During the
sales cycle, we typically provide a significant level of education to
prospective customers regarding the use and benefits of our products. Any delay
in the sales cycle of a large license or a number of smaller licenses could have
a material adverse effect on our business, operating results and financial
condition.
11
<PAGE>
Our business has experienced and is expected to continue to experience
seasonality. Our revenues and operating results in our December quarter
typically benefit from purchase decisions made by the large concentration of
customers with calendar year-end budgeting requirements, while revenues and
operating results in the March quarter typically benefit from the efforts of our
sales force to meet fiscal year-end sales quotas. In addition, we are currently
attempting to expand our presence in international markets, including Europe,
the Pacific Rim, and Latin America. International revenues comprise a
significant percentage of our total revenues, and we may experience additional
variability in demand associated with seasonal buying patterns in such foreign
markets.
INTEGRATION OF INNOVATIVE TECH SYSTEMS INTO PEREGRINE'S BUSINESS. The
acquisition of Innovative, which was completed in July 1998, will require
continuing integration of Innovative into Peregrine. Prior to the acquisition,
Innovative and Peregrine were two geographically separated companies that had
been operated independently. We believe that the acquisition of Innovative will
further our strategy to provide customers with a complete infrastructure
management software solution. However, difficulties may be encountered in
integrating the product offerings, operations and technology of Innovative with
those of Peregrine. We may not be able to successfully complete technology
development or market new products currently in development or develop any new
products that relate to the Innovative products. Anticipated marketing,
distribution, or other operational benefits and efficiencies from the
acquisition of Innovative may not be achieved. The morale of Peregrine and
Innovative employees may be adversely affected as a result of the acquisition
and the resulting integration.
Integrating Innovative into our existing business may prove difficult
given that the two companies are geographically separated, have different
corporate cultures and have personnel with different business backgrounds. We
may not be able to retain a sufficient number of Innovative's key employees.
Additionally, we may have problems combining the engineering teams from
Innovative with our existing teams so that such teams will successfully
cooperate and realize any technological benefits from the combined businesses.
Sales of Innovative products may not be markedly enhanced by the broader
distribution and marketing opportunities available through Peregrine. We may not
be able to benefit from the broader product offerings available as a result of
the acquisition or from any other anticipated benefits. Any failure to integrate
the businesses and technologies of the companies successfully or any failure to
realize the anticipated benefits of the acquisition could materially adversely
affect our business, results of operations, and financial condition.
In addition, if our management devotes too much time and attention to
the integration of Innovative into our existing business, this also could
materially adversely affect our business, operating results, and financial
condition.
RISKS ASSOCIATED WITH PEREGRINE ACQUISITIONS. Since September 1997, we
have completed five acquisitions. In the future Peregrine may make acquisitions
of, or large investments in, other businesses that offer products, services, and
technologies that further our goal of providing integrated infrastructure
management software solutions to businesses. Past acquisitions and any future
acquisitions or investments that Peregrine may complete present risks commonly
encountered with these types of transactions. The following are examples of such
risks:
- difficulty in combining the technology, operations, or work force of
the acquired business
- disruption of on-going businesses
- difficulty in realizing the potential financial and strategic
position of Peregrine through the successful integration of the
acquired business
- difficulty in maintaining uniform standards, controls, procedures,
and policies - possible impairment of relationships with employees
and clients as a result of any integration of new businesses and
management personnel
- difficulty in adding significant numbers of new employees, including
training, evaluation, and coordination of effort of all employees
towards our corporate mission
- diversion of management attention
- difficulty in obtaining preferred acquisition accounting treatment
for these types of transactions; likelihood that future acquisitions
will require purchase accounting resulting in increased intangible
assets and goodwill, substantial amortization of such assets and
goodwill, and a negative impact on reported earnings
- potential dilutive effect on earnings
12
<PAGE>
The risks described above, either individually or in the aggregate,
could materially adversely affect our business, operating results, and financial
condition. Future acquisitions, if any, could provide for consideration to be
paid in cash, shares of Peregrine common stock, or a combination of cash and
Peregrine common stock. However, we may not be able to complete any such
additional acquisitions in the future.
DEPENDENCE ON MARKET ACCEPTANCE OF INFRASTRUCTURE MANAGEMENT SOFTWARE
SOLUTIONS. Until recently, our product strategy has focused on integrating a
broad array of IT management applications with other traditional internal help
desk applications to create an Enterprise Service Desk capable of managing
multiple aspects of an enterprise's IT structure. In recent years, we have
broadened our product line beyond traditional IT infrastructure management to
offer a more comprehensive product suite capable of managing a business
enterprise's IT infrastructure, physical plant and facilities, communications
infrastructure, distribution systems, and fleets.
In recent years, the market for enterprise software solutions has been
characterized by rapid technological change, frequent new product announcements
and introductions, and evolving industry standards. In response to advances in
technology, customer requirements have become increasingly complex, resulting in
industry consolidation of product lines offering similar or related
functionality. In particular, we believe that a market for integrated
enterprise-wide infrastructure management solutions, including applications for
IT management, asset management, building and facilities management,
communications resource management, distribution systems management, and fleet
management, is evolving from existing requirements for specific IT management
solutions. However, the existence of such a market is unproven. If such a market
does not fully develop, this would have a materially adverse effect on our
business, results of operations, or financial condition. Regardless of the
development of a market for integrated Infrastructure Management solutions,
factors adversely affecting the pricing of, demand for, or market acceptance of
one or more of our Infrastructure Management applications, could have a material
adverse effect on our business, results of operations, and financial condition.
As a result of rapid technology change in our industry, our position
in existing markets or other markets that we may enter can be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate. Our
growth and future financial performance depends in part upon our ability to
improve existing products, develop and introduce new products that keep pace
with technological advances, meet changing customer needs, and respond to
competitive products. Our product development efforts will continue to require
substantial investments. We may not have sufficient resources to make the
necessary investments.
DEPENDENCE ON KEY PERSONNEL. Our success will depend to a significant
extent on the continued service of our senior management and certain other key
employees, including selected sales, consulting, technical and marketing
personnel. Few of our employees, including senior management, are bound by an
employment or noncompetition agreement. In addition, we do not generally
maintain key man life insurance on any employee. The loss of the services of one
or more of our executive officers or key employees or the decision of one or
more of such officers or employees to join a competitor or otherwise compete
directly or indirectly with us could have a material adverse effect on our
business, operating results and financial condition.
ABILITY TO RECRUIT PERSONNEL.
EXECUTIVE OFFICERS AND KEY PERSONNEL. Our future success will likely
depend in large part on our ability to attract and retain additional highly
skilled technical, sales, management, and marketing personnel. Competition for
such personnel in the computer software industry is intense, and in the past we
have experienced difficulty in recruiting qualified personnel. New employees
generally require substantial training in the use of our products. We may not
succeed in attracting and retaining such personnel. If we do not, our business,
operating results, and financial condition could be materially adversely
affected.
FOREIGN EMPLOYEES. To achieve our business objectives we must be able
to recruit and employ skilled technical professionals from other countries. Any
future shortage of qualified technical personnel who are either United States
citizens or otherwise eligible to work in the United States could increase our
reliance on foreign professionals. Many technology companies have already begun
to experience shortages of such personnel. Any failure to attract and retain
qualified personnel as necessary, including as a result of limitations imposed
by federal immigration laws and the availability of visas issued thereunder,
could materially adversely affect our business and operating results. Foreign
13
<PAGE>
computer professionals such as those employed by us typically become eligible
for employment in the United States by obtaining a nonimmigrant visa. The number
of nonimmigrant visas is limited by federal immigration law. Currently, Congress
is considering approving an increase in the number of visas available. We cannot
predict whether such legislation will ultimately become law. We also cannot
predict what effect any future changes in the federal immigration laws will have
on our business, operating results, or financial condition.
COMPETITION. The market for our products is highly competitive and
diverse. The technology for Infrastructure Management software products can
change rapidly. New products are frequently introduced and existing products are
continually enhanced. Competitors vary in size and in the scope and breadth of
the products and services offered.
EXISTING COMPETITION. We have faced competition from a number of
sources, including:
- providers of internal help desk software applications such as Remedy
Corporation and Software Artistry, Inc. (now a division of Tivoli
Systems, Inc.)
- customer interaction software companies such as Clarify, Inc. and The
Vantive Corporation, whose products include internal help desk
applications
- information technology and systems management companies such as IBM,
Computer Associates International, Inc., Network Associates, Inc.,
and Hewlett-Packard Company
- providers of asset management and facilities management software
- the internal information technology departments of those companies
with infrastructure management needs
FUTURE COMPETITION. Because competitors can easily penetrate the
software market, we anticipate additional competition from other established and
new companies as the market for enterprise Infrastructure Management
applications develops. In addition, current and potential competitors have
established or may in the future establish cooperative relationships among
themselves or with third parties. Large software companies may acquire or
establish alliances with our smaller competitors. We expect that the software
industry will continue to consolidate. It is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.
Our ability to sell our products depends in part on their compatibility
with and support by providers of system management products, including Tivoli,
Computer Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have
recently acquired providers of help desk software products. These providers of
system management products may decide to close their systems to competing
vendors like Peregrine. They may also decide to bundle their infrastructure
management and/or help-desk software products with other products for enterprise
licenses for promotional purposes or as part of a long-term pricing strategy. If
that were to happen, our ability to sell our products could be adversely
affected. Increased competition may result from acquisitions of help desk and
other infrastructure management software vendors by system management companies.
The results of increased competition including price reductions of our products,
reduced gross margins, and reduction of market share, could materially adversely
affect our business, operating results, and financial condition.
GENERAL COMPETITION. Some of our current and many of our potential
competitors have much greater financial, technical, marketing, and other
resources than Peregrine. As a result, they may be able to respond more quickly
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 than we can. We may not be able to compete successfully against
current and future competitors. In addition, competitive pressures faced by
Peregrine may materially adversely affect our business, operating results, and
financial condition.
MANAGEMENT OF GROWTH. We have grown significantly in recent periods,
with total revenues increasing from $35.0 million in fiscal 1997 to $61.9
million in fiscal 1998, and to $138.1 million in fiscal 1999.
If we achieve our growth plans, including the integration of
technology acquired in acquisitions, such growth may burden our operating and
financial systems. This burden will require large amounts of senior
management attention and will require the use of other Peregrine resources.
Our ability to compete effectively and to manage future growth (and our
future operating results) will depend in part on our ability to implement and
expand operational, customer support, and financial control systems and to
expand, train, and manage our employees. In particular, in connection with
the acquisitions, we will be required to integrate additional personnel and
to augment or replace existing financial and management systems. Such
integration could disrupt our operations and could adversely affect our
financial results. We may not be able to augment or
14
<PAGE>
improve existing systems and controls or implement new systems and controls
in response to future growth, if any. Any failure to do so could materially
adversely affect our business, operating results, and financial condition.
CAPITAL COMMITMENT. In June 1999, we entered into a series of leases
providing approximately 540,000 square feet of office space, including an option
for approximately 118,000 square feet of space. Even excluding the exercise of
the option, the leases require minimum lease payments of approximately $124
million over the terms of the leases, approximately twelve years. This office
space is intended for a five building (including the option) campus setting in
San Diego, CA. Construction has commenced on the first building and the final
building is scheduled for delivery in 2003. The capital commitments,
construction oversight, and moving of personnel and facilities involved in a
transaction of this type and magnitude present numerous risks involving
estimation of future events, including growth of our business, and execution of
the transaction. Examples of the risks involved include: failure to properly
estimate the growth of our business in the future; inability to sublease excess
office space that may result; disruption of operations; and inability to match
substantially-fixed lease payments with fluctuating revenues.
EXPANSION OF DISTRIBUTION CHANNELS. We sell our products through our
direct sales force and a limited number of distributors and we provide
maintenance and support services through our technical and customer support
staff. We plan to continue to invest large amounts of resources to our direct
sales force, particularly in North America where we have recently opened several
new sales offices. In addition, we are developing additional sales and marketing
channels through system integrators and original equipment manufacturers and
other channel partners. We may not be able to attract channel partners that will
be able to market our products effectively or that will be qualified to provide
timely and cost-effective customer support and service. If we establish
distribution through such indirect channels, our agreements with channel
partners may not be exclusive. As a result, such channel partners may also carry
competing product lines. If we do not establish and maintain such distribution
relationships, this could materially adversely affect our business, operating
results, and financial condition.
INTERNATIONAL OPERATIONS. International sales represented approximately
36% of our total revenue both in fiscal 1998 and fiscal 1999. We currently have
international sales offices in Amsterdam, Copenhagen, Frankfurt, London, Paris,
and Sydney. Our continued growth and profitability will require continued
expansion of our international operations, particularly in Europe, Latin
America, and the Pacific Rim. Accordingly, we intend to expand our current
international operations and enter additional international markets. Such
expansion will require significant management attention and financial resources.
Our international operations are subject to a variety of risks associated with
conducting business internationally, including the following:
- fluctuations in currency exchange rates
- longer payment cycles
- difficulties in staffing and managing international operations
- problems in collecting accounts receivable
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
- increases in tariffs, duties, price controls, or other restrictions
on foreign currencies trade barriers imposed by foreign countries
These factors could materially adversely affect our business, operating
results, and financial condition. We have only limited experience in developing
local-language versions of our products and marketing and distributing its
products internationally. We may not be able to successfully translate, market,
sell and deliver our products internationally. If we are unable to expand our
international operations successfully and in a timely manner, our business,
operating results, and financial condition could be adversely affected.
Recent instability in the Asian-Pacific economies and financial markets
could adversely affect our business, operating results, and financial condition
in future quarters as well.
CURRENCY FLUCTUATION. A large portion of our business is conducted in
foreign currencies. Fluctuations in the value of foreign currencies relative to
the U.S. dollar have caused and will continue to cause currency transaction
gains and losses. We cannot predict the effect of exchange rate fluctuations
upon future operating results. We may experience currency losses in the future.
We currently maintain a foreign exchange hedging program, consisting principally
of purchases of one month forward-rate currency contracts. However, our hedging
activities may not adequately protect us against the risks associated with
foreign currency fluctuations.
15
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ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION. On January 1, 1999,
certain member states of the European Economic Community (the "EEC") fixed their
respective currencies to a new currency, the euro. On that date, the euro became
a functional legal currency within these countries. During the three years
beginning on January 1, 1999, business in these EEC member states will be
conducted in both the existing national currency, such as the French franc or
deutsche mark, and the euro. Companies operating in or conducting business in
EEC member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling the
existing currencies, as well as the euro. Our AssetCenter product was originally
developed for the European market and is capable of managing currency data
measured in euros. We are still assessing the impact that the euro will have on
our internal systems and our other products. We will take corrective actions
based on the results of such assessment. We have not yet determined the costs
related to this problem. Issues related to the introduction of the euro may
materially adversely affect our business, operating results, and financial
condition.
CONTROL BY EXISTING STOCKHOLDERS. Based on shares outstanding as of May
31, 1999, Peregrine's officers, directors, and entities directly related to such
individuals together beneficially own approximately 28.6% of the outstanding
shares of Peregrine common stock. In particular, John J. Moores, Chairman of
Peregrine's board of directors, owns approximately 22.3% of the outstanding
shares. As a result, Peregrine's officers and directors will be able to control
most matters requiring stockholder approval, including the election of directors
and the approval of mergers, consolidations, and sales of all or substantially
all of the assets of Peregrine. Such concentrated share ownership may prevent or
discourage potential bids to acquire Peregrine unless the terms of acquisition
are approved by such officers and directors.
PRODUCT DEVELOPMENT DELAYS. We have experienced product development
delays in the past and may experience delays in the future. Difficulties in
product development could delay or prevent the successful introduction or
marketing of new or improved products. Any such new or improved products may not
achieve market acceptance. Our current or future products may not conform to
industry requirements. If we are unable, for technological or other reasons, to
develop and introduce new and improved products in a timely manner, our
business, operating results, and financial condition could be adversely
affected.
Because our software products are complex, these products may contain
errors that could be detected at any point in a product's life cycle. In the
past we have discovered software errors in certain of our products and have
experienced delays in shipment of our products during the period required to
correct these errors. Despite testing by Peregrine and by current and potential
customers, errors in our products may be found in the future. Detection of such
errors may result in, among other things, loss of, or delay in, market
acceptance and sales of our products, diversion of development resources, injury
to our reputation, or increased service and warranty costs. If any of these
results were to occur, our business, operating results, and financial condition
could be materially adversely affected.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. Our success will be heavily
dependent upon proprietary technology. We rely primarily on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect our proprietary rights. Such laws provide only
limited protection. Despite precautions that we take, it may be possible for
unauthorized third parties to copy aspects of our current or future products or
to obtain and use information that we regard as proprietary. In particular, we
may provide our licensees with access to our data model and other proprietary
information underlying our licensed applications. Such means of protecting our
proprietary rights may not be adequate. Additionally, our competitors may
independently develop similar or superior technology. Policing unauthorized use
of software is difficult and, while we do not expect software piracy to be a
persistent problem, some foreign laws do not protect our proprietary rights to
the same extent as United States laws. Litigation may be necessary in the future
to enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Litigation
could result in substantial costs and diversion of resources to Peregrine and
could materially adversely affect our business, operating results, and financial
condition.
RISKS OF INFRINGEMENT. While we are not aware that any of our software
product offerings infringes the proprietary rights of third parties, third
parties may claim infringement with respect to our current or future products.
We expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the software
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays, or
require us to enter into royalty or licensing agreements. Royalty or license
agreements may not be available on acceptable terms or at all. As a result,
infringement claims could have a material adverse affect on our business,
operating results, and financial
16
<PAGE>
condition.
PRODUCT LIABILITY. Our license agreements with our customers typically
contain provisions designed to limit exposure to potential product liability
claims. Such limitation of liability provisions may, however, not be effective
under the laws of certain jurisdictions. Although we have not experienced any
product liability claims to date, the sale and support of our products entails
the risk of such claims. We may be subject to such claims in the future. A
product liability claim could materially adversely affect our business,
operating results, and financial condition.
UNDESIGNATED PREFERRED STOCK. Peregrine's board of directors has the
authority to issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the price, rights, preferences,
privileges, and restrictions of such preferred stock without any further vote or
action by Peregrine's stockholders. The issuance of preferred stock allows
Peregrine to have flexibility in connection with possible acquisitions and other
corporate purposes. However, the issuance of shares of preferred stock may delay
or prevent a change in control transaction without further action by the
Peregrine stockholders. As a result, the market price of the Peregrine common
stock and the voting and other rights of the holders of Peregrine common stock
may be adversely affected. The issuance of preferred stock may result in the
loss of voting control to others. Peregrine has no current plans to issue any
shares of preferred stock.
CHARTER PROVISIONS. Certain provisions of Peregrine's charter documents
eliminate the right of stockholders to act by written consent without a meeting
and specify certain procedures for nominating directors and submitting proposals
for consideration at stockholder meetings. Such provisions are intended to
increase the likelihood of continuity and stability in the composition of the
Peregrine board of directors and in the policies set by the board. These
provisions also discourage certain types of transactions which may involve an
actual or threatened change of control transaction. These provisions are
designed to reduce the vulnerability of Peregrine to an unsolicited acquisition
proposal. As a result, these provisions could discourage potential acquisition
proposals and could delay or prevent a change in control transaction. These
provisions are also intended to discourage certain tactics that may be used in
proxy fights. However, they could have the effect of discouraging others from
making tender offers for Peregrine's shares. As a result, these provisions may
prevent the market price of Peregrine common stock from reflecting the effects
of actual or rumored takeover attempts. These provisions may also prevent
changes in the management of Peregrine.
ANTITAKEOVER EFFECTS OF DELAWARE LAW. Peregrine is subject to the
antitakeover provisions of the Delaware General Corporation Law, which regulates
corporate acquisitions. The Delaware law prevents certain Delaware corporations,
including Peregrine, from engaging, under certain circumstances, in a "business
combination" with any "interested stockholder" for three years following the
date that such stockholder became an interested stockholder. For purposes of
Delaware law, a "business combination" includes, among other things, a merger or
consolidation involving Peregrine and the interested stockholder and the sale of
more than 10% of Peregrine's assets. In general, Delaware law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of a company and any entity or person affiliated
with or controlling or controlled by such entity or person. Under Delaware law,
a Delaware corporation may "opt out" of the antitakeover provisions. Peregrine
has not "opted out" of the antitakeover provisions of Delaware Law.
VOLATILITY OF TRADING PRICES. We completed the initial public offering
of Peregrine common stock in April 1997. Prior to April 1997 no public market
existed for Peregrine common stock. In the past, the market price of our common
stock has varied greatly and the volume of our common stock traded has
fluctuated greatly as well. We expect such fluctuation to continue. The
fluctuation result due to a number of factors including:
- any shortfall in revenues or net income from revenues or net income
expected by securities analysts
- announcements of new products by Peregrine or our competitors
- quarterly fluctuations in our financial results or the results of
other software companies, including those of our direct competitors
- changes in analysts' estimates of our financial performance, the
financial performance of our competitors, or the financial
performance of software companies in general
- general conditions in the software industry - changes in prices for
our products or the products of our competitors
- changes in our revenue growth rates or the growth rates of our
competitors
- sales of large blocks of the Peregrine common stock conditions in the
financial markets in general
17
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In addition, the stock market may from time to time experience extreme
price and volume fluctuations. Many technology companies in particular have
experienced such fluctuations. Often such fluctuations have been unrelated to
the operating performance of the specific companies. The market prices of our
common stock may experience significant fluctuations in the future.
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS. The markets
for our products are subject to rapid technological change, changing customer
needs, frequent new product introductions, and evolving industry standards that
may render existing products and services obsolete. As a result, our position in
our existing markets or other markets that it may enter could be eroded rapidly
by product advances. The life cycles of our products are difficult to estimate.
Our growth and future financial performance will depend in part upon our ability
to enhance existing applications, develop and introduce new applications that
keep pace with technological advances, meet changing customer requirements and
respond to competitive products. Our product development efforts are expected to
continue to require substantial investments. There can be no assurance that we
will have sufficient resources to make the necessary investments. We have in the
past experienced development delays, and there can be no assurance that we will
not experience such delays in the future. There can be no assurance that we will
not experience difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced products. In addition,
there can be no assurance that such products will achieve market acceptance, or
that our current or future products will conform to industry requirements. Our
inability, for technological or other reasons, to develop and introduce new and
enhanced products in a timely manner could have a material adverse effect on
business, results of operations, and financial condition.
Software products as complex as those we offer may contain errors that
may be detected at any point in a product's life cycle. We have in the past
discovered software errors in certain of our products and have experienced
delays in shipment of products during the period required to correct these
errors. There can be no assurance that, despite testing by us and by current and
potential customers, errors will not be found, resulting in loss of, or delay
in, market acceptance and sales, diversion of development resources, injury to
our reputation, or increased service and warranty costs, any of which could have
a material adverse effect on our business, results of operations, and financial
condition.
18
<PAGE>
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibits Exhibit Title
-------- -------------
27.1 Financial Data Schedule.
b) Reports on Form 8-K:
Peregrine filed a Current Report on Form 8-K in April 1999 in
connection with the acquisition of F.Print UK Ltd.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of San Diego, California, this
13th day of August, 1999.
PEREGRINE SYSTEMS, INC.
By /s/ David A. Farley
------------------------------------------
David A. Farley
Senior Vice President, Finance and
Administration and Chief Financial Officer
(Principal Financial Officer)
By /s/ Matthew C. Gless
------------------------------------------
Matthew C. Gless
Vice President, Finance
and Chief Accounting Officer
20
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