---

---

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

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FORM 10-Q

(MARK ONE)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NO. 000-25285

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SERENA SOFTWARE, INC.(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction of
incorporation or organization)

94-2669809(I.R.S. Employer Identification No.)


500 AIRPORT BOULEVARD, 2ND FLOOR, BURLINGAME, CALIFORNIA 94010-1904(Address of principal executive offices, including zip code)

650-696-1800(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 filing requirements for the past 90 days.
Yes /x/  No / /

The
number of shares of the registrant's Common Stock, par value $0.001, outstanding as of August 31, 2001 was 40,207,878.

---

---

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INDEX

|       |  |                                                                                                                                       |  | Page
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|       |  | PART I FINANCIAL INFORMATION                                                                                                          |  |     
|       |  |                                                                                                                                       |  |     
|Item 1 |  | Financial Statements:                                                                                                                 |  |     
|       |  | Condensed Consolidated Balance Sheets as of July 31, 2001 and January 31, 2001                                                        |  | 3   
|       |  | Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months and Six Months Ended July 31, 2001 and 2000 |  | 4   
|       |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2001 and 2000                                       |  | 5   
|       |  | Notes to Condensed Consolidated Financial Statements                                                                                  |  | 6   
|Item 2 |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                 |  | 8   
|Item 3 |  | Quantitative and Qualitative Disclosures About Market Risk                                                                            |  | 23  
|       |  | PART II OTHER INFORMATION                                                                                                             |  |     
|Item 1 |  | Legal Proceedings                                                                                                                     |  | 24  
|Item 2 |  | Change in Securities and Use of Proceeds                                                                                              |  | 24  
|Item 4 |  | Submission of Matters to a Vote of Security Holders                                                                                   |  | 24  
|Item 5 |  | Other Information                                                                                                                     |  | 24  
|Item 6 |  | Exhibits and Reports on Form 8-K                                                                                                      |  | 24  
|       |  | Signatures                                                                                                                            |  | 25  

2

---



PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SERENA SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                         |                                                                                                                                                                                    | July 31,
2001                              |           | January 31,
2001 |            
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ---------------- | -----------
|
|Current assets:                          |                                                                                                                                                                                    |                                            |           |                  |            
|                                         | Cash and cash equivalents                                                                                                                                                          |                                            | $         | 91,347,020       |            
|                                         | Short-term investments                                                                                                                                                             |                                            |           | 33,277,695       |            
|                                         | Accounts receivable, net of allowance of $804,370 and $1,071,670 at July 31 and January 31, 2001, respectively                                                                     |                                            |           | 12,475,846       |            
|                                         | Deferred taxes                                                                                                                                                                     |                                            |           | 7,875,267        |            
|                                         | Prepaid expenses and other current assets                                                                                                                                          |                                            |           | 1,085,381        |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | Total current assets                       |           |                  | 146,061,209
|                                         | Long-term investments                                                                                                                                                              |                                            |           | 9,336,767        |            
|                                         | Property and equipment, net                                                                                                                                                        |                                            |           | 3,524,573        |            
|                                         | Goodwill and other intangible assets, net                                                                                                                                          |                                            |           | 54,296,337       |            
|                                         | Other assets                                                                                                                                                                       |                                            |           | 178,406          |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | TOTAL ASSETS                               |           | $                | 213,397,292
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|
|Current liabilities:                     |                                                                                                                                                                                    |                                            |           |                  |            
|                                         | Accounts payable                                                                                                                                                                   |                                            | $         | 454,757          |            
|                                         | Income taxes payable                                                                                                                                                               |                                            |           | 650,722          |            
|                                         | Accrued expenses                                                                                                                                                                   |                                            |           | 11,656,206       |            
|                                         | Deferred revenue                                                                                                                                                                   |                                            |           | 18,643,053       |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | Total current liabilities                  |           |                  | 31,404,738 
|Deferred revenue, net of current portion |                                                                                                                                                                                    |                                            | 7,303,735 |                  |            
|Deferred taxes                           |                                                                                                                                                                                    |                                            | 2,969,561 |                  |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | Total liabilities                          |           |                  | 41,678,034 
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|Commitments and contingencies            |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|Stockholders' equity:                    |                                                                                                                                                                                    |                                            |           |                  |            
|                                         | Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                                                   |                                            |           |                 |            
|                                         | Common stock, $0.001 par value; 90,000,000 and 60,000,000 shares authorized; 40,186,760 and 39,688,513 shares issued and outstanding at July 31 and January 31, 2001, respectively |                                            |           | 40,187           |            
|                                         | Additional paid-in capital                                                                                                                                                         |                                            |           | 119,922,621      |            
|                                         | Deferred stock-based compensation                                                                                                                                                  |                                            |           | (55,895          | )          
|                                         | Notes receivable from stockholders                                                                                                                                                 |                                            |           | (10,789,880      | )          
|                                         | Accumulated other comprehensive loss                                                                                                                                               |                                            |           | (63,096          | )          
|                                         | Retained earnings                                                                                                                                                                  |                                            |           | 62,665,321       |            
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | Total stockholders' equity                 |           |                  | 171,719,258
|                                         |                                                                                                                                                                                    |                                            |           |                  |            
|                                         |                                                                                                                                                                                    | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |           | $                | 213,397,292
|                                         |                                                                                                                                                                                    |                                            |           |                  |            

See accompanying notes to condensed consolidated financial statements.

3

---



SERENA SOFTWARE, INC.  CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME  FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2001 AND 2000  (UNAUDITED)

|                                                        |                                                      | Three Months Ended
July 31,                            |           | Six Months Ended
July 31, |           
|------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------ | --------- | ------------------------- | ----------
|
|Revenue:                                                |                                                      |                                                        |           |                           |           
|                                                        | Software licenses                                    |                                                        | $         | 11,586,162                |           
|                                                        | Maintenance                                          |                                                        |           | 10,256,504                |           
|                                                        | Professional services                                |                                                        |           | 1,605,501                 |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        |                                                      | Total revenue                                          |           |                           | 23,448,167
|                                                        |                                                      |                                                        |           |                           |           
|Cost of revenue:                                        |                                                      |                                                        |           |                           |           
|                                                        | Software licenses                                    |                                                        |           | 186,121                   |           
|                                                        | Maintenance                                          |                                                        |           | 1,455,749                 |           
|                                                        | Professional services                                |                                                        |           | 1,630,131                 |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        |                                                      | Total cost of revenue                                  |           |                           | 3,272,001 
|                                                        |                                                      |                                                        |           |                           |           
|                                                        |                                                      | Gross profit                                           |           |                           | 20,176,166
|                                                        |                                                      |                                                        |           |                           |           
|Operating expenses:                                     |                                                      |                                                        |           |                           |           
|                                                        | Sales and marketing                                  |                                                        |           | 7,936,444                 |           
|                                                        | Research and development                             |                                                        |           | 3,686,324                 |           
|                                                        | General and administrative                           |                                                        |           | 1,814,406                 |           
|                                                        | Stock-based compensation                             |                                                        |           | 25,842                    |           
|                                                        | Amortization of goodwill and other intangible assets |                                                        |           | 2,053,833                 |           
|                                                        | Acquired in-process research and development         |                                                        |           |                          |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        |                                                      | Total operating expenses                               |           |                           | 15,516,849
|                                                        |                                                      |                                                        |           |                           |           
|Operating income                                        |                                                      |                                                        | 4,659,317 |                           |           
|Interest and other income, net                          |                                                      |                                                        | 1,581,401 |                           |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        | Income before income taxes                           |                                                        |           | 6,240,718                 |           
|Income taxes                                            |                                                      |                                                        | 2,558,695 |                           |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        | Net income                                           |                                                        | $         | 3,682,023                 |           
|                                                        |                                                      |                                                        |           |                           |           
|Comprehensive income:                                   |                                                      |                                                        |           |                           |           
|                                                        | Net income                                           |                                                        | $         | 3,682,023                 |           
|                                                        | Other comprehensive income (loss):                   |                                                        |           |                           |           
|                                                        |                                                      | Foreign currency translation adjustment                |           |                           | 3,742     
|                                                        |                                                      | Unrealized gain (loss) on marketable equity securities |           |                           | (117,872  
|                                                        |                                                      |                                                        |           |                           |           
|Other comprehensive income (loss)                       |                                                      |                                                        | (114,130  | )                         |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        |                                                      | Total comprehensive income                             |           | $                         | 3,567,893 
|                                                        |                                                      |                                                        |           |                           |           
|Net income per share:                                   |                                                      |                                                        |           |                           |           
|                                                        | Basic                                                |                                                        | $         | 0.09                      |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        | Diluted                                              |                                                        | $         | 0.09                      |           
|                                                        |                                                      |                                                        |           |                           |           
|Weighted average shares used in per share calculations: |                                                      |                                                        |           |                           |           
|                                                        | Basic                                                |                                                        |           | 39,714,201                |           
|                                                        |                                                      |                                                        |           |                           |           
|                                                        | Diluted                                              |                                                        |           | 40,726,195                |           
|                                                        |                                                      |                                                        |           |                           |           

See accompanying notes to condensed consolidated financial statements.

4

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SERENA SOFTWARE, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE SIX MONTHS ENDED JULY 31, 2001 AND 2000  (UNAUDITED)

|                                                   |                                                                                   | Six Months Ended July 31,                                                    |                                          
|-------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -----------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:              |                                                                                   |                                                                              |                                          
|                                                   | Net income                                                                        |                                                                              | $                                        
|                                                   | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                              |                                          
|                                                   |                                                                                   | Depreciation                                                                 |                                          
|                                                   |                                                                                   | Increase (decrease) in allowance for bad debts                               |                                          
|                                                   |                                                                                   | Loss on sale of property and equipment                                       |                                          
|                                                   |                                                                                   | Accrued interest on notes receivable from stockholders, net of cash received |                                          
|                                                   |                                                                                   | Amortization of deferred stock-based compensation                            |                                          
|                                                   |                                                                                   | Amortization of goodwill and other intangible assets                         |                                          
|                                                   |                                                                                   | Acquired in-process research and development                                 |                                          
|                                                   |                                                                                   | Changes in operating assets and liabilities:                                 |                                          
|                                                   |                                                                                   |                                                                              | Accounts receivable                      
|                                                   |                                                                                   |                                                                              | Prepaid expenses and other assets        
|                                                   |                                                                                   |                                                                              | Accounts payable                         
|                                                   |                                                                                   |                                                                              | Income taxes payable                     
|                                                   |                                                                                   |                                                                              | Accrued expenses                         
|                                                   |                                                                                   |                                                                              | Deferred revenue                         
|                                                   |                                                                                   |                                                                              |                                          
|                                                   |                                                                                   |                                                                              | Net cash provided by operating activities
|                                                   |                                                                                   |                                                                              |                                          
|CASH FLOWS USED IN INVESTING ACTIVITIES:           |                                                                                   |                                                                              |                                          
|                                                   | Purchases of property and equipment                                               |                                                                              |                                          
|                                                   | Purchases of short-term and long-term investments, net                            |                                                                              |                                          
|                                                   | Cash paid for acquisitions, net of cash acquired                                  |                                                                              |                                          
|                                                   |                                                                                   |                                                                              |                                          
|                                                   |                                                                                   | Net cash used in investing activities                                        |                                          
|                                                   |                                                                                   |                                                                              |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:              |                                                                                   |                                                                              |                                          
|                                                   | Exercise of stock options under the employee stock option plan                    |                                                                              |                                          
|                                                   | Sale of common stock under the employee stock purchase plan                       |                                                                              |                                          
|                                                   | Payment of principal on notes receivable from stockholders                        |                                                                              |                                          
|                                                   |                                                                                   |                                                                              |                                          
|                                                   |                                                                                   | Net cash provided by financing activities                                    |                                          
|                                                   |                                                                                   |                                                                              |                                          
|EFFECT OF EXCHANGE RATE CHANGES ON CASH            |                                                                                   |                                                                              | 114,002                                  
|                                                   |                                                                                   |                                                                              |                                          
|NET INCREASE IN CASH AND CASH EQUIVALENTS          |                                                                                   |                                                                              | 6,168,074                                
|Cash and cash equivalents at beginning of period   |                                                                                   |                                                                              | 85,178,946                               
|                                                   |                                                                                   |                                                                              |                                          
|Cash and cash equivalents at end of period         |                                                                                   | $                                                                            | 91,347,020                               
|                                                   |                                                                                   |                                                                              |                                          
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                                   |                                                                              |                                          
|                                                   | Income taxes paid                                                                 |                                                                              | $                                        
|                                                   |                                                                                   |                                                                              |                                          
|NONCASH INVESTING AND FINANCING ACTIVITIES:        |                                                                                   |                                                                              |                                          
|                                                   | Common stock issued in business acquisitions                                      |                                                                              | $                                        
|                                                   |                                                                                   |                                                                              |                                          
|                                                   | Restricted stock issued for notes receivable from stockholders                    |                                                                              | $                                        
|                                                   |                                                                                   |                                                                              |                                          
|                                                   | Unrealized gain (loss) on marketable equity securities                            |                                                                              | $                                        
|                                                   |                                                                                   |                                                                              |                                          
|                                                   | Contingent consideration accrued for the UltiMIS acquisition                      |                                                                              | $                                        
|                                                   |                                                                                   |                                                                              |                                          

See
accompanying notes to condensed consolidated financial statements.

5

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SERENA SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SERENA Software, Inc. ("SERENA" or the "Company") is an industry-leading provider of software infrastructure products and consulting best practices that automate enterprise
software and Web content changes. Its principal markets are North America, and to a lesser extent, Europe.

The
accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements, and in the
opinion of management include all adjustments, consisting only of normal recurring adjustments, except as otherwise noted, necessary for their fair presentation. These unaudited condensed consolidated
financial statements and the notes thereto have been prepared in accordance with the Instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America and Regulation S-X for annual financial
statements. For these additional disclosures, readers should refer to the Company's annual report on Form 10-K for the fiscal year ended January 31, 2001. The interim results
presented are not necessarily indicative of results for any subsequent quarter or for the fiscal year ending January 31, 2002.

(1) Net Income Per Share

Basic net income per share is computed using the weighted-average number of shares of common stock outstanding. Diluted net income per share is computed using
the weighted-average number of shares of common stock outstanding and, when dilutive, potentially dilutive common shares from restricted stock and options to purchase common stock using the treasury
stock method.

The
following is a reconciliation of the shares used in the computation of basic and diluted net income per share:

|                                                                                   |  | Three Months Ended
July 31, |  | Six Months Ended
July 31,
|---------------------------------------------------------------------------------- |  | --------------------------- |  | -------------------------
|
|Basic net income per shareweighted average number of common shares outstanding    |  | 39,714,201                  |  | 38,390,009               
|Effect of potentially dilutive securities outstandingrestricted stock and options |  | 1,011,994                   |  | 1,970,856                
|                                                                                   |  |                             |  |                          
|Shares used in diluted net income per share computation                            |  | 40,726,195                  |  | 40,360,865               
|                                                                                   |  |                             |  |                          

(2) Recent Accounting Pronouncements

On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangibles."

SFAS
No. 141 supercedes Accounting Principles Board Opinion No. 16 ("APB 16"), "Business Combinations." SFAS
No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting and that the use of the
pooling-of-interests method will therefore no longer be permitted. The Company adopted the provisions of SFAS No. 141 commencing July 1, 2001. The adoption of
SFAS No. 141 has not impacted the Company's financial position or results of operations.

SFAS
No. 142 supercedes APB 17 "Intangible Assets." SFAS No. 142 requires that goodwill resulting from a business
combination no longer be amortized to earnings, but instead be reviewed for

6

---

impairment. The Company is required to adopt SFAS No. 142 as of February 1, 2002. For goodwill resulting from business combinations prior to July 1, 2001, amortization of such
goodwill will continue through January 31, 2002, but will cease February 1, 2002. For business combinations occurring on or after July 1, 2001, the associated goodwill will not be
amortized. Upon adoption of SFAS No. 142, the Company is required to perform a transitional impairment test for all recorded goodwill within six months and, if necessary, determine the amount
of an impairment loss by January 31, 2003. The effects of adopting SFAS No. 142 are currently being determined. The Company believes that some portion of the goodwill and intangible
assets currently being amortized will not be amortized in the future. Amortization expense for the three months ended July 31, 2001 totaled $2.1 million.

In
August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires
an enterprise to record the fair value of an asset retirement obligation as a liability in
the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. SFAS No. 143 also requires the enterprise to record the contra to the
initial obligation as an increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the remaining useful
life of the asset. The amount of the asset retirement obligation is revised at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash
flows underlying the initial fair value measurement. The Company is required to adopt SFAS No. 143 as of February 1, 2003. The Company does not expect SFAS No. 143 to have a
material impact on its financial position or results of operations.

(3) Registration of Additional Common Stock and Increase in Authorized Common Stock

On June 1, 2001, the Company filed with the Securities and Exchange Commission a Form S-8 Registration Statement Under the Securities
Act of 1933 (the "Registration Statement"). In the Registration Statement, the Company registered a total of 2,562,500 shares of the Company's common stock, $.001 par value per share (the "Shares"),
of which (i) 1,927,500 Shares were registered under the Amended and Restated 1997 Stock Option and Incentive Plan, (ii) 575,000 Shares were registered under the 1999 Employee Stock
Option Plan and (iii) 60,000 Shares were registered under the 1999 Director Option Plan.

On
June 29, 2001, the Company at its Annual Meeting of Stockholders approved an amendment to SERENA's Amended and Restated Certificate of Incorporation to increase the
authorized number of shares of common stock of SERENA from 60,000,000 to 90,000,000.

(4) Subsequent EventRestructuring Costs

On August 6, 2001, in response to the general weakening of the worldwide economy and resulting IT spending slowdown, the Company announced and began to
execute its plan to reduce workforce by approximately 12% or 45 positions affecting all parts of the organization. The Company expects to realize cost savings going forward as a result of this
reduction and other cost savings initiatives implemented. In connection with these actions, the Company expects to take a one-time restructuring charge in the third fiscal quarter of
approximately $2 to $3 million.

7

---



ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements under the private securities reform act of 1995. Certain statements under the captions
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report are "forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. When used in this report, the words
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements,
including our plans, objectives, expectations and intentions and other factors discussed under "Factors That May Affect Future Results" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in, or incorporated by reference into, this report. Factors that could cause or contribute to such differences include but are not limited to, our
reliance on our mainframe products for revenue; the percentage of license revenue typically closed at the end of each quarter making estimation of operating results prior to the end of the quarter
extremely uncertain; weak economic conditions world-wide which may continue to affect the overall demand for software and services, which could result in decreased revenues or lower
revenue growth rates; changes in revenue mix and seasonality; our ability to deliver our products on the distributed systems platform; dependence on revenues from our installed base; continued demand
for additional mainframe MIPS capacity;expansion of our professional services and international organizations; our ability to successfully execute on
our restructuring plans including effectively managing our workforce reduction; and our ability to manage our growth. We assume no obligation to update the forward-looking information contained in
this report. It is important that the discussion below be read together with the attached condensed consolidated financial statements and notes thereto, with the discussion of such risks and
uncertainties and with the audited financial statements and notes thereto, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in the Company's
Form 10-K for fiscal 2001.

Product Renaming to Reflect Enhanced Product Integration and Growth in New Markets

Product names set forth below in this discussion and analysis of SERENA's financial condition and results of operations reflect the Company's product naming
convention announced April 30, 2001. The Company has renamed its full line of software change management products, designed to reflect the enhanced integration that the products increasingly
share, as well as our entrance into the Web content management market. The Company has organized its integrated suite of products under two primary product families,SERENA
ChangeManandSERENA StarTool.For a listing of the old and new product names and descriptions, please see the Company's
Form 10-K for fiscal 2001 filed with the Securities and Exchange Commission on April 30, 2001 and the Company's Press Release "SERENA Announces Product Renaming to Reflect
Enhanced Product Integration, Growth in New Markets" dated April 30, 2001.

Overview

SERENA Software, Inc. is an industry leading provider of software infrastructure products and consulting best practices that automate enterprise
software and Web content changes. SERENA's eBusiness Infrastructure Change Management strategy manages the change process throughout the entire eBusiness lifecycle across multiple
platformsfrom the mainframe to the Web.

The
Company has grown rapidly as total revenue has increased from $32.1 million in fiscal 1998 to $103.6 million in fiscal 2001. The growth in total revenue has been
primarily attributable to increased demand for our mainframe products, and to a lesser extent in the last two fiscal years, the introduction of our distributed systems products, primarily ChangeMan DS,
into the marketplace. In general, demand has been increasing as a result of greater awareness of and need for automated third party SCM
solutions.

However,
in the current fiscal year, and more predominantly in the current fiscal quarter ended July 31, 2001, the Company has experienced a decline in its total revenue
growth. The overall demand

8

---

for the Company's software depends in large part on general economic and business conditions. The recent general weakening of the worldwide economy and resulting slowdown in IT spending contributed to
an overall decrease in total revenues.

On
August 6, 2001, in response to the aforementioned weakening in the worldwide economy and resulting decline in IT spending, the Company announced and began to execute its
plan to reduce workforce by approximately 12% or 45 positions affecting all parts of the organization. The Company expects to realize cost savings going forward as a result of this reduction and other
cost savings initiatives implemented. In connection with these actions, the Company expects to take a one-time restructuring charge in the third fiscal quarter of approximately $2 to
$3 million.

Results of Operations

References to the dollar and percentage increases or decreases set forth below in this discussion and analysis of SERENA's results of operations are derived
from comparisons between SERENA's condensed consolidated statements of income and comprehensive income for the three and six month periods ended July 31, 2001 to the condensed consolidated
statements of income and comprehensive income for the three and six month periods ended July 31, 2000.

The
following table sets forth our results of operations expressed as a percentage of total revenue. These operating results for the periods presented are not necessarily indicative
of the results for the full fiscal year or any other period.

Percentage of
Revenue
Three Months
Ended
July 31,

Percentage of
Revenue
Six Months
Ended
July 31,2001

2000

2001

2000Revenue:Software licenses

49.4
%
56.5
%
51.3
%
55.8
%Maintenance

43.7
%
36.0
%
40.7
%
37.6
%Professional services

6.9
%
7.5
%
8.0
%
6.6
%TOTAL REVENUE

100.0
%
100.0
%
100.0
%
100.0
%Cost of revenue:Software licenses

0.8
%
1.8
%
0.6
%
2.0
%Maintenance

6.2
%
6.0
%
5.7
%
6.8
%Professional services

7.0
%
6.3
%
7.3
%
5.7
%TOTAL COST OF REVENUE

14.0
%
14.1
%
13.6
%
14.5
%GROSS PROFIT

86.0
%
85.9
%
86.4
%
85.5
%Operating expenses:Sales and marketing

33.8
%
27.9
%
31.5
%
28.8
%Research and development

15.7
%
9.4
%
14.4
%
9.5
%General and administrative

7.7
%
9.9
%
6.5
%
10.9
%Stock-based compensation

0.1
%
0.2
%
0.2
%
0.3
%Amortization of intangible assets

8.8
%
2.9
%
8.2
%
2.7
%Acquired in-process research and development



1.9
%


1.1
%TOTAL OPERATING EXPENSES

66.1
%
52.2
%
60.8
%
53.3
%OPERATING INCOME

19.9
%
33.7
%
25.6
%
32.2
%Interest and other income, net

6.7
%
8.2
%
6.4
%
8.3
%Income before income taxes

26.6
%
41.9
%
32.0
%
40.5
%Income taxes

10.9
%
18.4
%
13.1
%
17.6
%NET INCOME

15.7
%
23.5
%
18.9
%
22.9
%


9

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Revenue

We derive revenue from software licenses, maintenance and professional services. Our total revenue decreased $1.8 million or 7% to $23.4 million
in the current fiscal quarter ended July 31, 2001 from $25.2 million in the same quarter a year ago. For the six months ended July 31, 2001, total revenue increased
$4.6 million or 10% to $50.9 million from $46.3 million in the same six month period a year ago. International sales represented approximately 19% and 22% of our total revenue in
the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to 15% and 14% in the same quarter and six months a year ago.

Software Licenses.Software licenses revenue as a percentage of total revenue was 49% and 51% in the current fiscal
quarter and fiscal six months ended July 31, 2001, respectively, as compared to 57% and 56% in the same quarter and six months a year ago. Software licenses revenue decreased
$2.7 million or 19% to $11.6 million in the current fiscal quarter from $14.3 million in the same quarter a year ago. For the six month period ended July 31, 2001, software
licenses revenue increased $0.3 million or 1% to $26.1 million from $25.8 million in the same six months a year ago. For the quarter, the dollar decrease is generally attributed
to a slowdown in IT spending across all products as a result of the weak economic conditions in the U.S. and abroad and, to a lesser extent, sales execution delays and customers negotiating more
aggressively on price and terms. OurStarToolsuite of products, primarilyStarTool FDMand StarTool IOO,accounted for 25% of total software licenses revenue in both the current fiscal quarter and fiscal six months ended July 31, 2001,
up from 11% and 10% in the same quarter and six months, respectively, a year ago.ChangeMan for z/OS & OS/390, StarTool FDMand ChangeMan DStogether make up a significant portion of total software licenses revenue. These products accounted for $6.8 million or 59% and
$16.5 million or 63% of total software licenses revenue in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to $7.5 million or 53%
and $15.2 million or 59% in the same quarter and six months a year ago, respectively.

Maintenance.Maintenance revenue as a percentage of total revenue was 44% and 41% in the current fiscal quarter and
fiscal six months ended July 31, 2001, respectively, as compared to 36% and 38% in the same quarter and six months a year ago. Maintenance revenue increased $1.2 million or 13% to
$10.3 million in the current fiscal quarter from $9.1 million in the same quarter a year ago. For the six months ended July 31, 2001, maintenance revenue increased
$3.3 million or 19% to $20.7 million from $17.4 million in the same six months a year ago. For both the quarter and six months, the dollar
increase reflects growth in installed software licenses base, as new licenses generally include one year of maintenance, renewals of maintenance agreements by existing customers and, to a lesser
extent, maintenance price increases; all partially offset by some cancellations ofComparexmaintenance contracts.

Professional Services.Professional services revenue as a percentage of total revenue was 7% and 8% in the current
fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to 8% and 7% in the same quarter and six months a year ago. Professional services revenue decreased
$0.3 million or 15% to $1.6 million in the current fiscal quarter from $1.9 million in the same quarter a year ago. For the six months ended July 31, 2001, professional
services revenue increased $1.0 million or 34% to $4.1 million from $3.1 million in the same six months a year ago. For the fiscal quarter ended July 31, 2001, the dollar
decrease is predominantly the result of a weak U.S. economy which generated declining license revenues and therefore fewer consulting opportunities and the deferral of existing consulting projects.
For the fiscal six months ended July 31, 2001, the dollar increase is generally attributable to greater consulting opportunities in the first fiscal quarter resulting from our larger installed
customer base and our expanded consulting service capabilities, all partially offset by the weak U.S. economy.

10

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Cost of Revenue

Cost of revenue, which consists of cost of software licenses, cost of maintenance and cost of professional services, was $3.3 million or 14% and
$6.9 million or 14% of total revenue in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to $3.6 million or 14% and
$6.7 million or 15% in the same quarter and six months a year ago. Cost of revenue decreased $0.3 million or 8% to $3.3 million in the current fiscal quarter from
$3.6 million in the same quarter a year ago. For the six months ended July 31, 2001, cost of revenue increased $0.2 million or 3% to $6.9 million from $6.7 million
in the same six months a year ago. As a percentage of total revenue, cost of revenue has remained relatively constant at 14% for the current fiscal quarter and fiscal six months and the same periods a
year ago as margin improvements in software licenses and maintenance have been offset by margin declines in professional services.

Software Licenses.Cost of software licenses consists principally of fees associated with our StarTool FDMproducts and more
recently, and to a lesser extent, fees associated with integrating third party technology into our ChangeMan DSandChangeMan ALMdistributed systems
products. In the first quarter of fiscal 2001, cost
of software licenses also included sublicense fees associated with ourStarTool FDMandChangeMan SSMproducts. Cost of software licenses as a percentage of total software licenses revenue was 2% and 1% in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as
compared to 3% and 4% in the same quarter and six months a year ago. Cost of software licenses decreased $0.3 million to $0.2 million in the current fiscal quarter from
$0.5 million in the same quarter a year ago. For the six months ended July 31, 2001, cost of software licenses decreased $0.6 million to $0.3 million from
$0.9 million in the same six months a year ago. For both the quarter and six months, when compared to the same periods a year ago, the decreases in absolute dollars and the margin improvements
are attributable to the decline of sublicense fees
associated with ourChangeMan SSMandStarTool FDMproducts in the second and third quarters of fiscal
2001, respectively.

Maintenance.Cost of maintenance consists primarily of salaries, bonuses and other costs associated with our customer
support organizations. In the first quarter of fiscal 2001, cost of maintenance also included sublicense fees associated with ourStarTool FDMand ChangeMan SSMproducts. Cost of maintenance as a percentage of total maintenance revenue was 14% in both the current fiscal quarter and fiscal six
months ended July 31, 2001, as compared to 17% and 18% in the same quarter and six months, respectively, a year ago. Cost of maintenance decreased $0.1 million or 4% to
$1.4 million in the current fiscal quarter from $1.5 million in the same quarter a year ago. For the six months ended July 31, 2001, cost of maintenance decreased
$0.3 million or 9% to $2.9 million from $3.2 million in the same six months a year ago. The decreases, both in absolute dollar terms and as a percentage of total maintenance
revenue, is attributable to the decline of sublicense fees associated with ourStarTool FDMandChangeMan
SSMproducts, all partially offset by increased expenses associated with our customer support organization including personnel additions needed to support the maintenance
revenue growth.

Professional Services.Cost of professional services consists of salaries, bonuses and other costs associated with
supporting our professional services organization. Cost of professional services as a percentage of total professional services revenue was 102% and 91% in the current fiscal quarter and fiscal six
months ended July 31, 2001, respectively, as compared to 84% and 87% in the same quarter and six months a year ago. Cost of professional services was unchanged at $1.6 million for both
the current fiscal quarter and the same quarter a year ago. For the current fiscal six months ended July 31, 2001, cost of professional services increased $1.1 million or 40% to
$3.7 million from $2.6 million in the same six months a year ago. In absolute dollar terms and as a percentage of total professional services revenues, increases are predominantly due to
the rates of increases in expenses associated with our professional services organization, including personnel additions and other infrastructure costs needed to support the professional services
revenue, being greater than rates of increases in professional services revenue.

11

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Operating Expenses

Sales and Marketing.Sales and marketing expenses consist primarily of salaries, commissions and bonuses, payroll
taxes, and employee benefits as well as travel, entertainment and marketing expenses. Sales and marketing expenses as a percentage of total revenue were 34% and 32% in the current fiscal quarter and
fiscal six months ended July 31, 2001, respectively, as compared to 28% and 29% in the same quarter and six months a year ago. Sales and marketing expenses increased $0.9 million or 13%
to $7.9 million in the current fiscal quarter from $7.0 million in the same quarter a year ago. For the six months ended July 31, 2001, sales and marketing expenses increased
$2.7 million or 20% to $16.1 million from $13.4 million in the same six months a year ago. For both the quarter and six months, the dollar increases are due primarily to our
continued expansion of our direct sales and marketing organizations to support license revenue growth, and to a lesser extent, our marketing initiatives surrounding our distributed systems products
and the development of our international sales and telesales efforts. As a percentage of total revenue, sales and marketing expenses increased for both the quarter and six months, when compared to the
same periods a year ago, due to the expansion of the sales and marketing organizations which preceded the recent weakening of the worldwide economy and resulting decline in IT spending that
contributed to the decline in revenues.

Research and Development.Research and development expenses consist primarily of salaries, bonuses, payroll taxes, and
employee benefits and costs attributable to research and development activities. Research and development expenses as a percentage of total revenue were 16% and 14% in the current fiscal quarter and
fiscal six months ended July 31, 2001, respectively, as compared to 9% and 10% in the same quarter and six months a year ago. Research and development expenses increased $1.3 million or
55% to $3.7 million in the current fiscal quarter from $2.4 million in the same quarter a year ago. For the six months ended July 31, 2001, research and development expenses
increased $2.9 million or 67% to $7.3 million from $4.4 million in the same six months a year ago. In absolute dollar terms and as a percentage of total revenue, the increases are
primarily due to increases in salary, bonus, payroll tax, employee benefits and other headcount-related costs which resulted from the expansion of our research and development efforts to enhance
existing products and develop our distributed systems products, and is also due to the Company's acquisition of UltiMIS and theStarToolasset purchase
late in fiscal 2001.

General and Administrative.General and administrative expenses consist primarily of salaries, bonuses, payroll taxes,
and benefits and certain non-allocable administrative costs, including legal and accounting fees and bad debts. General and administrative expenses as a percentage of total revenue were 8%
and 7% in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to 10% and 11% in the same quarter and six months a year ago. General and
administrative expenses decreased $0.7 million or 27% to $1.8 million in the current fiscal quarter from $2.5 million in the same
quarter a year ago. For the six months ended July 31, 2001, general and administrative expenses decreased $1.7 million or 34% to $3.3 million from $5.0 million in the same
six months a year ago. In absolute dollars and as a percentage of total revenue, the decreases are predominantly the result of efficiency gains and cost and growth controls put in place within our
administrative infrastructure, and to a lesser extent, a decrease in legal fees as a result of the Company's lawsuit settlement in the third quarter of fiscal 2001.

Amortization of Goodwill and Other Intangible Assets.In connection with the acquisitions of Optima
Software, Inc. in September 1998, Diamond in June 1999, HPS in May 2000 and UltiMIS in September 2000, and the StarToolasset purchase in August 2000, the Company has
recorded $66.6 million in intangible assets, of which $54.3 million is
unamortized as of July 31, 2001. Combined, intangible assets are being amortized over periods of one year or less on $0.9 million, two to seven years on $44.5 million and fifteen
years on the remaining $21.2 million. Of the total intangible assets, $2.1 million and $4.2 million was amortized in the current fiscal quarter and fiscal six months ended
July 31, 2001, respectively, as compared to $0.7 million and $1.3 million in the same quarter and six

12

---

months a year ago. We expect to amortize an additional $2.1 million per quarter over the next two quarters through the end of fiscal 2002.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles," which we intend to adopt on
February 1, 2002. Upon adoption, goodwill with identifiable intangible assets with indefinite lives will no longer be amortized. This statement will require that we evaluate our goodwill and
identifiable intangible assets with indefinite useful lives for impairment. The Company is currently evaluating the provisions of SFAS No. 142. See Note 2 of Notes to Condensed
Consolidated Financial Statements.

Acquired In-Process Research and Development.In connection with SERENA's acquisition of High Power
Software, Inc. in the second quarter of fiscal 2001, the Company recorded a one-time charge of $0.5 million for acquired in-process research and development.

Interest and Other Income, net

Interest and Other Income, net.Interest and other income, net decreased $0.5 million or 23% to
$1.6 million and $0.6 million or 16% to $3.3 million in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, from $2.1 million and
$3.9 million in the same quarter and six months a year ago. The dollar decreases in interest and other income, net are generally due to reduced market interest rates, partially offset by
increases in balances on interest-bearing accounts, such as cash and cash equivalents, and both short and long-term investments, resulting from accumulation of earnings.

Income Taxes

Income Taxes.Income taxes in absolute dollar terms and effective income tax rates were $2.6 million or 41% and
$6.7 million or 41% in the current fiscal quarter and fiscal six months ended July 31, 2001, respectively, as compared to $4.7 million or 44% and $8.2 million or 43% in the
same quarter and six months a year ago. The Company's effective income tax rate has decreased in the current fiscal quarter, when compared to the same quarter a year ago, predominantly due to a
decrease in nondeductible charges of $0.1 million. For the six months ended July 31, 2001, when compared to the same six months a year ago, the Company's effective income tax rate
decreased predominantly due to increased revenue growth offset in part by an increase in nondeductible charges of $0.3 million. SERENA's effective income tax rate has historically benefited
from the United States research and experimentation tax credit and tax benefits generated from export sales made from the United States.

Liquidity and Capital Resources

Since SERENA's inception, we have financed our operations and met our capital requirements through cash flows from operations. As of July 31, 2001,
SERENA had $91.3 million in cash and cash equivalents and an additional $33.3 million and $9.3 million in short and long-term investments, respectively, consisting
principally of high grade commercial paper, certificates of deposit, and short and long-term bonds. Cash flows provided by operating activities were $17.3 million and
$13.3 million in the current fiscal six months ended July 31, 2001 and the same six months a year ago, respectively. In the current fiscal six months, SERENA's cash flows provided by
operating activities exceeded net income principally due to a decrease in trade accounts receivable, the inclusion of non-cash expenses in net income and cash collections in advance of
revenue recognition for maintenance contracts; all partially offset by decreases in income taxes payable. In the same six months a year ago, SERENA's cash flows provided by operating activities
exceeded net income principally due to cash collections in advance of revenue recognition for maintenance contracts and the inclusion of non-cash expenses in net income; all partially
offset by an increase in trade accounts receivable. Cash used in investing activities were predominantly related to the purchase of short and long-term investments totaling
$15.2 million in the current fiscal six months ended July 31, 2001 and $5.0 million in the same six months a year ago, and to a lesser extent, purchases of computer equipment and
office furniture and equipment in both six

13

---

month periods. For the six months ended July 31, 2000 from the prior fiscal year, cash used in investing activities also included $1.6 million which the Company paid, net of cash
acquired, for acquisitions. Cash flows provided by financing activities were entirely related to the exercise of stock options under the employee stock option plan totaling $2.4 million and
$0.6 million in the current fiscal six months and the same six months a year ago, respectively; payment of principal on notes receivable from stockholders totaling $1.4 million and
$0.2 million, respectively; and the sale of common stock under the employee stock purchase plan totaling $1.0 million and $0.8 million, respectively.

At
July 31, 2001, the Company did not have any material commitments for capital expenditures and had no revolving credit agreements or other term loan agreements with any banks
or other financial institutions.

At
July 31, 2001, the Company had working capital of $114.7 million, trade accounts receivable, net of allowances, of $12.5 million and total deferred revenues of
$25.9 million.

We
believe that current cash and short-term investments, and cash flows from operations will satisfy our working capital and capital expenditure requirements for at least
the next twelve months.

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 under the Private Securities Reform Act of 1995 and other prospective information relating to future events. These forward-looking statements and other prospective
information are subject to certain risks and uncertainties that could cause results to differ materially from historical results or anticipated results, including but not limited to, our reliance on
our mainframe products for revenue; the percentage of license revenue typically closed at the end of each quarter making estimation of operating results prior to the end of the quarter extremely
uncertain; weak economic conditions world-wide which may continue to affect the overall demand for software and services, which could result in decreased revenues or lower revenue growth
rates; changes in revenue mix and seasonality; our ability to deliver our products on the distributed systems platform; dependence on revenues from our installed base; continued demand for additional
mainframe MIPS capacity; expansion of our professional services and international organizations;our ability to successfully execute on our
restructuring plans including effectively managing our workforce reduction; our ability to manage our growth; and the following:

There Are Many Factors, Including Some Beyond Our Control, That May Cause Fluctuations in Our Quarterly Operating Results

Our quarterly operating results have varied greatly in the past and may vary greatly in the future depending upon a number of factors described below and
elsewhere in this "Factors That May Affect Future Results" section of this report, including many that are beyond our control. As a result, we believe that quarter-to-quarter
comparisons of our financial results are not necessarily meaningful, and you should not rely on them as an indication of our future performance.

Our
software license revenue in any quarter depends on orders booked and shipped in the last month, weeks or days of that quarter. At the end of each quarter, we typically have either
minimal or no backlog of orders for the subsequent quarter. If a large number of orders or several large orders do not occur or are deferred, our revenue in that quarter could be substantially
reduced. This would materially adversely affect our operating results and could impair our business in future periods.

Because
we do not know when, or if, our potential customers will place orders and finalize contracts, we cannot accurately predict our revenue and operating results for future
quarters. Historically, a majority of our revenue has been attributable to the licenses of our mainframe software products. Changes in the mix of software products and services sold by us, including
the mix between higher margin software products and lower margin maintenance and services, could materially affect our operating results for future quarters.

14

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Seasonal Trends in Sales of Our Software Products May Affect Our Quarterly Operating Results

We have experienced and expect to continue to experience seasonality in sales of our software products. These seasonal trends materially affect our
quarter-to-quarter operating results. Revenue and operating results in our quarter ending January 31 are typically higher relative to our other quarters, because many
customers make purchase decisions based on their calendar year-end budgeting requirements. In addition, our January quarter tends to reflect the effect of the incentive compensation
structure for our sales organization, which is based on satisfaction of fiscal year-end quotas. As a result, we have historically experienced a substantial decline in revenue in the first
quarter of each fiscal year relative to the preceding quarter. We are also currently attempting to expand our presence in international markets, particularly in Europe. We expect our quarter ending
October 31 to reflect the effects of summer slowing of international business activity and spending activity generally associated with that time of year.

Ecomonic Conditions Could Adversely Affect Our Revenue Growth and Ability to Forecast Revenue

The revenue growth and profitability of our business depends on the overall demand for eBusiness application software and services. Because our sales are
primarily to major corporate and government customers, our business also depends on general economic and business conditions. The general weakening of the worldwide economy has caused the Company to
experience a decrease in the growth rate of its software licenses revenues in the first six months of fiscal 2002. A softening of demand for computer software caused by a continued weakening of the
economy, domestically or internationally, may result in a continued decrease in revenues and revenue growth rates.

Management
identify, track and forecast future revenues, backlog and trends in our business. Our sales personnel monitor the status of all proposals, such as the estimated date when
they estimate that a transaction will close and the potential dollar amount of such sale. We aggregate these estimates periodically in order to generate a sales pipeline and then evaluate the pipeline
at various times to look for trends in our business. While this pipeline analysis provides visibility to our potential customers and the associated revenues for budgeting and planning purposes, these
pipeline estimates may not consistently correlate to revenues in a particular quarter or ever. A slowdown in the economy, domestically or internationally, has caused and may continue to cause customer
purchasing decisions to
be delayed, reduced in amount or cancelled, all of which have reduced and could continue to reduce the rate of conversion of the pipeline into contracts. A variation in the pipeline or in the
conversion of the pipeline into contracts could cause us to plan or budget improperly and thereby could adversely affect our business or results of operations. In addition, primarily due to a
substantial portion of our software licenses revenue contracts closing in the latter part of a quarter, management may not be able to adjust the Company's cost structure in response to a variation in
the conversion of the pipeline into contracts in a timely manner, and thereby adversely affect our business or results of operations.

We Expect That Our Operating Expenses Will Increase Substantially in the Future and These Increased Expenses May Adversely Affect Our Future Operating Results and Financial
Condition

Although SERENA has been profitable in recent years, we may not remain profitable on a quarterly or annual basis in the future. We anticipate that our expenses
will increase substantially in the foreseeable future as we:



15

---



With
these additional expenses, in order to maintain our current levels of profitability, we will be required to increase our revenue correspondingly. Any failure to significantly
increase our revenue as we implement our product, service and distribution strategies would materially adversely affect our business, quarterly and annual operating results and financial condition.
Although our revenue has grown in recent years, we do not believe that we will maintain this rate of revenue growth. In addition, we may not experience any revenue growth in the future, and our
revenue could in fact decline. Our efforts to expand our software product suites, sales and marketing activities, direct and indirect distribution channels and professional service offerings and to
pursue strategic relationships or
acquisitions may not succeed or may prove more expensive than we currently anticipate. As a result, we cannot predict our future operating results with any degree of certainty.

If We Are Unable to Manage Our Announced Workforce Reduction, Our Business Could be Adversely Affected

In August 2001, we announced and began to execute a plan to reduce our workforce, which affected all parts of the organization. If we are unable to
effectively manage this workforce reduction or the potential legal risks associated with terminations of employees, particularly internationally, our business operations could be subject to disruption
and our business and results of operations could be adversely affected.

Our Future Revenue is Substantially Dependent Upon Our Installed Customers Renewing Maintenance Agreements for Our Products and Licensing or Upgrading Additional SERENA SCM
Products; Our Future Professional Service and Maintenance Revenue is Dependent on Future Sales of Our Software Products

We
depend on our installed customer base for future revenues from maintenance renewal fees and licenses or upgrades of additional SCM products. If our customers do not purchase
additional products, upgrade existing products or cancel or fail to renew their maintenance agreements, this could materially adversely affect our business and future quarterly and annual operating
results. The terms of our standard license arrangements provide for a one-time license fee and a prepayment of one year of software maintenance and support fees. The maintenance agreements
are renewable annually at the option of the customers and there are no minimum payment obligations or obligations to license additional software. Therefore, our current customers may not necessarily
generate significant maintenance revenue in future periods. In addition, our customers may not necessarily purchase additional products, upgrades or professional services. Our professional service
revenue and maintenance revenue are also dependent upon the continued use of these services by our installed customer base. Any downturn in our software license revenue would have a negative impact on
the growth of our professional service revenue and maintenance revenue in future quarters.

We Have Relied and Expect to Continue to Rely on Sales of Our Mainframe Products for Our Revenue

Historically, the majority of our software license revenue has resulted from the sale of our mainframe products. Any factors adversely affecting the pricing
of, demand for or market acceptance of our mainframe products, such as competition or technological change, could materially adversely affect our business and quarterly and annual operating results.
In particular,ChangeMan for z/OS & OS/390andComparex, two of our mainframe products, have been
responsible for a substantial majority of our revenue. In the current fiscal quarter ended July 31, 2001 and the same quarter from a year ago, sales ofChangeMan
z/OS & OS/390andComparextogether accounted for approximately 59% and 65% of our total software licenses revenue,
respectively. We expect that these products will continue to account for a large portion of our software licenses revenue for the foreseeable future. Our future operating results depend on the
continued market acceptance of our mainframe products, including future enhancements.

16

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Our Introduction of SERENA SCM Products for Distributed Systems May Not Be Successful

We introduced ourChangeMan DSproduct in fiscal 2000, ourChangeMan
ALMandChangeMan ECPproducts in fiscal 2001 and ourChangeMan WCMproduct in
the first quarter of fiscal 2002. We are currently developing new products and enhancing our product suite to support additional distributed systems platforms. If we do not successfully develop,
market, sell and support our distributed systems products, this would materially adversely affect our business and our future quarterly and annual operating results. Historically, the majority of our
products have been designed for the mainframe platform, and the majority of our software license revenue, maintenance revenue and professional services revenue to date have been attributable to
licenses for these mainframe products. We have limited experience developing, marketing, selling or supporting distributed systems products. Developing, marketing and selling our distributed systems
products will require significant resources that we may not have. Our sales and marketing organizations have historically focused exclusively on sales of our products for the mainframe and have
limited experience marketing and selling distributed systems products. Additionally, we have limited experience in providing support services for distributed systems products. Competition for
experienced software engineers, sales personnel and support staff is intense and if we fail to attract qualified personnel this would impair our ability to support our distributed systems products.
Many of our competitors have substantially greater experience providing distributed systems compatible software products than we do, and many also have significantly greater financial and
organizational resources.

If the SCM Market Does Not Evolve as We Anticipate, Our Business Will Be Adversely Affected

If we fail to properly assess and address the SCM market or if our products and services fail to achieve market acceptance for any reason, our business and
quarterly and annual operating results would be materially adversely affected. The SCM market is in an early stage of development. IT organizations have traditionally addressed SCM needs internally
and have only recently become aware of the benefits of third-party SCM solutions as their SCM requirements have become more complex. Since the market for our products is still evolving, it is
difficult to assess the competitive environment or the size of the market that may develop. Our future financial performance will depend in large part on the continued growth in the number of
businesses adopting third-party SCM products and the expansion of their use on a company-wide basis. The SCM market for third-party products may grow more slowly than we anticipate. In
addition, technologies, customer requirements and industry standards may change rapidly. If we cannot improve or augment our products as rapidly as existing technologies, customer requirements and
industry standards evolve, our products or services could become obsolete. The introduction of new or technologically superior products by competitors could also make our products less competitive or
obsolete. As a result of any of these factors, our position in existing markets or potential markets could be eroded.

Our Business is Dependent on the Continued Market for IBM and IBM-Compatible Mainframes

We are substantially dependent upon the continued use and acceptance of IBM and IBM-compatible mainframes and the growth of this market. If the
role of the mainframe does not increase as we anticipate, or if it in any way decreases, this would materially adversely affect our business, future quarterly and annual operating results and
financial condition. Additionally, if there is a wide acceptance of other platforms or if new platforms emerge that provide enhanced enterprise server capabilities, our business and future operating
results may be materially adversely affected. The majority of our software license revenue to date has been attributable to sales of our mainframe products. We expect that, for the foreseeable future,
the majority of our software license revenue will continue to come from sales of our mainframe products. As a result, future sales of our existing products and associated maintenance revenue and
professional service revenue will depend on continued use of mainframes.

17

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We May Experience Delays in Developing Our Products Which Could Adversely Affect Our Business

If we are unable, for technological or other reasons, to develop and introduce new and improved products in a timely manner, this could materially adversely
affect our business and future quarterly and annual operating results. We have experienced product development delays in new version and update releases in the past and may experience similar or more
significant product delays in the future. To date, none of these delays has materially affected our business. Difficulties in product development could delay or prevent the successful introduction or
marketing of new or improved products or the delivery of new versions of our products to our customers. Any delay in releasing our new distributed systems products, for whatever reason, would impair
our revenue growth.

We Have Experienced Significant Growth in Our Business in Recent Periods and Our Ability to Manage this Growth and Any Future Growth Will Affect Our Business

Our ability to compete effectively and to manage our recent growth, any future growth and our future quarterly and annual operating results will depend in part
on our ability to implement and expand operational, customer support and financial control systems and to hire, train and manage our employees. We may not be able to augment or improve existing
systems and controls or implement new systems and controls in response to future growth, if any. Any failure to manage growth could materially adversely affect our business. Our business has grown
substantially in recent years, with total revenue increasing from $48.3 million in fiscal 1999 to $75.4 million in fiscal 2000 and to $103.6 million in fiscal 2001. In connection
with this revenue growth, we continue to expand our sales, marketing and professional service activities and organizations. Additionally, our acquisitions of Diamond, HPS, the StarToolproduct and
UltiMIS expanded our research and development organization. This growth has resulted, and any future growth will result, in new and
increased responsibilities for management personnel.

We Intend to Expand Our International Operations and May Encounter a Number of Problems in Doing So; There Are Also a Number of Factors Associated With International Operations
that Could Adversely Affect Our Business

Expansion of International Operations.We intend to expand the scope of our international operations and currently have
sales subsidiaries in the United Kingdom, Germany, France and Belgium. If we are unable to expand our international operations successfully and in a timely manner, this could materially adversely
affect our business and quarterly and annual operating results. Our continued growth and
profitability will require continued expansion of our international operations, particularly in Europe. We have only limited experience in marketing, selling and supporting our products
internationally. Additionally, we do not have any experience in developing foreign language versions of our products. Such development may be more difficult or take longer than we anticipate. We may
not be able to successfully market, sell, deliver and support our products internationally.

Risks of International Operations.International sales represented approximately 25% and 17% of our total licenses
revenue in the current fiscal quarter ended July 31, 2001 and the same quarter a year ago, respectively. Our international revenue is attributable principally to our European operations. Our
international operations are, and any expanded international operations will be, subject to a variety of risks associated with conducting business internationally that could materially adversely
affect our business and future quarterly and annual operating results, including the following:



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Fluctuations in the Value of Foreign Currencies Could Result in Currency Transaction Losses for SERENA

A majority of our international business is conducted in foreign currencies, principally the British pound, the German deutsche mark and French franc.
Fluctuations in the value of foreign currencies relative to the U.S. dollar will continue to cause currency transaction gains and losses. We cannot predict the effect of exchange rate fluctuations
upon future quarterly and annual operating results. We may experience currency losses in the future. To date, we have not adopted a hedging program to protect SERENA from risks associated with foreign
currency fluctuations.

Any Delays in Our Normally Lengthy Sales Cycles Could Result in Significant Fluctuations in Our Quarterly Operating Results

Our sales cycle typically takes six to 18 months to complete and varies from product to product. Any delay in the sales cycle of a large license or a
number of smaller licenses could result in significant fluctuations in our quarterly operating results. 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 and complexity of a potential transaction and the level of competition that we encounter in our selling activities. Additionally, the emerging market for SCM
products and services contributes to the lengthy sales process in that during the sales cycle we often have to teach potential customers about the use and benefits of our products. In certain
circumstances, we license our software to customers on a trial basis to assist the customers in their evaluation of our products. Our sales cycle can be further extended for product sales made through
third party distributors.

We May Be Unable to Successfully Complete Strategic Relationships or Acquisitions

We may be unable to successfully complete strategic relationships or acquisitions in pursuit of our growth strategy. One component of our growth strategy,
entering into strategic relationships or the strategic acquisition of businesses, involves certain risks, including, among others, the following:



In
addition, any such acquisition could materially adversely affect our financial results due to dilutive issuances of equity securities, the incurrence of additional debt and the
amortization of expenses related to goodwill and other intangible assets, if any.

Our Executive Officers and Certain Key Personnel Are Critical to Our Business and Such Officers and Key Personnel May Not Remain with SERENA in the Future

Our success will depend to a significant extent on the continued service of our senior executives and certain other key employees, including certain sales,
consulting, technical and marketing personnel. If we lost the services of one or more of our executives or key employees, including if one or more of

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our executives or key employees decided to join a competitor or otherwise compete directly or indirectly with SERENA, this could materially adversely affect our business. In particular, we have
historically relied on the experience and dedication of our product authors. With the exception of Douglas D. Troxel, SERENA's founder, Chief Technology Officer and Chairman of SERENA's board of
directors, the employment of all of our senior and key employees, including key product authors, is at will. Mr. Troxel's employment is on a year-to-year basis. In
addition, we do not maintain key man life insurance on our employees and have no plans to do so.

SERENA is Subject to Intense Competition in the SCM Industry and We Expect to Face Increased Competition in the Future, Including Competition in the SCM Distributed Systems
Market

We may not be able to compete successfully against current or future competitors and such inability would materially adversely affect our business, quarterly
and annual operating results and financial condition. The market for our products is highly competitive and diverse. Moreover, the technology for SCM products may change rapidly. New products are
frequently introduced, and existing products are continually enhanced. Competition may also result in changes in pricing policies by SERENA or our competitors which could materially adversely affect
our business and future quarterly and annual operating results. Competitors vary in size and in the scope and breadth of the products and services that they offer. Many 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 to new or emerging technologies and changes in customer
requirements. They may also be able to devote greater resources to the development, promotion and sale of their products than we can.

Mainframe Competition.We currently face competition from a number of sources, including:



Competition in the Distributed Systems SCM Market.We also face significant competition as we develop, market and sell
our distributed systems products, includingChangeMan DS,ChangeMan ALM, ChangeMan ECPandChangeMan WCM. If we are unable to successfully penetrate the distributed systems SCM
market, our business and future quarterly and annual operating results will be materially adversely affected. Penetrating the existing distributed systems SCM market will be difficult. Competitors in
the distributed systems market include Rational Software, Computer Associates, MERANT, Microsoft, Interwoven, Documentum, Vignette and other smaller private companies.

Future Competition.We may face competition in the future from established companies who have not previously entered
the mainframe SCM market, from emerging software companies, or from other web content management software companies. Barriers to entry in the software market are relatively low. Increased competition
may materially adversely affect our business and future quarterly and annual operating results due to price reductions, reduced gross margins and reduction in market share. Established companies may
not only develop their own mainframe or distributed systems SCM solutions, but they may also acquire or establish cooperative relationships with our current competitors, including cooperative
relationships between large, established companies and smaller private companies. Because larger companies have significant financial and organizational resources available, they may be able to
quickly penetrate the mainframe or distributed systems SCM market through acquisitions or strategic relationships and may be able to leverage the technology and expertise of smaller companies and
develop successful SCM products for the mainframe. We expect that the software industry, in general, and providers of SCM solutions, in particular, will continue to consolidate. It is possible that
new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

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Bundling or Compatibility Risks.Our ability to sell our products also depends, in part, on the compatibility of our
products with other third party products, particularly those provided by IBM. Developers of these third party products may change their products so that they will no longer be compatible with our
products. These third party developers may also decide to bundle their products with other SCM products for promotional purposes. If that were to happen, our business and future quarterly and annual
operating results may be materially adversely affected as we may be priced out of the market or no longer be able to offer commercially viable products.

Third Parties in the Future Could Assert That Our Products Infringe Their Intellectual Property Rights, Which Could Adversely Affect Our Business

Third parties may claim that our current or future products infringe their proprietary rights. Any claims of this type could affect our relationships with
existing customers and may prevent future customers from licensing our products. Because we are dependent upon a limited number of products, 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. 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. As a result of these factors, infringement claims could materially adversely affect our business.

We May Not Be Able to Recruit and Retain the Personnel We Need to Succeed

Our future success will likely depend in large part on our ability to attract and retain additional experienced sales, technical, marketing and management
personnel. In addition, we will need to attract and retain sufficient numbers of qualified software engineers, as well as sales and marketing and support personnel, and successfully develop, market
and support our distributed systems product suite. Competition for such personnel in the computer software industry is intense, and in the past we have experienced difficulty in recruiting qualified
personnel, especially developers and sales personnel. We expect competition for qualified personnel to remain intense, and we may not succeed in attracting or retaining such personnel. If we do not,
this could materially adversely affect our business and future quarterly and annual operating results. In addition, new employees generally require substantial training in the use of our products.
This training will require substantial resources and management attention.

International Operations.We intend to expand the scope of our international operations and these plans will require us
to attract experienced management, service, marketing, sales and support personnel for our international offices. Competition for such personnel is intense, and we may not be able to attract or retain
such experienced personnel.

Non-U.S. Citizens Working in the United States.To achieve our business objectives, we may recruit and
employ skilled technical professionals from other countries to work in the United States. Limitations imposed by federal immigration laws and the availability of visas could materially adversely
affect our ability to attract necessary qualified personnel. This may have a material adverse effect on our business and future quarterly and annual operating results.

Our Industry Changes Rapidly Due to Evolving Technology Standards And Our Future Success Will Depend on Our Ability to Continue to Meet the Sophisticated Needs of Our Customers

Our future success will depend on our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging hardware,
software, database and networking platforms particularly for our distributed systems products. We will have to develop and introduce enhancements to our existing products and new products on a timely
basis to keep pace with technological developments, evolving industry standards and changing customer requirements. We expect that we will have to respond quickly to rapid technological change,
changing customer needs, frequent new product

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introductions and evolving industry standards that may render existing products and services obsolete. As a result, our position in existing markets or potential markets 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. We expect that our product development efforts will
continue to require substantial investments. We may not have sufficient resources to make the necessary investments. Any of these events could have a material adverse effect on our business, quarterly
and annual operating results and financial condition.

Errors in Our Products or the Failure of Our Products to Conform to Specifications Could Result in Our Customers Demanding Refunds from Us or Asserting Claims for Damages
Against Us

Because
our software products are complex, they often contain errors or "bugs" that can be detected at any point in a product's life cycle. While we continually test our products for
errors and work with customers through our customer support services to identify and correct bugs in our software, we expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these errors could be significant. Detection of any significant 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. These problems could materially adversely affect our
business and future quarterly and annual operating results. In the past we have discovered errors in certain of our products and have experienced delays in the shipment of our products during the
period required to correct these errors. These delays have principally related to new version and product update releases. To date none of these delays have materially affected our business. However,
product errors or delays in the future, including any product errors or delays associated with the introduction of our distributed systems products, could be material. In addition, in certain cases we
have warranted that our products will operate in accordance with specified customer requirements. If our products fail to conform to such specifications, customers could demand a refund for the
software license fee paid to us or assert claims for damages.

Product Liability Claims Asserted Against Us in the Future Could Adversely Affect Our Business

We may be subject to claims for damages related to product errors in the future. A material product liability claim could materially adversely affect our
business. Our license agreements with our customers typically contain provisions designed to limit exposure to potential product liability claims. SERENA's standard software licenses provide that if
our products fail to perform, we will correct or replace such products. If these corrective measures fail, we may be required to refund the license fee for such non-performing product.
However, our standard license agreement limits our liability for non-performing products to the amount of license fee paid, if the license has been in effect for less than one year, or to
the amount of the licensee's current annual maintenance fee, if the license is more than one year old. Our standard license also provides that SERENA shall not be liable for indirect or consequential
damages caused by the failure of our products. Such limitation of liability provisions may, however, not be effective under the laws of certain jurisdictions to the extent local laws treat certain
warranty exclusions as unenforceable. Although we have not experienced any product liability claims to date, the sale and support of our products entail the risk of such claims.

Our Share Price Has Been, and Will Likely Continue to be, Volatile

The market price of our common shares has fluctuated significantly in recent months, and we expect that the market price of our common shares may fluctuate
substantially as a result of variations in our quarterly operating results and market conditions. These fluctuations may be exaggerated if the

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trading volume of our common shares is low. In addition, the market price of our common shares may fall dramatically in response to a variety of factors, including:



Because
of this volatility, we may fail to meet the expectations of our stockholders or of securities analysts at some time in the future and the trading prices of our securities
could decline as a result.

In
addition, equity securities of many technology companies have recently experienced significant price and volume fluctuations. These price and volume fluctuations are sometimes
unrelated to the operating performance of the affected companies. Volatility in the market price of our common shares could result in securities class action litigation. This type of litigation,
regardless of the outcome, could result in substantial costs to us and a diversion of our management's attention and resources.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not use derivative financial instruments in its investment portfolio and has no foreign exchange contracts. Its financial instruments consist
of cash and cash equivalents, short and long-term investments, trade accounts and contracts receivable and accounts payable. The Company considers investments in highly liquid instruments
purchased with a remaining maturity of 90 days or less to be cash equivalents. All of the Company's cash equivalents and short and long-term investments principally consist of
commercial paper and debt securities, and are classified as available-for-sale as of
July 31, 2001. The Company's exposure to market risk for changes in interest rates relates primarily to its short and long-term investments and short-term obligations,
thus, fluctuations in interest rates would not have a material impact on the fair value of these securities.

Sales
to foreign countries accounted for approximately 19% and 22% of the total revenue during the quarter and six months, respectively, ended July 31, 2001. Because the
Company invoices certain of its foreign sales in currencies other than the United States dollar, predominantly the British pound sterling and German deutsche mark, and does not hedge these
transactions, fluctuations in exchange rates could adversely affect the translated results of operations of the Company's foreign subsidiaries. Therefore, foreign exchange fluctuation could create a
risk of significant balance sheet gains or losses on the Company's consolidated financial statements. However, given the Company's foreign subsidiaries' net book values as of July 31, 2001 and
net cash flows for the most recent fiscal quarter and six months then ended, and fiscal year ended January 31, 2001, the Company believes that such foreign denominated balances and activity are
not material.

Intangible Asset Risk.We have a substantial amount of intangible assets. Although at July 31, 2001 we believe
our intangible assets are recoverable, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset
recoverability. We continue to monitor those assumptions and their consequent effect on the estimated recoverability of our intangible assets.

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

Not applicable.

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

Board Nominees

Common
For

Common
WithheldDouglas D. Troxel

36,673,196

162,341Mark E. Woodward

36,669,422

166,155Richard A. Doerr

36,673,339

162,198Alan H. Hunt

36,263,486

572,051Jerry T. Ungerman

36,692,764

142,773Robert I. Pender, Jr.

36,670,296

165,241




Common For

Common Against

Abstained36,386,922

210,468

238,147




Common For

Common Against

Abstained36,800,622

28,822

6,093


ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Not
applicable.

No
reports on Form 8-K were filed by the Company during the quarter ended July 31, 2001.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |  | SERENA SOFTWARE, INC.
| |  | ---------------------
| |  | By:                  

Date:
September 12, 2001

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