##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q/A


(Amendment No. 1)


(Mark One)




|  |                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
     SECURITIES EXCHANGE ACT OF 1934 FOR THE THREE MONTHS ENDED
    JUNE 30, 2003
| 
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934                                                  

Commission File Number


1-15681





webMethods, Inc.


(Exact name of Registrant as Specified in its Charter)


|                                                                             |  |                                                   
|---------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or Other Jurisdiction of
    Incorporation or Organization)   |  | 54-1807654(I.R.S. Employer
    Identification No.)
|3930 Pender Drive, Fairfax, Virginia(Address of Principal Executive Offices) |  | 22030(Zip Code)                                   

(703) 460-2500











x o


x o












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##### 



Explanatory Note to Amendment No. 1 to Form 10-Q










| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | Part I, Item 1. Financial Information.                                                                    
|
| |  | Part I, Item 2. Managements Discussion and
    Analysis of Financial Condition and Results of Operations.
|
| |  | Part I, Item 4. Controls and Procedures.                                                                  
|
| |  | Part II, Item 6. Exhibits and Reports on Form 8-K.                                                        





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##### 



WEBMETHODS, INC.


QUARTERLY REPORT ON FORM 10-Q/A


FOR THE THREE MONTHS ENDED JUNE 30, 2003


TABLE OF CONTENTS


|        |  |                                                                                                                                        |  |   
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Part I  |  | Financial Information                                                                                                                  |  | 1 
|Item 1  |  | Financial Statements                                                                                                                   |  | 1 
|        |  | Condensed Consolidated Financial Statements                                                                                            |  | 1 
|        |  | Condensed Consolidated Balance Sheets (unaudited) as of
    June 30, 2003 and
    March 31, 2003                                       |  | 1 
|        |  | Condensed Consolidated Statements of Operations and
    Comprehensive Loss (unaudited)  Three months ended
    June 30, 2003 and 2002 |  | 2 
|        |  | Condensed Consolidated Statements of Cash Flows
    (unaudited)  Three months ended June 30, 2003
    and 2002                        |  | 3 
|        |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                       |  | 4 
|Item 2  |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                                              |  | 9 
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                             |  | 26
|Item 4  |  | Controls and Procedures                                                                                                                |  | 27
|       
|Part II |  | Other Information                                                                                                                      |  | 30
|Item 1  |  | Legal Proceedings                                                                                                                      |  | 30
|Item 6  |  | Exhibits and Reports on Form 8-K                                                                                                       |  | 30
|        |  | (a) Exhibits                                                                                                                           |  | 30
|        |  | (b) Reports on Form 8-K                                                                                                                |  | 31



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##### 



PART I


FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


WEBMETHODS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


|                                         |                                                                                                                           |                |                                            |          |           |         |        |          |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------------------------------ | -------- | --------- | ------- | ------ | -------- | ------- | ------- | 
|                                         |                                                                                                                           | June 30,       |                                            |          | March 31, |        
|                                         |                                                                                                                           | 2003           |                                            |          | 2003      |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           | As restated    |                                            |          |          
|                                         |                                                                                                                           | (In thousands) |                                           
|ASSETS                                   |                                                                                                                           |                |                                            |          |           |         |        |         
|Current assets:                          |                                                                                                                           |                |                                            |          |           |         |        |         
|                                         | Cash and cash equivalents                                                                                                 |                | $                                          | 98,183   |           |         | $      | 79,702   |        
|                                         | Marketable securities available for sale                                                                                  |                |                                            | 96,751   |           |         |        | 97,079   |        
|                                         | Accounts receivable, net of allowance of $2,399 and $2,850                                                                |                |                                            | 31,283   |           |         |        | 43,691   |        
|                                         | Prepaid expenses and other current assets                                                                                 |                |                                            | 8,023    |           |         |        | 7,562    |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           |                | Total current assets                       |          |           | 234,240 |        |          |         | 228,034 | 
|Property and equipment, net              |                                                                                                                           |                | 11,922                                     |          |           |         | 12,068 |         
|Marketable securities available for sale |                                                                                                                           |                | 10,455                                     |          |           |         | 24,845 |         
|Goodwill                                 |                                                                                                                           |                | 29,838                                     |          |           |         | 29,838 |         
|Other assets                             |                                                                                                                           |                | 8,165                                      |          |           |         | 9,651  |         
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           | Total assets   |                                            | $        | 294,620   |         |        | $        | 304,436 |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                        
|LIABILITIES AND STOCKHOLDERS EQUITY     |                                                                                                                           |                |                                            |          |           |         |        |         
|Current liabilities:                     |                                                                                                                           |                |                                            |          |           |         |        |         
|                                         | Accounts payable                                                                                                          |                | $                                          | 10,985   |           |         | $      | 9,768    |        
|                                         | Accrued expenses                                                                                                          |                |                                            | 14,725   |           |         |        | 14,802   |        
|                                         | Accrued salaries and commissions                                                                                          |                |                                            | 9,719    |           |         |        | 11,648   |        
|                                         | Deferred revenue                                                                                                          |                |                                            | 38,271   |           |         |        | 39,649   |        
|                                         | Current portion of capital lease obligations                                                                              |                |                                            | 1,923    |           |         |        | 2,743    |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           |                | Total current liabilities                  |          |           | 75,623  |        |          |         | 78,610  | 
|                                         | Capital lease obligations, net of current portion and other                                                               |                |                                            | 905      |           |         |        | 567      |        
|                                         | Long term deferred revenue                                                                                                |                |                                            | 4,610    |           |         |        | 6,700    |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           |                | Total liabilities                          |          |           | 81,138  |        |          |         | 85,877  | 
|                                         |                                                                                                                           |                |                                            |          |           |        
|Commitments and contingencies            |                                                                                                                           |                |                                            |          |           |         |        |         
|                                         | Stockholders equity:                                                                                                     |                |                                            |          |           |         |        |          |        
|                                         | Common stock, $0.01 par value; 500,000,000 shares authorized;
    52,009,227 and 51,766,572 shares issued and outstanding |                |                                            | 520      |           |         |        | 518      |        
|                                         | Additional paid-in capital                                                                                                |                |                                            | 517,300  |           |         |        | 515,828  |        
|                                         | Deferred stock compensation and warrant charge                                                                            |                |                                            | (8,711   | )         |         |        | (9,450   | )      
|                                         | Accumulated deficit                                                                                                       |                |                                            | (295,826 | )         |         |        | (288,449 | )      
|                                         | Accumulated other comprehensive gain                                                                                      |                |                                            | 199      |           |         |        | 112      |        
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           |                | Total stockholders equity                 |          |           | 213,482 |        |          |         | 218,559 | 
|                                         |                                                                                                                           |                |                                            |          |           |        
|                                         |                                                                                                                           |                | Total liabilities and stockholders equity |          | $         | 294,620 |        |          | $       | 304,436 | 
|                                         |                                                                                                                           |                |                                            |          |           |        

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


1



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##### 



WEBMETHODS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE LOSS


(Unaudited)


|                                                              |                                        |                                                                        |                          |        |        |        |            |        |        |        |  
|------------------------------------------------------------- | -------------------------------------- | ---------------------------------------------------------------------- | ------------------------ | ------ | ------ | ------ | ---------- | ------ | ------ | ------ | -
|                                                              |                                        | Three Months Ended June 30,                                            |                         
|                                                              |                                        |                                                                        |                         
|                                                              |                                        | 2003                                                                   |                          |        | 2002   |       
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              |                                        | As restated                                                            |                          |        |       
|                                                              |                                        | (In thousands, except                                                  |                         
|                                                              |                                        | per share amounts)                                                     |                         
|Revenue:                                                      |                                        |                                                                        |                          |        |        |        |            |       
|                                                              | License                                |                                                                        | $                        | 21,174 |        |        | $          | 28,669 |       
|                                                              | Professional services                  |                                                                        |                          | 8,873  |        |        |            | 8,202  |       
|                                                              | Maintenance                            |                                                                        |                          | 12,550 |        |        |            | 10,810 |       
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              |                                        |                                                                        | Total revenue            |        |        | 42,597 |            |        |        | 47,681 |  
|                                                              |                                        |                                                                        |                          |        |        |       
|Cost of revenue:                                              |                                        |                                                                        |                          |        |        |        |            |       
|                                                              | License                                |                                                                        |                          | 467    |        |        |            | 135    |       
|                                                              | Professional services and maintenance: |                                                                        |                          |        |        |        |            |        |       
|                                                              |                                        | Stock based compensation                                               |                          |        | 22     |        |            |        | 76     |       
|                                                              |                                        | Other professional services and maintenance                            |                          |        | 11,659 |        |            |        | 10,267 |       
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              |                                        |                                                                        | Total cost of revenue    |        |        | 12,148 |            |        |        | 10,478 |  
|                                                              |                                        |                                                                        |                          |        |        |       
|Gross profit                                                  |                                        |                                                                        | 30,449                   |        |        |        | 37,203     |       
|                                                              |                                        |                                                                        |                          |        |        |       
|Operating expenses:                                           |                                        |                                                                        |                          |        |        |        |            |       
|                                                              | Sales and marketing:                   |                                                                        |                          |        |        |        |            |        |       
|                                                              |                                        | Stock based compensation and warrant charge                            |                          |        | 696    |        |            |        | 970    |       
|                                                              |                                        | Other sales and marketing costs                                        |                          |        | 22,450 |        |            |        | 24,310 |       
|                                                              | Research and development:              |                                                                        |                          |        |        |        |            |        |       
|                                                              |                                        | Stock based compensation                                               |                          |        |       |        |            |        | 19     |       
|                                                              |                                        | Other research and development costs                                   |                          |        | 11,200 |        |            |        | 12,279 |       
|                                                              | General and administrative:            |                                                                        |                          |        |        |        |            |        |       
|                                                              |                                        | Stock based compensation                                               |                          |        | 3      |        |            |        | 21     |       
|                                                              |                                        | Other general and administrative costs                                 |                          |        | 4,423  |        |            |        | 4,065  |       
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              |                                        |                                                                        | Total operating expenses |        |        | 38,772 |            |        |        | 41,664 |  
|                                                              |                                        |                                                                        |                          |        |        |       
|Operating loss                                                |                                        |                                                                        | (8,323                   | )      |        |        | (4,461     | )     
|Interest income, net                                          |                                        |                                                                        | 946                      |        |        |        | 1,339      |       
|                                                              |                                        |                                                                        |                          |        |        |       
|Net loss                                                      |                                        | $                                                                      | (7,377                   | )      |        | $      | (3,122     | )     
|                                                              |                                        |                                                                        |                          |        |        |       
|Basic and diluted net loss per share                          |                                        | $                                                                      | (0.14                    | )      |        | $      | (0.06      | )     
|                                                              |                                        |                                                                        |                          |        |        |       
|Shares used in computing basic and diluted net loss per share |                                        |                                                                        | 51,804,692               |        |        |        | 50,564,625 |       
|                                                              |                                        |                                                                        |                          |        |        |       
|Comprehensive loss:                                           |                                        |                                                                        |                          |        |        |        |            |       
|                                                              | Net loss                               |                                                                        | $                        | (7,377 | )      |        | $          | (3,122 | )     
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              | Other comprehensive income/(loss):     |                                                                        |                          |        |        |        |            |        |       
|                                                              |                                        | Unrealized (loss)/gain on marketable securities available for
    sale |                          |        | (58    | )      |            |        | 30     |       
|                                                              |                                        | Foreign currency cumulative translation adjustment                     |                          |        | 145    |        |            |        | 536    |       
|                                                              |                                        |                                                                        |                          |        |        |       
|                                                              |                                        |                                                                        | Total comprehensive loss |        | $      | (7,290 | )          |        | $      | (2,556 | )
|                                                              |                                        |                                                                        |                          |        |        |       

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


2



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##### 



WEBMETHODS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


|                                                     |                                                                                               |                                                                                                                   |        |        |        |   |         |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------- | ------ | ------ | -
|                                                     |                                                                                               | Three Months Ended                                                                                                |       
|                                                     |                                                                                               | June 30,                                                                                                          |       
|                                                     |                                                                                               |                                                                                                                   |       
|                                                     |                                                                                               | 2003                                                                                                              |        |        | 2002   |  
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|                                                     |                                                                                               | As restated                                                                                                       |        |        |       
|                                                     |                                                                                               | (In thousands)                                                                                                    |       
|Cash flows from operating activities:                |                                                                                               |                                                                                                                   |        |        |        |   |         |       
|                                                     | Net loss                                                                                      |                                                                                                                   | $      | (7,377 | )      |   | $       | (3,122 | )     
|                                                     | Adjustments to reconcile net loss to net cash provided by/(used
    in) operating activities: |                                                                                                                   |        |        |        |   |         |        |       
|                                                     |                                                                                               | Depreciation and amortization                                                                                     |        |        | 2,146  |   |         |        | 2,305  |  
|                                                     |                                                                                               | Provision for allowance for doubtful accounts                                                                     |        |        |       |   |         |        | 129    |  
|                                                     |                                                                                               | Amortization of deferred stock compensation related to employee
    stock options and non-employee stock warrants |        |        | 721    |   |         |        | 1,086  |  
|                                                     |                                                                                               | Conversion of interest income into equity in private company                                                      |        |        | (257   | ) |         |        |       |  
|                                                     | Increase (decrease) in cash resulting from changes in
    assets and liabilities:             |                                                                                                                   |        |        |        |   |         |        |       
|                                                     |                                                                                               | Accounts receivable                                                                                               |        |        | 13,045 |   |         |        | 7,084  |  
|                                                     |                                                                                               | Prepaid expenses and other current assets                                                                         |        |        | (408   | ) |         |        | (558   | )
|                                                     |                                                                                               | Other non-current assets                                                                                          |        |        | 778    |   |         |        | 639    |  
|                                                     |                                                                                               | Accounts payable                                                                                                  |        |        | 984    |   |         |        | (4,654 | )
|                                                     |                                                                                               | Accrued expenses                                                                                                  |        |        | (290   | ) |         |        | (1,068 | )
|                                                     |                                                                                               | Accrued salaries and commissions                                                                                  |        |        | (1,527 | ) |         |        | (3,744 | )
|                                                     |                                                                                               | Accrued ESPP                                                                                                      |        |        | (554   | ) |         |        | (885   | )
|                                                     |                                                                                               | Deferred revenue                                                                                                  |        |        | (3,993 | ) |         |        | (6,093 | )
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Net cash provided by (used in) operating activities  |                                                                                               |                                                                                                                   | 3,268  |        |        |   | (8,881  | )     
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Cash flows from investing activities:                |                                                                                               |                                                                                                                   |        |        |        |   |         |       
|                                                     | Purchases of property and equipment                                                           |                                                                                                                   |        | (890   | )      |   |         | (921   | )     
|                                                     | Proceeds from sale of investment in private company                                           |                                                                                                                   |        | 1,000  |        |   |         |       |       
|                                                     | Net maturities of marketable securities available for sale                                    |                                                                                                                   |        | 14,659 |        |   |         | 24,833 |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Net cash provided by investing activities            |                                                                                               |                                                                                                                   | 14,769 |        |        |   | 23,912  |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Cash flows from financing activities:                |                                                                                               |                                                                                                                   |        |        |        |   |         |       
|                                                     | Borrowings under leasing agreements                                                           |                                                                                                                   |        |       |        |   |         | 2,500  |       
|                                                     | Payments on capital leases                                                                    |                                                                                                                   |        | (1,460 | )      |   |         | (653   | )     
|                                                     | Proceeds from exercise of stock options and stock issued under
    the ESPP                   |                                                                                                                   |        | 1,491  |        |   |         | 2,381  |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Net cash provided by financing activities            |                                                                                               |                                                                                                                   | 31     |        |        |   | 4,228   |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Effect of exchange rate on cash and cash equivalents |                                                                                               |                                                                                                                   | 413    |        |        |   | 736     |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Net increase in cash and cash equivalents            |                                                                                               |                                                                                                                   | 18,481 |        |        |   | 19,995  |       
|Cash and cash equivalents at beginning of period     |                                                                                               |                                                                                                                   | 79,702 |        |        |   | 98,497  |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  
|Cash and cash equivalents at end of period           |                                                                                               | $                                                                                                                 | 98,183 |        |        | $ | 118,492 |       
|                                                     |                                                                                               |                                                                                                                   |        |        |        |  

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


3



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##### 



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




|   |                      
|-- | ---------------------
|1. | BASIS OF PRESENTATION





|   |             
|-- | ------------
|2. | RESTATEMENTS









4



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##### 



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Unaudited)




2.     RESTATEMENTS 
(Continued)


Summary of the Significant
Effects of the Restatements on the Consolidated Statements of
Operations


|                                     |                       |                                          |        |        |             |   |       |             |      |   |        |        |        | 
|------------------------------------ | --------------------- | ---------------------------------------- | ------ | ------ | ----------- | - | ----- | ----------- | ---- | - | ------ | ------ | ------ | 
|                                     |                       | Three months ended June 30, 2003         |       
|                                     |                       |                                          |       
|                                     |                       | As previously                            |        |        |            
|                                     |                       | reported                                 |        |        | Adjustments |   |       | As restated |     
|                                     |                       |                                          |        |        |             |   |       |             |     
|                                     |                       | (In thousands, except per share amounts) |       
|Revenue:                             |                       |                                          |        |        |             |   |       |             |      |   |        |       
|                                     | License               |                                          | $      | 21,802 |             |   | $     | (628        | )    |   | $      | 21,174 |       
|                                     | Professional services |                                          |        | 8,873  |             |   |       |            |      |   |        | 8,873  |       
|                                     | Maintenance           |                                          |        | 12,550 |             |   |       |            |      |   |        | 12,550 |       
|                                     |                       |                                          |        |        |             |   |       |             |     
|                                     |                       | Total revenue                            |        |        | 43,225      |   |       |             | (628 | ) |        |        | 42,597 | 
|Cost of revenue                      |                       |                                          | 12,148 |        |             |   |      |             |      |   | 12,148 |       
|                                     |                       |                                          |        |        |             |   |       |             |     
|Gross profit                         |                       |                                          | 31,077 |        |             |   | (628  | )           |      |   | 30,449 |       
|Operating expenses                   |                       |                                          | 38,772 |        |             |   |      |             |      |   | 38,772 |       
|                                     |                       |                                          |        |        |             |   |       |             |     
|Operating loss                       |                       |                                          | (7,695 | )      |             |   | (628  | )           |      |   | (8,323 | )     
|Interest and other income, net       |                       |                                          | 934    |        |             |   | 12    |             |      |   | 946    |       
|                                     |                       |                                          |        |        |             |   |       |             |     
|Net loss                             |                       | $                                        | (6,761 | )      |             | $ | (616  | )           |      | $ | (7,377 | )     
|                                     |                       |                                          |        |        |             |   |       |             |     
|Basic and diluted net loss per share |                       | $                                        | (0.13  | )      |             | $ | (0.01 | )           |      | $ | (0.14  | )     
|                                     |                       |                                          |        |        |             |   |       |             |     

Summary of the Significant
Effects of the Restatements on the Consolidated Balance Sheet


|                                       |  |                |          |   |             |   |      |             |  |   |          |  
|-------------------------------------- |  | -------------- | -------- | - | ----------- | - | ---- | ----------- |  | - | -------- | -
|                                       |  | June 30, 2003  |         
|                                       |  |                |         
|                                       |  | As previously  |          |   |            
|                                       |  | reported       |          |   | Adjustments |   |      | As restated | 
|                                       |  |                |          |   |             |   |      |             | 
|                                       |  | (In thousands) |         
|Accounts receivable, net               |  | $              | 32,059   |   |             | $ | (776 | )           |  | $ | 31,283   |  
|Total current assets                   |  |                | 235,016  |   |             |   | (776 | )           |  |   | 234,240  |  
|Total assets                           |  |                | 295,396  |   |             |   | (776 | )           |  |   | 294,620  |  
|Accounts payable                       |  |                | 11,022   |   |             |   | (37  | )           |  |   | 10,985   |  
|Deferred revenue                       |  |                | 38,384   |   |             |   | (113 | )           |  |   | 38,271   |  
|Total liabilities                      |  |                | 81,288   |   |             |   | (150 | )           |  |   | 81,138   |  
|Accumulated deficit                    |  |                | (295,210 | ) |             |   | (616 | )           |  |   | (295,826 | )
|Accumulated other comprehensive income |  |                | 209      |   |             |   | (10  | )           |  |   | 199      |  





5



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##### 



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Unaudited)




|   |                                   
|-- | ----------------------------------
|3. | PRO FORMA STOCK BASED COMPENSATION





|                                                          |  |                           |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                          |  | Three Months              |        
|                                                          |  | Ended June 30,            |        
|                                                          |  |                           |        
|                                                          |  | 2003                      |         |   | 2002 |  
|                                                          |  |                           |         |   |      |  
|                                                          |  | As restated               |         |   |     
|                                                          |  | (In thousands, except for |        
|                                                          |  | per share amounts)        |        
|Net loss attributable to common shareholders, as reported |  | $                         | (7,377  | ) |      | $ | (3,122  | )
|Net loss attributable to common shareholders, pro forma   |  | $                         | (22,198 | ) |      | $ | (16,353 | )
|Basic and diluted net loss per common share, as reported  |  | $                         | (0.14   | ) |      | $ | (0.06   | )
|Basic and diluted net loss per common share, pro forma    |  | $                         | (0.43   | ) |      | $ | (0.32   | )



|   |                                  
|-- | ---------------------------------
|4. | COMPUTATION OF NET LOSS PER SHARE





|   |                                                  
|-- | -------------------------------------------------
|5. | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

|                                             |                                                                      |                |    |       |      |   |     |    | 
|-------------------------------------------- | -------------------------------------------------------------------- | -------------- | -- | ----- | ---- | - | --- | -- | 
|                                             |                                                                      | Three Months   |   
|                                             |                                                                      | Ended June 30, |   
|                                             |                                                                      |                |   
|                                             |                                                                      | 2003           |    |       | 2002 |  
|                                             |                                                                      |                |    |       |      |  
|                                             |                                                                      | As restated    |    |       |     
|                                             |                                                                      | (In thousands) |   
|Cash paid during the period for interest     |                                                                      | $              | 89 |       |      | $ | 107 |   
|Non-cash investing and financing activities: |                                                                      |                |    |       |      |   |     |   
|                                             | Equipment purchased under capital lease                              |                | $  | 1,006 |      |   | $   | 27 | 
|                                             | Conversion of interest income to equity in private company           |                | $  | 257   |      |   | $   |   | 
|                                             | Change in net unrealized gain or (loss) on marketable
    securities |                | $  | (58   | )    |   | $   | 30 | 



|   |                    
|-- | -------------------
|6. | SEGMENT INFORMATION



6



---



##### 



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Unaudited)


6.     SEGMENT
INFORMATION  (Continued)




|             |       |                |        |        |      |   |        |        | 
|------------ | ----- | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|             |       | Three Months   |       
|             |       | Ended June 30, |       
|             |       |                |       
|             |       | 2003           |        |        | 2002 |  
|             |       |                |        |        |      |  
|             |       | As restated    |        |        |     
|             |       | (In thousands) |       
|Revenue      |       |                |        |        |      |   |        |       
|Americas     |       | $              | 25,331 |        |      | $ | 32,824 |       
|Europe       |       |                | 10,697 |        |      |   | 9,230  |       
|Japan        |       |                | 3,617  |        |      |   | 2,372  |       
|Asia Pacific |       |                | 2,952  |        |      |   | 3,255  |       
|             |       |                |        |        |      |  
|             | Total |                | $      | 42,597 |      |   | $      | 47,681 | 
|             |       |                |        |        |      |  

|                  |       |                |        |        |           |   |        |        | 
|----------------- | ----- | -------------- | ------ | ------ | --------- | - | ------ | ------ | 
|                  |       | As of          |        |        | As of     |  
|                  |       | June 30,       |        |        | March 31, |  
|                  |       | 2003           |        |        | 2003      |  
|                  |       |                |        |        |           |  
|                  |       | (In thousands) |       
|Long Lived Assets |       |                |        |        |           |   |        |       
|Americas          |       | $              | 46,366 |        |           | $ | 47,852 |       
|Europe            |       |                | 2,338  |        |           |   | 2,228  |       
|Japan             |       |                | 728    |        |           |   | 935    |       
|Asia Pacific      |       |                | 493    |        |           |   | 541    |       
|                  |       |                |        |        |           |  
|                  | Total |                | $      | 49,925 |           |   | $      | 51,556 | 
|                  |       |                |        |        |           |  



|   |                                  
|-- | ---------------------------------
|7. | RESTRUCTURING AND RELATED CHARGES









|   |                               
|-- | ------------------------------
|8. | INVESTMENTS IN PRIVATE COMPANY



7



---



##### 



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Unaudited)




8.     INVESTMENTS IN PRIVATE
COMPANY  (Continued)






8



---



##### 



ITEM 2.                      MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




RECENT DEVELOPMENTS


Restatements






9



---



##### 









OVERVIEW


Background




Overview of First Quarter of Fiscal 2004






10



---



##### 













Critical Accounting Policies and Estimates




11



---



##### 







Revenue Recognition






Allowance for Doubtful Accounts




Goodwill and Intangible Assets




12



---



##### 





Foreign Currency Effects




Accounting for Income Taxes




RESULTS OF OPERATIONS




|                         |  |                  |        |    |            |  |       |          |  |   |        |   
|------------------------ |  | ---------------- | ------ | -- | ---------- |  | ----- | -------- |  | - | ------ | --
|                         |  | June 30,         |        |    | Percentage |  |       | June 30, | 
|                         |  | 2003             |        |    | Change     |  |       | 2002     | 
|                         |  |                  |        |    |            |  |       |          | 
|                         |  | As restated      |        |    |            |  |      
|                         |  | ($ in thousands) |       
|Total revenue            |  | $                | 42,597 |    |            |  | (10.7 | )%       |  | $ | 47,681 |   
|Gross profit             |  | $                | 30,449 |    |            |  | (18.2 | )%       |  | $ | 37,203 |   
|% of total revenue       |  |                  | 71.5   | %  |            |  |       |          |  |   | 78.0   | % 
|Total operating expenses |  | $                | 38,772 |    |            |  | (6.9  | )%       |  | $ | 41,664 |   
|% of total revenue       |  |                  | 91.0   | %  |            |  |       |          |  |   | 87.4   | % 
|Operating loss           |  | $                | (8,323 | )  |            |  | 86.5  | %        |  | $ | (4,461 | ) 
|% of total revenue       |  |                  | (19.5  | )% |            |  |       |          |  |   | (9.4   | )%
|Net loss                 |  | $                | (7,377 | )  |            |  | 136.3 | %        |  | $ | (3,122 | ) 
|% of total revenue       |  |                  | (17.3  | )% |            |  |       |          |  |   | (6.5   | )%



13



---



##### 







Revenue




|                      |  |                  |        |  |            |  |       |          |  |   |        | 
|--------------------- |  | ---------------- | ------ |  | ---------- |  | ----- | -------- |  | - | ------ | 
|                      |  | June 30,         |        |  | Percentage |  |       | June 30, | 
|                      |  | 2003             |        |  | Change     |  |       | 2002     | 
|                      |  |                  |        |  |            |  |       |          | 
|                      |  | As restated      |        |  |            |  |      
|                      |  | ($ in thousands) |       
|License               |  | $                | 21,174 |  |            |  | (26.1 | )%       |  | $ | 28,669 | 
|Professional services |  |                  | 8,873  |  |            |  | 8.2   | %        |  |   | 8,202  | 
|Maintenance           |  |                  | 12,550 |  |            |  | 16.1  | %        |  |   | 10,810 | 
|                      |  |                  |        |  |            |  |       |          | 
|Total revenue         |  | $                | 42,597 |  |            |  | (10.7 | )%       |  | $ | 47,681 | 
|                      |  |                  |        |  |            |  |       |          | 



|              |  |                  |        |  |            |  |       |          |  |   |        | 
|------------- |  | ---------------- | ------ |  | ---------- |  | ----- | -------- |  | - | ------ | 
|              |  | June 30,         |        |  | Percentage |  |       | June 30, | 
|              |  | 2003             |        |  | Change     |  |       | 2002     | 
|              |  |                  |        |  |            |  |       |          | 
|              |  | As restated      |        |  |            |  |      
|              |  | ($ in thousands) |       
|Americas      |  | $                | 25,331 |  |            |  | (22.8 | )%       |  | $ | 32,824 | 
|Europe        |  |                  | 10,697 |  |            |  | 15.9  | %        |  |   | 9,230  | 
|Japan         |  |                  | 3,617  |  |            |  | 52.5  | %        |  |   | 2,372  | 
|Asia Pacific  |  |                  | 2,952  |  |            |  | (9.3  | )%       |  |   | 3,255  | 
|              |  |                  |        |  |            |  |       |          | 
|Total revenue |  | $                | 42,597 |  |            |  | (10.7 | )%       |  | $ | 47,681 | 
|              |  |                  |        |  |            |  |       |          | 







14



---



##### 









Gross Margin




|                                             |  |                    |       |  |          |  |       | 
|-------------------------------------------- |  | ------------------ | ----- |  | -------- |  | ----- | 
|                                             |  | Three Months Ended |      
|                                             |  |                    |      
|                                             |  | June 30,           |       |  | June 30, | 
|                                             |  | 2003               |       |  | 2002     | 
|                                             |  |                    |       |  |          | 
|                                             |  | As restated        |       |  |         
|License margin                               |  |                    | 97.8% |  |          |  | 99.5% | 
|Professional services and maintenance margin |  |                    | 45.5% |  |          |  | 46.0% | 
|Gross margin                                 |  |                    | 71.5% |  |          |  | 78.2% | 







15



---



##### 



Operating Expenses




|                                            |  |                    |        |   |            |  |       |          |  |   |        |  
|------------------------------------------- |  | ------------------ | ------ | - | ---------- |  | ----- | -------- |  | - | ------ | -
|                                            |  | Three Months Ended |       
|                                            |  |                    |       
|                                            |  | June 30,           |        |   | Percentage |  |       | June 30, | 
|                                            |  | 2003               |        |   | Change     |  |       | 2002     | 
|                                            |  |                    |        |   |            |  |       |          | 
|                                            |  | As restated        |        |   |            |  |      
|                                            |  | ($ in thousands)   |       
|Operating Expenses:                         |  |                    |        |   |            |  |       |          |  |   |        |  
|Sales and marketing*                        |  | $                  | 22,450 |   |            |  | (7.7  | )%       |  | $ | 24,310 |  
|% of total revenue                          |  |                    | 52.7   | % |            |  |       |          |  |   | 51.0   | %
|Research and development*                   |  | $                  | 11,200 |   |            |  | (8.8  | )%       |  | $ | 12,279 |  
|% of total revenue                          |  |                    | 26.3   | % |            |  |       |          |  |   | 25.8   | %
|General and administrative*                 |  | $                  | 4,423  |   |            |  | 8.8   | %        |  | $ | 4,065  |  
|% of total revenue                          |  |                    | 10.4   | % |            |  |       |          |  |   | 8.5    | %
|Stock based compensation and warrant charge |  | $                  | 699    |   |            |  | (30.8 | )%       |  | $ | 1,010  |  
|% of total revenue                          |  |                    | 1.6    | % |            |  |       |          |  |   | 2.1    | %
|Total operating expense                     |  | $                  | 38,772 |   |            |  | (6.9  | )%       |  | $ | 41,664 |  
|% of total revenue                          |  |                    | 91.0   | % |            |  |       |          |  |   | 87.4   | %






|  |                                                                         
|- | ------------------------------------------------------------------------
|* | Excludes stock based compensation and warrant charge, as
    applicable.









16



---



##### 











Interest Income, Net




Income Taxes




LIQUIDITY AND CAPITAL RESOURCES








17



---



##### 









FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS




Unanticipated fluctuations in our quarterly revenue or
operating results could significantly affect the price of our
stock.




18



---



##### 





Growth of our sales may slow from time to time, causing
our quarterly operating results to fluctuate.






The integration software and web services markets are
highly competitive, and we may not be able to compete
effectively.




19



---



##### 



We rely on strategic partnerships with software vendors,
alliances with major system integrators and other similar
relationships to implement and promote our software and, if
these relationships terminate, we may lose important deals and
marketing opportunities.




Third-party claims that we infringe upon their
intellectual property rights may be costly to defend or settle
or could damage our business.




20



---



##### 



We are trying to increase our sales to the US Government
and to others in the public sector, and we may face difficulties
in our attempts to procure new contracts with them and risks
unique to government contracts that may have a detrimental
impact on our business or operating results.






Our operating results may decline and our customers may
become dissatisfied if we do not provide professional services
or if we are unable to establish and maintain relationships with
third-party implementation providers.




21



---



##### 



Our software must integrate with applications made by
third parties, and, if we lose access to the programming
interfaces for these applications, or if we are unable to modify
our software or develop new adapters in response to changes in
these applications, our business could suffer.




Our executive officers and certain key personnel are
critical to our business, and these officers and key personnel
may not always remain with us.




If our customers do not renew their product support and
maintenance agreements, we may lose a recurring revenue stream,
which could harm our operating results.




We may not be able to increase market awareness and sales
of our software if we do not maintain our sales and distribution
capabilities.




22



---



##### 



We intend to continue expanding our international sales
efforts, and our inability to do so could harm our business and
operating results.






If we experience delays in developing our software, or if
our software contains defects, we could lose customers and
revenue.




Because our software could interfere with the operations
of our customers other software applications, we may be
subject to potential product liability and warranty claims by
these customers, which may be time consuming, costly to defend
and may not be adequately covered by insurance.




23



---



##### 





We are a relatively young company and have a limited
operating history with which to evaluate our respective business
and the prospects of achieving our anticipated growth and of
maintaining profitability.






Any future acquisitions of companies or technologies may
result in disruptions to our business or the distraction of our
management.




24



---



##### 



We may not have sufficient resources available to us in
the future to take advantage of certain opportunities.




If we are unable to protect our intellectual property, we
may lose a valuable asset, experience reduced market share, or
incur costly litigation to protect our rights.






Because some of our software products incorporate
technology licensed from, or provided by, third parties, the
loss of our right to use that technology could harm our
business.




Because market participants in some markets have adopted
industry specific technologies, we may need to expend
significant resources in order to address specific
markets.




25



---



##### 





We adopted a shareholder rights plan in October 2001, and
previously implemented certain provisions in our certificate of
incorporation and bylaws, that may have anti-takeover
effects.






|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest rate risk.


Foreign currency exchange rate risk.




26



---



##### 







|        |                        
|------- | -----------------------
|Item 4. | CONTROLS AND PROCEDURES



| |                                    
| | -----------------------------------
| | Disclosure Controls and Procedures.











| |                                           
| | ------------------------------------------
| | Internal Controls Over Financial Reporting



27



---



##### 







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have placed the employees of our Japanese subsidiary who were
    principally involved in the improper activities on a special
    status under Japanese labor law under which they have no further
    access to the offices or e-mail system of our Japanese
    subsidiary and are precluded from conducting business on behalf
    of the Company. We are pursuing disciplinary actions, which may
    include termination and restitution, concerning each employee
    implicated in wrongdoing in accordance with Japanese labor law
    and the work rules of the Companys Japanese subsidiary.                                                                                                                              
|
| |  | We have engaged an experienced financial consulting firm in
    Japan to assist the Company in providing financial and
    accounting services on behalf of our Japanese subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | We have recommunicated to employees of our Japanese subsidiary,
    and have confirmed their understanding of, our policy requiring
    collection and preservation of appropriate documentation that
    evidences an end-users purchase of a license to the
    Companys products in the quarter in which the revenue is
    recognized. We have reiterated this policy to all of our senior
    management, sales management and finance managers.                                                                                                                                                                                                                                                                                  
|
| |  | We have reiterated to all of our senior management, sales
    management and finance managers that borrowing from banks or any
    third party is strictly prohibited unless specifically
    authorized in writing by certain specified executive officers of
    the Company and by the Board of Directors of the respective
    borrowing entity. Verification of compliance with this policy
    has been added to certifications collected from members of
    management of the Company and our subsidiaries each quarter.                                                                                                                                                                                                         
|
| |  | We have reiterated to all of our senior management, sales
    management and finance managers that no employee of the Company
    may engage in verbal or written side agreements, including
    without limitation, side agreements that modify, cancel or agree
    to cancel any order or agreement for the license of our software
    products from a reseller or end-user or that modify, cancel or
    agree to modify or cancel any associated account receivable
    without complying with the applicable Company procedures.
    Clarification and verification of compliance with this policy
    has been added to certifications collected from members of
    management of the Company and our subsidiaries each quarter.
|
| |  | We have recruited and hired a Director, Internal Audit, who will
    be developing and implementing internal audit plans and
    procedures with respect to the Companys domestic and
    international operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | We are evaluating more comprehensive procedures for the timely
    detection, deterrence, and mitigation of wrongdoing and improper
    activities, as well as procedures to test compliance with our
    revenue recognition policy and our code of business conduct.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | We are implementing organizational changes to clarify that
    persons responsible for finance, accounting and legal functions
    concerning the Companys Japanese subsidiary report
    directly to persons responsible for the appropriate function in
    the global management team.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We are evaluating our relationships with each of our Japanese
    resellers, including reviewing arrangements with them to ensure
    that they are providing to the Company those materials required
    by the Companys revenue recognition policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | We are studying new or modified procedures under which the
    appropriate persons within the Companys global management
    team will have greater levels of involvement in, and oversight
    of, international operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



28



---



##### 





29



---



##### 



PART II


OTHER INFORMATION




|        |                  
|------- | -----------------
|Item 1. | LEGAL PROCEEDINGS







|        |                                 
|------- | --------------------------------
|Item 6. | EXHIBITS AND REPORTS ON FORM 8-K

Exhibits.


|        |    |       |             |                                                                                                                                               
|------- | -- | ----- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 2  | .1(1) |             | Agreement and Plan of Merger dated as of May 20, 2000, by
    and among webMethods, Inc., Wolf Acquisition, Inc. and Active
    Software, Inc.
|        | 3  | .1(2) |             | Fifth Amended and Restated Certificate of Incorporation of
    webMethods, Inc., as amended                                                   
|        | 3  | .2(3) |             | Amended and Restated Bylaws of webMethods, Inc.                                                                                               
|        | 4  | .1(3) |             | Specimen certificate for shares of webMethods Common Stock                                                                                    
|        | 4  | .2(4) |             | Rights Agreement dated as of October 18, 2001 between
    webMethods, Inc. and American Stock Transfer & Trust
    Company.                   
|        | 10 | .1(3) |             | Second Amended and Restated Investor Rights Agreement                                                                                         
|        | 10 | .2(5) |             | webMethods, Inc. Amended and Restated Stock Option Plan                                                                                       
|        | 10 | .3(3) |             | Employee Stock Purchase Plan                                                                                                                  
|        | 10 | .4(3) |             | Indemnification Agreement entered into between webMethods, Inc.
    and each of its directors and executive officers                          
|        | 31 | .1*   |             | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                       
|        | 31 | .2*   |             | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                       
|        | 32 | .1*#  |             | Section 1350 Certification of Chief Executive Officer                                                                                         
|        | 32 | .2*#  |             | Section 1350 Certification of Chief Financial Officer                                                                                         




|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to webMethods Registration
    Statement on Form S-4, as amended (File No. 333-39572).

30



---



##### 





|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference to webMethods Annual Report on
    Form 10-K for the year ended March 31, 2001 (File No.
    001-15681).
|   
|(3) | Incorporated by reference to webMethods Registration
    Statement on Form S-1, as amended (File No. 333-91309).                  
|   
|(4) | Incorporated by reference to webMethods Registration
    Statement on Form 8-A (File No. 001-15681)                               
|   
|(5) | Incorporated by reference to webMethods Annual Report on
    Form 10-K for the year ended March 31, 2002 (File No.
    001-15681).



|  |                
|- | ---------------
|* | Filed herewith.



|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|# | This item is furnished as an exhibit to this report but is not
    filed with the Securities and Exchange Commission.

Reports on Form 8-K.


|               |  |          |      |  |               |  |                                     | 
|-------------- |  | -------- | ---- |  | ------------- |  | ----------------------------------- | 
|Date of Report |  | Item No. |      |  | Item Reported | 
|               |  |          |      |  |               | 
|April 3, 2003  |  |          | 7,12 |  |               |  | Press release dated April 3, 2003.  | 
|April 29, 2003 |  |          | 7,12 |  |               |  | Press release dated April 29, 2003. | 
|July 3, 2003   |  |          | 7,12 |  |               |  | Press release dated July 3, 2003.   | 
|July 21, 2003  |  |          | 7,12 |  |               |  | Press release dated July 21, 2003.  | 

31



---



##### 



SIGNATURES






| |                 
| | ----------------
| | WEBMETHODS, INC.

|                        |  |                                                                                               
|----------------------- |  | ----------------------------------------------------------------------------------------------
|Date: February 14, 2005 |  | By: /s/ David
    MitchellDavid
    Mitchell
    President and Chief Executive Officer        
|                       
|Date: February 14, 2005 |  | By: /s/ Mary DridiMary
    Dridi
    Chief Financial Officer
    (Principal Financial Officer)

32



---



##### 



EXHIBIT INDEX


|        |    |       |             |                                                                                                                                               
|------- | -- | ----- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 2  | .1(1) |             | Agreement and Plan of Merger dated as of May 20, 2000, by
    and among webMethods, Inc., Wolf Acquisition, Inc. and Active
    Software, Inc.
|        | 3  | .1(2) |             | Fifth Amended and Restated Certificate of Incorporation of
    webMethods, Inc., as amended                                                   
|        | 3  | .2(3) |             | Amended and Restated Bylaws of webMethods, Inc.                                                                                               
|        | 4  | .1(3) |             | Specimen certificate for shares of webMethods Common Stock                                                                                    
|        | 4  | .2(4) |             | Rights Agreement dated as of October 18, 2001 between
    webMethods, Inc. and American Stock Transfer & Trust
    Company.                   
|        | 10 | .1(3) |             | Second Amended and Restated Investor Rights Agreement                                                                                         
|        | 10 | .2(5) |             | webMethods, Inc. Amended and Restated Stock Option Plan                                                                                       
|        | 10 | .3(3) |             | Employee Stock Purchase Plan                                                                                                                  
|        | 10 | .4(3) |             | Indemnification Agreement entered into between webMethods, Inc.
    and each of its directors and executive officers                          
|        | 31 | .1*   |             | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                       
|        | 31 | .2*   |             | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                       
|        | 32 | .1*#  |             | Section 1350 Certification of Chief Executive Officer                                                                                         
|        | 32 | .2*#  |             | Section 1350 Certification of Chief Financial Officer                                                                                         




|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to webMethods Registration
    Statement on Form S-4, as amended (File No. 333-39572).                  
|   
|(2) | Incorporated by reference to webMethods Annual Report on
    Form 10-K for the year ended March 31, 2001 (File No.
    001-15681).
|   
|(3) | Incorporated by reference to webMethods Registration
    Statement on Form S-1, as amended (File No. 333-91309).                  
|   
|(4) | Incorporated by reference to webMethods Registration
    Statement on Form 8-A (File No. 001-15681)                               
|   
|(5) | Incorporated by reference to webMethods Annual Report on
    Form 10-K for the year ended March 31, 2002 (File No.
    001-15681).



|  |                
|- | ---------------
|* | Filed herewith.



|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|# | This item is furnished as an exhibit to this report but is not
    filed with the Securities and Exchange Commission.