UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-Q

(MARK ONE)



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
	JUNE 30, 2000

OR



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

Commission File Number 001-15681



---

webMethods, Inc.

(Exact name of registrant as specified in its
charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|                                        
|                                        
|                                        
|                                        
|Delaware                                 |  | 54-1807654         
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|                                        
|                                        
|                                        
|                                        
|                                        
|3930 Pender Drive, Fairfax, Virginia     |  | 22030              
|(Address of principal executive offices) |  | (Zip Code)         

Registrants telephone number, including area code: 
(703) 460-2500



---

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

As of July 31, 2000, 32,699,384 shares of the
registrants Common Stock, par value $.01 per share, were
issued and outstanding.



---



WEBMETHODS, INC.

QUARTERLY REPORT ON FORM 10-Q

for the three months ended June 30, 2000


TABLE OF CONTENTS

|        |          |                                                                                                                                                     |                                                                                       
|------- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|Part I  |          | Financial Information                                                                                                                              
|        | Item  1. |                                                                                                                                                     | Condensed Consolidated Financial Statements                                           
|        |          | Condensed Consolidated Balance Sheets as of June 30, 2000
	and March 31, 2000                                                                      
|        |          | Condensed Consolidated Statements of Operations and Comprehensive
	 Loss for the three months ended June 30, 2000 (unaudited)
	and 1999 (unaudited)
|        |          | Condensed Consolidated Statements of Cash Flows for the three
	months ended June 30, 2000 (unaudited) and 1999 (unaudited)                         
|        |          | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                   
|        | Item  2. |                                                                                                                                                     | Managements Discussion and Analysis of Financial Condition
	And Results of Operations
|        | Item  3. |                                                                                                                                                     | Quantitative and Qualitative Disclosures about Market Risk                            
|       
|Part II |          | Other Information                                                                                                                                  
|        |          | Signatures                                                                                                                                         
|        | Item  1. |                                                                                                                                                     | Legal Proceedings                                                                     
|        | Item  2. |                                                                                                                                                     | Changes in Securities and Use of Proceeds                                             
|        | Item  3. |                                                                                                                                                     | Defaults Upon Senior Securities                                                       
|        | Item  4. |                                                                                                                                                     | Submission of Matters to Vote of Security Holders                                     
|        | Item  5. |                                                                                                                                                     | Other Information                                                                     
|        | Item  6. |                                                                                                                                                     | Exhibits and Reports on Form 8-K                                                      
|        |          | Signatures                                                                                                                                         

2



---



PART I  FINANCIAL INFORMATION

Item 1:  FINANCIAL STATEMENTS

WEBMETHODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                         |                                            |            |             |             |  |            |             |             | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ----------- | ----------- |  | ---------- | ----------- | ----------- | 
|                                         |                                                                                                                         | June 30,                                   |            | March 31,  
|                                         |                                                                                                                         | 2000                                       |            | 2000       
|                                         |                                                                                                                         |                                            |            |            
|                                         |                                                                                                                         | (unaudited)                                |            |            
|ASSETS                                   |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|Current assets:                          |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|                                         | Cash and cash equivalents                                                                                               |                                            | $          | 129,635,628 |             |  | $          | 156,778,409 |            
|                                        
|                                        
|                                        
|                                        
|                                         | Marketable securities available for sale                                                                                |                                            |            | 23,676,436  |             |  |            | 8,339,660   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts receivable, net of allowances of $842,000 and $801,000,
	respectively                                          |                                            |            | 8,618,779   |             |  |            | 6,782,822   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Prepaid expenses and other current assets                                                                               |                                            |            | 7,949,655   |             |  |            | 4,984,428   |            
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total current assets                       |            |             | 169,880,498 |  |            |             | 176,885,319 | 
|                                        
|                                        
|                                        
|                                        
|Marketable securities available for sale |                                                                                                                         |                                            | 42,839,916 |             |             |  | 32,637,889 |            
|                                        
|                                        
|                                        
|                                        
|Property and equipment, net              |                                                                                                                         |                                            | 4,421,442  |             |             |  | 3,746,783  |            
|                                        
|                                        
|                                        
|                                        
|Other assets                             |                                                                                                                         |                                            | 7,997,668  |             |             |  | 3,029,940  |            
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total assets                               |            | $           | 225,139,524 |  |            | $           | 216,299,931 | 
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY     |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|Current liabilities:                     |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts payable                                                                                                        |                                            | $          | 2,614,855   |             |  | $          | 2,041,323   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Accrued expenses                                                                                                        |                                            |            | 6,285,666   |             |  |            | 4,653,664   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Accrued salaries and commissions                                                                                        |                                            |            | 3,746,680   |             |  |            | 5,152,392   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred revenue                                                                                                        |                                            |            | 18,945,342  |             |  |            | 10,475,945  |            
|                                        
|                                        
|                                        
|                                        
|                                         | Current portion of capital lease obligations                                                                            |                                            |            | 478,613     |             |  |            | 148,026     |            
|                                        
|                                        
|                                        
|                                        
|                                         | Line of credit                                                                                                          |                                            |            | 132,295     |             |  |            | 153,054     |            
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total current liabilities                  |            |             | 32,203,451  |  |            |             | 22,624,404  | 
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         | Long term deferred revenue                                                                                              |                                            |            | 8,034,576   |             |  |            | 5,515,103   |            
|                                        
|                                        
|                                        
|                                        
|                                         | Capital lease obligations, net of current portion and other                                                             |                                            |            | 943,584     |             |  |            | 426,145     |            
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total liabilities                          |            |             | 41,181,611  |  |            |             | 28,565,652  | 
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|Commitments and contingencies            |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|Stockholders equity:                    |                                                                                                                         |                                            |            |             |             |  |            |            
|                                        
|                                        
|                                        
|                                        
|                                         | Common stock, $0.01 par value; 200,000,000 shares authorized;
	32,595,972 and; 32,386,987 shares issued and outstanding |                                            |            | 325,960     |             |  |            | 323,869     |            
|                                        
|                                        
|                                        
|                                        
|                                         | Additional paid-in capital                                                                                              |                                            |            | 230,204,576 |             |  |            | 228,908,883 |            
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred stock compensation                                                                                             |                                            |            | (7,809,563  | )           |  |            | (9,312,305  | )          
|                                        
|                                        
|                                        
|                                        
|                                         | Accumulated deficit                                                                                                     |                                            |            | (38,708,858 | )           |  |            | (32,095,877 | )          
|                                        
|                                        
|                                        
|                                        
|                                         | Accumulated other comprehensive loss                                                                                    |                                            |            | (54,202     | )           |  |            | (90,291     | )          
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total stockholders equity                 |            |             | 183,957,913 |  |            |             | 187,734,279 | 
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            
|                                         |                                                                                                                         | Total liabilities and stockholders equity |            | $           | 225,139,524 |  |            | $           | 216,299,931 | 
|                                         |                                                                                                                         |                                            |            |             |             |  |            |            

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

3



---



WEBMETHODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS

(UNAUDITED)


|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |           |            |           |  
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ---------- | ---------- | ---------- | --------- | --------- | ---------- | --------- | -
|                                                                                    |                                                                                                                                                         |                                             
|                                                                                    |                                                                                                                                                         | Three Months Ended June 30,                 
|                                                                                    |                                                                                                                                                         |                                             
|                                                                                    |                                                                                                                                                         | 2000                                         |                                                    | 1999      
|                                                                                    |                                                                                                                                                         |                                              |                                                    |           
|Revenue:                                                                            |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | License                                                                                                                                                 |                                              | $                                                  | 9,683,119  |            |            | $         | 2,154,378 |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Professional services                                                                                                                                   |                                              |                                                    | 4,317,097  |            |            |           | 564,097   |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Maintenance                                                                                                                                             |                                              |                                                    | 1,556,364  |            |            |           | 320,801   |           
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         |                                              | Total revenue                                      |            |            | 15,556,580 |           |           |            | 3,039,276 |  
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Cost of revenue:                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | License                                                                                                                                                 |                                              |                                                    | 277,239    |            |            |           | 81,322    |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Professional services and maintenance (exclusive of amortization
	of deferred stock compensation of $353,909 for the three months
	ended June 30, 2000) |                                              |                                                    | 5,918,911  |            |            |           | 439,857   |           
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         |                                              | Total cost of revenue                              |            |            | 6,196,150  |           |           |            | 521,179   |  
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Gross profit                                                                        |                                                                                                                                                         |                                              | 9,360,430                                          |            |            |            | 2,518,097 |          
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Operating expenses:                                                                 |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Sales and marketing (exclusive of amortization of deferred stock
	compensation of $788,566 for the three months ended June 30,
	 2000)                  |                                              |                                                    | 10,849,610 |            |            |           | 2,162,640 |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Research and development (exclusive of amortization of deferred
	stock compensation of $240,096 for the three months ended
	June 30, 2000)              |                                              |                                                    | 3,981,628  |            |            |           | 661,454   |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | General and administrative (exclusive of amortization of deferred
	 stock compensation of $120,171 for the three months ended
	June 30, 2000)           |                                              |                                                    | 2,563,355  |            |            |           | 688,871   |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Amortization of deferred stock compensation                                                                                                             |                                              |                                                    | 1,502,742  |            |            |           |          |           
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         |                                              | Total operating expenses                           |            |            | 18,897,335 |           |           |            | 3,512,965 |  
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Operating loss                                                                      |                                                                                                                                                         |                                              | (9,536,905                                         | )          |            |            | (994,868  | )        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Interest income, net                                                                |                                                                                                                                                         |                                              | 2,923,924                                          |            |            |            | 101,233   |          
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         | Net loss                                     |                                                    |            | (6,612,981 | )          |           |           | (893,635   | )        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Accretion and accrued dividends related to mandatorily redeemable
	 preferred stock |                                                                                                                                                         |                                              |                                                   |            |            |            | (349,115  | )        
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         | Net loss attributable to common shareholders |                                                    | $          | (6,612,981 | )          |           | $         | (1,242,750 | )        
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Basic and diluted net loss per common share                                         |                                                                                                                                                         | $                                            | (.20                                               | )          |            | $          | (.21      | )        
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Shares used in computing basic and diluted net loss per common
	share               |                                                                                                                                                         |                                              | 32,478,102                                         |            |            |            | 5,866,487 |          
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|Comprehensive loss:                                                                 |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                                                                                                         | Net loss                                     |                                                    | $          | (6,612,981 | )          |           | $         | (893,635   | )        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                                                                                                         | Other comprehensive loss:                    |                                                    |            |            |            |           |           |            |          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                                                                                                         |                                              | Unrealized loss on securities available for sale   |            |            | (21,664    | )         |           |            | (1,740    | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                                                                                                         |                                              | Foreign currency cumulative translation adjustment |            |            | 57,753     |           |           |            |          |  
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          
|                                                                                    |                                                                                                                                                         |                                              | Total comprehensive loss                           |            | $          | (6,576,892 | )         |           | $          | (895,375  | )
|                                                                                    |                                                                                                                                                         |                                              |                                                    |            |            |            |           |          

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

4



---



WEBMETHODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


|                                                 |                                                                                  |                                             |             |             |             |   |            |             |             |  
|------------------------------------------------ | -------------------------------------------------------------------------------- | ------------------------------------------- | ----------- | ----------- | ----------- | - | ---------- | ----------- | ----------- | -
|                                                 |                                                                                  |                                            
|                                                 |                                                                                  | Three Months Ended June 30,                
|                                                 |                                                                                  |                                            
|                                                 |                                                                                  | 2000                                        |             | 1999       
|                                                 |                                                                                  |                                             |             |            
|Cash flows from operating activities:            |                                                                                  |                                             |             |             |             |   |            |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                         |                                             | $           | (6,612,981  | )           |   | $          | (893,635    | )          
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash provided by
	operating activities: |                                             |             |             |             |   |            |             |            
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Depreciation and amortization               |             |             | 321,422     |   |            |             | 55,554      |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Provision for bad debts and returns         |             |             | 367,000     |   |            |             | 100,000     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Provision for warranty                      |             |             | 87,919      |   |            |             | 50,000      |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Amortization of deferred stock compensation |             |             | 1,502,742   |   |            |             |            |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase (decrease) in cash resulting from changes in assets
	 and liabilities:  |                                             |             |             |             |   |            |             |            
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Change in working capital                   |             |             | 4,170,329   |   |            |             | 741,746     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                  | Long term deferred revenue                  |             |             | 2,519,473   |   |            |             | 540,080     |  
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|                                                 | Net cash provided by operating activities                                        |                                             |             | 2,355,904   |             |   |            | 593,745     |            
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|Cash flows from investing activities:            |                                                                                  |                                             |             |             |             |   |            |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of property and equipment                                              |                                             |             | (121,249    | )           |   |            | (229,053    | )          
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of marketable securities available for sale                            |                                             |             | (25,538,803 | )           |   |            | (14,084,511 | )          
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of other assets                                                         |                                             |             | (5,000,003  | )           |   |            |            |            
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|                                                 |                                                                                  | Net cash used in investing activities       |             |             | (30,660,055 | ) |            |             | (14,313,564 | )
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|Cash flows from financing activities:            |                                                                                  |                                             |             |             |             |   |            |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Payments on capital leases                                                       |                                             |             | (70,092     | )           |   |            |            |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments under line of credit                                                  |                                             |             | (20,759     | )           |   |            | (23,555     | )          
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from exercise of stock options                                          |                                             |             | 141,460     |             |   |            | 4,239       |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from ESPP issuance                                                      |                                             |             | 1,156,323   |             |   |            |            |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from issuance of preferred stock                                    |                                             |             |            |             |   |            | 11,740,026  |            
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|                                                 |                                                                                  | Net cash provided by financing activities   |             |             | 1,206,932   |   |            |             | 11,720,710  |  
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|Effect of exchange rate changes on cash          |                                                                                  |                                             | (45,562     | )           |             |   |           |            
|                                                
|                                                
|                                                
|                                                
|Net decrease in cash and cash equivalents        |                                                                                  |                                             | (27,142,781 | )           |             |   | (1,999,109 | )          
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                  |                                             | 156,778,409 |             |             |   | 3,128,500  |            
|                                                 |                                                                                  |                                             |             |             |             |   |            |            
|Cash and cash equivalents at end of period       |                                                                                  | $                                           | 129,635,628 |             |             | $ | 1,129,391  |            
|                                                 |                                                                                  |                                             |             |             |             |   |            |            

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

5



---



WEBMETHODS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


1.  Basis of Presentation

The accompanying unaudited interim condensed consolidated
financial statements of webMethods, Inc. and its subsidiaries
(collectively, the Company) reflect all adjustments which, in the
 opinion of management, are necessary for a fair presentation of
the results of the interim periods presented in conformity with
generally accepted accounting principles for the interim
financial information. Such adjustments are of a normal recurring
 nature. Intercompany balances and transactions have been
eliminated in consolidation.

The results of the interim periods presented are not necessarily
indicative of the results for the year. The Companys
interim financial statements should be read in conjunction with
the Companys audited consolidated financial statements and
notes thereto for the year ended March 31, 2000, as filed
with the Securities and Exchange Commission on Form 10-K.

2.  Recent accounting pronouncements

In December 1999, the Securities and Exchange Commission
(SEC) released Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements
filed with the SEC. In March 2000, the SEC released SAB 101A,
which delayed the implementation date of SAB 101 for
registrants with fiscal years that begin between December 6,
 1999 and March 15, 2000. Subsequently the SEC released
SAB 101B, which delayed the implementation date of
SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. The Company
does not expect a material effect on the Companys financial
 position, results of operations or cash flows as a result of
SAB 101.

In June 1999, the Financial Accounting Standards Board
(FASB) issued SFAS No. 137, which delays the
effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which will
be effective for the Companys fiscal year 2001. This
statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded
in the balance sheet as either an asset or liability measured at
its fair value. The statement also requires that changes in the
derivatives fair value be recognized in earnings unless
specific hedge accounting criteria are met. The Company has not
entered into derivative contracts and does not have near term
plans to enter into contracts, accordingly the adoption of SFAS
No. 133 and SFAS No. 137 is not expected to have a
material effect on the financial statements.

In March 2000, FASB issued Interpretation
(FIN) No. 44, Accounting for Certain Transactions
 Involving Stock Compensation  An Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application
of APB Opinion No. 25 and, among other issues, clarifies the
 following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the
accounting consequence of various modifications to the terms of
previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but
certain conclusions in FIN 44 cover specific events that occurred
 after either December 15, 1998 or January 12, 2000.
The Company does not expect the application of FIN 44 to
have a material impact on financial position or results of
operations.

6



---



WEBMETHODS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.  Segment Information

The Company markets it products in the United States and in
foreign countries. Information regarding geographic areas for the
 three months ended June 30, 2000 and 1999 and as of
June 30, 2000 and March 31, 2000 are as follows:

|              |       |                             |            |            |  |   |           |           | 
|------------- | ----- | --------------------------- | ---------- | ---------- |  | - | --------- | --------- | 
|              |       |                            
|              |       | Three Months Ended June 30,
|              |       |                            
|Revenues      |       | 2000                        |            | 1999      
|              |       |                             |            |           
|North America |       | $                           | 14,308,613 |            |  | $ | 3,039,276 |          
|             
|             
|             
|             
|Europe        |       |                             | 1,247,967  |            |  |   |          |          
|              |       |                             |            |            |  |   |           |          
|              | Total |                             | $          | 15,556,580 |  |   | $         | 3,039,276 | 
|              |       |                             |            |            |  |   |           |          

|                  |       |          |            |            |  |   |           |           | 
|----------------- | ----- | -------- | ---------- | ---------- |  | - | --------- | --------- | 
|                  |       | June 30, |            | March 31, 
|Long Lived Assets |       | 2000     |            | 2000      
|                  |       |          |            |           
|North America     |       | $        | 12,252,677 |            |  | $ | 6,634,911 |          
|                 
|                 
|                 
|                 
|Europe            |       |          | 156,423    |            |  |   | 141,812   |          
|                 
|                 
|                 
|                 
|Asia Pacific      |       |          | 10,010     |            |  |   |          |          
|                  |       |          |            |            |  |   |           |          
|                  | Total |          | $          | 12,419,110 |  |   | $         | 6,776,723 | 
|                  |       |          |            |            |  |   |           |          

4.  Subsequent Events

On May 20, 2000, the Company entered into a plan of merger
with Active Software, Inc., (Active Software).
Subject to the terms and conditions of the merger agreement, the
Company will merge with Active Software, and Active Software will
 become a wholly owned subsidiary of the Company. Per the merger
agreement, each issued and outstanding share of Active Software
common stock, will be converted into 0.527 fully paid and
non-assessable shares of the Companys common stock. All
outstanding options to purchase Active Software common stock, as
well as the plans under which the options were granted, will be
assumed by the Company.

The merger is intended to be treated as a tax-free reorganization
 for federal income tax purposes and to be accounted for using
the pooling-of-interests method.

The closing of the merger is subject to a number of conditions,
including adoption of the merger agreement by the stockholders of
 Active Software, approval of the issuance of the shares of the
Companys common stock pursuant to the merger by the
stockholders of the Company and expiration of applicable waiting
periods or obtaining approvals under the Hart-Scott-Rodino
Antitrust Improvements Act.

In addition, the Company and Active Software have also entered
into a Strategic Relationship Agreement dated May 20, 2000,
whereby Active Software grants to the Company the right to use,
reproduce, and distribute Active Softwares technology.



|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2: | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Companys financial
condition and results of operations should be read in conjunction
 with the Companys Condensed Consolidated Financial
Statements and related Notes appearing elsewhere in this report
and Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the
Companys Annual Report on Form 10-K as filed with the
SEC on June 29, 2000.

7



---



Certain information contained herein should be considered
forward-looking information, which is subject to a
number of substantial risks and uncertainties. Statements
contained herein that are not statements of historical fact may
be deemed to be forward-looking information. Without limiting the
 foregoing, words such as anticipates,
believes, could, estimate,
expect, intend, may,
might, should, will, and
would and other forms of these words or similar words
 are intended to identify forward-looking information. Such
forward-looking statements are made only as of the date of this
report. The Companys actual results could differ materially
 from those contained in forward-looking statements. Important
factors known to the Company that could cause such material
differences are discussed under the caption Risk
Factors in the above-mentioned Form 10-K filing. The
Company undertakes no obligations to publicly update or revise
any forward-looking information, whether as a result of new
information, future events or otherwise.

Overview

We are a leading provider of infrastructure software and services
 for achieving business-to-business integration, or B2Bi. Our
software, webMethods B2B, enables companies to work more closely
with their customers, suppliers and other business partners
through the real-time exchange of information and transactions
over the Internet.

webMethods was founded in June 1996. We have grown from 17
employees as of March 31, 1998 to 320 employees as of
June 30, 2000. We shipped the first version of webMethods
B2B in June 1998 and have released five subsequent versions
of webMethods B2B, the most recent of which we began shipping in
April 2000.

Our revenue is derived from sales of licenses of our webMethods
B2B software, professional services, and maintenance and support.
 We generally license our software on a two-year renewable basis,
 which includes maintenance and support for the term of the
renewable license. Periodically, we license our software over a
different renewable term or on a perpetual basis. License fees
are generally billed upon shipment. Maintenance, which includes
the right to receive product upgrades on a when-and-if available
basis, is included in renewable licenses for the term of the
license. Maintenance on perpetual licenses is generally billed
annually in advance. We offer implementation and other
professional services on a time and materials basis and training
on a fixed fee basis. We began our international direct sales
efforts in July 1999 and expect that our revenue from
international licenses will grow as we expand our sales efforts
abroad.

We recognize revenue from the sale of software licenses upon
shipment of our software, provided that the fee is fixed and
determinable, persuasive evidence of an arrangement exists and
collection of the resulting receivable is considered probable.
Historically, we have not experienced significant returns or
exchanges of our software. We recognize software license revenue
over the term of the license if the license requires us to
deliver unspecified software during its term or if the license
contains extended payment terms. Maintenance revenue is
recognized ratably over the maintenance period. The portion of
revenue from the two-year renewable licenses that is allocated to
 maintenance and support is recognized over the term of the
license. Payments received in advance of revenue recognition are
recorded as deferred revenue. Professional services revenue is
recognized as the service is performed.

Our cost of license revenue primarily includes royalties to third
 parties for software used in our software and a provision for
warranty obligations. Our cost of professional services and
maintenance revenue includes salaries and related expenses for
our professional services and technical support organizations,
costs of third-party consultants we use to provide professional
services to customers and an allocation of overhead and
recruitment costs.

Although revenue has consistently increased from quarter to
quarter, we have incurred significant costs to develop our
technology and products and to recruit and train personnel for
our research and development, sales, marketing, professional
services and administration departments. As a result, we have
incurred significant losses since inception, and as of
June 30 2000, had an accumulated deficit of approximately
$38.7 million. We believe our success depends on rapidly
increasing our customer base,

8



---





We had 320 full-time employees as of June 30, 2000, and
intend to hire a significant number of employees in the future.
This expansion places significant demands on our management and
operational resources. To manage this rapid growth and increased
demand, we must invest in and implement scalable operational
systems, procedures and controls. We must also be able to recruit
 qualified candidates to manage our expanding operations. We
expect future expansion to continue to challenge
managements ability to hire, train, manage and retain our
employees.

RECENT DEVELOPMENTS

Acquisition of Active Software, Inc.

On May 20, 2000, we entered into an Agreement and Plan of
Merger, along with Wolf Acquisition, Inc., a wholly owned
subsidiary of ours, and Active Software, Inc. (Active
Software), a publicly held software company based in Santa
Clara, California, that provides eBusiness infrastructure
software. Subject to the terms and conditions of the Agreement
and Plan of Merger, Wolf Acquisition will merge with and into
Active Software, with Active Software surviving as a wholly owned
 subsidiary of webMethods. As more specifically set forth in the
Agreement and Plan of Merger, which we filed on a Form 8-K
on May 24, 2000, each issued and outstanding share of Active
 Softwares common stock, par value $0.001 per share, will
be converted into 0.527 of a share of webMethods common stock,
par value $0.01 per share. We will assume all outstanding options
 to purchase Active Software common stock, as well as the plans
under which the options were granted. As of June 11, 2000,
Active Software had 26,257,889 shares of its common stock issued
and outstanding, and had granted options to purchase
approximately 3.9 million shares of its common stock. We
expect to account for the acquisition of Active Software using
the pooling-of-interests method of accounting for business
combinations.

The closing of the merger is subject to a number of conditions,
including adoption of the merger agreement by the stockholders of
 Active Software and approval of the issuance of shares of
webMethods common stock in connection with the merger by our
stockholders.

Amendment to Development Partner Agreement with SAP AG

In June 2000, we signed an amendment to the development
partner agreement with SAP AG. The amendment expanded our
relationship with SAP AG by making us the supplier of enterprise
application integration technology for SAP AGs Business
Connector. In addition, we have set up a formula to compensate
SAP AG for sales referrals for webMethods products. The amendment
 did not change the term of the original agreement, nor did it
change the fixed fee payable under the terms of the original
agreement.

Results of operations

Revenue

Total Revenue. Total revenue increased by approximately
$12.5 million, or 412%, to $15.6 million for the three
months ended June 30, 2000 from $3.0 million for the
three months ended June 30, 1999. In March 1999, we
agreed to license our webMethods B2B software to SAP AG to
include in their software and to provide SAP AG with
development services. For this license and these services,
SAP AG agreed to pay to us a fixed license and development
fee payable in eleven quarterly installments beginning with the
quarter ended June 30, 1999. We are recognizing revenue
under this contract as the payments become due in accordance with
 SOP 97-2. SAP AG accounted for approximately 8.3% of our
revenues during the three months ended June 30, 2000 and 40%
 for the three months ended June 30, 1999.

9



---



License. License revenue increased by approximately
$7.5 million, or 349%, to $9.7 million for the three
months ended June 30, 2000 from $2.2 million for the three
months ended June 30, 1999. This increase is primarily
attributable to an increase in sales to new and existing
customers resulting from increased sales force headcount and a
growing acceptance of our webMethods B2B software. License
revenue from our relationship with SAP AG, which commenced in
March 1999, accounted for approximately 9.5%, of the total
license revenue for the three months ended June 30, 2000 and
 42.8% for the three months ended June 30, 2000.

Professional Services. Professional services revenue
increased by approximately $3.8 million, or 665%, to
$4.3 million for the three months ended June 30, 2000
from $564,000 for the three months ended June 30, 1999. This
 increase is attributable to the increased licensing activity
described above, which has resulted in increased customer
implementation activity and follow-on professional services.Professional services revenue attributable to the SAP AG
relationship was approximately 3.9% of total professional service
 revenue for the three months ended June 30, 2000 and 27.9%
for the three months ended June 30, 2000.

Maintenance. Maintenance revenue increased by
approximately $1.2 million, or 385%, to $1.6 million
for the three months ended June 30, 2000 from $321,000 for
the three months ended June 30, 1999. This increase is
attributable to the increased licensing activity described above.
 Because a majority of the license contracts include
post-contract maintenance and support, an increased level of
license revenue results in an increased amount of maintenance
revenue recognized ratably over the term of the maintenance
agreement. Maintenance revenue attributable to the SAP AG
relationship was approximately 8.8%, of total maintenance revenue
 for the three months ended June 30, 2000 and 43.1% for the
three months ended June 30, 2000.

Cost of revenue

License. Cost of license revenue increased by
approximately $196,000, or 241%, to $277,000 for the three months
 ended June 30, 2000 from $81,000 for the three months ended
 June 30, 1999. This increase in the cost of licenses is
primarily due to the amortization of prepaid third party software
 licensing fees and, to a lesser extent, expenses related to the
provision for warranty obligations. Gross profit margin on
license revenue increased to 97.1% for the year ended
June 30, 2000 compared to 96.2% for the three months ended
June 30, 1999.

Professional Services and Maintenance. Cost of
professional services and maintenance increased by approximately
$5.5 million, or 1,246% to $5.9 million for the three
months ended June 30, 2000 from $440,000 for the three
months ended June 30, 1999. This increase is primarily
attributable to increases in the number of professional service
and technical support personnel, which increased to 75 people as
of June 30, 2000 from 8 people as of June 30, 1999. In
addition, subcontractor and travel expenses contributed to the
increase in cost of professional services and maintenance for the
 three months ended June 30, 2000. Gross profit margin on
professional services and maintenance decreased to (0.8)% of
professional services and maintenance revenue for the three
months ended June 30, 2000 compared to 50% for the three
months ended June 30, 1999.

Gross profit

Gross profit increased by approximately $6.8 million, or
272%, to $9.4 million for the three months ended June 30,
2000 from $2.5 million for the three months ended
June 30, 1999. The increase is attributable to the growth in
 our customer base, which contributed to increased revenue from
software licenses, professional services and maintenance. The
gross profit margin was 60% for the three months ended
June 30, 2000 down from 83% for the three months ended
June 30, 1999. The reduction in the gross profit margin is
primarily attributable to the increased proportion of
professional services revenue, which generates a lower margin
than license revenue, during the three months year ended
June 30, 2000.

10



---



Operating expenses

Sales and Marketing. Sales and marketing expenses
increased by approximately $8.7 million, or 402%, to
$10.8 million for the three months ended June 30, 2000
from $2.2 million for the three months ended June 30,
1999. The increase in sales and marketing expenses is primarily
attributable to the continued expenses related to our marketing
programs including our increased trade shows and a major user
conference, and, to a lesser extent, to the increase in the
number of sales and marketing employees. We believe that these
expenses will continue to increase in absolute dollar amounts in
future periods as we continue to expand our sales and marketing
efforts.

Research and Development. Research and development
expenses increased by approximately $3.3 million, or 502%,
to $4.0 million for the three months ended June 30,
2000 from $661,000 for the three months ended June 30, 1999.
 The increase in research and development expenses is
attributable to increases in the number of software development,
pre-commercial release quality assurance and documentation
personnel and third-party development costs. We believe that
continued investment in research and development is critical to
attaining our strategic objectives, and, as a result, expect
research and development expenses to increase significantly in
future periods.

General and Administrative. General and administrative
expenses increased by approximately $1.9 million, or 272%,
to $2.6 million for the three months ended June 30,
2000 from $689,000 for the three months ended June 30, 1999.
 This increase is primarily attributable to increases in the
number of accounting and finance, human resources, and office
administration personnel. In addition, professional service fees,
 corporate insurance and other general corporate costs increased
to support organizational growth. We expect general and
administrative costs to continue to increase in absolute dollars
as we add personnel to support our expanding operations and incur
 additional costs related to the growth of our business.

Amortization of Deferred Stock Compensation. Certain
options granted during the year ended March 31, 2000 were
treated as compensatory because the exercise price of the
options, as determined by our Board of Directors, was less than
the estimated fair value of the underlying common stock on the
date of grant. The total deferred stock compensation associated
with these options as of June 30, 2000 amounted to
approximately $7.8 million, net of amortization. There was
no deferred stock compensation as of June 30, 1999. Of the
total deferred stock compensation, approximately
$1.5 million was amortized in the three months ended
June 30, 2000. These amounts are being amortized over the
respective vesting periods of these equity arrangements,
generally 48 months.

Interest income, net

Interest income, net increased by approximately
$2.9 million, or 2,788%, to $3.0 million for the three
months ended June 30, 2000 from $101,000 for the three
months ended June 30, 1999. This increase is attributable to
 increases in interest income that resulted from the
approximately $169.4 million in net cash proceeds that we
generated from the issuance of common stock in our initial public
 offering and the concurrent private placement in
February 2000.

Liquidity and capital resources

We have financed our operations through the sale of our common
stock in an initial public offering which was completed on
February 10, 2000, private sales of mandatorily redeemable,
convertible preferred stock, resulting in net proceeds from
inception to March 31, 2000, of approximately
$38.7 million, and, to a lesser extent, through bank loans
and equipment leases. As of June 30, 2000, we had
approximately $129.6 million in cash and cash equivalents,
approximately $23.7 million in short-term investments,
approximately $42.8 million in long-term investments and
approximately $137.7 million in working capital.

Net cash from operating activities was approximately
$2.4 million for the three months ended June 30,2000,
and approximately $594,000 for the three months ended
June 30, 1999. Net cash flows from operating activities in
each period reflect increasing deferred revenue from customer
payments that were

11



---





Net cash used in investing activities was approximately
$30.7 million for the three months ended June 30, 2000,
 and approximately $14.3 million for the three months ended
June 30, 1999. Cash used in investing activities reflects
purchases of marketable securities available for sale in each
period, and purchases of other assets for the three months ended
June 30, 2000. Capital expenditures were approximately
$121,000 for the three months ended June 30, 2000 and
$229,000 for the three months ended June 30, 1999. Capital
expenditures consisted of purchases of operating resources to
manage operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. Since
inception we have generally funded capital expenditures either
through capital leases, the use of working capital, or bank
loans. We expect that our capital expenditures will continue to
increase along with our continued use of leasing in the future.

Net cash from financing activities was approximately
$1.2 million for the three months ended June 30, 2000,
and approximately $11.7 million for the three months ended
June 30, 1999. These cash flows in the three months ended
June 30, 2000 primarily reflect net cash proceeds from
issuance of shares in the employee stock purchase plan and the
proceeds from the exercise of stock options. During the three
months ended June 30, 1999, these cash flows reflect the
private sales of mandatorily redeemable, convertible preferred
stock. We have an outstanding balance of $132,000 as of
June 30, 2000 under a credit agreement. This loan bears
interest at the banks prime rate plus 1.5% per annum and is
 secured by substantially all of our assets. In
December 1999 we entered into a new revolving promissory
note to borrow up to a maximum principal amount of $3,000,000
with a maturity date of December 2, 2000. Borrowings under
this note are limited to a borrowing base of 75% of eligible
accounts receivable. This note bears interest at the banks
prime rate plus 1% per annum. As of June 30, 2000, we had
not borrowed against this revolving promissory note. In
connection with the revolving promissory note, we obtained a
letter of credit totaling $750,000 which expires in
June 2001 and relates to the new office lease.

We expect to experience significant growth in our operating
expenses, particularly research and development and sales and
marketing expenses, for the foreseeable future in order to
execute our business plan. As a result, we anticipate that such
operating expenses, as well as planned capital expenditures, will
 constitute a material use of our cash resources. In addition, we
 may utilize cash resources to fund acquisitions or investments
in complementary businesses, technologies or product lines. We
believe that our existing working capital and our revolving
promissory note will be sufficient to meet our working capital
and operating resource expenditure requirements for at least the
next twelve months. Thereafter, we may find it necessary to
obtain additional equity or debt financing. In the event
additional financing is required, we may not be able to raise it
on acceptable terms or at all.

Recently Issued Accounting Pronouncements

In December 1999, the Securities and Exchange Commission
(SEC) released Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in
Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. In March 2000, the SEC
released SAB 101A, which delayed the implementation date of
SAB 101 for registrants with fiscal years that begin between
 December 16, 1999 and March 15, 2000. Subsequently,
the SEC released SAB 101B, which delayed the implementation
date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999.
We do not expect a material effect on our financial position,
results of operations or cash flows as a result of SAB 101.

In June 1999, the Financial Accounting Standards Board
(FASB) issued SFAS No. 137, which delays the
effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which will
be effective for our fiscal year 2001. This statement establishes
 accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The
statement also requires that changes in the derivatives
fair value be recognized in earnings

12



---





In March 2000, FASB issued Interpretation
(FIN) No. 44, Accounting for Certain Transactions
 Involving Stock Compensation  An Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application
of APB Opinion No. 25 and, among other issues, clarifies the
 following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the
accounting consequence of various modifications to the terms of
previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but
certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12,
2000. We do not expect the application of FIN 44 to have a
material impact on our financial position or results of
operations.

Item 3:  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Qualitative and Quantitative Disclosures about Market Risk

We are exposed to a variety of risks, including changes in
interest rates affecting the return on our investments and
foreign currency fluctuations. We have established policies and
procedures to manage our exposure to fluctuations in interest
rates and foreign currency exchange rates.

Interest rate risk. We maintain our funds in money market
and certificate of deposit accounts at financial institutions.
Our exposure to market risk due to fluctuations in interest rates
 relates primarily to its interest earnings on our cash deposits.
 These securities are subject to interest rate risk in as much as
 their fair value will fall if market interest rates increase. If
 market interest rates were to increase immediately and uniformly
 by 10% from the levels prevailing as of June 30, 2000, the
fair value of the portfolio would not decline by a material
amount. We do not use derivative financial instruments to
mitigate risks. However, we do have an investment policy that
would allow us to invest in short-term and long-term investments
such as money market instruments and corporate debt securities.
Our policy attempts to reduce such risks by typically limiting
the maturity date of such securities to no more than twenty-four
months with a maximum average maturity to our whole portfolio of
such investments at twelve months, placing investments with high
credit quality issuers and limiting the amount of credit exposure
 with any one issuer.

Foreign currency exchange rate risk. Our exposure to
market risk due to fluctuations in foreign currency exchange
rates relates primarily to the intercompany balances with our UK,
 Netherland and German subsidiaries. Although we transact
business in various foreign countries, settlement amounts are
usually based on U.S. currency. Transaction gains or losses have
not been significant in the past, and there is no hedging
activity on foreign currencies. We would not experience a
material foreign exchange loss based on a hypothetical 10%
adverse change in the price of the pound, guilders or deutsche
mark against the U.S. dollar. Consequently, we do not expect that
 a reduction in the value of such accounts denominated in foreign
 currencies resulting from even a sudden or significant
fluctuation in foreign exchange rates would have a direct
material impact on our financial position, results of operations
or cash flows.

Notwithstanding the foregoing, analysis of the direct effects of
interest rate and foreign currency exchange rate fluctuations on
the value of certain of our investments and accounts, the
indirect effects of fluctuations in foreign currency could have a
 material adverse effect on our business, financial condition and
 results of operations. For example, international demand for our
 products is affected by foreign currency exchange rates. In
addition, interest rate fluctuations may affect the buying
patterns of our customers. Furthermore, interest rate and
currency exchange rate fluctuations have broad influence on the
general condition of the U.S., foreign and global economics,
which could materially adversely affect our business, financial
condition results of operations and cash flows.

13



---



PART II  OTHER INFORMATION

Item 1.  Legal Proceedings

None

Item 2.  Use of Proceeds

On February 10, 2000, in connection with our initial public
offering, a Registration Statement on Form S-1
(No. 333-91309) was declared effective by the Securities and
 Exchange Commission, pursuant to which 4,715,000 share of our
common stock were offered and sold for our account at a price of
$35.00 per share, generating aggregate gross proceeds of
$165 million for the account of the Company. The managing
underwriters were Morgan Stanley Dean Witter, Merrill Lynch
& Co., Dain Rauscher Wessels and Freidman Billings
Ramsey. After deducting approximately $11.6 million in
underwriting discounts and $1.5 million in other related
expenses, the net proceeds of the offering were approximately
$151.9 million. As of June 30, 2000,
$151.9 million of the net proceeds were invested in cash and
 cash equivalents, short-term and long-term investments. We
intend to use such proceeds for capital expenditures and for
general corporate purposes, including working capital to fund
anticipated operating losses.

Item 3.  Default Upon Senior Securities

None

Item 4.  Submission of Matter to Vote of Security
Holders

None

Item 5.  Other Information

None

Item 6.  (a) Reports on Form 8-K

On May 24, 2000, we filed a report on Form 8-K
reporting the execution of the Agreement and Plan of Merger by
and among the Company, Wolf Acquisition, Inc., our wholly owned
subsidiary and Active Software, Inc. The Form 8-K contained
a brief description of the terms of the proposed merger and
included as exhibits the Agreement and Plan of Merger and other
documents related to the proposed transaction.

14



---



SIGNATURES

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



| |                 
| | ----------------
| | webMethods, Inc.



| |     |               
| | --- | --------------
| | By: | /s/ MARY DRIDI

| |                                      
| | -------------------------------------
| |                                      
| | Mary Dridi                           
| | Chief Financial Officer and Treasurer

Dated: August 11, 2000

15