---

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

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Form 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended March 31, 2003                
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission File Number 0-30881

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CLICK COMMERCE, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) |  | 36-4088644(I.R.S. Employer Identification Number)
|---------------------------------------------------------------------- |  | -------------------------------------------------

200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601(Address of principal executive offices) (312) 482-9006(Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share

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

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

As
of May 13, 2003, there were 8,101,487 shares of the registrant's common shares outstanding.

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CLICK COMMERCE, INC.  INDEX

|               |  |                                                                                                                                                 |  | Page No.
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I.        |  | FINANCIAL INFORMATION                                                                                                                           |  |         
|Item 1.        |  | Financial Statements                                                                                                                            |  |         
|               |  | Condensed Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002                                                       |  | 3       
|               |  | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2003 and March 31, 2002 (unaudited) |  | 4       
|               |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited)                                  |  | 5       
|               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                |  | 6       
|Item 2.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                           |  | 12      
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                      |  | 17      
|Item 4.        |  | Controls and Procedures                                                                                                                         |  | 18      
|PART II.       |  | OTHER INFORMATION                                                                                                                               |  |         
|Item 1.        |  | Legal Proceedings                                                                                                                               |  | 19      
|Item 2.        |  | Changes in Securities and Use of Proceeds                                                                                                       |  | 19      
|Item 3.        |  | Defaults Upon Senior Securities                                                                                                                 |  | 19      
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                                                             |  | 19      
|Item 5.        |  | Other Information                                                                                                                               |  | 20      
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                                                                |  | 20      
|SIGNATURES     |  | 21                                                                                                                                             
|CERTIFICATIONS |  | 22                                                                                                                                             

2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CLICK COMMERCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

|                                                                                                                                                                   |                                                                | March 31,
2003                             |         | December 31,
2002 |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | ------
|
|ASSETS                                                                                                                                                             |                                                                |                                            |         |                   |       
|Current assets:                                                                                                                                                    |                                                                |                                            |         |                   |       
|                                                                                                                                                                   | Cash and cash equivalents                                      |                                            | $       | 24,942            |       
|                                                                                                                                                                   | Short-term investments                                         |                                            |         | 10,426            |       
|                                                                                                                                                                   | Trade accounts receivable, net                                 |                                            |         | 5,033             |       
|                                                                                                                                                                   | Prepaids and other current assets                              |                                            |         | 1,576             |       
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total current assets                       |         |                   | 41,977
|Property and equipment, net                                                                                                                                        |                                                                |                                            | 2,445   |                   |       
|Restricted Cash                                                                                                                                                    |                                                                |                                            | 170     |                   |       
|Goodwill and intangible assets                                                                                                                                     |                                                                |                                            | 704     |                   |       
|Other assets                                                                                                                                                       |                                                                |                                            | 158     |                   |       
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total assets                               |         | $                 | 45,454
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                               |                                                                |                                            |         |                   |       
|Current liabilities:                                                                                                                                               |                                                                |                                            |         |                   |       
|                                                                                                                                                                   | Accounts payable                                               |                                            | $       | 1,325             |       
|                                                                                                                                                                   | Billings in excess of revenues earned on contracts in progress |                                            |         |                  |       
|                                                                                                                                                                   | Deferred revenueshort term                                    |                                            |         | 5,881             |       
|                                                                                                                                                                   | Accrued compensation                                           |                                            |         | 2,078             |       
|                                                                                                                                                                   | Accrued expenses and other current liabilities                 |                                            |         | 1,695             |       
|                                                                                                                                                                   | Restructuring accrual                                          |                                            |         | 162               |       
|                                                                                                                                                                   | Current portion of capital lease obligations                   |                                            |         | 497               |       
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total current liabilities                  |         |                   | 11,638
|Deferred revenuelong-term                                                                                                                                         |                                                                |                                            | 104     |                   |       
|Capital lease obligations, less current portion                                                                                                                    |                                                                |                                            |        |                   |       
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total liabilities                          |         |                   | 11,742
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|Shareholders' equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding                                             |                                                                |                                            |        |                   |       
|Common stock, $0.001 par value, 75,000,000 shares authorized; 8,121,850 shares issued; and 8,092,786 shares outstanding as of March 31, 2003 and December 31, 2002 |                                                                |                                            | 8       |                   |       
|Additional paid-in capital                                                                                                                                         |                                                                |                                            | 82,532  |                   |       
|Accumulated other comprehensive income                                                                                                                             |                                                                |                                            | 139     |                   |       
|Deferred compensation                                                                                                                                              |                                                                |                                            | (210    | )                 |       
|Treasury stock, at cost                                                                                                                                            |                                                                |                                            | (117    | )                 |       
|Accumulated deficit                                                                                                                                                |                                                                |                                            | (48,640 | )                 |       
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total shareholders' equity                 |         |                   | 33,712
|                                                                                                                                                                   |                                                                |                                            |         |                   |       
|                                                                                                                                                                   |                                                                | Total liabilities and shareholders' equity |         | $                 | 45,454
|                                                                                                                                                                   |                                                                |                                            |         |                   |       

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

3

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CLICK COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share data)
(Unaudited)

|                                                             |                                                                                                                                                                                   | Three months ended March 31, |          
|------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------
|
|Revenues                                                     |                                                                                                                                                                                   |                              |          
|                                                             | Product license                                                                                                                                                                   |                              | $        
|                                                             | Service                                                                                                                                                                           |                              |          
|                                                             |                                                                                                                                                                                   |                              |          
|                                                             |                                                                                                                                                                                   | Total revenues               |          
|Cost of revenues                                             |                                                                                                                                                                                   |                              |          
|                                                             | Product license                                                                                                                                                                   |                              |          
|                                                             | Service (exclusive of $2 and $12 for the three months ended March 31, 2003 and 2002, respectively, reported below as amortization of stock-based compensation)                    |                              |          
|                                                             |                                                                                                                                                                                   |                              |          
|                                                             |                                                                                                                                                                                   | Total cost of revenues       |          
|                                                             |                                                                                                                                                                                   |                              |          
|Gross profit                                                 |                                                                                                                                                                                   |                              | 1,257    
|Operating expenses:                                          |                                                                                                                                                                                   |                              |          
|                                                             | Sales and marketing (exclusive of $31 and $372 for the three months ended March 31, 2003 and 2002, respectively, reported below as amortization of stock-based compensation)      |                              |          
|                                                             | Research and development (exclusive of $2 and $3 for the three months ended March 31, 2003 and 2002, respectively, reported below as amortization of stock-based compensation)    |                              |          
|                                                             | General and administrative (exclusive of $0 and $25 for the three months ended March 31, 2003 and 2002, respectively, reported below as amortization of stock-based compensation) |                              |          
|                                                             | Amortization of stock-based compensation                                                                                                                                          |                              |          
|                                                             |                                                                                                                                                                                   |                              |          
|                                                             |                                                                                                                                                                                   | Total operating expenses     |          
|                                                             |                                                                                                                                                                                   |                              |          
|Operating loss                                               |                                                                                                                                                                                   |                              | (971     
|                                                             |                                                                                                                                                                                   |                              |          
|Interest income                                              |                                                                                                                                                                                   |                              | 142      
|Interest expense                                             |                                                                                                                                                                                   |                              | (7       
|                                                             |                                                                                                                                                                                   |                              |          
|Other income                                                 |                                                                                                                                                                                   |                              | 135      
|                                                             |                                                                                                                                                                                   |                              |          
|Loss before income taxes                                     |                                                                                                                                                                                   |                              | (836     
|Income tax expense (benefit)                                 |                                                                                                                                                                                   |                              |         
|                                                             |                                                                                                                                                                                   |                              |          
|Net loss                                                     |                                                                                                                                                                                   | $                            | (836     
|                                                             |                                                                                                                                                                                   |                              |          
|Basic and diluted net loss per common share                  |                                                                                                                                                                                   | $                            | (0.10    
|                                                             |                                                                                                                                                                                   |                              |          
|Weighted average common shares outstandingbasic and diluted |                                                                                                                                                                                   |                              | 8,092,786
|Comprehensive loss:                                          |                                                                                                                                                                                   |                              |          
|                                                             | Net loss                                                                                                                                                                          |                              | $        
|                                                             | Foreign currency translation adjustment                                                                                                                                           |                              |          
|                                                             |                                                                                                                                                                                   |                              |          
|                                                             | Comprehensive loss                                                                                                                                                                |                              | $        
|                                                             |                                                                                                                                                                                   |                              |          

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

4

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CLICK COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

|                                                              |                                                                                           | Three months ended March 31,                                                |                                                               
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------
|
|Cash flows from operating activities:                         |                                                                                           |                                                                             |                                                               
|                                                              | Net loss                                                                                  |                                                                             | $                                                             
|                                                              | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                             |                                                               
|                                                              |                                                                                           | Amortization of stock-based compensation                                    |                                                               
|                                                              |                                                                                           | Depreciation and amortization                                               |                                                               
|                                                              |                                                                                           | Provision for doubtful accounts                                             |                                                               
|                                                              |                                                                                           | Amortization of deferred compensation                                       |                                                               
|                                                              |                                                                                           | Changes in operating assets and liabilities, net of effect of acquisitions: |                                                               
|                                                              |                                                                                           |                                                                             | Trade accounts receivable                                     
|                                                              |                                                                                           |                                                                             | Other current assets                                          
|                                                              |                                                                                           |                                                                             | Accounts payable                                              
|                                                              |                                                                                           |                                                                             | Billings in excess of revenues earned on contracts in progress
|                                                              |                                                                                           |                                                                             | Deferred revenue                                              
|                                                              |                                                                                           |                                                                             | Accrued compensation                                          
|                                                              |                                                                                           |                                                                             | Accrued expenses and other current liabilities                
|                                                              |                                                                                           |                                                                             | Restructuring accrual                                         
|                                                              |                                                                                           |                                                                             | Income taxes receivable (payable)                             
|                                                              |                                                                                           |                                                                             | Other assets                                                  
|                                                              |                                                                                           |                                                                             |                                                               
|                                                              |                                                                                           |                                                                             |                                                               
|Cash flows from investing activities:                         |                                                                                           |                                                                             |                                                               
|                                                              | Purchases of property and equipment                                                       |                                                                             |                                                               
|                                                              | Acquisition of Allegis' cash, net of deal costs                                           |                                                                             |                                                               
|                                                              | Purchases of short-term investments, net                                                  |                                                                             |                                                               
|                                                              |                                                                                           |                                                                             |                                                               
|                                                              |                                                                                           |                                                                             |                                                               
|Cash flows from financing activities:                         |                                                                                           |                                                                             |                                                               
|                                                              | Proceeds from exercise of stock options                                                   |                                                                             |                                                               
|                                                              | Principal payments under capital lease obligations                                        |                                                                             |                                                               
|                                                              |                                                                                           |                                                                             |                                                               
|                                                              |                                                                                           |                                                                             |                                                               
|Effect of foreign exchange rates on cash and cash equivalents |                                                                                           |                                                                             | (9                                                            
|                                                              |                                                                                           |                                                                             |                                                               
|Net increase (decrease) in cash and cash equivalents          |                                                                                           |                                                                             | 1,296                                                         
|Cash and cash equivalents at beginning of period              |                                                                                           |                                                                             | 23,646                                                        
|                                                              |                                                                                           |                                                                             |                                                               
|Cash and cash equivalents at end of period                    |                                                                                           | $                                                                           | 24,942                                                        
|                                                              |                                                                                           |                                                                             |                                                               
|Supplemental disclosures:                                     |                                                                                           |                                                                             |                                                               
|                                                              | Interest paid                                                                             |                                                                             | $                                                             
|                                                              | Income taxes paid                                                                         |                                                                             |                                                               

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

5

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CLICK COMMERCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of Click Commerce, Inc. and its wholly owned subsidiaries (the "Company")
and reflect all adjustments (which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of
operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2003.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted in accordance with the Securities and Exchange Commission's rules and regulations. The unaudited condensed consolidated financial statements and notes included herein should be
read in conjunction with the Company's audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K and other documents that have been
filed with the Securities and Exchange Commission.

Certain
prior year amounts have been reclassified to conform to the 2003 presentation.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Cost Recognition

The Company recognizes product license revenue from licensing the rights to use its software. The Company generates service revenues from integrating its
software, performing needs analyses for customers and through the sale of maintenance and training services. The Company recognizes revenue in accordance with Statement of Position ("SOP")
No. 97-2"Software Revenue Recognition"as amended by SOP 98-9,"Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain Transactions."For those contracts that either do not contain a services component or that have services
which are not essential to the functionality of any other element of the contract, software license revenue is recognized upon delivery of the Company's software provided that the fee is fixed and
determinable, persuasive evidence of an arrangement exists and collection of the resulting receivable is considered probable. Revenue from service contracts is typically recognized as the services are
performed. The revenue to be recognized from multiple-element software contracts is based on the fair value of each element. The Company records deferred revenue on software contracts for which it has
billed or collected amounts, but for which the requirements for revenue recognition have not been met.

In
accordance with EITF No. 01-14, the Company characterizes the reimbursement of out-of-pocket expenses from their customers as revenue,
rather than as a reduction of the related expense in the income statement.

Revenue
from contracts in which the Company's services are essential to the functionality of the other elements of the contract is recognized using the
percentage-of-completion method under contract accounting as services are performed or output milestones are reached, as the Company delivers, customizes and installs the
software. The percentage completed is measured either by the percentage of labor hours incurred to date in relation to estimated total labor hours or in consideration of achievement of certain output
milestones, depending on the specific nature of each contract. For arrangements in which percentage-of-completion accounting is used, the Company records cash receipts from
customers and billed amounts due from customers in excess of recognized revenue as billings in excess of revenues earned on contracts in progress. The timing and amount of cash receipts from customers
can vary significantly depending on specific contract terms and can therefore have a

6

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significant
impact on the amount of billings in excess of revenues earned on contracts in progress at the end of any given period.

Revenue
from contracts recognized under the percentage-of-completion method is presented as product revenue to the extent that the underlying milestones are
related to software deliveries. To the extent that contract milestones relate to software customization or other professional services, revenues are presented as service revenues. When hours of input
are used as the basis for percentage complete, revenues of the arrangement are presented as product revenue based on the percentage of product list price divided by total estimated project list price
multiplied by the
contract value and are presented as services revenue based on the percentage of estimated services base line hours at list prices divided by total estimated project list price multiplied by the
contract value.

For
software subscriptions, the Company applies revenue recognition principles in accordance with the guidance provided by Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements."The arrangement fee related to multi-element arrangements should be allocated to the individual elements
based upon verifiable, objective evidence of the fair values of each separate element. To be considered a separate element, the product or service in question must represent a separate earnings
process. The Company's arrangements with customers generally include two elements: (1) strategic consulting services and (2) set-up and software subscription
services.Software subscription revenues are presented as services revenues. Total arrangement revenues and direct costs are deferred until customer
acceptance has occurred and the software subscription service begins. Revenues and direct costs are then amortized ratably to income over the noncancelable contractual term, which is normally
18 months.

Maintenance
service is sold separately under contracts that are renewable annually and is provided only to customers who purchase maintenance. The Company recognizes maintenance service
revenue ratably over the contract period, which is generally one year in length. Maintenance fees are generally billed annually in advance and are recorded as deferred revenue. For software license
sales with bundled maintenance, the Company applies revenue recognition principals using the residual method pursuant to the requirements of Statement of Position (SOP)
97-2, "Software Revenue Recognition,"as amended by SOP 98-9,"Software Revenue Recognition with Respect
to Certain Transactions."Under the residual method, revenue is recognized for delivered elements when a contractually stipulated annual renewal rate for maintenance is
provided in the contract with the customer; provided, however, that collection is deemed probable and the fee is fixed and determinable. As part of the sales process, the Company may perform a needs
analysis for the potential customer on a fixed fee basis. Revenue from needs analyses is recognized as the work is performed. Training revenue is recognized as the services are provided.

Cost
of product license revenue includes production and shipping expenses, which are expensed as incurred, as well as costs of licensing third party software incorporated into the
Company's products. These third party license costs are expensed as the products are delivered. Cost of service revenue includes salaries and related expenses for professional services and technical
support personnel who provide development, customization and installation services to customers, as well as an allocation of data processing and overhead costs, which are expensed as incurred.

Cash, Cash Equivalents and Short-Term Investments

The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates fair market value. Short-term investments are classified as available-for-sale securities and are recorded at market.

7

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Reverse Stock Split

On September 4, 2002, the Company effectuated a 1-for-5 reverse stock split of its common stock. On that day, each five shares of
outstanding common stock of the Company automatically converted to one share of common stock. All share and per share amounts in the accompanying condensed consolidated financial statements have been
retroactively restated to give effect to the September 4, 2002 reverse stock split. The authorized shares of 75,000,000 and par value of $0.001 per share for the Company's common stock were not
affected by the reverse stock split.

Stock-Based Compensation

The Company accounts for its stock options in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation,"which permits entities to recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees"(APB 25) and related interpretations. The Company continues to apply the provisions of APB 25 and
provides the pro forma disclosures required by SFAS No. 123, as amended by SFAS No. 148,"Accounting for Stock-Based
CompensationTransition and Disclosure, an amendment of FASB Statement No. 123."Accordingly, the Company measures compensation expense for its employee
stock-based compensation using the intrinsic value method and discloses the pro forma effects on earnings had the fair value of the options been expensed. As such, compensation expense would be
recorded only if the fair value of the underlying stock exceeded the exercise price on the grant date. Accordingly, no compensation cost has been recognized on stock options for which the exercise
price equaled the fair value at the date of grant. With respect to stock options granted at exercise prices less than their deemed fair value, the Company recorded deferred stock-based compensation.
Such deferred stock-based compensation is amortized on a straight-line basis over the vesting period of each individual award. The fair value of equity instruments issued to
non-employees is amortized and charged to expense over the vesting period of the respective instruments.

The
fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions for the three
months ended March 31, 2003 and 2002, respectively: expected life of 4.25 years for each period; expected volatility of 147% and 99%; risk-free interest rate of 2.7% for each
period; and 0% dividend yield for each period.

The
Company has applied APB No. 25 and related interpretations in accounting for the Employee Plan and the Directors' Plan. Accordingly, no compensation cost has been recognized
on stock options for which the exercise price equaled the fair value at the date of grant. Had the Company determined compensation cost based on the method required by SFAS No. 123, the
Company's net loss available to common shareholders and net loss per common share for the three months ended March 31, 2003 and 2002 would approximate the pro forma amounts below:

8

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Three months ended March 31,2003

2002(in thousands, except
per share data)Net loss, as reported

$
(836
)
$
(4,372
)Stock-based employee compensation expense included in the determination of net loss as reported, net of related tax effects


35


103Total fair value method employee stock-based compensation expense, net of related tax effects


(379
)

(698
)Pro forma net loss

$
(1,180
)
$
(4,967
)Basic and diluted loss per share:As reported

$
(0.10
)
$
(0.54
)Pro forma

$
(0.15
)
$
(0.62
)


3.    BUSINESS COMBINATION

On March 27, 2003, the Company completed its acquisition of all of the capital stock of Allegis Corporation ("Allegis"), a privately-held
California corporation engaged in licensing partner relationship management software and providing professional implementation services, hosting, and maintenance services related to its software,
effective as of March 24, 2003. Results of Allegis' operations have been included in the Company's consolidated financial statements since March 24, 2003. Under the terms and conditions
of the Agreement and Plan of Merger, Allegis became a wholly-owned subsidiary of the Company, and the holders of Allegis' preferred stock received cash consideration in an aggregate amount of
approximately $10,200. The Company funded the acquisition using available cash on hand. The acquisition of Allegis is expected to broaden the Company's installed base and product offerings and expand
its market share within the partner relationship management area, as well as achieve cost savings through elimination of redundant development efforts and administrative functions.

The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the effective date of the Allegis acquisition. The Company incurred an
additional $135,000 of direct expenses related to closing the Allegis acquisition. Due to the timing of the acquisition, the final allocation of the purchase price is subject to change as the Company
completes the valuation of the acquired assets and assumed liabilities.

At March 24, 2003,(in thousands)Current assets

$
3,024Property and equipment


393Intangible assets


596Goodwill


108Other assets


274Total assets acquired


4,395Current liabilities


4,146Long-term liabilities


104Total liabilities assumed


4,250Net assets acquired


145


9

---

The
intangible assets acquired represent the estimated fair value of the customer relationships acquired through the existing customer license and subscription contracts. The intangible
assets will be amortized over the typical initial contract period, which is 18 months. There was no value assigned to in-process research and development costs. Goodwill is not
expected to be deductible for income tax purposes.

Included
in the liabilities assumed are approximately $720,000 of employee severance costs and direct deal costs of approximately $200,000 incurred prior to the effective date of the
acquisition by Allegis.

The
following unaudited pro forma financial information for the three months ended March 31, 2003 and 2002 presents the consolidated operations of the Company as if the
acquisition had been made on January 1, 2002, after giving effect to certain adjustments for the pro forma acquisition as of the acquisition date. Under the provisions of SFAS No. 142,
goodwill acquired in transactions completed after June 30, 2001 is not amortized. As the acquisition of Allegis occurred subsequent to that date, these pro forma results do not reflect any
goodwill amortization expense. The unaudited pro forma financial information is provided for informational purposes only, should not be construed to be indicative of the Company's consolidated results
of operations had the acquisition of Allegis been consummated on this earlier date, and do not project the Company's results of operations for any future period:

Three months ended
March 31,2003

2002(in thousands, except
per share data)Revenues

$
4,917

$
8,008Net loss


(3,596
)

(7,395
)Basic and diluted net loss per share


(0.44
)
$
(0.92
)


4.    STOCK-BASED COMPENSATION

Prior to its initial public offering, the Company granted certain stock options at exercise prices less than their deemed fair value; accordingly, the Company
recorded deferred compensation of $4,636,000. Such deferred compensation is amortized on a straight-line basis over the vesting period of each individual award, resulting in $35,000 and
$103,000 of stock-based compensation expense for the three months ended March 31, 2003 and 2002, respectively.

In
April 2000, the Company issued a warrant to Accenture Ltd. ("Accenture") to purchase up to 163,645 shares of common stock at $61.11 per share. The warrant vested
contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and was set to expire on April 20, 2004. The warrant contained a
significant cash penalty for Accenture's failure to meet the agreed revenue target by the expiration date, and, accordingly, the fair value of the warrant was measured at the date of grant in
accordance with EITF Issue No. 96-18 and Statement of Financial Accounting Standards No. 123, resulting in a fair value of approximately $5,000,000, which was determined
using the Black-Scholes option-pricing model. In the fourth quarter of 2002, the Company reached an agreement with Accenture to cancel the warrant. For the quarter ended March 31, 2002, the
Company recognized $309,000 in amortization expense related to the warrant.

5.    RESTRUCTURING

In the quarter ended June 30, 2002, the Company determined that its cost structure exceeded the level suggested by its assessment of the Company's
then-current near-term revenue opportunities. The Company experienced longer sales cycles and higher executive level review and approval processes on

10

---

capital
projects, particularly for technology and e-commerce projects. As a result, the Company developed a plan to reduce its cost structure to a level in line with current revenue
opportunities, resulting in an $821,000 restructuring charge. Included in this restructuring plan was the termination of 51 employees across all areas of the Company. All of these employees were
notified of their termination by June 30, 2002, and were severed by August 2, 2002. The resulting employee severance and related costs are presented below. The facilities related costs
represented the remaining lease payments for closing four regional offices.

In
conjunction with the restructuring, the Company recorded a $451,000 asset impairment charge. The write-down of assets, primarily computer equipment under capital leases,
was a direct result of the staffing reductions. The fair value of the equipment included in the write-down was deemed to be $0. The Company has no foreseeable use for the assets, and the
assets are under leases, which at the end of the lease term, the Company is required to either return the equipment or purchase the equipment at the then fair market value. The Company intends to
return this equipment upon expiration of the current lease terms.

During
the fourth quarter of 2002, the Company performed an asset impairment analysis on its third party prepaid licenses and other intangible assets. The Company evaluated the
undiscounted future operating cash flows to determine whether these cash flows will be sufficient to recover the carrying value of the related assets. The Company assessed that two of its third party
prepaid license agreements had impaired values resulting from diminished maintenance contracts and slow software sales on related products. The Company also determined that an acquired product line,
purchased in the third quarter of 2001, had no future value based on its assessment of no expected future sales and no further plans to develop this product line. Accordingly, the Company recorded an
impairment charge of $1,043,000 during the fourth quarter of 2002.

As
of March 31, 2003, the majority of the Company's restructuring accrual related to employee severance, benefits and related costs. Due to extended payment terms under severance
arrangements with certain employees, payments against the restructuring charge will be made through the quarter ending June 30, 2003.

Accrual at
December 31,
2002

2003 YTD cash
payments

Balance at
March 31,
2003(in thousands)Employee severance, benefits and related costs

$
252

$
(120
)
$
132Facilities related costs








Legal costs and other


30





30Total

$
282

$
(120
)
$
162


6.    SUBSEQUENT EVENT

On May 1, 2003, the Company announced that its Board of Directors had declared a special cash dividend in the amount of $2.50 per share of the Company's
common stock ("Special Dividend"). The Special Dividend will be payable on June 4, 2003 to stockholders of record as of May 20, 2003. For Federal income tax purposes, the Company expects
the Special Dividend to be treated as a "return of capital." As a return of capital, the Special Dividend would be either wholly tax-free or taxable in part as capital gain, depending on
each stockholder's tax basis in the Company's common stock.

11

---

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

The following discussion should be read in conjunction with the Company's consolidated condensed financial statements and notes elsewhere in this quarterly
report.

Overview

Click Commerce, Inc. (the "Company") is a provider of business-to-business partner relationship management software products and
integration services that connect large, global manufacturing companies with their distribution channel partners. The Company's software products and integration services enable large companies to
effectively manage and engage in collaborative business-to-business interactions throughout their sell-side channels and processes. The software the Company offers
uses the Internet to enable communication between companies and all participants in the network or chain of distribution who have a password and an Internet browser.

The
Company commenced operations on August 20, 1996. During the period from inception until early 1998, the Company was primarily engaged in developing software for the
Relationship Manager (formerly referred to as the Extranet Manager). In 1996 and 1997, the Company was also engaged in developing Internet Web sites and providing related consulting services. The
Company implemented the first Click Commerce Relationship Manager in the second quarter of 1997. On June 30, 2000, the Company completed an initial public offering ("IPO") of common stock that
resulted in the issuance of 5,000,000 shares of common stock with an IPO price of $10.00 per share (adjusted to 1,000,000 shares of common stock with a price of $50.00 per share following the
1-for-5 reverse stock split that occurred on September 4, 2002).

The
Company's revenue is derived from sales of licenses of its software, consisting of the Partner Portal platformwhich includes the Relationship Manager, Portal Framework
and the Commerce Suitethe Click Commerce Developer Studio and fourteen business applications, as well as from needs analyses, professional services, training, maintenance and support. The
Company's software is generally licensed on a perpetual basis. The Company's new Allegis subsidiary licenses its software on both a perpetual basis and through subscription arrangements.

Cost
of product license revenues include production and shipping expenses, which are expensed as incurred, as well as costs of licensing third party software incorporated into the
Company's products. These third party license costs are expensed as the products are delivered. Cost of service revenues include salaries and related expenses for professional services and technical
support personnel who provide customization and installation services to customers, as well as an allocation of data processing and overhead costs which are expensed as incurred.

Operating
expenses are classified into four general categories: sales and marketing, research and development, general and administrative and amortization of stock-based compensation.
Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, travel, public relations and marketing materials. Research and
development expenses consist primarily of personnel costs to support product development. General and administrative expenses consist primarily of salaries and other related costs for executive
management, finance and administrative employees, legal and accounting services, and corporate liability insurance. Amortization of stock-based compensation represents the amortization over the
related service period of the difference between the exercise price of options granted and the deemed fair market value of the underlying common stock on the date of grant, as well as amortization of
the warrant issued in connection with a joint marketing agreement with Accenture. Since the Company reached an agreement with Accenture to cancel the warrant in the fourth quarter of 2002, no
amortization expense of the warrant is reflected in the accompanying statement of operations for the quarter ended March 31, 2003.

12

---



The Company believes that period-to-period comparisons of operating results should not be relied upon as predictive of future performance. The Company's prospects
must be considered in light of the risks, expenses and difficulties encountered by companies in new, rapidly evolving markets. The Company may not be successful in addressing such risks and
difficulties.

Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. As such,
the Company makes certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company's critical accounting policies include
revenue recognition, the estimation of credit losses on accounts receivable and the valuation of deferred tax assets. For a discussion of these critical accounting policies, see "Critical Accounting
Policies and Estimates" in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

Results of Operations

The following table sets forth selected unaudited financial data for the periods indicated in dollars and as a percentage of total revenue.

|                         |                                          | Three Months Ended March 31, |      
|------------------------ | ---------------------------------------- | ---------------------------- | -----
|
|
|Revenues                 |                                          |                              |      
|                         | Product license                          |                              | $    
|                         | Service                                  |                              |      
|                         |                                          |                              |      
|                         |                                          | Total revenues               |      
|                         |                                          |                              |      
|Cost of revenues         |                                          |                              |      
|                         | Product license                          |                              |      
|                         | Service(a)                               |                              |      
|                         |                                          |                              |      
|                         |                                          | Total cost of revenues       |      
|                         |                                          |                              |      
|Gross profit             |                                          |                              | 1,257
|Operating expenses:      |                                          |                              |      
|                         | Sales and marketing(a)                   |                              |      
|                         | Research and development(a)              |                              |      
|                         | General and administrative(a)            |                              |      
|                         | Amortization of stock-based compensation |                              |      
|                         |                                          |                              |      
|Total operating expenses |                                          |                              | 2,228
|                         |                                          |                              |      
|Operating loss           |                                          | $                            | (971 
|                         |                                          |                              |      

---

Comparison of the three months ended March 31, 2003 to the three months ended March 31, 2002



Total revenue decreased approximately $2.4 million, or 45.2%, to $2.9 million for the three months ended March 31, 2003 from
$5.3 million for the three months ended March 31, 2002. Product license

13

---

revenue
consists of revenue from separate product-only agreements and from multi-element agreements accounted for under a percentage-of-completion basis using
product-related milestones. Product license revenue decreased by $0.4 million, or 68.2%, as a result of a decrease in the number of new contracts and the average selling price of the current
quarter's contracts. Service revenue, comprised of fees related to time and materials service contracts, maintenance, training and needs analyses, as well as multi-element agreements accounted for
under a percentage-of-completion basis using hours of input or milestones that specifically related to integration and customization services, decreased by $2.0 million,
or 42.5%, over the prior year quarter. This decrease was primarily attributable to professional services delivered on a time and material basis being lower by $1.6 million, needs analysis and
addenda contracts being lower by $0.2 million and maintenance revenue being lower by $0.3 million, partially offset by the inclusion of Allegis revenues for the period from
March 24, 2003 to March 31, 2003 of $0.1 million. In any period, service revenue from time and material contracts is dependent on, among other things, license transactions closed
during the current and preceding periods and customer decisions regarding timing and implementation of licensed software.



Total cost of revenue decreased approximately $0.6 million, or 25.1%, to $1.7 million for the three months ended March 31, 2003 compared to
$2.2 million for the three months ended March 31, 2002. This cost of revenue decrease was primarily a result of lower third party contractor costs and employee compensation and related
costs due to a reduction in project management personnel. Cost of product revenue decreased by $100,000 or 56.0% to $77,000 due to lower royalty fees for licensed third party software that is embedded
in the Company's products or incorporated in the Company's product offerings arising from lower product sales, as well as lower amortization of product packaging and other product costs. Gross profit
margins decreased to 43.0% for the three months ended March 31, 2003, compared to 58.3% for the three months ended March 31, 2002. The gross margin decrease was due to a decrease in
product revenue as a percent of total revenue, as well as lower margins on both product and services revenue. The decrease in service margins was due to the following reasons: the classification of
project management overhead in costs of services in the current quarter, which overhead costs were included with general and administrative costs in the first quarter of 2002 due to their allocation
to internal projects that have since been completed or discontinued; lower average hourly rates; and a lower utilization rate for the professional services staff in the current quarter. Product
margins were lower due to lower product revenues against which comparable product-related costs are amortized.



Sales and Marketing.Sales and marketing expenses decreased by approximately $3.4 million, or 84.8%, to
$0.6 million for the three months ended March 31, 2003 from $4.0 million for the three months ended March 31, 2002. The decrease in sales and marketing expense was
primarily attributable to lower employee compensation and related costs due to a reduction in personnel and from lower discretionary marketing spending.

Research and Development.Research and development expenses decreased by approximately $1.1 million, or 71.0%, to
$0.5 million for the three months ended March 31, 2003, compared to $1.6 million for the prior year three-month period. This decrease was primarily attributable to lower third
party contractor costs and a reduction in salaries due to lower headcount. To date, all software development costs have been expensed as incurred.

General and Administrative.General and administrative expenses decreased by approximately $0.6 million, or 33.1%, to
$1.1 million for the three months ended March 31, 2003 from $1.7 million for the three months ended March 31, 2002. This decrease was primarily attributable to lower

14

---

employee
compensation and related costs due to a reduction in administrative personnel and lower overhead costs.

Amortization of stock-based compensation.Prior to its initial public offering, the Company granted certain stock options at
exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4.6 million. Such deferred compensation is being amortized over the vesting
periods of the applicable options, resulting in expense of $35,000 and $103,000 for the three months ended March 31, 2003 and 2002, respectively. Additionally, the $5.0 million fair
value of the warrant issued to Accenture in April 2000 was being amortized over the vesting period of the warrant. As discussed above in "Overview," the Company reached an agreement with
Accenture in the fourth quarter of 2002 to cancel the warrant. The Company recognized no related amortization expense in the first quarter of 2003. The Company recognized $0.3 million in
amortization expense in the first quarter of 2002.

Restructuring.The Company did not record a restructuring charge in the quarters ended March 31, 2003 and 2002.

Income tax expense.The Company incurred no income tax expense or benefit for the three months ended March 31, 2003
and 2002.

Liquidity and Capital Resources

At March 31, 2003, the Company had $35.4 million of cash, cash equivalents and short-term investments, consisting primarily of the
remaining proceeds from its initial public offering. Net cash provided by operating activities was $1.4 million for the three months ended March 31, 2003. The $1.4 million of cash
provided by the current three month period primarily consisted of net collections of accounts receivable of $1.9 million, offset by a loss before amortization of stock-based compensation and
depreciation and amortization totaling approximately $0.5 million.

Net
cash provided by investing activities was $118,000 for the three months ended March 31, 2003, consisting of the net cash acquired in the acquisition of Allegis of $176,000,
partially offset by purchases of investments of $58,000.

Net
cash used in financing activities was approximately $197,000 for the three months ended March 31, 2003, reflecting capital lease payments.

The
Company had a $3.0 million revolving credit facility that expired on March 31, 2003. In January 2000, the Company obtained a letter of credit under this facility
totaling $0.5 million to secure a office lease. This letter of credit is renewable annually and declines by $0.1 million on the first, second, third and fourth anniversaries of the lease
and then declines to $38,130 on the fifth anniversary until the lease expires in August 2005. The letter of credit has a balance of $200,000 at March 31, 2003. As part of the Allegis
acquisition, the Company assumed a letter of credit securing office space in San Francisco. The letter of credit expires on September 30, 2005 and currently has a balance of $170,000. The
Company also has an outstanding letter of credit for an original amount of $820,686 in connection with an insurance premium finance agreement. The letter of credit declines on a monthly basis,
beginning in November 2002, until it expires on September 24, 2003. As of May 14, 2003, the letter of credit has a balance of $448,000. These letters of credit were previously
secured by Company's line of credit that expired on March 31, 2003. Beginning April 1, 2003, the Company secured these letters of credit with cash funds that are being pledged in a
separate account held by the respective financial institutions.

In
May 2002, the Company announced that its Board of Directors had authorized the repurchase of up to $5.0 million of its common stock in the open market. These shares may
be purchased pursuant to Rule 10b-18 under the Exchange Act from time to time in the public market or through privately negotiated transactions. The timing and amount of any
repurchase will be at the discretion of the

15

---

Company's
management. As of March 31, 2003, the Company had repurchased 29,064 shares of its common stock at an average purchase price of $4.03 per share and at an aggregate cost of $117,239.
No shares were repurchased during the first quarter of 2003.

On
August 30, 2002, at a special meeting of its shareholders, an amendment to the Company's certificate of incorporation was approved in order to effect a reverse stock split of
the Company's common stock at a ratio between 1-for-2 and 1-for-5, as determined by the Company's Board of Directors. At a special meeting of the Board
of Directors on August 30, 2002, the Board of Directors approved a 1-for-5 reverse stock split of the Company's common stock effective as of September 4, 2002, in
order to improve the trading price for the common stock and improve the likelihood that the Company will be allowed to maintain the common stock's listing on the NASDAQ National Market by satisfying
the minimum bid requirement for continued listing on the NASDAQ National Market. As previously disclosed by the Company on a Current Report on Form 8-K dated September 4,
2002, the Company expected to and actually did receive on September 9, 2002, a letter from NASDAQ informing the Company that the Company had not satisfied the minimum bid price requirement for
listing of its common stock and that it would be delisted on September 17, 2002. The Company appealed such notice on September 12, 2002, requesting a hearing before a listing
qualification panel to review such delisting determination. Subsequently, NASDAQ informed the Company that it had evidenced compliance with the bid price requirement for continued listing on the
NASDAQ National Market.

The
Company may use cash resources to fund investments in complementary businesses or technologies or other purposes as determined by the Company. The Company believes that working
capital will be sufficient to meet its working capital and operating expenditure requirements for at least the next twelve months. The Company has no current plans to raise additional equity during
the next twelve months, although such plans are subject to business and market conditions. Thereafter, the Company may find it necessary to obtain additional equity or debt financing, although the
Company does not currently foresee a need for additional cash resources for long-term needs. In the event additional financing is required, the Company may not be able to raise it on
acceptable terms or at all.

Recent Accounting Pronouncements

In June 2001, the FASB issued Statement No. 143,"Accounting for Asset Retirement Obligations."This
statement requires that the fair value of a liability for legal obligations associated with the retirement of tangible long-lived assets be recognized in the period in which it is incurred
if a
reasonable estimate of fair value can be made. Such legal obligations include obligations a party is required to settle as a result of an existing or enacted law, statute, or ordinance, or written or
oral contract. These associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This statement is effective for fiscal years beginning after
June 15, 2002. The adoption of this statement did not have a material impact on the Company.

In
July 2002, the FASB issued statement No. 146."Accounting for Cost Associated with Exit or Disposal Activities."This
statement will require the recording of exit or disposal costs when they are incurred and can be measured at fair value. A liability is incurred when an event obligates a company to transfer or use
assets (i.e., when an event leaves the company little or no discretion to avoid transferring or using assets in the future). These costs will be
subsequently adjusted for changes in estimated cash flows. This statement is effective for exit or disposal activities initiated after December 31, 2002. This statement does not impact the
treatment of liabilities for exit and disposal costs previously recorded prior to adoption. The adoption of this statement did not have a material impact on the Company.

In
December 2002, the FASB issued SFAS No. 148,"Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB
Statement No. 123."This statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee

16

---

compensation.
In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of
the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to the condensed consolidated financial statements included in this
Form 10-Q.

Recent Developments

On May 1, 2003, the Company announced that its Board of Directors had declared a special cash dividend in the amount of $2.50 per share of the Company's
common stock ("Special Dividend"). The Special Dividend will be payable on June 4, 2003 to stockholders of record as of May 20, 2003. For Federal income tax purposes, the Company expects
the Special Dividend to be treated as a "return of capital." As a return of capital, the Special Dividend would be either wholly tax-free or taxable in part as capital gain, depending on
each stockholder's tax basis in the Company's common stock.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended:

Statements
in this Form 10-Q that are not historical facts and refer to the Company's future prospects are "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "believe," "hope," "assume," "estimate" and other similar
words and expressions. The statements are subject to risks and uncertainties and actual results may differ materially from those indicated by these forward-looking statements as a result of various
factors, including but not limited to, the ability of the Company to enter into strategic alliances with system integrators and business consultants, the extent of customer acceptance and utilization
of the Company's channel management solutions, the impact of competitive products and services, the Company's ability to develop new and enhanced versions of its products and services, the effect of
economic and business conditions, the volume and timing of customer contracts, and related approval processes capital and intellectual property spending of the Company's target customers, changes in
technology, deployment delays or errors associated with the Company's products, the ability of the Company to integrate acquired businesses or products and the Company's ability to protect its
intellectual property rights. For a discussion of these and other risk factors that could affect the Company's business, see "Risk Factors" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, which is on file with the Securities and Exchange Commission.

Item 3.    Qualitative and Quantitative Disclosures About Market Risk

The following discusses the Company's exposure to market risk related to changes in foreign currency exchange rates and interest rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in Part I of the
Company's Annual Report on Form 10-K under "Risk Factors."



To date, predominately all of the Company's recognized revenues have been denominated in U.S. dollars and primarily from customers in the United States and the
exposure to foreign currency exchange rate changes has been immaterial. The Company expects, however, that future product license and professional services revenues may also be derived from
international markets and may be denominated in the currency of the applicable market. As a result, operating results may become subject to significant fluctuations based upon changes in the exchange
rates of certain currencies in relation to the U.S. dollar. Furthermore, to the extent the Company engages in international sales denominated in U.S. dollars, an increase in the value of the U.S.
dollar relative to foreign currencies could make the Company's products less competitive in international markets. Although the Company

17

---

will
continue to monitor its exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, there is no
assurance that exchange rate fluctuations will not adversely affect financial results in the future.



As of March 31, 2003, the Company had cash and cash equivalents of $24.9 million. Declines in interest rates will reduce interest income from
short-term investments. Based upon the balance of cash and cash equivalents at March 31, 2003, a change in interest rates of 0.5% would cause a corresponding change in annual
interest income of approximately $0.1 million. At March 31, 2003, the Company also had $10.4 million in short-term investments, consisting primarily of
short-term bond funds. A portion of these investments is in fixed rate securities. The fair value of the Company's fixed rate investments may be adversely impacted by a rise in interest
rates.

Item 4.    Controls and Procedures

Based on their evaluation as of a date within 90 days of the filing of this Quarterly Report on Form 10-Q, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange
Act) are effective to ensure that information required to disclosed by the Company in reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and forms.

Subsequent
to the date of their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls,
including any corrective actions with regard to significant deficiencies and material weaknesses.

The
Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or internal controls and
procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.

18

---



PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

On or about December 4, 2001, a putative securities class action, captioned Murphy v. Click Commerce, Inc., et at, Civil Action
01-CV-11234 was filed against us, two of our executive officers and Morgan Stanley & Co., Dain Rauscher Incorporated, Lehman Brothers, Inc., Deutsche Bank
Securities, Inc., and U.S. Bancorp Piper Jaffray, Inc., the underwriters of our initial public offering, in the United States District Court for the Southern District of New York. The
complaint, alleged violations of Section 11 of the Securities Act of 1933 (the "Securities Act") against all defendants, a violation of Section 15 of the Securities Act against two of
our executive officers and violations of Section 12(a)(2) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), including
Rule 10b-5 promulgated thereunder, against the underwriters. The complaint sought unspecified damages on behalf of a purported class of purchasers of common stock between
June 26, 2000 and December 6, 2000. On February 19, 2003, an Opinion and Order to dismiss the complaint was issued dismissing with prejudice, all claims against Click Commerce in
their entirety. The claims against executive officers of Click Commerce had previously been dismissed.

Item 2.    Changes in Securities and Use of Proceeds

On June 26, 2000, the Securities and Exchange Commission declared effective the Company's Registration Statement on Form S-1, File
No. 333-30564, relating to the initial public offering of the Company's common stock, par value $.001 per share. As of March 31, 2003, the Company had spent approximately
$15.2 million of the net proceeds for working capital and general corporate purposes. The remaining proceeds are invested in investment grade, interest-bearing securities.

Item 3.    Defaults Upon Senior Securities

Not applicable.

Item 4.    Submission of Matters to a Vote of Security Holders

Directors

For

Authority
WithheldMichael W. Ferro, Jr.

7,182,685

308,787Emmanuel A. Kampouris

7,138,079

353,393




For

Against

Abstentions4,670,769

1,389,386

500


19

---



For

Against

Abstentions

Broker Non-Votes3,411,784

2,648,851

20

1,430,817




For

Against

Abstentions7,473,652

17,810

10


Item 5.    Other Information

Not applicable.

Item 6.    Exhibits and Reports on Form 8-K

The
following exhibits are filed as part of this Form 10-Q.

|Exhibit
Number |  | Description                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|10.1*          |  | Employment Agreement, dated as of January 1, 2003 between Michael W. Ferro, Jr. and Click Commerce, Inc.              
|10.2*          |  | Employment Agreement, dated as of November 18, 2002 between Justin C. Dearborn and Click Commerce, Inc.               
|99.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|99.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

The
Company filed a Current Report on Form 8-K (Item 5), dated March 6, 2003 to report its issuance of a press release announcing that it had received a letter,
dated March 4, 2003, from Insight Venture Management, LLC ("Insight") indicating that Insight was prepared to discuss a proposed offer by Insight to acquire all of the Company's common stock
for a price per share between $3.55 and $3.80, subject to certain balance sheet adjustments.

The
Company filed a Current Report on Form 8-K (Item 2), dated March 27, 2003 to report its consummation of its acquisition of Allegis Corporation, a
privately-held California corporation based in San Francisco, California, on March 27, 2003.

20

---



SIGNATURES

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

| |  | CLICK COMMERCE, INC.
| |  | --------------------
| |  | By:                 

Date:
May 14, 2003

21

---



CERTIFICATIONS

I, Michael W. Ferro, Jr., certify that:

1.     I
have reviewed this quarterly report on Form 10-Q of Click Commerce, Inc.;

2.     Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.     The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.     The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date    May 14, 2003 |  |                                                                                                              | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------ | 
|                     |  | /s/MICHAEL W. FERRO, JR.Michael W. Ferro, Jr. Chief Executive Officer and Chairman of the Board of Directors

22

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I,
Michael W. Nelson, certify that:

1.     I
have reviewed this quarterly report on Form 10-Q of Click Commerce, Inc.;

2.     Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.     The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.     The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date    May 14, 2003 |  |                                                                                             | 
|-------------------- |  | ------------------------------------------------------------------------------------------- | 
|                     |  | /s/MICHAEL W. NELSONMichael W. Nelson Vice President, Chief Financial Officer and Treasurer

23

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