UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                               |                                                                                         
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                        | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the Fiscal Year Ended December 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, 52nd Floor
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

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ý

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 June 30, 2003, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the
registrant's common stock held by non-affiliates was approximately $5,348,804. The aggregate market value was calculated by using the closing price of the common stock as of that date on
the NASDAQ National Market. Shares of common stock held by officers, directors, and 5% or more stockholders have been excluded in making the calculation because such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As
of March 26, 2004, there were 8,391,643 shares of the registrant's common shares issued and outstanding.

DOCUMENTS INCORPORATED HEREIN BY REFERENCE

Portions of the registrant's Definitive Proxy Statement for its 2004 Annual Meeting of Shareholders to be held on May 6, 2004 are incorporated by reference
in Part III of this report.



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CLICK COMMERCE, INC.

INDEX

|         | Item No. |    |                                                                                                |  | Page
Number
|-------- | -------- | -- | ---------------------------------------------------------------------------------------------- |  | -----------
|PART I  
|         | 1        | .  | Business                                                                                       |  | 3          
|         | 2        | .  | Properties                                                                                     |  | 22         
|         | 3        | .  | Legal Proceedings                                                                              |  | 22         
|         | 4        | .  | Submission of Matters to a Vote of Security Holders                                            |  | 22         
|PART II 
|         | 5        | .  | Market for Registrant's Common Stock and Related Shareholder Matters                           |  | 23         
|         | 6        | .  | Selected Financial Data                                                                        |  | 24         
|         | 7        | .  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 25         
|         | 7        | A. | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 38         
|         | 8        | .  | Consolidated Financial Statements and Supplementary Data                                       |  | 38         
|         | 9        | .  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 38         
|         | 9        | A. | Controls and Procedures                                                                        |  | 39         
|PART III
|         | 10       | .  | Directors and Executive Officers of the Registrant                                             |  | 40         
|         | 11       | .  | Executive Compensation                                                                         |  | 40         
|         | 12       | .  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |  | 40         
|         | 13       | .  | Certain Relationships and Related Transactions                                                 |  | 40         
|         | 14       | .  | Principal Accountant Fees and Services                                                         |  | 40         
|PART IV 
|         | 15       | .  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 41         

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PART I

This report and the documents incorporated herein by reference contain forward-looking statements that involve risks and uncertainties.
Actual results may differ significantly from those indicated in such forward-looking statements. Some of the factors that may cause actual results to differ include, but are not limited to, those
discussed in "Risk Factors" contained in Item 1 of this report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this report
and "Quantitative and Qualitative Disclosures About Market Risk" contained in Item 7A of this report.

Item 1.    Business

General

Click Commerce, Inc ("the Company") was incorporated in Delaware in August of 1996 under the name Click Interactive, Inc. In December 1999, we
changed our name to Click Commerce, Inc. Our principal executive offices are located in Chicago, Illinois. We completed our initial public offering on June 30, 2000 and our common stock
is listed on the NASDAQ National Market under the symbol "CKCM." As used herein, Click Commerce includes Click Commerce, Inc. and its wholly-owned subsidiaries. Additional information about
Click Commerce is available on our website at www.clickcommerce.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports are available free of charge through our website.

On
March 24, 2003, Click Commerce acquired 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. Results of Allegis' operations have been included in the Company's
consolidated financial statements since March 24, 2003. Allegis, a wholly-owned subsidiary of the Company, broadened the Company's installed base and product offerings while expanding its
market
share within the partner relationship management area, especially in the high technology and financial services verticals. Allegis contributed revenues related to hosting and license subscriptions as
well as adding additional software license, maintenance and professional services revenues to the consolidated results. Prior to the Allegis acquisition, the Company did not sell hosting and license
subscriptions. As a result of the integration of Allegis' personnel and products, and a common management team, we have presented the business overview and results of Click Commerce and Allegis on a
consolidated basis.

Overview

The Company provides sell-side ebusiness software solutions that connect large, global manufacturing, high-technology and financial
services companies with their channel partners. Click Commerce software products and supplemental integration, hosting and business consulting services enable companies to effectively manage and
engage in collaborative business-to-business interactions throughout their sell-side channels and processes. The solutions we offer use 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. These partners may include:



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By
providing an easy way for distribution channel partners to communicate and transact business, our software solutions enable companies to strengthen and broaden their relationships
with their partners, as well as their customers, through continuous access to information and the ability to process transactions.

Many
global companies provide sales, service and after-market support for their goods and services through complex distribution channels. These channels have traditionally been hampered
by inefficient, labor intensive, error-prone communication processes delivered via mail, phone and fax. Our software applications permit faster and more accurate transaction processing and
communication than these traditional methods. Our software applications which use the internet also reduce the hidden costs of errors and delays in information delivery by reducing the need for human
involvement. We believe that providing information and transacting business using our software applications designed to manage channel relationships can improve the commercial relationships among a
company and its distribution channel partners and provide benefits to all participants in the distribution channel by improving efficiency, financial performance, customer service and brand loyalty.

The
Click Commerce application is an integrated offering of over 35 robust software components that automate communication and business processes across distribution channels. The Click
Commerce system is personalized to each individual user, accommodating, for example, each user's language, time zone and currency preferences. Companies using our software applications can receive and
track orders, provide warranty information and provide product and pricing information to their channel partners. Our system is specifically designed to use the Internet and integrates with existing
back-office computer systems, without requiring significant additional technology expenditures.

We
currently market our products and integration services through our direct sales force and our joint marketing relationships, primarily to large, global companies that have large
distribution networks.

Industry Background



Traditional phone, fax and paper-based communications systems are inherently labor intensive, inefficient and prone to error. Many sales organizations rely on
spreadsheets and email to manage their partner relationships and the process is rudimentary or non-existent. Companies must allocate significant resources and time to the manual entry of
information from faxed or phoned-in purchase orders and the manual processing of paper checks, invoices and shipping notices. Further, the large volume of paper generated by these
transactions and the mass of information to be sorted and processed frequently results in hidden costs such as errors and delays in information delivery. Change is also difficult to implement in these
manually intensive processes on a timely basis without incurring significant costs. For example, if a manufacturer produces a paper-based catalog, it cannot quickly or inexpensively inform customers
of changes in product offerings, availability or pricing. In addition, the manufacturer and members of its distribution network have limited capability to track orders, inventory, warranties and other
information or to compile useful databases using paper-based or semi-automated

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processes.
Using these standard forms of communication, manufacturers and their business partners are unable to exchange information on a real-time basis, and as a result, potential
customers do not have easy access to the information needed to transact business with the manufacturer or its channel partners. Manufacturers may also be unable to tap into new revenue streams that
exist due to restraints imposed by differences in language and time zone, barriers that traditional methods cannot easily overcome.

Companies
have worked to develop technologies and software to overcome the problems and limitations presented by traditional forms of communication and processes to transact business.
Many companies have developed internally or purchased enterprise resource planning ("ERP") software as a means to better manage their businesses. Enterprise resource planning software systems are used
for identifying and planning a company's resources needed to fill customer orders. These systems, however, have not traditionally been designed to communicate outside of an enterprise, and, therefore,
do not provide real-time communication with business partners. In addition, enterprise resource planning software systems are expensive and take a long time to implement, typically
anywhere from 12 to 24 months depending on the complexity of the system and the size of the company.

Some
companies have considered Customer Relationship Management ("CRM") solutions to address their partner management needs. They find, however, that these systems are architected and
designed with two flaws. First, CRM systems are designed as tools for companies' direct sales channels; they are designed to be used by sales executives or customer service representatives, not by
partners. The application functionality, features and user interface generally do not meet the channel partners needs. Second, traditional CRM systems address pre-sales processes, but do
not automate the transaction or after-sales services processes.

Electronic
data interchange ("EDI") attempted to solve the problem of facilitating real-time communication by providing a means for the paperless exchange of documents
between a company and its customers, such as purchase orders, shipment authorizations, advanced shipment notices and invoices. EDI is inflexible because it is based on pre-defined, fixed
data formats that are not easily adjusted. EDI systems also typically require the use of expensive and proprietary communications networks, and specific software that may require difficult and
time-consuming point-to-point integration. In addition, EDI is not readily "scalable," or able to run on multiple servers to accommodate a larger number of users,
for large numbers of small business partners, and because information is stored and sent at specific time intervals, known as batched processes, it lacks real-time data exchange
capability.

We
believe that the system that manufacturers, and businesses in general, require is one that allows them to conduct business through a communications network that integrates all aspects
of the distribution channel and takes advantage of existing back-office computer systems. In addition, companies need to be able to easily exchange information and conduct transactions
securely, reliably and in real-time. The system must be flexible enough to meet the unique business process requirements of large, multi-national organizations with complex distribution
channels and must be highly scalable and rapidly deployable.

Growth Strategy

Our objective is to offer the most comprehensive business-to-business partner relationship management software applications that automate
the business processes between large, global companies and their channel partners. Key elements of our strategy to achieve this objective include:



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The Click Commerce Solution

We deliver partner relationship management applications and integration services that are designed to enable global corporations to create a competitive advantage
by collaborating with their trading partners. Our software provides the infrastructure and applications that global enterprises use to extend their organizations to any member of their partner
network. Using our applications, dealers, distributors, retailers, original equipment manufacturers, resellers, service centers and independent contractors, along with each of their respective
employees and all of their customers, can engage in collaborative business. Our software applications and integration services provide our customers with the following benefits:



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Business-To-Business Collaboration over the Internet

Our applications and integration services allow our customers to create a collaborative environment in which access to information and applications is shared by
all members of distribution networks. Using
our technology, it is easy for partners and customers to do business through a seamless, real-time information exchange among all participants.

Our
software allows our customers to:



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Applications

Our software can be readily integrated with back-office systems such as ERP systems, SCM systems and CRM systems. In some cases, our customers have
requested that the software interoperate with systems at partner businesses, typically ERP or dealer management systems. The open architecture of the Click Commerce solutions supports this
integration. The software uses a modular design that allows rapid configuration of applications that meet the needs of a wide variety of customers.



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Workflow:

Workflow and activity management utilities provide the structure for automating the Click Commerce solution and configuring it to match the company's business
processes. Workflow provides the business logic that guides processes such as new partner registration, opportunity routing, funds approval, and partner requests throughout the system. Companies can
maintain workflow rules and constraints, approvals, and interactions across their own and their partners' organizationsensuring continual forward progress and eliminating business
bottlenecks.

Reporting:

Utilities also include advanced OLAP reporting and analysis tools that enable companies to gain valuable insight into the performance of their channel. Companies
can analyze critical metrics such as relative sales of different partners or the degree of success of various marketing initiatives.Our relational
analysis technology allows companies to explore hundreds of business dimensions, generate new reports and charts, drill-down to the lowest detail of transactional data, and
roll-up to the highest executive-level reports. The reporting utility provides robust, role-based data security. An intuitive, easy-to-use interface
allows customers access to powerful analysis and compelling reports and presentations.

Manage:



With the Click Commerce solution, companies can gain a better understanding of who their partners are, what they sell, where they sell, and to whom they sell.
With this knowledge, companies can more easily identify gaps in their partner coverage and then target, qualify, and recruit the new partners they need to fill the gaps and build their business. Once
companies have recruited new partners, the Click Commerce solution enables them to prepare the new partners to begin selling their products within a matter of days. It also enables companies to create
shared business plans with their partners to align goals and drive mutual business success.



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Market:



Through awareness and promotion of our customers' products and brand, the Click Commerce solution helps create a preference among the partners for selling our
customers' products over those of their competitors. Companies can motivate their partners by providing information, incentives, promotions, and marketing programs tailored to their unique business
needs. In addition, companies can manage budgets and marketing funds online, making it easier for partners to do business with them.



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Sales:



The Click Commerce solution enables our customers' partners to purchase their products onlineand do so with the shortest possible cycle time and
smallest possible
administrative burden. Providing real-time status data not only increases partner satisfaction, but enables our customers to serve their customers with a greater level of satisfaction.



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Services:



The Click Commerce solution provides our customers' partners with the resources they need to perform after-sales services for our customers' products. Click
Commerce makes it easy and convenient to do so, by enabling anytime, anywhere partner self-service. Partners can process claims, requests for returns and manage service requests for their
customers. The Click Commerce solution can serve as a single portal for partners to maintain and manage all their service activities.



Technology

We deliver our applications through tightly integrated, high-performance technologies designed for maximum compatibility with our customers' existing
systems and computing environments. Our underlying platform provides the tools necessary to derive maximum return on investment for enterprises using the Click Commerce software and delivers the
components needed to meet this goal:



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The
platform is multi-lingual for international deployments and is based on the Microsoft.NET platform for high-performance, cost-effective, reliable, and
scalable operations.

Professional Services and Customer Support

We offer a variety of professional services in connection with our software, including hosting, site administration, integration services, training, maintenance
and customer support.



Customers

We have established a strong, referenceable portfolio of Global 2000 clients. Our clients all have complex products and multi-level, hierarchical relationships
with a broad range of channel partners.

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The
following is a partial list of the companies that have licensed our software and that we believe are representative of our overall customer base. By identifying these customers we are not implying
that these customers are actively endorsing or promoting our solutions.

|Automotive and Transportation Equipment |  | High Tech                  |  | Industrial Products
|--------------------------------------- |  | -------------------------- |  | -------------------
|                                       |  | Delphi Automotive Systems  |  |                   
|                                       |  | Kawasaki Motor Corporation |  |                   
|                                       |  | Nissan Forklift            |  |                   
|                                       |  | PACCAR, Inc.               |  |                   
|                                       |  | Volvo Truck & Bus          |  |                   

During the year ended December 31, 2003, one customer, Microsoft, accounted for approximately 19% of the Company's total revenue. For the year ended December 31,
2002, two customers, Delphi Automotive Systems and Alstom Power accounted for approximately 16% and 12%, respectively, of the Company's revenue. In 2001, Delphi Automotive Systems and Alstom Power
both accounted for approximately 12% of the Company's revenue.

Research and Development

We have made and will continue to make investments in research and development through internal development, technology acquisitions and joint marketing and
business development relationships. In fiscal 2003, 2002 and 2001, we spent approximately $2,411,000, $4,230,000 and $9,656,000, respectively, on research and development. Our research and development
staff is responsible for enhancing our existing products and services and expanding our product line and services offered. Our current product development activities focus on product enhancements to
increase the robustness, functionality and ease of integration of our configurable applications and the integration of external services and partner technology.

Sales and Marketing

We market our applications and services through our direct sales force and also through our joint marketing relationships. Our sales force is assisted throughout
the sales process by a team consisting of a Click Commerce business consultant, technical consultant, and a project manager. This team oversees the project from start to finish and is responsible for
installing the partner relationship management solution as promptly as possible. To complement our direct sales efforts, we also use methods such as telemarketing, direct mail campaigns, Website
marketing and speaking engagements to build market awareness of Click Commerce and our applications and to generate leads. Our clients have historically provided strong references to our prospects and
the industry analyst community.

We
strive to identify "qualified prospects," which are potential customers that meet a majority of the following criteria:



We
focus our marketing efforts toward educating our target market, generating new sales opportunities and creating awareness of our solutions and integration services through internet
and telemarketing efforts. We have engaged in marketing activities such as industry conferences and trade

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shows,
industry analyst programs and advisory councils. Our marketing professionals also produce marketing materials to support sales to prospective customers that include data sheets, brochures and
white papers.

Intellectual Property and Other Proprietary Rights

Our success and ability to compete is affected by our ability to develop and maintain the proprietary aspects of our technology and operate without infringing on
the proprietary rights of others. We rely primarily on a combination of copyright, patent, trade secret and trademark laws, confidentiality and nondisclosure procedures, contractual provisions and
other similar measures to protect our proprietary information. Any patents issued to us may be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not
being currently challenged, may not be issued within the scope of the claims we seek, if at all. Furthermore, others may develop technologies that are similar or superior to our technology or design
around our patents. As part of our confidentiality procedures, we enter into nondisclosure agreements with virtually all of our employees, directors, contractors, consultants, corporate partners,
customers and prospective customers. These legal protections, however, afford only limited protection for our technology. Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments and enhancements to existing solutions are more important than the various legal protections in establishing and
maintaining a technology leadership position. Click Commerce does hold several patents in configuration technology and has one patent pending for security management in a multi-channel environment.

Despite
our best efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our solutions or technology that we consider proprietary
and third parties may attempt to develop similar technology independently. Policing unauthorized use of our solutions is difficult. While we are unable to determine the extent to which piracy of our
software exists, we expect software piracy to be a persistent problem. In addition, effective protection of proprietary rights may be unavailable or limited in certain countries. The laws of some
foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States. Overall, the protection of our proprietary rights may not be adequate and our competitors may independently develop similar
technology.

We
are not aware that our solutions, trademarks, copyrights or other proprietary rights infringe the proprietary rights of third parties. However we have not reviewed all existing
patents and patent applications in order to determine whether grounds exist for an infringement claim against us. Third parties may assert infringement claims against us in the future with respect to
current or future products. Further, we expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment
grows and the functionality of solutions in different industry segments overlaps. From time to time, we hire or retain employees or consultants who have worked for independent software vendors or
other companies developing solutions similar to those offered by us. Those prior employers may claim that our solutions are based on their solutions and that we have misappropriated their intellectual
property. Any claims of that variety, with or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Those royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which would have a material
adverse effect on our business.

Competition

The market for our products is intensely competitive, subject to rapid technological change and is significantly affected by new product introductions and other
market activities of industry participants. There are relatively few barriers to entry in the Internet-based software market and we expect

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competition
to persist and intensify in the future. We currently have four primary sources of competition: in-house development teams of our potential clients; large software and
enterprise resource planning vendors that directly address partner relationship management products and services; infrastructure and platform providers; and independent software vendors. In the past,
when competing for customers, we have directly competed with providers of alternative products and services, including Channelwave, Comergent, IBM (with the Websphere product), SAP, and Siebel
Systems. The number and nature of competitors and the competition we will experience are likely to change substantially in the future.

We
believe that the principal competitive factors affecting our market include speed of implementation, price, knowledge of the industry and its related distribution channels, core
technology, an ability to integrate and interoperate with existing technology and the financial capacity of the respective vendors. Although we believe that our products and integration services
currently compete favorably with respect to most of these factors, our market is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors,
especially those with significantly greater financial, marketing, service, support, technical and other resources.

Some
of our competitors have longer operating histories in related markets, greater financial, technical, marketing and other resources, greater name recognition and a larger installed
base of customers in related markets. Moreover, a number of our competitors, particularly major business software companies, have well-established relationships with our current and
potential customers as well as with independent systems consultants and other vendors and service providers. In addition, these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than we can.

Such
competition could materially and adversely affect our ability to obtain revenues from either license, maintenance and/or service contracts with new or existing customers on terms
favorable to us. Further, competitive pressures may require us to reduce the price of our products and services. In either case, our business, operating results and financial condition would be
materially and adversely affected. There can be no assurance that we will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect
on our business, financial condition and operating results.

Employees

As of December 31, 2003, our full-time headcount was 84. Our employees are not represented by a labor union, and we consider our relations with
our employees to be good. In order to provide benefits to our employees in a cost-effective manner, we have entered into a client services agreement with Administaff Companies, Inc.
under which Administaff provides us with certain personnel management services, such as payroll, medical and dental insurance and the administration of our 401(k) plan. Under the agreement,
Administaff and we are intended to be co-employers of all of our employees. Co-employment is necessary for Administaff to administer payroll and sponsor and maintain benefit
plans.

Risk Factors

Risks Related to Our Business

We have incurred net losses for the past four fiscal years and we may experience losses in the future, which could cause the market price of our stock
to decline.

Although we achieved profitability for the third and fourth quarters of 2003, we can provide no assurance that we will maintain profitability for each quarter in
2004 or for the 2004 calendar year. If

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we
are profitable in 2004, we may not sustain or increase profitability in the future. If we do not maintain profitability levels expected by investors, the market price of our common stock will
likely decline.

We are dependent on the success of our suite of applications and related services for our success.

To date, substantially all of our revenues have been attributable to sales of licenses of the Partner Portal (including the Relationship Manager) and our suite of
applications and related services, consisting of hosting, site administration, implementation, integration with a customer's existing back-office computer systems and maintenance and
support of our software products. We currently expect the Partner Portal and our suite of applications and related services to account for a substantial portion of our future revenues. Accordingly,
factors adversely affecting the pricing of or demand for the Partner Portal and our suite of applications, such as competition or technological change, could have a material adverse effect on our
business, financial condition, and operating results. Our future financial performance will depend, in significant part, on the successful development, introduction and customer acceptance of new and
enhanced versions of the Partner Portal and our suite of applications and of new products and services we develop. We can provide no assurance that we will be successful in upgrading and continuing to
market the Partner Portal and our suite of applications or that we will successfully develop new products and services or that any new products and services will achieve market acceptance.

Our business is subject to quarterly fluctuations in operating results, which may negatively impact the price of our common stock.

While our growing base of recurring maintenance, hosting and subscription revenues provides revenues which are more predictable than sales of software licenses
and related implementation services, there is still a significant amount of revenues that are not recurring or accurately predictable in succeeding quarters. Our quarterly operating results have
varied significantly in the past, and we expect that they will continue to vary significantly from quarter to quarter in the future due to the level of continuing sales of software licenses and
related implementation services. We have difficulty predicting the volume
and timing of contracts, and short delays in closing contracts or in implementation of products can cause our operating results to fall substantially short of anticipated levels for that quarter. This
is, in part, due to the fact that our products have a long sales cycle, which makes it difficult to predict the periods in which we will recognize revenue and may cause operating results to vary
significantly. As a result of these and other factors, we believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful and
are not a good predictor of our future performance. We may not be successful in generating and sustaining recurring revenue streams to offset the above effects.

In
addition, we may incur expenses in order to develop products and service offerings ancillary to our existing line of products and services. These expenses may affect our earnings and
may result in losses in particular quarterly or annual periods.

For
all of these reasons, in some future quarters or years our operating results may be below the expectations of investors, which could cause volatility or a decline in the price of our
common stock.

If
we are unable to complete a substantial number of sales contracts when anticipated or experience delays in the process on a project or problems with satisfying contract terms, we may
have to defer or not recognize revenue, causing our quarterly results to fluctuate and fall below anticipated levels. For contracts in which revenue is recognized using a
percentage-of-completion method, we may not be able to recognize all or a portion of the revenue because milestones were not achieved or the level of hours incurred fell short
of expectations. If we are unable to complete one or more substantial anticipated license sales or experience problems with satisfying contract terms required for revenue

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recognition
in a particular quarter, we may not be able to recognize revenue when anticipated. We would nonetheless recognize marketing and other expenses, causing our quarterly results to fluctuate
and fall below anticipated levels. This could cause our stock price to decline.

Acquisitions or investments in other technology companies or related businesses may disrupt or otherwise have a negative impact on our business and
dilute shareholder value.

We may acquire or make investments in complementary businesses, technologies, services or products, or enter into relationships with parties who can provide
access to those assets, if appropriate opportunities arise. From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their
businesses, products, services or technologies, and we regularly engage in these discussions and negotiations in the ordinary course of our business. We may not identify suitable acquisition,
investment or relationship candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially acceptable
terms or at all. If we acquire another company, we could have difficulty in assimilating that company's personnel, operations, technology and software. In addition, the personnel of the acquired
company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities would dilute the ownership interests of the holders of our common stock.

The continuing economic slowdown, particularly in information technology, may adversely impact our business.

Our business has been adversely impacted by the economic slowdown, particularly the decline in information technology spending. The adverse impacts from the
economic slowdown include longer sales cycles, lower average selling prices and reduced bookings and revenue. A continuation of the economic slowdown could adversely impact our business.

We license certain software from third parties.

We license a small amount of software from third parties. These third party software licenses may not continue to be available to us on acceptable terms. The loss
of, or inability to maintain, any of these software licenses could result in shipment delays or reductions in revenue. This could adversely affect our business, operating results and financial
condition.

We will not be able to achieve desired growth in our business if we cannot increase our direct and indirect sales channels, which could negatively
affect our stock price.

Our products and services require a sophisticated sales effort targeted at several people within our prospective clients' organizations. We believe that our
future success is dependent upon developing more economical sales efforts which may include establishing strategic relationships with third parties. We cannot be sure that we will be successful in
achieving these economies in our direct or indirect sales or in establishing these desired relationships or that these third parties will devote adequate resources or have the technical and other
sales capabilities to sell our products.

We face competition and may face future competition.

The market for software products and services that enable business-to-business e-commerce is intensely competitive, highly
fragmented and rapidly changing. There are relatively few barriers to entry

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in
the channel management market. We expect competition to persist and intensify, which could result in our losing market share or lowering our prices.

Some of our competitors have advantages over us.

Some of our existing competitors, as well as potential future competitors, have longer operating histories in markets related to ours, greater name recognition,
larger customer bases and significantly greater financial, technical and marketing resources than our company. These advantages may allow them to respond more quickly and effectively to new or
emerging technologies and changes in customer requirements. It may also allow them to engage in more extensive research and development, undertake farther-reaching marketing campaigns, adopt more
aggressive pricing policies, implement their products and services more rapidly, and make more attractive offers to potential employees and other business associates. One or more of these companies
could adopt a different business strategy for achieving profitability, which could allow them to charge fees that are lower than ours, in order to attract clients. In addition, current and potential
competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services to address the needs of our current
and prospective clients.

Our chief executive officer is critical to our business.

Our future success largely depends upon the continued service of our chief executive officer. The services of Michael W. Ferro, Jr., our founder,
chairman of the board of directors and chief executive officer would be very difficult to replace.

If we fail to protect our intellectual property rights or face a claim of intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for significant damages.

Our success depends significantly upon our proprietary technology. We have a limited number of patents, and no plans to initiate applications for any new patents.
Unauthorized parties could copy aspects of our products or services or obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate, and
our competitors may independently develop similar technology or duplicate our products or our other intellectual property rights. Our failure to protect our proprietary rights adequately, or our
competitors' successful duplication of our technology, could negatively affect our operating results and cause the price of our common stock to decline.

In
addition, we have agreed, and may agree in the future, to indemnify certain of our customers against claims that our software infringes upon the intellectual property rights of
others. We could incur substantial costs in defending ourselves and our customers against infringement claims. In the event of a claim of infringement, we and our customers could be required to obtain
one or more licenses from third parties. We or our customers may be unable to obtain necessary licenses from third parties at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain
any such required licenses could harm our business, operating results and financial condition.

Litigation over intellectual property rights could disrupt or otherwise have a negative impact on our business.

There has been frequent litigation in the computer industry regarding intellectual property rights. Third parties may make claims of infringement by us with
respect to current or future products, trademarks or other proprietary rights. These claims could be time-consuming, result in costly litigation, divert management's attention, cause
product release or service delays, require us to redesign our products or services or require us to enter into costly royalty or licensing agreements. Any of these events could have a material and
adverse effect on our financial condition and results of operations.

19

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If we become subject to product liability litigation, it could be costly and time consuming to defend.

Since our products are used for company-wide, integral computer applications with significant potential impact on our customers' sales of their
products, any errors, defects or other performance problems with our products could result in financial or other loss for our customers.
Although we have contractual limits to our liability, product liability litigation would be time consuming and costly to defend, even if we are successful.

We have disclosed pro forma financial information.

We prepare and release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). We also have
disclosed and discussed certain pro forma financial information in certain previous earnings releases and related investor conference calls. This pro forma financial information excluded certain
non-cash charges, consisting primarily of amortization of stock-based compensation, restructuring charges, accretion related to preferred stock and income tax expense or benefit.
Disclosure of pro forma results of operations was also required in relation to our acquisition of Allegis to present certain results as if the Allegis acquisition had occurred at the beginning of the
related reporting periods presented. Although we believe the disclosure of pro forma information may have helped investors more meaningfully evaluate the results of our ongoing operations and although
we provided a reconciliation of the pro forma information to our GAAP financial statements, we urge investors to carefully review the GAAP financial information included as part of our Quarterly
Reports on Form 10-Q, Annual Reports on Form 10-K and our quarterly earnings releases and compare that GAAP financial information with the pro forma financial
results previously disclosed in the related earnings releases and investor calls.

We returned a substantial amount of our cash to our shareholders which may impact our capital structure and future operations.

On June 4, 2003, we issued a special one-time dividend of $2.50 per share to our shareholders. This distribution totaled over
$20 million and reduced the Company's cash resources at that time to approximately $10 million. With lower cash reserves, unexpected losses or unanticipated investment needs could result
in short-term liquidity issues. In addition, significant losses could cause a reduction in shareholders' equity below the minimum standards required to maintain listing on the Nasdaq
National Market, which could result in the Company's stock being delisted by Nasdaq. Such a delisting could substantially impact the ability of shareholders to purchase or sell shares of the Company's
stock and could lower the market value of such stock.

Risks Related to Our Industry

We are highly dependent on the acceptance and effectiveness of the Internet as a medium for business-to-business commerce.

Our future revenues and the success of a number of our products and services are dependent in large part on an increase in the use of the Internet for
business-to-business commerce. The failure of the Internet to continue to develop as a commercial or business medium could harm our business, operating results and financial
condition. The acceptance and use of the Internet for business-to-business commerce could be limited by a number of factors, such as the growth and the use of the Internet in
general, the threat of illegal activity that causes performance degradations at unprotected sites across the Internet, the relative ease of conducting business on the Internet, the efficiencies and
improvements that conducting commerce on the Internet provides, concerns about transaction security and taxation of transactions on the Internet.

20

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We depend on the speed and reliability of the Internet.

The recent growth in Internet traffic has caused frequent periods of decreased performance. If Internet usage continues to grow rapidly, its infrastructure may
not be able to support these demands and its performance and reliability may decline. Decreased performance at some unprotected Internet sites has also been attributed to illegal attacks by third
parties. If outages or delays on the Internet occur frequently or increase in frequency, or businesses are not able to protect themselves adequately from such illegal attacks,
business-to-business e-commerce could grow more slowly or decline, which might reduce the demand for our software products and services. The ability of our products
to satisfy our customers' needs is ultimately limited by and depends upon the speed and reliability of the Internet. Consequently, the emergence and growth of the market for our software products and
services depends upon improvements being made to the entire Internet to alleviate overloading and congestion. If these improvements are not made, the ability of our customers to benefit from our
products and services will be hindered, and our business, operating results and financial condition could suffer.

Increased security risks of the Internet may deter future use of our software products and services.

A fundamental requirement of Internet-based, business-to-business software is the secure transmission of confidential information over
public networks. Advances in computer capabilities, new discoveries in the field of cryptography, or other developments might result in a compromise or a breach of the security features contained in
our software or the algorithms used
by our customers and their business partners to protect content and transactions on Internet e-commerce marketplaces or proprietary information in our customers' and their business
partners' databases. Anyone who is able to circumvent security measures could misappropriate proprietary, confidential customer information or cause interruptions in our customers' and their business
partners' operations. Our customers and their business partners may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches, reducing
the demand for our software products and services. Further, a well-publicized compromise of security could deter businesses from using the Internet to conduct transactions that involve
transmitting confidential information. The failure of the security features of our software to prevent security breaches, or well-publicized security breaches affecting the Internet in
general, could significantly harm our business, operating results and financial condition.

Internet-related laws could adversely affect our business.

Regulation of the Internet is largely unsettled. The adoption of laws, regulations or taxes that increase the costs or administrative burdens of doing business
using the Internet could cause companies to seek an alternative means of transacting business. If the adoption of new Internet laws, regulations or taxes causes companies to seek alternative methods
for conducting business, the demand for our software products and services could decrease and our business could be adversely affected.

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Item 2.    Properties

Our corporate headquarters is located in leased office space in Chicago, Illinois. This lease expires in 2010. We also have leased offices in San Francisco,
California.

Item 3.    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 4.    Submission of Matters to a Vote of the Securities Holders

There were no matters submitted to a vote of our shareholders during the fourth quarter of the year covered by this Annual Report on Form 10-K.

22

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PART II

Item 5.    Market for Registrant's Common Stock and Related Shareholder Matters



Our common stock trades on the NASDAQ National Market under the symbol "CKCM." On March 26, 2004, the last reported closing price per common share was
$5.85. Unless otherwise indicated, all shares and per share amounts set forth below have been adjusted to reflect a 1-for-5 reverse stock split of the Company's common stock
effectuated on September 4, 2002 (the "Reverse Stock Split").

The
following table sets forth the high and low bid prices per share of the common stock for the years ended December 31, 2003 and 2002, as reported on the NASDAQ National Market:

High

Low2003First Quarter

$
3.01

$
1.44Second Quarter

$
4.37

$
1.02Third Quarter

$
2.60

$
1.31Fourth Quarter

$
8.90

$
2.002002First Quarter

$
15.75

$
6.05Second Quarter

$
6.90

$
2.75Third Quarter

$
5.25

$
0.93Fourth Quarter

$
2.55

$
0.98




As of March 26, 2004, there were 71 holders of record of our common stock. The number of holders of record is not representative of the number of
beneficial holders because many shares are held by depositories, brokers or other nominees.



On May 1, 2003, we announced that our Board of Directors had declared a special cash dividend in the amount of $2.50 per share of our common stock
("Special Dividend"). The Special Dividend was paid on June 4, 2003 to stockholders of record as of May 20, 2003. As of May 20, 2003, we had 8,136,643 shares of common
stock outstanding, which resulted in a total Special Dividend payment of approximately $20,342,000. Previous to the declaration and payment of the Special Dividend, we had never declared or paid any
cash dividends on our common stock. We currently intend to retain earnings, if any, to support our growth strategy and do not anticipate paying further cash dividends in the foreseeable future.



In April 2000, we issued a warrant to Accenture to purchase up to 163,646 shares of our common stock at an exercise price of $61.11 per share. In
the fourth quarter of 2002, the Company reached an agreement with Accenture to cancel the warrant.



Information about securities authorized for issuance under our equity compensation plans appears under "Equity Compensation Plan Information" in the Proxy
Statement. That portion of the Proxy Statement is incorporated by reference into this annual report.

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Item 6.    Selected Financial Data

The following selected financial data should be read in conjunction with our consolidated financial statements and related notes to the consolidated financial
statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. The consolidated statements of operations data for the years ended December 31, 2003, 2002,
2001, 2000 and 1999, and the consolidated balance sheet data as of December 31, 2003, 2002, 2001, 2000, and 1999, are derived from our consolidated financial statements that have been audited
by KPMG LLP, independent auditors. The historical results presented below are not necessarily indicative of the results to be expected for any future fiscal year. All shares and per share
amounts in the selected financial data below have been retroactively restated to give effect to the 1-for-5 reverse stock split of the Company's common stock, effectuated on
September 4, 2002.

|                                                             |                                          | Year ended December 31   |          
|------------------------------------------------------------ | ---------------------------------------- | ------------------------ | ---------
|
|
|Consolidated Statement of Operations Data:                   |                                          |                          |          
|Revenue                                                      |                                          | $                        | 18,189   
|Cost of revenue(b)                                           |                                          |                          | 8,716    
|                                                             |                                          |                          |          
|Gross profit                                                 |                                          |                          | 9,473    
|Operating expenses:                                          |                                          |                          |          
|                                                             | Sales and marketing(b)                   |                          |          
|                                                             | Research and development(b)              |                          |          
|                                                             | General and administrative(b)            |                          |          
|                                                             | Amortization of stock-based compensation |                          |          
|                                                             | Amortization of intangible assets        |                          |          
|                                                             | Restructuring and other charges          |                          |          
|                                                             |                                          |                          |          
|                                                             |                                          | Total operating expenses |          
|                                                             |                                          |                          |          
|Operating income (loss)                                      |                                          |                          | (3,992   
|                                                             |                                          |                          |          
|Other income                                                 |                                          |                          | 341      
|Income tax expense (benefit)                                 |                                          |                          |         
|                                                             |                                          |                          |          
|Net income (loss)                                            |                                          |                          | (3,651   
|Accretion related to redeemable preferred stock              |                                          |                          |         
|                                                             |                                          |                          |          
|Net loss available to common shareholders                    |                                          | $                        | (3,651   
|                                                             |                                          |                          |          
|Basic and diluted net loss per common share                  |                                          | $                        | (0.45    
|                                                             |                                          |                          |          
|Weighted average common shares outstandingbasic and diluted |                                          |                          | 8,163,223

|                                                     |  | As of December 31, |       
|---------------------------------------------------- |  | ------------------ | ------
|
|
|Consolidated Balance Sheet Data:                     |  |                    |       
|Cash and cash equivalents and short-term investments |  | $                  | 11,863
|Working capital                                      |  |                    | 9,245 
|Total assets                                         |  |                    | 19,194
|Capital lease obligations, less current portion      |  |                    |      
|Convertible participating preferred stock            |  |                    |      
|Total shareholders' equity (deficit)                 |  |                    | 11,049

---

24

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with "Selected
Financial Data" and the consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks, uncertainties and assumptions. 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 extent of customer acceptance and utilization
of channel management products and services, the impact of competitive products and services, the volume and timing of customer contracts, changes in technology, deployment delays or errors associated
with Click Commerce's products and the ability to protect Click Commerce's intellectual property rights. For a discussion of these and other risk factors that could affect Click Commerce's business,
see "Risk Factors" and "Quantitative and Quantitative Disclosures About Market Risk" set forth in this report.

Overview

We provide sell-side ebusiness software solutions that connect large, global manufacturing, high-technology and financial services
companies with their channel partners. Click Commerce software products and supplemental integration, hosting and business consulting services enable companies to effectively manage and engage in
collaborative business-to-business interactions throughout their sell-side channels and processes. The solutions we offer use 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 websites and providing related consulting services. The
Company implemented the first Click Commerce Relationship Manager in the second quarter of 1997.

Effective
as of March 24, 2003, the Company acquired 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. Results of Allegis' operations have been included in the Company's
consolidated financial statements since March 24, 2003. Allegis, a wholly-owned subsidiary of the Company, broadened the Company's installed base and product offerings and expanded its market
share within the partner relationship management area especially in the high technology and financial services verticals. Allegis contributed revenues related to hosting and license subscriptions as
well as adding additional software license, maintenance and professional services revenues to the consolidated results. Prior to the Allegis acquisition, the Company did not sell hosting and license
subscriptions. However, as a result of the integration of Allegis personnel and products, the common business problems we solve and the common management team, we have presented the business overview
and results of Click Commerce and Allegis on a consolidated basis.

The
Company focused its efforts in 2003 on achieving profitability. In the second half of 2003, the Company reported profits of approximately $2.4 million. The Company's goal of
continuing to achieve profitable operations is the primary focus of management. The Company plans to continue investing in developing new and improved product offerings and in increasing the exposure
of the Company's products and services through its targeted marketing programs. The Company believes that each investment must be prudently made and justified by the expected return on such
investment.

25

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With
the acquisition of Allegis, the Company now offers several licensing and service options for its software products. Customers can either purchase a perpetual software license or
enter into a subscription license contract. Customers may also choose to use our hosting services for their software license or install the software on servers within their own internal environment.
Subscription licenses are only available to customers who also use our hosting services.

Perpetual
license revenues and professional services are typically recognized as the software or service is delivered and do not provide a contractual, predictable future revenue stream.
The recurring revenue opportunities come from subscriptions or maintenance and hosting services. While the Company may have better visibility of future revenue from subscription licenses, our
customers make the final decision on the form of their software license. We encourage all of our customers to use our hosting services.

The
Company depends on several factors to increase revenue and maintain profitability: adding new customers, maintaining its current base of subscription, hosting and maintenance
revenues, and improving the gross margins of our professional services. Adding new customers is the primary responsibility of the sales department. Maintaining the other revenue streams is the
responsibility of our professional services department. The Company has developed compensations structures for these departments that it believes provides appropriate incentives for achievement of
their respective goals.

The
Company's revenue is principally derived from sales of perpetual licenses or subscriptions to its software. The Click Commerce software suite consists of the Partner Portal platform
and eighteen business applications. The Company also recognizes revenue from services, including business consulting, implementation, maintenance, training and managed hosting services.

Cost
of product license revenues includes production and shipping expenses, which are expensed as incurred, as well as costs of licensing third party software incorporated into or
required by the Company's products. These third party license costs are expensed as the products are delivered on perpetual licenses or subscriptions or as maintenance to the extent that the third
party license costs related to those product offerings. Cost of service revenues include salaries and related expenses for professional services and technical support personnel who provide
implementation services, maintenance and hosting services, as well as an allocation of data processing and overhead costs which are expensed as incurred.

Operating
expenses are classified into five general categories: sales and marketing, research and development, general and administrative, amortization of stock-based compensation and
amortization of intangible assets. 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 statements of operations for 2003. Amortization of intangible assets represents amortization expense for
certain customer relationships with finite useful lives, which was recorded in connection with the acquisition of Allegis Corporation during the first quarter of 2003.

In
April 2000, the Company issued a warrant to Accenture Ltd. ("Accenture") to purchase up to 163,646 shares of common stock at an exercise price of $61.11 per
share. The warrant vested contingently upon the achievement of certain milestones, primarily the generation of license revenue

26

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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 determined on the date of grant in accordance with Emerging Issues Task Force Issue No. 96-18 and Statement of Financial Accounting
Standards No. 123 to be approximately $5.0 million, which was determined using the Black-Scholes option-pricing model. This amount was included in additional paid-in capital
and had been amortized to expense over the original vesting period of the warrant. In the fourth quarter of 2002, the Company reached an agreement with Accenture to cancel the warrant. Under this
agreement, Accenture relinquished its rights under the warrant in exchange for the Company accepting an accelerated payment of a reduced penalty related to the level of revenue delivered through the
Accenture relationship and relinquishing its rights under the warrant. The reduced penalty was received by the Company and was reported in its financial statements in Other Income in the fourth
quarter of 2002. Upon cancellation of the warrant, the Company adjusted the cumulative amortization expense to reflect only the percentage of the original fair value of the warrant that was vested on
the date of cancellation, resulting in a reversal of the previously recognized amortization of stock-based compensation expense of $1.0 million in the fourth quarter of 2002. For the year ended
December 31, 2002, the Company recognized $83,000 in net amortization recovery related to the warrant.

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 at an early stage of development, particularly companies in new, rapidly evolving markets. The Company may
not be successful in addressing such risks and difficulties.

Critical Accounting Policies and Estimates

The Company's consolidated financial statements are prepared in conformity 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 accounting policies and estimates which the Company
believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include the following:



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 either a perpetual basis or through a subscription. Revenues related to arrangements with multiple elements are allocated to
the individual elements in accordance with "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") based upon verifiable, objective evidence of the fair values of each accounting
unit. Inherent in the revenue recognition process are significant estimates and judgments, which determine the timing and amount of revenue recognition.

Beginning
in 2000, the Company began to license its software products independent of its integration services. For those contracts that either do not contain a services component or in
which the services element is 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. For contracts in which the services component meets the

27

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requirements
of a separate element of a contract, revenue is 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. If Company specific objective evidence of fair value does not exist for one or more of the delivered elements, but the Company has such evidence for all of the undelivered elements,
the Company applies the residual method of accounting and defers only that revenue related to the undelivered elements. If there are any discounts negotiated in the contract, the discount is
attributed entirely to the delivered elements. 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 statement of operations.

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. When output milestones are used, those milestones are typically determined from the structure of the contract in three milestones: delivery of the software, completion of the initial
implementation and acceptance of the project by the customer. 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 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 based on milestones is presented as product license revenue to the extent that the
underlying milestones are related to software deliveries. In contracts with revenue recognized under the percentage-of-completion method based on labor hour inputs, revenues
are presented as product revenue to the extent that the underlying contracts are for software licenses based on equal application of discounts across all elements of a larger engagement. To the extent
that hours of input are used as the basis for percentage completed on a fixed price contract or that contract milestones relate to software customization or other professional services, revenues are
presented as service revenues.

For
software subscriptions, the Company applies revenue recognition principles in accordance with the guidance provided by Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition."The
arrangement fee related to multi-element arrangements should be allocated to the individual elements in accordance with EITF
00-21based upon verifiable, objective evidence of the fair values of each accounting unit. The Company's subscription arrangements with customers generally include several elements,
including (1) strategic consulting services, (2) set-up and software subscription services, and (3) hosting services. Set-up and subscription are presented
as subscription revenues. If the arrangement includes consulting or hosting services, those elements are presented as service and hosting revenue, respectively, based on the individual contracts.
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
revenue and expense 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

28

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ratably
over the contract period, generally one year. Maintenance fees are generally billed annually in advance and are recorded as deferred revenue. As part of the sales process, the Company often
performs 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.



The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that are identified. While such credit losses have historically not been material and within expectations and the provisions established, the
Company cannot guarantee that it will continue to have the same credit loss rates that have been experienced in the past.



The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
In assessing the realizablility of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although future taxable income of the Company may be sufficient to utilize
a substantial amount of the benefits of the Company's net operating loss carryforwards and to realize its deferred tax assets, a valuation allowance was recorded in 2001 to completely offset the
carrying value of the Company's net deferred tax assets as management concluded that the realization of its deferred tax assets does not meet the "more likely than not" criteria under Statement of
Financial Accounting Standards ("SFAS") No. 109. The Company recorded an addition to the valuation allowance of $0.6 million in 2003 and $2.45 million in 2002, equal to the amount
of the future tax asset generated.

29

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Results of Operations

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

|                    |                 | 2003                                     |                          | 2002  |       | 2001   |     
|------------------- | --------------- | ---------------------------------------- | ------------------------ | ----- | ----- | ------ | ----
|
|Revenue             |                 |                                          |                          |       |       |        |     
|                    | Product         |                                          |                          |       |       |        |     
|                    |                 | Product license                          |                          | $     | 2,084 |        | 11.5
|                    |                 | Subscription                             |                          |       | 2,080 |        | 11.4
|                    |                 |                                          | Total product            |       |       | 4,164  |     
|                    | Service         |                                          |                          |       |       |        |     
|                    |                 | Maintenance and hosting                  |                          |       | 6,728 |        | 37.0
|                    |                 | Consulting and implementation service    |                          |       | 7,297 |        | 40.1
|                    |                 |                                          |                          |       |       |        |     
|                    |                 |                                          | Total service            |       |       | 14,025 |     
|                    |                 |                                          |                          |       |       |        |     
|                    |                 |                                          | Total revenues           |       |       | 18,189 |     
|Cost of revenues    |                 |                                          |                          |       |       |        |     
|                    | Product license |                                          |                          | 341   |       | 1.9    |     
|                    | Service(a)      |                                          |                          | 8,375 |       | 46.0   |     
|                    |                 |                                          |                          |       |       |        |     
|                    |                 | Total cost of revenues                   |                          |       | 8,716 |        | 47.9
|                    |                 |                                          |                          |       |       |        |     
|Gross profit        |                 |                                          | 9,473                    |       | 52.1  |        |     
|Operating expenses: |                 |                                          |                          |       |       |        |     
|                    |                 | Sales and marketing(a)                   |                          |       | 3,409 |        | 18.7
|                    |                 | Research and development(a)              |                          |       | 2,411 |        | 13.3
|                    |                 | General and administrative(a)            |                          |       | 4,520 |        | 24.9
|                    |                 | Amortization of stock-based compensation |                          |       | 58    |        | 0.3 
|                    |                 | Amortization of intangible assets        |                          |       | 107   |        | 0.6 
|                    |                 | Restructuring and other charges          |                          |       | 2,960 |        | 16.3
|                    |                 |                                          |                          |       |       |        |     
|                    |                 |                                          | Total operating expenses |       |       | 13,465 |     
|                    |                 |                                          |                          |       |       |        |     
|                    |                 |                                          | Operating loss           |       | $     | (3,992 | )   
|                    |                 |                                          |                          |       |       |        |     

---



30

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Comparison of the year ended December 31, 2003 to the year ended December 31, 2002



Total revenue decreased approximately $87,000, or 0.5%, to $18.2 million for the year ended December 31, 2003 from $18.3 million for the year
ended December 31, 2002. Product license revenue consists of revenue from separate product-only agreements and from agreements accounted for under a
percentage-of-completion basis using product-related milestones. Product license revenue in 2003 decreased by $108,000, or 4.9%, as a result of a decrease in the number of new
contracts and the average selling price of the current year's contracts, offset partially by the increase in the number of new contracts resulting from the acquisition of Allegis Corporation
("Allegis") on March 24, 2003. The Company recorded $2.1 million of subscription revenue during the year ended December 31, 2003 as a result of the Allegis acquisition. No
subscription revenue was recorded during the year ended December 31, 2002. Maintenance and hosting revenue decreased $332,000, or 4.7%, to $6.7 million for 2003, from $7.1 million
for 2002. The decrease was primarily attributable to a decrease in contract renewals and lower average fees on existing contracts. Service revenue, comprised of fees related to time and materials
service contracts, training and needs analyses, as well as agreements accounted for under a percentage-of-completion basis using hours of input or milestones that specifically
related to integration and implementation services, decreased by $1.7 million to $7.3 million in 2003, or 19.1%, from $9.0 million for the prior year. The decrease in service
revenue was due primarily to the completion of existing implementation service contracts in the prior year and a trend toward smaller scoped projects in 2003. 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 implementation of licensed software.



Total cost of revenue decreased by approximately $348,000, or 3.8%, to $8.7 million for the year ended December 31, 2003 from $9.1 million
for the year ended December 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 and lower third party software
license costs. Cost of product revenue decreased by $364,000, or 51.6%, to $341,000 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. Total cost of service revenue remained
relatively flat in 2003 at $8.4 million. Gross profit margins increased slightly to 52.1% for the year ended December 31, 2003, compared to 50.4% for the year ended December 31,
2002. The gross margin increase is due to higher margins on both product and services revenue. Product margins were higher due to lower amortization of product-related costs. The increase in service
margins was due to improved utilization rates for the professional services staff during the second half of 2003.



Sales and Marketing.Sales and marketing expenses decreased by approximately $5.8 million, or 63.1%, to
$3.4 million for the year ended December 31, 2003 from $9.2 million for the year ended December 31, 2002. The decrease in sales and marketing 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 $1.8 million, or 43.0%, to
$2.4 million for the year ended December 31, 2003 compared to $4.2 million for the prior year. This decrease was primarily attributable to lower third party contractor costs and a

31

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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 $93,000, or 2.0%, to
$4.5 million for the year ended December 31, 2003 from $4.6 million for the year ended December 31, 2002. This decrease was primarily attributable to the reduction in
overhead expenses achieved through the Company's cost reduction measures, partially offset by an increase of non-recurring legal and consulting expenses related to the Company's
consideration of an unsolicited acquisition proposal by one of the Company's shareholders and the payment of the June 4, 2003 $2.50 Special Dividend.

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 gross expense of $58,000 and $319,000 during the years ended December 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. Thus, the Company adjusted the cumulative amortization expense to reflect only the percentage of the original fair value of the warrant
that was vested on the date of cancellation, resulting in a reversal of the previously recognized amortization of stock-based compensation expense of $1.0 million in the fourth quarter of 2002.
For the year ended December 31, 2002, the Company recognized a recovery of amortization expense of $83,000 related to the warrant.

Amortization of intangible assets.In the year ended December 31, 2003, the Company recorded $107,000 in amortization
of customer relationship intangible assets that were recorded as part of the 2003 Allegis acquisition. No such amortization was recorded in 2002.

Restructuring and other charges.In the quarter ended June 30, 2002, the Company recorded a $822,000 restructuring
charge primarily related to severance and other benefit costs for 51 employees terminated as part of a restructuring plan and a $451,000 asset write-down for excess equipment. The asset
write-down was recorded to adjust the carrying value of excess equipment to its deemed fair value of $0 as these excess assets were leased under capital leases with fair market value buy
out provisions at the end of the respective lease terms. The restructuring charge also included the costs of closing four regional offices. The Company also reversed into income approximately $59,000
of excess severance accruals originally recorded as part of the restructuring charge taken in the quarter ended September 30, 2001.

In
the quarter ended December 31, 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 would 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 $1.0 million.

In
the quarter ended June 30, 2003, the Company continued to execute its restructuring plan following the Allegis acquisition. As part of this plan, certain redundant costs were
eliminated and a restructuring charge of $2.3 million was recorded. The restructuring charge primarily related to $2.1 million of excess lease costs in two locations and severance and
other benefit costs of $0.2 million for the termination of 15 employees as part of the restructuring plan. In the third quarter of 2003, the

32

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Company
reached a settlement with the landlord for its vacant office space in Chicago that resulted from its consolidation efforts in the second quarter. This agreement resulted in the cancellation of
the Company's original lease obligation in exchange for a $900,000 cash payment. As of June 30, 2003, the total cost of this lease was estimated at $1,865,000 and was included in the
restructuring accrual recorded during the second quarter. Accordingly, the Company reversed $965,000 of the restructuring accrual in the quarter ended September 30, 2003 as a result of the
lease settlement.

The
Company also recorded a $1.6 million asset impairment charge during the second quarter of 2003. This charge related to leasehold improvements associated with the excess office
leases, a redundant computer system and excess equipment totaling $1.0 million and the write-off of certain third party software licenses related to products that had no projected
sales and no plans for further development in the amount of $0.6 million. The Company also recorded a recovery of $18,000 during the third quarter of 2003 related to the sale of impaired assets
that had been previously written off the Company's books.

At
December 31, 2003 and 2002, approximately $0.3 million in restructuring costs remained to be paid. The Company estimates the annual cost savings from these two
restructurings to be approximately $7.0 million.

Income tax expense.The Company incurred no income tax expense or benefit for the years ended December 31, 2003 and
2002.

Comparison of the year ended December 31, 2002 to the year ended December 31, 2001



Total revenue decreased approximately $25.6 million, or 58.3%, to $18.3 million for the year ended December 31, 2002 from
$43.9 million for the year ended December 31, 2001. Product license revenue consists of revenue from separate product-only agreements and from agreements accounted for under
a precentage-of-completion basis using product-related milestones. Product license revenue in 2002 decreased by $18.0 million, or 89.1%, as a result of a decrease in the
number of new contracts and the average selling price of the 2002 contracts due to the economic slowdown and significant decline in information technology spending. There were no subscription revenues
in 2002 or 2001 as the Company did not offer a subscription license until after the Allegis acquisition in 2003. Maintenance revenue increased $1.3 million in 2002, or 21.8%, to
$7.1 million, from $5.8 million in 2001. This increase was primarily attributable to maintenance contracts under which an entire year of revenue was recognized in 2002. Only the portion
of maintenance relating to active maintenance periods on new customers in 2001 was recognized in that year. Service revenue, comprised of fees related to time and materials service contracts, training
and needs analyses, as well as 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 $8.8 million, or 49.5%, from the prior year. The $8.8 million decrease in service revenue was primarily attributable to a decrease in professional
services delivered on a time and material basis, lower needs analyses and addenda contracts and a decrease in service revenue from multi-element contracts. 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 implementation of licensed software.



Total cost of revenue decreased by approximately $4.3 million, or 32.3%, to $9.1 million for the year ended December 31, 2002 from
$13.4 million for the year ended December 31, 2001. 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 $0.8 million, or 53.2%, to $0.7 million due to lower royalty fees for licensed third

33

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party
software that are embedded in the Company's products or incorporated in the Company's product offerings, as well as lower amortization of product packaging and other product costs. Gross profit
margins decreased to 50.4% for the year ended December 31, 2002, compared to 69.5% for the year ended December 31, 2001. 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 service revenue. The decrease in service margins was due to the following reasons: a classification of project
management overhead in costs of services in 2002, which overhead costs were included with general and administrative costs in prior periods 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 year. Product margins were lower due to lower product
revenues against which comparable product-related costs were amortized.



Sales and Marketing.Sales and marketing expenses decreased by approximately $14.0 million, or 60.3%, to
$9.2 million for the year ended December 31, 2002 from $23.3 million for the year ended December 31, 2001. The decrease in sales and marketing expense is 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 $5.4 million, or 56.2%, to
$4.2 million for the year ended December 31, 2002 compared to $9.7 million for the prior year. This decrease is 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 $3.9 million, or 45.9%, to
$4.6 million for the year ended December 31, 2002 from $8.5 million for the year ended December 31, 2001. This decrease is primarily attributable to lower 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 $319,000 and $896,000 during the years ended December 31, 2002 and 2001, 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. Thus, the Company adjusted the cumulative amortization expense to reflect only the percentage of the original fair value of the warrant
that was vested on the date of cancellation, resulting in a reversal of the previously recognized amortization of stock-based compensation expense of $1.0 million in the fourth quarter of 2002.
For the years ended December 31, 2002 and 2001, the Company recognized a recovery of amortization expense of $83,000 and $1.2 million in amortization expense, respectively, related to
the warrant.

Restructuring.In the quarter ended September 30, 2001, the Company determined that, given current economic
conditions, it was necessary to lower its overall cost structure. The Company had been experiencing longer sales cycles, delayed purchasing decisions and higher executive level review of all capital
projects, particularly for technology and e-commerce projects. These factors, along with the effects of September 11, 2001, caused the Company to re-evaluate its near
term growth opportunities and align its cost structure accordingly. As a result, the Company developed a restructuring plan to reduce the Company's cost structure, which resulted in the Company
recording a $1.8 million restructuring charge. As part of the restructuring, the Company terminated approximately 17% of its

34

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workforce
or approximately 50 personnel across all areas of the Company. The restructuring charge consisted primarily of employee and related costs attributable to personnel who were involuntarily
terminated at the end of the quarter. The restructuring charge also included stock-based compensation, facilities and other costs. The stock-based compensation charge was a non-cash
expense incurred for accelerated vesting under contracts with certain terminated employees. Facilities related costs represent the remaining lease payments for the closing of one office.

In
the quarter ended June 30, 2002, the Company recorded a $822,000 restructuring charge primarily related to severance and other benefit costs for 51 employees terminated as part
of the restructuring plan and a $451,000 asset write-down for excess equipment. The asset write-down was recorded to adjust the carrying value of excess equipment to its deemed
fair value of $0 as these excess assets are leased under capital leases with fair market value buy out provisions at the end of the respective lease terms. The restructuring charge also included the
costs of closing four regional offices. The Company also reversed into income approximately $59,000 of excess
severance accruals originally recorded as part of the restructuring charge taken in the quarter ended September 30, 2001.

In
the quarter ended December 31, 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 would be sufficient to recover the carrying value of the related assets. The Company concluded 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 expectation of no future sales and no further plans to develop this product line. Accordingly, the Company recorded an
impairment charge of $1.0 million.

At
December 31, 2002 and 2001, approximately $0.3 million and $1.0 million, respectively, in restructuring costs remained to be paid. The Company estimates the
annual cost savings from these restructurings to be approximately $6.0 million.

Income tax expense.The Company incurred no income tax expense or benefit for the year ended December 31, 2002, and
income tax expense of $3.5 million for the year ended December 31, 2001 related to the establishment of a valuation allowance for deferred tax assets based on an analysis of the
realizability of such deferred tax assets.

Liquidity and Capital Resources

At December 31, 2003, the Company had $11.9 million of cash and cash equivalents, consisting primarily of proceeds from its initial public offering.
Net cash used in operating activities was $1.6 million, $5.5 million and $9.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. The
$1.6 million of cash used in operating activities during 2003 consists primarily of the Company's net loss of $3.7 million adjusted for $1.1 million in depreciation and
amortization expense and $0.4 million in other non-cash charges, as well as decreases in accrued compensation, accounts payable and deferred revenue of $1.0 million,
$0.9 million and $0.5 million, respectively. These net operating cash outflows were partially offset by a loss on disposal of property of $1.0 million and the decrease in accounts
receivable of $2.2 million.

Net
cash provided by investing activities was $10.4 million for the year ended December 31, 2003, consisting primarily of the redemption of short-term
investments to fund the Special Dividend of $10.3 million. For the year ended December 31, 2002, cash used in investing activities was $10.7 million, which consisted primarily of
the transfer of funds to short-term investments. During the year ended December 31, 2001, net cash used in investing activities was $2.4 million consisting of purchases of
property and equipment and other assets. The Company's capital expenditures consisted of purchases of resources to manage operations, including computer hardware and software.

35

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Net
cash used in financing activities for the year ended December 31, 2003 was approximately $20.5 million, reflecting the payment of the $20.3 million Special
Dividend on June 4, 2003. Net cash used in financing activities was $0.9 million for the year ended December 31, 2002, which reflects $0.9 million in capital lease payments
and $0.1 million for the purchase of treasury stock under the Company's approved stock buy-back program. Net cash provided by financing activities was approximately
$0.9 million for the year ended December 31, 2001. The cash provided during 2001 reflects $1.7 million of proceeds from the exercise of stock options offset by $0.8 million
in capital lease principal payments.

As
of December 31, 2003, the Company had the following contractual obligations outstanding:

Payments due by periodContractual obligations

Total

Less than 1 year

1-3 years

3-5 years

More than 5 yearsLong-term debt obligations









Capital lease obligations

69

69





Operating lease obligations

1720

467

622

374

257Purchase obligations









Other long-term liabilities

79



79



Total

1868

536

701

374

257


As part of the Allegis acquisition, the Company assumed a letter of credit securing an office space lease 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 approximately $821,000 in connection with an insurance
premium finance agreement. The letter of credit declines on a monthly basis, beginning in November 2003, until it expires on September 24, 2004. As of December 31, 2003, the
obligations related to the letter of credit were $494,056. These letters of credit were previously secured by the 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 maintained in a separate account held by the respective financial institutions, of which $170,000 is
considered restricted.

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 is at the discretion of the Company's management. Through December 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 2003.

As
a result of larger than anticipated restructuring and asset impairment charges in the second quarter of 2003 and the payment of the June 4, 2003 Special Dividend, the Company
fell below the $10 million minimum shareholders' equity requirement to maintain listing on the Nasdaq National Market ("NNM"). As such, Nasdaq formally notified the Company in the third quarter
that unless the Company could demonstrate compliance with the minimum shareholders' equity requirement, the Company's shares would either be delisted, or, upon request of the Company, transferred to
the Nasdaq Small Cap Market. In October of 2003, the Company presented a plan to achieve compliance with NNM requirements through the achievement of profitability in the second half of 2003 and the
exercise of stock options by the Company's CEO. Based upon the successful implementation of this compliance plan, the Company was released from all delisting actions and allowed to remain in good
standing with the NNM. The Company is currently in compliance with all listing requirements for the NNM.

36

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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 effectuate 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 would be allowed to maintain the common stock's listing on the NNM by satisfying the
minimum bid requirement. As previously disclosed by the Company on a Current Report on Form 8-K dated September 4, 2002, the Company expected to and 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 NNM.

The
Company continues to evaluate strategic alternatives, including opportunities to strategically grow the business, enter into strategic relationships, make acquisitions, or enter into
business combinations. The Company can provide no assurance that it will consummate any such strategic alternatives and may elect to terminate such evaluation at any time.

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 for at least the next twelve months. The Company has no current plans to raise additional equity to finance existing operations during the next twelve months, although such
plans are subject to changes due 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. Additional equity may be issued in connection with potential acquisitions in addition to the transaction noted in the
Recent Developments section below.

Impact of Recently Issued Accounting Standards

In May 2003, the FASB's Emerging Issues Task Force reached consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables" (EITF 00-21). EITF 00-21's criteria govern how to identify whether goods or services or both that are to be delivered separately in a bundled sales
arrangement should be accounted for separately. Specifically, the purpose of EITF 00-21 is to determine if separation is necessary and, if so, how to measure and allocate the
arrangement consideration. For publicly traded companies, EITF 00-21 is applicable for revenue arrangements entered into in periods beginning after June 15, 2003.
Accordingly, the Company adopted EITF 00-21 on July 1, 2003 for all new revenue arrangements. The adoption of EITF 00-21 did not have a significant impact
on the Company.

In
December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104, "Revenue Recognition" (SAB 104), which recodfied the guidance of
SAB 101 "Revenue Recognition in Financial Statements" and further clarifies the staff's positions in regards to certain revenue recognition criteria. The adoption of SAB 104 did not have
a significant impact on the Company's financial position or results of operations for any periods presented.

37

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Recent Developments

On March 17, 2004, the Company entered into a definitive agreement to acquire the operating assets of Webridge, Inc. ("Webridge"), an extranet
portal software company based in Portland, Oregon. The Webridge operating assets will be acquired for approximately 600,000 shares of Company common stock subject to certain working capital
adjustments to be determined at the closing date of the transaction. The acquisition is expected to be completed by the end of April subject to a number of conditions, including approval of the
stockholders of Webridge, Inc., receipt of regulatory approval from the Oregon Division of Finance and Corporate Securities, and certain other customary conditions. Webridge offers configurable
web-based process and compliance automation and partner collaboration systems for the medical research and healthcare markets. The acquisition of Webridge will extend Click Commerce's
presence into the healthcare market and add content and compliance management to its product offering.

Item 7A.    Quantitative and Qualitative 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, "Risk
Factors" of this report.



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. Thus, 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 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 December 31, 2003, the Company had cash and cash equivalents of $11.9 million. Declines in interest rates have reduced interest income from
short-term investments. Based upon the balance of cash and cash equivalents at December 31, 2003, a change in interest rates of 0.5% would cause a corresponding change in annual
interest income of approximately $59,000.

Item 8.    Consolidated Financial Statements and Supplementary Data

See Index to Financial Statements on page F-1.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

38

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Item 9A.    Controls and Procedures

Based on their evaluation as of a date within 90 days of the filing of this Annual Report on Form 10-K, 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 be 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,
controls 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.

39

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PART III

Item 10.    Directors and Executive Officers of the Registrant

The information required by this item is incorporated by reference to the material in the Company's Proxy Statement for the 2004 Annual Meeting of Shareholders
(the "Proxy Statement").

The
Company has adopted a code of ethics that applies to all Company employees, including employees of Company subsidiaries, as well as each member of the Company's Board of Directors. A
copy of the Code of Ethics is available by writing to us at Click Commerce, Inc., 200 East Randolph Street, 52ndFloor, Chicago, Illinois 60601, Attention: Investor Relations. If
the Company makes any amendments to this Code other than technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision
of this Code to the Company's chief executive officer, chief financial officer or controller, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies
on its website or in a report on Form 8-K filed with the Securities and Exchange Commission.

Item 11.    Executive Compensation

The information required by this item is incorporated by reference to the material in the Company's Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this item is incorporated by reference to the material in the Company's Proxy Statement.

Item 13.    Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the material in the Company's Proxy Statement.

Item 14.    Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the material in the Company's Proxy Statement.

40

---



PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K





Exhibit
Numbers 10.1 through 10.3, 10.7 through 10.13 and 10.15 are management contracts or compensatory plans or arrangements.

|Exhibit
Number |  | Description of Exhibit                                                                                                                                                                  
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1*           |  | Agreement and Plan of Merger, dated as of March 21, 2003, by and among Click Commerce, Inc., Allegis Acquisition, Inc., Allegis Acquisition of California, Inc. and Allegis Corporation.
|3.1**          |  | Restated Certificate of Incorporation                                                                                                                                                   
|3.2*^^^^^      |  | Amended and Restated Bylaws                                                                                                                                                             
|3.3*^^^^       |  | Amendment to Certificate of Incorporation of Click Commerce, Inc.                                                                                                                       
|4.1***         |  | Specimen Common Stock certificate                                                                                                                                                       
|4.2***         |  | Amended and Restated Shareholders and Rights Agreement                                                                                                                                  
|10.1***        |  | Amended and Restated Click Commerce, Inc. Stock Option and Stock Award Plan                                                                                                             
|10.2***        |  | Click Commerce, Inc. Directors' Stock Option and Stock Award Plan                                                                                                                       
|10.3***        |  | Form of Indemnification Agreement entered into between Click Commerce, Inc. and its directors and executive officers                                                                    
|10.4***        |  | Promissory Note, dated March 31, 2000, between Click Commerce, Inc. and American National Bank and Trust Company of Chicago                                                             
|10.5***        |  | Loan and Security Agreement, dated March 31, 2000, between Click Commerce, Inc. and American National Bank and Trust Company of Chicago                                                 
|10.6***        |  | Strategic Alliance Agreement with Andersen Consulting, LLP (now known as Accenture Ltd.).                                                                                               
|10.7****       |  | Release and Severance Agreement between Robert J. Markese and Click Commerce, Inc. dated as of September 30, 2001                                                                       
|10.8*^^        |  | Release and Severance Agreement between William Conroy and Click Commerce, Inc. dated as of April 15, 2002                                                                              
|10.9*^         |  | Employment Letter Agreement between Jon Niess and Click Commerce, Inc. dated October 24, 2001                                                                                           
|               |  |                                                                                                                                                                                         

41

---

|10.10*^^^ |  | Employment Agreement between Michael W. Nelson and Click Commerce, Inc. dated as of August 7, 2002                  
|--------- |  | --------------------------------------------------------------------------------------------------------------------
|10.11*#   |  | Employment Agreement between Michael W. Ferro, Jr., and Click Commerce, Inc. dated as of January 1, 2003.           
|10.12*#   |  | Employment Agreement between Justin C. Dearborn and Click Commerce, Inc. dated as of November 18, 2002.             
|10.13*##  |  | Stock Option Agreement of Michael W. Ferro, Jr.                                                                     
|10.14*### |  | Subleases Termination Agreement between Radian Guaranty Inc., and Click Commerce, Inc., dated as of August 29, 2003.
|10.15     |  | Employment Agreement between Daniel J. Taylor and Click Commerce, Inc. dated as of July 1, 2003.                    
|21.1      |  | Subsidiaries of the Registrant                                                                                      
|23.1      |  | Consent of KPMG LLP                                                                                                 
|31.1      |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.             
|31.2      |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.             
|32.1      |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.             
|32.2      |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.             

---

42

---

(b)   Reports on Form 8-K

On
October 24, 2003, the Company furnished a Form 8-K announcing that it had issued a press release on October 23, 2003 setting forth the Company's third
quarter 2003 earnings and filing a copy of the press release therein (pursuant to Items 7, 9 and 12 of Form 8-K).

On
November 14, 2003, the Company filed a Form 8-K announcing that it received a favorable determination from a Nasdaq Listing Qualifications Panel for
continued listing of the Registrant's common stock on The Nasdaq National Market (pursuant to Items 5 and 7 of Form 8-K).

On
January 22, 2004, the Company furnished a Form 8-K announcing that it had issued a press release on January 22, 2004 setting forth the Company's
fourth quarter 2003 earnings and filing a copy of the press release therein (pursuant to Items 7, 9 and 12 of Form 8-K).

On
March 18, 2004, the Company filed a Form 8-K announcing that it had agreed to acquire the operating assets of Webridge, Inc. and filing a copy of the press release therein
(pursuant to Item 5 of Form 8-K).

43

---



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 26th day of March, 2004.

| |  | Click Commerce, Inc.
| |  | --------------------
| |  | By:                 

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|Signature                                       |  | Title                                                          |  | Date          
|----------------------------------------------- |  | -------------------------------------------------------------- |  | --------------
|                                                |  |                                                                |  |               
|/s/MICHAEL W. FERRO, JR.Michael W. Ferro, Jr.   |  | Chief Executive Officer and
Chairman of the Board of
Directors |  | March 26, 2004
|/s/EMMANUEL A. KAMPOURISEmmanuel A. Kampouris   |  | Director                                                       |  | March 26, 2004
|/s/WILLIAM J. DEVERS, JR.William J. Devers, Jr. |  | Director                                                       |  | March 26, 2004
|/s/ANDREW J. MCKENNAAndrew J. McKenna           |  | Director                                                       |  | March 26, 2004
|/s/JOHN F. SANDNERJohn F. Sandner               |  | Director                                                       |  | March 26, 2004
|/s/SAMUEL K. SKINNERSamuel K. Skinner           |  | Director                                                       |  | March 26, 2004
|/s/EDWINA D. WOODBURYEdwina D. Woodbury         |  | Director                                                       |  | March 26, 2004

44

---

CLICK COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS

|                                                             |  | Page
|------------------------------------------------------------ |  | ----
|Independent Auditors' Report                                 |  | F-2 
|Consolidated Balance Sheets                                  |  | F-3 
|Consolidated Statements of Operations and Comprehensive Loss |  | F-4 
|Consolidated Statements of Shareholders' Equity              |  | F-5 
|Consolidated Statements of Cash Flows                        |  | F-6 
|Notes to Consolidated Financial Statements                   |  | F-7 

F-1

---



INDEPENDENT AUDITORS' REPORT

The
Board of Directors and Shareholders
Click Commerce, Inc.:

We
have audited the accompanying consolidated balance sheets of Click Commerce, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations
and comprehensive loss, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Click Commerce, Inc. as of
December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.



Chicago,
Illinois
February 11, 2004, except for Note 16,
which is as of March 18, 2004

F-2

---



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

|                                                                                                                                                                                            |                                                                                                                              | December 31,                               |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                                                                                                                                                                      |                                                                                                                              |                                            |        
|Current assets:                                                                                                                                                                             |                                                                                                                              |                                            |        
|                                                                                                                                                                                            | Cash and cash equivalents                                                                                                    |                                            | $      
|                                                                                                                                                                                            | Short-term investments                                                                                                       |                                            |        
|                                                                                                                                                                                            | Trade accounts receivable, less allowance for doubtful accounts of $323 and $175 at December 31, 2003 and 2002, respectively |                                            |        
|                                                                                                                                                                                            | Prepaids and other current assets                                                                                            |                                            |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total current assets                       |        
|Property and equipment, net                                                                                                                                                                 |                                                                                                                              |                                            | 865    
|Restricted cash                                                                                                                                                                             |                                                                                                                              |                                            | 170    
|Intangible assets                                                                                                                                                                           |                                                                                                                              |                                            | 359    
|Other assets                                                                                                                                                                                |                                                                                                                              |                                            | 489    
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total assets                               |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                        |                                                                                                                              |                                            |        
|Current liabilities:                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                            | Accounts payable                                                                                                             |                                            | $      
|                                                                                                                                                                                            | Billings in excess of revenues earned on contracts in progress                                                               |                                            |        
|                                                                                                                                                                                            | Deferred revenue                                                                                                             |                                            |        
|                                                                                                                                                                                            | Accrued compensation                                                                                                         |                                            |        
|                                                                                                                                                                                            | Accrued expenses and other current liabilities                                                                               |                                            |        
|                                                                                                                                                                                            | Restructuring accrual                                                                                                        |                                            |        
|                                                                                                                                                                                            | Current portion of capital lease obligations                                                                                 |                                            |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total current liabilities                  |        
|Capital lease obligations, less current portion                                                                                                                                             |                                                                                                                              |                                            |       
|Restructuring, long term                                                                                                                                                                    |                                                                                                                              |                                            | 79     
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total liabilities                          |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|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; 8,390,432 and 8,121,850 shares issued; 8,361,368 and 8,092,786 shares outstanding at December 31, 2003 and 2002, respectively |                                                                                                                              |                                            | 8      
|Additional paid-in capital                                                                                                                                                                  |                                                                                                                              |                                            | 62,498 
|Accumulated other comprehensive income                                                                                                                                                      |                                                                                                                              |                                            | 136    
|Deferred compensation                                                                                                                                                                       |                                                                                                                              |                                            | (21    
|Treasury stock, at cost29,064 shares                                                                                                                                                       |                                                                                                                              |                                            | (117   
|Accumulated deficit                                                                                                                                                                         |                                                                                                                              |                                            | (51,455
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total shareholders' equity                 |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        
|                                                                                                                                                                                            |                                                                                                                              | Total liabilities and shareholders' equity |        
|                                                                                                                                                                                            |                                                                                                                              |                                            |        

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

F-3

---

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

|                                                             |                                                                                                                                                              | Year ended December 31,               |               
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------- | --------------
|
|Revenues:                                                    |                                                                                                                                                              |                                       |               
|                                                             | Product                                                                                                                                                      |                                       |               
|                                                             |                                                                                                                                                              | Product license                       |               
|                                                             |                                                                                                                                                              | Subscription                          |               
|                                                             |                                                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              |                                       | Total product 
|                                                             |                                                                                                                                                              |                                       |               
|                                                             | Service                                                                                                                                                      |                                       |               
|                                                             |                                                                                                                                                              | Maintenance and hosting               |               
|                                                             |                                                                                                                                                              | Consulting and implementation service |               
|                                                             |                                                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              |                                       | Total service 
|                                                             |                                                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              |                                       | Total revenues
|Cost of revenues:                                            |                                                                                                                                                              |                                       |               
|                                                             | Product license                                                                                                                                              |                                       |               
|                                                             | Service (exclusive of $7, $70, and $57 for 2003, 2002, and 2001, respectively, reported below as amortization of stock-based compensation)                   |                                       |               
|                                                             |                                                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              | Total cost of revenues                |               
|                                                             |                                                                                                                                                              |                                       |               
|Gross profit                                                 |                                                                                                                                                              |                                       | 9,473         
|Operating expenses:                                          |                                                                                                                                                              |                                       |               
|                                                             | Sales and marketing (exclusive of $49, $104 and $1,811 for 2003, 2002, and 2001, respectively, reported below as amortization of stock-based compensation)   |                                       |               
|                                                             | Research and development (exclusive of $2, $8 and $18 for 2003, 2002, and 2001, respectively, reported below as amortization of stock-based compensation)    |                                       |               
|                                                             | General and administrative (exclusive of $0, $54 and $238 for 2003, 2002 and 2001, respectively, reported below as amortization of stock-based compensation) |                                       |               
|                                                             | Amortization of stock-based compensation                                                                                                                     |                                       |               
|                                                             | Amortization of intangible assets                                                                                                                            |                                       |               
|                                                             | Restructuring and other charges                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              |                                       |               
|                                                             |                                                                                                                                                              | Total operating expenses              |               
|                                                             |                                                                                                                                                              |                                       |               
|Operating loss                                               |                                                                                                                                                              |                                       | (3,992        
|                                                             |                                                                                                                                                              |                                       |               
|Interest income                                              |                                                                                                                                                              |                                       | 303           
|Interest expense                                             |                                                                                                                                                              |                                       | (15           
|Other income (expense), net                                  |                                                                                                                                                              |                                       | 53            
|                                                             |                                                                                                                                                              |                                       |               
|Other income, net                                            |                                                                                                                                                              |                                       | 341           
|                                                             |                                                                                                                                                              |                                       |               
|Loss before income taxes                                     |                                                                                                                                                              |                                       | (3,651        
|Income tax expense                                           |                                                                                                                                                              |                                       |              
|                                                             |                                                                                                                                                              |                                       |               
|Net loss                                                     |                                                                                                                                                              |                                       | (3,651        
|Basic and diluted loss per common share                      |                                                                                                                                                              | $                                     | (0.45         
|                                                             |                                                                                                                                                              |                                       |               
|Weighted average common shares outstandingbasic and diluted |                                                                                                                                                              |                                       | 8,163,223     
|Comprehensive loss:                                          |                                                                                                                                                              |                                       |               
|                                                             | Net loss                                                                                                                                                     |                                       | $             
|                                                             | Foreign currency translation adjustment                                                                                                                      |                                       |               
|                                                             |                                                                                                                                                              |                                       |               
|                                                             | Comprehensive loss                                                                                                                                           |                                       | $             
|                                                             |                                                                                                                                                              |                                       |               

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

F-4

---



CLICK COMMERCE, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        (Dollars in thousands)

|                                                        |  | Common Stock |   |   |   |  |   |         |   |   |     |   |   |        |  
|------------------------------------------------------- |  | ------------ | - | - | - |  | - | ------- | - | - | --- | - | - | ------ | -
|
|
|Balance at December 31, 2000                            |  | 7,647,183    |   | $ | 8 |  | $ | 83,990  |   | $ | 119 |   | $ | (6,827 | )
|Amortization of deferred stock compensation             |  |             |   |   |  |  |   |        |   |   |    |   |   | 2,124  |  
|Amortization of deferred board compensation             |  |             |   |   |  |  |   | 405     |   |   |    |   |   |       |  
|Issuance of common stock related to board compensation  |  | 838          |   |   |  |  |   | 50      |   |   |    |   |   |       |  
|Deferred compensation related to cancelled options      |  |             |   |   |  |  |   | (666    | ) |   |    |   |   | 964    |  
|Issuance of common stock upon exercise of stock options |  | 400,284      |   |   |  |  |   | 1,739   |   |   |    |   |   |       |  
|Foreign currency translation adjustment                 |  |             |   |   |  |  |   |        |   |   | 6   |   |   |       |  
|Net loss                                                |  |             |   |   |  |  |   |        |   |   |    |   |   |       |  
|                                                        |  |              |   |   |   |  |   |         |   |   |     |   |   |        |  
|Balance at December 31, 2001                            |  | 8,048,305    |   |   | 8 |  |   | 85,518  |   |   | 125 |   |   | (3,739 | )
|Amortization of deferred stock compensation             |  |             |   |   |  |  |   |        |   |   |    |   |   | 236    |  
|Amortization of deferred board compensation             |  |             |   |   |  |  |   | 239     |   |   |    |   |   |       |  
|Issuance of common stock related to board compensation  |  | 6,411        |   |   |  |  |   | 25      |   |   |    |   |   | (25    | )
|Deferred compensation related to cancelled options      |  |             |   |   |  |  |   | (313    | ) |   |    |   |   | 313    |  
|Write-off of cancelled warrant                          |  |             |   |   |  |  |   | (2,969  | ) |   |    |   |   | 2,969  |  
|Issuance of common stock upon exercise of stock options |  | 67,171       |   |   |  |  |   | 32      |   |   |    |   |   |       |  
|Treasury stock                                          |  | (29,064      | ) |   |  |  |   |        |   |   |    |   |   |       |  
|Common shares retired                                   |  | (37          | ) |   |  |  |   |        |   |   |    |   |   |       |  
|Foreign currency translation adjustment                 |  |             |   |   |  |  |   |        |   |   | 23  |   |   |       |  
|Net loss                                                |  |             |   |   |  |  |   |        |   |   |    |   |   |       |  
|                                                        |  |              |   |   |   |  |   |         |   |   |     |   |   |        |  
|Balance at December 31, 2002                            |  | 8,092,786    |   |   | 8 |  |   | 82,532  |   |   | 148 |   |   | (246   | )
|                                                        |  |              |   |   |   |  |   |         |   |   |     |   |   |        |  
|Amortization of deferred stock compensation             |  |             |   |   |  |  |   |        |   |   |    |   |   | 58     |  
|Deferred compensation related to cancelled options      |  |             |   |   |  |  |   | (167    | ) |   |    |   |   | 167    |  
|Issuance of common stock related to board compensation  |  | 15,951       |   |   |  |  |   |        |   |   |    |   |   |       |  
|Issuance of common stock upon exercise of stock options |  | 252,631      |   |   |  |  |   | 475     |   |   |    |   |   |       |  
|Payment of dividends                                    |  |             |   |   |  |  |   | (20,342 | ) |   |    |   |   |       |  
|Foreign currency translation adjustment                 |  |             |   |   |  |  |   |        |   |   | (12 | ) |   |       |  
|Net loss                                                |  |             |   |   |  |  |   |        |   |   |    |   |   |       |  
|                                                        |  |              |   |   |   |  |   |         |   |   |     |   |   |        |  
|Balance at December 31, 2003                            |  | 8,361,368    |   | $ | 8 |  | $ | 62,498  |   | $ | 136 |   | $ | (21    | )
|                                                        |  |              |   |   |   |  |   |         |   |   |     |   |   |        |  

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

F-5

---



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

|                                                              |                                                                             | Year ended December 31,                                                    |                                                               
|------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------------------
|
|Cash flows from operating activities:                         |                                                                             |                                                                            |                                                               
|                                                              | Net loss                                                                    |                                                                            | $                                                             
|                                                              | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                            |                                                               
|                                                              |                                                                             | Amortization of stock-based compensation                                   |                                                               
|                                                              |                                                                             | Depreciation and amortization                                              |                                                               
|                                                              |                                                                             | Provision for doubtful accounts                                            |                                                               
|                                                              |                                                                             | Deferred income taxes                                                      |                                                               
|                                                              |                                                                             | Amortization of deferred compensation                                      |                                                               
|                                                              |                                                                             | Restructuring and other charges, net of payments                           |                                                               
|                                                              |                                                                             | Changes in operating assets and liabilities, net of effect of acquisition: |                                                               
|                                                              |                                                                             |                                                                            | Trade accounts receivable                                     
|                                                              |                                                                             |                                                                            | Revenue earned on contracts in progress in excess of billings 
|                                                              |                                                                             |                                                                            | 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                
|                                                              |                                                                             |                                                                            | Income taxes receivable                                       
|                                                              |                                                                             |                                                                            | Other assets                                                  
|                                                              |                                                                             |                                                                            |                                                               
|                                                              |                                                                             |                                                                            |                                                               
|Cash flows from investing activities:                         |                                                                             |                                                                            |                                                               
|                                                              | Purchases of property and equipment                                         |                                                                            |                                                               
|                                                              | Acquisition of Allegis, net of deal costs                                   |                                                                            |                                                               
|                                                              | Purchase of other assets                                                    |                                                                            |                                                               
|                                                              | Redemptions (purchases) of short-term investments, net                      |                                                                            |                                                               
|                                                              |                                                                             |                                                                            |                                                               
|                                                              |                                                                             |                                                                            |                                                               
|Cash flows from financing activities:                         |                                                                             |                                                                            |                                                               
|                                                              | Proceeds from exercise of stock options                                     |                                                                            |                                                               
|                                                              | Payment of special dividend                                                 |                                                                            |                                                               
|                                                              | Purchase of treasury stock                                                  |                                                                            |                                                               
|                                                              | Principal payments under capital lease obligations                          |                                                                            |                                                               
|                                                              |                                                                             |                                                                            |                                                               
|                                                              |                                                                             |                                                                            |                                                               
|Effect of foreign exchange rates on cash and cash equivalents |                                                                             |                                                                            | (12                                                           
|                                                              |                                                                             |                                                                            |                                                               
|Net decrease in cash and cash equivalents                     |                                                                             |                                                                            | (11,783                                                       
|Cash and cash equivalents at beginning of year                |                                                                             |                                                                            | 23,646                                                        
|                                                              |                                                                             |                                                                            |                                                               
|Cash and cash equivalents at end of year                      |                                                                             | $                                                                          | 11,863                                                        
|                                                              |                                                                             |                                                                            |                                                               
|Supplemental disclosures:                                     |                                                                             |                                                                            |                                                               
|                                                              | Property and equipment acquired under capital leases                        |                                                                            | $                                                             
|                                                              | Interest paid                                                               |                                                                            |                                                               
|                                                              | Income taxes paid                                                           |                                                                            |                                                               

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

F-6

---



CLICK COMMERCE, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Description of Business

Click Commerce, Inc. (the "Company") is based in Chicago, Illinois and is a provider of sell-side ebusiness software solutions that connect
large, global manufacturing, high-technology and financial services companies with their channel partners. Click Commerce software products and supplemental integration, hosting and
business consulting services enable companies to effectively manage and engage in collaborative business-to-business interactions throughout their sell-side
channels and processes. The solutions offered by the Company use the Internet to enable communication between companies and all participants in the network or chain of distribution that have a
password and an Internet browser.

2.    Summary of Significant Accounting Policies



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

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



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



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 adjusted to market value.



Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated on a
straight-line basis over the estimated useful lives of the assets ranging from three to seven years. Leased equipment meeting certain criteria is capitalized, and the present value of the
related lease payments is recorded as a liability. Equipment held under capital leases is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated
useful life of the asset. Amounts expended for repairs and maintenance are charged to expense as incurred.



The Company reviews the carrying values of its long-lived assets for impairment whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. In assessing impairment, the Company determines whether the undiscounted future operating cash flows to be derived from the related asset over the remaining
life will be sufficient to recover the carrying value. In

F-7

---

the
event such cash flows are not expected to be sufficient to recover the carrying value of the asset, the impairment to be recognized is measured by the amount by which the carrying value exceeds
the discounted cash flows related to the asset.



The Company has invested $380,000 in a long-term investment fund. Under terms of the investment, the Company has a total commitment of
$2.0 million for a pro rata ownership interest of less than 1%. The investment is carried at cost which approximates fair market value.



The Company recognizes product license revenue from licensing the rights to use its software on a perpetual basis. Software licenses that are limited in duration
are recognized as subscriptions. The Company generates service revenues from integrating its software, performing needs analyses for customers and providing training services. Maintenance and hosting
revenues are generated under contracts that provide customers with maintenance, product support and hosting services.

The
Company's software is generally licensed on either a perpetual basis or through a subscription. Revenues related to arrangements with multiple elements are allocated to the
individual elements in accordance with EITF Issue No. 00-21 "Revenue Arrangements with Multiple Elements," ("EITF 00-21") based upon verifiable, objective evidence of
the fair values of each accounting unit. The Company recognizes software license and other related 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.

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

F-8

---

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 professional services, revenues are presented as service revenues.

When
hours of input are used as the basis for percentage completed, 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. 104,
"Revenue Recognition." The arrangement fee related to multi-element arrangements should be allocated to the individual elements in accordance with
EITF 00-21 based upon verifiable, objective evidence of the fair values of each accounting unit. The Company's arrangements with customers generally include several elements,
including (1) strategic consulting services, (2) set-up and software subscription
services, and (3) hosting services. Set-up and subscription services are presented as subscription revenues. If the arrangement includes consulting or hosting services, those
elements are presented as service and hosting revenue, respectively, based on the individual contracts. 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 revenue and expense 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 upon billing. The
Company also provides hosting services to its customers under separate contracts with terms that are typically 18 months. The Company recognizes hosting services revenues ratably over the
contract period, comprising a monthly hosting fee and amortization of a one-time initial hosting services set-up fee that is required at the beginning of a new hosting
contract. For software license sales with bundled maintenance and hosting services, the Company applies revenue recognition principles using the residual method. 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.

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

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.

F-9

---

Cost
of service revenue includes salaries and related expenses for professional services and technical support personnel who provide development, implementation and installation services
to customers, as well as an allocation of data processing and overhead costs. Service costs under contracts for which the related services are accounted for as separate accounting units under the
accounting rules are expensed as incurred. In situations where the services and software licenses cannot be accounted for as separate accounting units, services are recognized on the
percentage-of-completion basis along with the underlying software license. When services are provided for subscription
arrangements, the cost of such services are deferred and recognized ratably over the same period as the subscription revenues.



Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological
feasibility of computer software products to be licensed or otherwise marketed, are classified as research and development costs, and are expensed as incurred. Once technological feasibility has been
determined, costs incurred in the construction phase of software development, including coding, testing, and product quality assurance, are capitalized. To date, the period between technological
feasibility and general availability has been short and costs qualifying for capitalization have been insignificant. Accordingly, no software development costs have been capitalized to date.

Costs
associated with software developed or obtained for internal use are capitalized and amortized over the useful life of the software.



The Company calculates basic earnings per share based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is
calculated based on the weighted average number of common shares outstanding and the dilutive effect of stock options and other common stock equivalents using the treasury stock method. Potentially
dilutive securities are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.

Potentially
dilutive stock options and deferred stock related to directors compensation arrangements that were excluded from the loss per share calculation for the years ended
December 31, 2003, 2002 and 2001 related to 149,576, 431,371 and 976,445 shares of common stock, respectively. For the years ended December 31, 2002 and 2001, a warrant for
163,645 shares of common stock was also excluded from the calculation of diluted loss per share. In the fourth quarter of 2002, the Company reached an agreement to cancel the warrant.



Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment

F-10

---

date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more likely than not be realized.



The reported amounts of the Company's financial instruments, which include cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued compensation, accrued expenses, and other current liabilities approximate their fair values due to the contractual maturities and short-term nature of these instruments.



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:

2003

2002

2001Expected life, in years

4.0

4.25

4.0Expected volatility

171
%
99
%
92
%Risk-free interest rate

3.0
%
2.7
%
4.2
%Dividend yield

0.0
%
0.0
%
0.0
%


The
Company has applied APB 25 and related interpretations in accounting for its stock options issued under the Amended and Restated Click Commerce Stock Option and Stock Award Plan and
the Amended and Restated Directors' Stock Option and Stock Award 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

F-11

---

No. 123,
the Company's net loss and net loss per common share for 2003, 2002 and 2001 would approximate the pro forma amounts below:

2003

2002

2001(in thousands,
except per share amounts)Net loss, as reported

$
(3,651
)
$
(10,330
)
$
(16,800
)Stock-based employee compensation expense included in the determination of net loss as reported, net of related tax effects


58


319


888Total fair value method employee stock-based compensation expense, net of related tax effects


(1,213
)

(3,940
)

(7,601
)Pro forma net loss

$
(4,806
)
$
(13,951
)
$
(23,513
)Basic and diluted loss per share:As reported

$
(0.45
)
$
(1.28
)
$
(2.15
)Pro forma

$
(0.59
)
$
(1.73
)
$
(3.01
)




The Company operates in a single segment and makes enterprise-wide disclosures as applicable.



The Company translates assets and liabilities of non-U.S. functional currency subsidiaries into dollars at the current rates of exchange in effect at
the end of each period. Revenues and expenses are translated using average rates in effect during the period. Gains and losses from translation adjustments are included in shareholders' equity under
the caption "Accumulated other comprehensive income." Currency transaction gains or losses derived on monetary assets and liabilities stated in currency other than the functional currency are
recognized in current operations and have not been significant to the Company's operating results.



The Company expenses all advertising costs as they are incurred. The Company incurred $0, $0 and $11,000 in advertising expense for the years ended
December 31, 2003, 2002 and 2001, respectively.

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 the aggregate amount of
approximately $10,200. The Company funded the acquisition

F-12

---

using
available cash on hand. The acquisition of Allegis was 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. In addition to the $10,200
purchase price, the Company incurred $135,000 of direct expenses related to closing the Allegis acquisition. The opening balances reflecting all purchase price adjustments are presented below.

At December 31, 2003(in thousands)Current assets

$
3,024Property and equipment


393Intangible assets


466Other assets


274Total assets acquired


4,157Current liabilities


3,908Long-term liabilities


104Total liabilities assumed


4,012Net assets acquired


145


The
following unaudited pro forma financial information for the years ended December 31, 2003, 2002 and 2001 presents the consolidated operations of the Company as if the Allegis
acquisition had been made on January 1, 2001, after giving effect to certain pro forma adjustments as of the acquisition date. Under the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets"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 does not project the
Company's results of operations for any future period:

Year Ended December 31,2003

2002(in thousands, except per share data)Revenues

$
20,182

$
29,574Net loss


(6,410
)

(21,604
)Basic and diluted net loss per share


(0.77
)

(2.68
)


Intangible
assets recorded as a result of the Allegis acquisition total $466,080 and are amortized over an average of 36 months.

F-13

---

4.    Concentrations of Credit Risk

During the year ended December 31, 2003, one customer accounted for 19%, of the Company's total revenue. During the year ended December 31, 2002,
two customers accounted for 16% and 10%, respectively, of the Company's total revenue. During the year ended December 31, 2001, two customers accounted for an aggregate of 24% of the Company's
total revenue, each representing approximately 12%.

As
of December 31, 2003, two customers accounted for 18% and 10%, respectively, of the Company's gross trade accounts receivable. As of December 31, 2002, two customers
accounted for 26% and 12%, respectively, of the Company's gross trade accounts receivable.

5.    Property and Equipment

Property and equipment is comprised of the following:

December 31,2003

2002(in thousands)Equipment, furniture and fixtures

$
919

$
1,553Leased equipment


1,757


1,779Computer software


719


1,602Leasehold improvements


109


1543,504


5,088Less accumulated depreciation and amortization


(2,639
)

(2,755
)Net property and equipment

$
865

$
2,333


Accumulated
amortization related to capitalized leased equipment was $1,732,000 and $1,269,000 as of December 31, 2003 and 2002, respectively.

6.    Restructuring

In the quarter ended June 30, 2003, the Company continued to execute its restructuring plan following the acquisition of the Allegis acquisition. As part
of this plan, certain redundant costs were eliminated. These actions resulted in the termination of approximately 15 employees primarily across the professional services, support and research and
development departments. All of these employees were terminated within the second quarter. The Company also consolidated office space and included an additional restructuring charge for the remaining
lease payments on the Company's excess office space located in Chicago and Boston. The restructuring costs of $2,356,000 recorded during the first six months of 2003 are detailed below. In the third
quarter of 2003, the Company reached a settlement with the landlord for its vacant office space in Chicago that resulted from its consolidation efforts in the second quarter. This agreement resulted
in the cancellation of the Company's original lease obligation in exchange for a $900,000 cash payment. As of June 30, 2003, the total cost of this lease was estimated at $1,865,000 and was
included in the restructuring charge and accrual recorded during the second quarter. Accordingly, the Company reversed $965,000 of the restructuring accrual in the quarter ended September 30,
2003 as a result of the lease settlement. This reversal amount was netted against restructuring and other charges in the statement of operations for the year ended December 31, 2003.

F-14

---

As
of December 31, 2003, the majority of the Company's restructuring accrual related to remaining lease commitments on excess office space. Due to extended payment terms under
these lease agreements, payments against the restructuring charge will be made through the quarter ending December 31, 2005. The following table contains the significant components of the
restructuring charge and current year-to-date activity relating to those components.

|                                               |       | Accrual at
December 31,
2002 |     | Additional
restructuring
charges in 2003 |   | Adjustment to
previous
accrual |       | 2003 cash
payments |      | Balance at
December 31,
2003
|---------------------------------------------- | ----- | ---------------------------- | --- | ---------------------------------------- | - | ------------------------------ | ----- | ------------------ | ---- | ----------------------------
|
|Employee severance, benefits and related costs |       | $                            | 252 |                                          | $ | 182                            |       | $                  |     |                             
|Facilities related costs                       |       |                              |    |                                          |   | 2,144                          |       |                    | (965 | )                           
|Legal costs and other                          |       |                              | 30  |                                          |   | 30                             |       |                    |     |                             
|                                               |       |                              |     |                                          |   |                                |       |                    |      |                             
|                                               | Total |                              | $   | 282                                      |   | $                              | 2,356 |                    | $    | (965                        
|                                               |       |                              |     |                                          |   |                                |       |                    |      |                             

In
the quarter ended June 30, 2002, the Company determined that its cost structure exceeded the level required by the Company's current near-term revenue
opportunities. The Company continued to experience longer sales cycles and higher executive level review and approval processes on 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 a restructuring charge of
approximately $821,000. 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 represent the remaining lease
payments for closing four regional offices. During the second quarter of 2002, the Company also adjusted the restructuring accrual for items that were recorded as part of the restructuring charge
taken in the third quarter of 2001 in the amount of $59,000, primarily for excess subcontractor notice-of-termination costs and employee benefit costs.

In
the quarter ended September 30, 2001, the Company determined that, given then current economic conditions, it was necessary to lower its overall cost structure. The Company had
been experiencing longer sales cycles, delayed purchasing decisions and higher executive level review of all capital projects, particularly on technology and e-commerce projects. These
factors, along with the effects of the events of September 11, 2001, caused the Company to re-evaluate its near-term growth opportunities and align its cost structure
accordingly. As a result, the Company developed a restructuring plan to reduce the Company's cost structure, which resulted in the Company recording a $1,827,000 restructuring charge. As part of the
restructuring, the Company terminated approximately 17% of its workforce or approximately 50 personnel across all areas of the Company.

|                                               |       | Accrual at
December 31,
2001 |     | Additional
restructuring
charges in 2002 |   | Adjustment to
previous
accrual |     | 2002 cash
payments |     | Balance at
December 31,
2002
|---------------------------------------------- | ----- | ---------------------------- | --- | ---------------------------------------- | - | ------------------------------ | --- | ------------------ | --- | ----------------------------
|
|Employee severance, benefits and related costs |       | $                            | 849 |                                          | $ | 720                            |     | $                  | (59 | )                           
|Facilities related costs                       |       |                              | 41  |                                          |   | 42                             |     |                    |    |                             
|Legal costs and other                          |       |                              | 60  |                                          |   | 59                             |     |                    |    |                             
|                                               |       |                              |     |                                          |   |                                |     |                    |     |                             
|                                               | Total |                              | $   | 950                                      |   | $                              | 821 |                    | $   | (59                         
|                                               |       |                              |     |                                          |   |                                |     |                    |     |                             

F-15

---

The
employee severance and related costs were attributable to personnel who were involuntarily terminated at September 30, 2001, June 30, 2002 and June 30, 2003.
Included in the September 30, 2001 employee severance costs was a stock-based, non-cash compensation charge of approximately $298,000, which was related to accelerated vesting under
contracts with certain terminated employees.

7.    Impairment of Assets

In conjunction with its review of redundant cost structures, the Company also recorded a $1,586,000 asset impairment charge during the quarter ended
June 30, 2003. This charge related to leasehold improvements associated with the excess office space, a redundant computer system and excess equipment totaling $1,004,000 and the
write-off of certain third party licenses related to products that had no projected sales and no plans for further development in the amount of $582,000. The Company also recorded a
recovery of $18,000 related to previously impaired assets. This recovery
was netted against restructuring and other charges in the statement of operations for the year ended December 31, 2003.

In
conjunction with the restructuring that occurred in the second quarter of 2002, the Company recorded an asset impairment charge of $451,000. The write-down of assets,
primarily computer equipment under capital leases, was a direct result of staffing reductions. The fair value of this equipment was deemed to be $0. The Company had no foreseeable use for the assets.
The Company was required to either return or purchase the equipment at the then fair market value at the end of the lease term. 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 would be sufficient to recover the carrying value of the related assets. The Company concluded 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 expectation of no future sales and no further plans to develop this product line. Accordingly, the Company recorded an
impairment charge of $1,043,000, which is classified as "Restructuring and Other Charges" in the accompanying statement of operations.

8.    Lease Commitments

The Company is obligated as lessee under certain noncancelable operating leases for equipment, cars and office space, and is also obligated to pay insurance,
maintenance and other executory costs associated with the leases. Rent expense, net of sublease rental income, was $651,000, $1,315,000 and $1,863,000 for the years ended December 31, 2003,
2002 and 2001, respectively. Future minimum

F-16

---

payments
under noncancelable lease obligations with initial or remaining terms in excess of one year are as follows as of December 31, 2003, net of estimated sublease rental income:

Operating leases

Capital leases(in thousands)2004

$
467

$
702005


422


2006


200


2007


186


2008


188


Thereafter


257


Total minimum lease payments

$
1,720


70Less amount representing interest





(1
)Subtotal





69Less current portion of capital lease obligations





69Capital lease obligations, less current portion




$



9.    Income Taxes

Income tax expense consists of:

Current

Deferred

Total(in thousands)Year ended December 31, 2003:U.S. Federal

$


$


$
State








Year ended December 31, 2002:U.S. Federal

$


$


$
State








Year ended December 31, 2001:U.S. Federal

$


$
3,050

$
3,050State





442


442


F-17

---

The
income tax expense (benefit) differs from the amounts computed by applying the U.S. Federal income tax rate of 34% to the loss before income taxes as a result of the following:

2003

2002

2001U.S. Federal statutory rate (benefit)

(34.0
)%
(34.0
)%
(34.0
)%State income taxes, net of Federal income tax

(4.2
)
(2.5
)
(3.5
)Non-deductible expenses

2.0

1.5

1.1Stock option compensation

(0.8
)
5.6

1.3Cancellation of warrants



6.5

Increase in valuation allowance

37.1

23.7

64.2Other

(0.1
)
(0.8
)
(2.9
)0
%
0
%
26.2
%


The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2003 and 2002 are presented below:

2003

2002(in thousands)Deferred tax assets:Accounts receivable

$
126

$
68Accrued compensation expense


269


151Net operating loss


10,568


10,026Depreciation


33


20Restructuring reserve


565


Other


833


722Gross deferred tax assets


12,394


10,987Valuation allowance


(12,394
)

(10,987
)Net deferred tax assets

$


$



At
December 31, 2003, the Company had gross net operating losses of approximately $27.7 million, which begin to expire in 2020. At December 31, 2003, the Company had
research and experimentation credits of approximately $337,000, which are available to offset taxable income after application of available net operating loss carryforwards through 2020.

In
assessing the realizablility of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Prior to 2001, management believed that it was more likely
than not that the Company would realize the benefits of its deferred tax assets and, therefore, a valuation allowance was not established. Although future taxable income of the Company may be
sufficient to utilize a substantial amount of the benefits of the Company's net operating loss carryforwards and to realize its deferred tax assets, a valuation allowance was recorded in 2001 to
completely offset the carrying value of the deferred tax assets as management had concluded that the realization of the deferred tax assets

F-18

---

did
not meet the "more likely than not" criteria under SFAS No. 109. The Company recorded an additional valuation allowance of $1,407,000 in 2003 and $2,449,000 in 2002. The Company's tax
valuation allowance was $12,394,000 and $10,987,000 at December 31, 2003 and 2002, respectively.

10.    Shareholders' Equity



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. Unless otherwise noted, all share and per share amounts in the accompanying 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.



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 Emerging Issues Task
Force Issue No. 96-18, resulting in a fair value of approximately $5,000,000. The fair value of the warrant was determined using the Black-Scholes option-pricing model, assuming a
risk free interest rate of 6.0%, a volatility factor of 1.00 and an estimated fair value at the time of grant of $45.00 per common share. This amount is included in additional paid-in
capital and has been amortized to expense over the original vesting period of the warrants. In the fourth quarter of 2002, the Company reached an agreement with Accenture to cancel the warrant. Under
this agreement, Accenture relinquished its rights under the warrant in exchange for the Company accepting an accelerated payment of a reduced penalty related to the level of revenue delivered through
the Accenture relationship and relinquishing its rights under the warrant. The reduced penalty was received by the Company and is reported in its 2002 financial statements as Other Income. Upon
cancellation of the warrant, the Company adjusted the cumulative amortization expense to reflect only the percentage of the original fair value of the warrant that was vested on the date of
cancellation, resulting in a reversal of the previously recognized amortization of stock-based compensation expense of approximately $1,010,000 in the fourth quarter of 2002. For the year ended
December 31, 2002, the Company recognized $83,000 in net amortization recovery related to the warrant.



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 was paid on June 4, 2003 to stockholders of record as of May 20, 2003. As of May 20, 2003, the Company had
8,136,643 shares of common stock outstanding, which resulted in a total Special Dividend payment of approximately $20,342,000.

F-19

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11.    Employee and Director Stock Option and Stock Award Plans

In October 1998, the Company's Board of Directors adopted the Click Commerce, Inc. Stock Option and Stock Award Plan ("the Employee Plan"), pursuant
to which the Board may grant stock options and stock appreciation rights to officers and key employees. The Employee Plan originally authorized grants of options to purchase up to
899,502 shares of authorized common stock. On February 14, 2000, the Board of Directors approved an amendment to the Employee Plan, which increased the number of options available for
grant to 986,168. Pursuant to the Employee Plan, which allows for an adjustment of the number of options available for grant upon changes in capitalization, the number of options authorized for grant
was subsequently increased to 1,556,169 in contemplation of the Company's IPO.
Stock options are granted at an exercise price equal to the stock's fair value at the date of grant. All stock options have ten-year terms and generally vest over three to five years from
the date of grant. At December 31, 2003, there were 287,381 shares reserved for grant under the Employee Plan. Stock options outstanding as of December 31, 2003 include options to
purchase up to 679,308 shares of common stock, which have been granted to individuals under option agreements from the Employee Plan.

The
Company's Directors' Stock Option and Stock Award Plan (the "Directors' Plan") provides for the grant of non-qualified stock options and stock awards to
non-employee directors. The Directors' Plan provides for the issuance of up to 600,000 shares of common stock. Beginning in 2000 and for each subsequent year,
non-employee directors are automatically granted an option to purchase 10,000 shares of the Company's common stock on the date of each annual shareholders' meeting. Stock options
are granted at an exercise price equal to the stock's fair value at the date of grant. All stock options have ten-year terms and generally vest six months from the date of grant. At
December 31, 2003, there were 443,825 shares reserved for future issuance of common stock. Stock options outstanding and deferred shares of common stock at December 31, 2003 total
to 313,258 shares of common stock. Non-employee directors of the Company may also receive an automatic grant each year of shares of the Company's common stock equal in value to
$25,000 based on the fair market value of the common stock on the date of grant. A non-employee director who serves as the chairperson of the Audit Committee will also receive an
additional automatic grant each year of shares of the Company's common stock equal in value to $10,000, based on the fair market value of the common stock on the date of the grant.
Non-employee directors who serve as the chairperson of the Compensation Committee and the Governance Committee each receive an additional automatic grant each year of shares of the
Company's common stock equal in value to $5,000, based on the fair market value of the common stock on the date of the grant. In 2003, these amounts were paid in cash instead of stock. Directors have
the ability to defer the receipt of stock until the earlier of the date that they rescind their deferral or the end of their service on the Company's Board of Directors.

F-20

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Stock
option transactions are summarized as follows:

|                                                                         |  | December 31,
|------------------------------------------------------------------------ |  | ------------
|
|
|Outstanding at beginning of year                                         |  |             
|Granted                                                                  |  |             
|Exercised                                                                |  |             
|Cancelled                                                                |  |             
|                                                                         |  |             
|Outstanding at end of year                                               |  |             
|                                                                         |  |             
|Options exercisable at end of year                                       |  |             
|                                                                         |  |             
|Weighted average per share fair value of options granted during the year |  | $           
|                                                                         |  |             

|                        |  | Options Outstanding |  | Options Exercisable
|----------------------- |  | ------------------- |  | -------------------
|
|$    0.000 - $    3.000 |  | 651,988             |  | 9.4 Years          
|$    3.001 - $  10.000  |  | 60,401              |  | 8.4                
|$  10.001 - $  25.000   |  | 9,501               |  | 8.0                
|$  25.001 - $  50.000   |  | 47,710              |  | 6.7                
|$  50.001 - $  75.000   |  | 27,066              |  | 7.1                
|$  75.001 - $100.000    |  | 1,000               |  | 7.1                
|$100.001 - $125.000     |  | 7,900               |  | 7.0                
|$125.001 - $150.000     |  | 2,500               |  | 6.6                
|$150.001 - $175.000     |  | 2,500               |  | 7.1                
|                        |  |                     |  |                    
|                        |  | 810,566             |  |                    
|                        |  |                     |  |                    

12.    Credit Facility

As part of the Allegis acquisition, the Company assumed a letter of credit securing an office space lease 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 approximately $821,000 in connection with an insurance
premium finance agreement. The letter of credit declines on a monthly basis, beginning in November 2003, until it expires on September 24, 2004. As of December 31, 2003, the
obligations related to the letter of credit were $494,000. These letters of credit were previously secured by the 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

F-21

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maintained
in a separate account held by the respective financial institutions, of which $170,000 is considered restricted.

13.    Retirement Savings Plan

The Company's employees participate in the Administaff of Texas, Inc. 401(k) plan (the "401(k) Plan") that covers substantially all employees. The 401(k)
Plan provides for discretionary contributions by the Company based on a percentage of participant compensation, subject to limitations imposed by applicable government regulations. Amounts contributed
to the 401(k) Plan by the Company in 2003, 2002 and 2001 were $0, $208,000 and $245,000, respectively.

14.    Related-party Transactions

Michael W. Ferro, Jr., the Company's founder and chief executive officer, is also the founder, a director and majority shareholder of
WarrantyCheck.com, Inc. ("WarrantyCheck"). During 2003, 2002 and 2001, the Company also incurred third party contractor costs to Warranty Check of $100,000, $415,000 and $657,000, respectively.
In 2001, the Company purchased $50,000, in computers and equipment from WarrantyCheck.

An
individual who was the corporate secretary through May 2, 2003 and a shareholder of the Company is associated with law firms that have rendered various legal services to the
Company. For the years ended December 31, 2003, 2002 and 2001, the Company incurred legal expenses with those firms of approximately $192,000, $237,000 and $284,000, respectively, during the
period the individual served as
a corporate secretary. During 2001, the Company also granted 3,000 options to this individual for non-legal services as the corporate secretary. The options were priced at $30.20, which
was the fair value of the Company's stock on the date of grant, and became fully vested by December 31, 2001.

During
2002, the Company entered into a software license purchase agreement with a customer whose Chairman and Chief Executive Officer also serves as a director of the Company. Revenues
earned by the Company for software and implementation services totaled $474,000 in 2002. In 2003, the Company entered into a sublease with the customer for a fractional share of a sporting venue
skybox. Amounts paid in 2003 under this agreement totaled approximately $39,000.

During
2001, the Company incurred $239,000 in research advisory expenses from a company in which one of the Company's former directors serves as chairman emeritus of the board of
directors. This person did not serve as a director in 2002 or 2003.

During
2002 and 2001, the Company co-sponsored several seminars with a company in which one of the Company's former directors serves as president. For the years ended
December 31, 2002 and 2001, the Company incurred expenses of approximately $25,000 and $229,000, respectively, related to these seminars.

During
2001, the Company incurred $1,791,000 in expenses for consulting, sub-contracting and other services from a company in which one of the Company's former directors
serves as a global managing partner. This person's service as a director ended in May 2002.

During
2001, the Company agreed to provide one of its shareholders with an early partial release of the market standoff agreement the shareholder had entered into with the Company in
consideration

F-22

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for
the shareholder entering into a software license purchase agreement under which the shareholder made payments totaling $1,750,000 to the Company.

During
2001, the Company entered into a software reseller agreement with a company (the "reseller") pursuant to which the reseller purchased licenses from the Company in the aggregate
amount of $500,000. One of the Company's former directors is a managing director of a venture fund that beneficially owns, in the aggregate, approximately 11% of the capital stock of the reseller. In
addition, an individual who served as a director and officer of the Company held options to acquire shares of the reseller.

15.    Quarterly Results of Operations (Unaudited)

The following table sets forth the Company's unaudited quarterly operating results for the eight quarters ended December 31, 2003, as well as that data
expressed as a percentage of total revenue for each quarter. This information has been derived from the Company's condensed consolidated unaudited financial statements which have been prepared on the
same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of such information.
Historical quarterly operating results are not indicative of results to be achieved in succeeding quarters or years and should not be relied upon as an indication of future performance.

|                         |                                             | Three months ended |      
|------------------------ | ------------------------------------------- | ------------------ | -----
|
|
|Revenue                  |                                             | $                  | 5,145
|Cost of revenues(a)      |                                             |                    | 2,111
|                         |                                             |                    |      
|Gross profit             |                                             |                    | 3,034
|Operating expenses:      |                                             |                    |      
|                         | Sales and marketing(a)                      |                    |      
|                         | Research and development(a)                 |                    |      
|                         | General and administrative(a)               |                    |      
|                         | Amortization of stock-based
compensation    |                    |      
|                         | Amortization of intangible assets           |                    |      
|                         | Restructuring and other charges(recoveries) |                    |      
|                         |                                             |                    |      
|Total operating expenses |                                             |                    | 2,214
|                         |                                             |                    |      
|Operating income (loss)  |                                             |                    | 820  
|                         |                                             |                    |      
|Other income, net        |                                             |                    | 22   
|Net income (loss)        |                                             | $                  | 842  
|                         |                                             |                    |      

F-23

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|                         |                                              | Three months ended as a percentage of total revenue |     
|------------------------ | -------------------------------------------- | --------------------------------------------------- | ----
|
|
|Revenue                  |                                              | 100                                                 | %   
|Cost of revenue(a)       |                                              | 41.0                                                |     
|                         |                                              |                                                     |     
|Gross profit             |                                              | 59.0                                                |     
|Operating expenses:      |                                              |                                                     |     
|                         | Sales and marketing(a)                       |                                                     | 17.5
|                         | Research and development(a)                  |                                                     | 9.4 
|                         | General and administrative(a)                |                                                     | 15.2
|                         | Amortization of stock-based compensation     |                                                     | 0.1 
|                         | Amortization of intangible assets            |                                                     | 0.8 
|                         | Restructuring and other charges (recoveries) |                                                     |    
|                         |                                              |                                                     |     
|Total operating expenses |                                              | 43.0                                                |     
|                         |                                              |                                                     |     
|Operating income (loss)  |                                              | 16.0                                                |     
|                         |                                              |                                                     |     
|Other income, net        |                                              | 0.4                                                 |     
|Net income (loss)        |                                              | 16.4                                                | %   
|                         |                                              |                                                     |     

---

16.    Subsequent Event

On March 17, 2004, The Company entered into a definitive agreement to acquire the operating assets of Webridge, Inc. ("Webridge"), an extranet
portal software company based in Portland, Oregon. The Webridge operating assets will be acquired for approximately 600,000 shares of Company common stock subject to certain working capital
adjustments to be determined at the closing date of the transaction. The acquisition is expected to be completed by the end of April subject to a number of conditions, including approval of the
stockholders of Webridge, Inc., receipt of regulatory approval from the Oregon Division of Finance and Corporate Securities, and certain other customary conditions. Webridge offers configurable
web-based process and compliance automation and partner collaboration systems for the medical research and healthcare markets. The acquisition of Webridge will extend Click Commerce's
presence into the healthcare market and add content and compliance management to its product offering.

F-24

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INDEPENDENT AUDITORS' REPORT

The
Board of Directors and Shareholders
Click Commerce, Inc.:

Under
date of February 11, 2004 (except for Note 16, which is as of March 18, 2004), we reported on the consolidated balance sheets of Click Commerce, Inc. as
of December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial
statement Schedule II. This financial statement schedule is the responsibility of Click Commerce, Inc.'s management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

In
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

|                                    | /s/KPMG LLP
|----------------------------------- | -----------
|Chicago, Illinois
February 11, 2004 |            

F-25

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CLICK COMMERCE, INC.        SCHEDULE II        VALUATION AND QUALIFYING ACCOUNTS

|Allowance for Doubtful Accounts |  | Beginning Balance |     | Bad Debt Expense |     | Write-Offs |      | Ending Balance
|------------------------------- |  | ----------------- | --- | ---------------- | --- | ---------- | ---- | --------------
|
|Year ended December 31, 2003    |  | $                 | 175 |                  | 149 |            | (1   | )             
|Year ended December 31, 2002    |  | $                 | 136 |                  | 342 |            | (303 | )             
|Year ended December 31, 2001    |  | $                 | 118 |                  | 110 |            | (92  | )             

|Valuation Allowance for Deferred Tax Assets |  | Beginning Balance |        | Additions |       | Ending Balance
|------------------------------------------- |  | ----------------- | ------ | --------- | ----- | --------------
|
|Year ended December 31, 2003                |  | $                 | 10,987 |           | 1,407 |               
|Year ended December 31, 2002                |  | $                 | 8,538  |           | 2,449 |               
|Year ended December 31, 2001                |  | $                 |       |           | 8,538 |               

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